Red Flag: If Major Banks Default, U.S Gov To"Back Them", To Avoid Financial Meltdown

Discussion in 'Wall St. News' started by ByLoSellHi, Mar 4, 2007.

  1. I haven't seen statements this extreme in my lifetime. Moody's comes out with a statement saying they're upgrading the debt rating of JP Morgan, Bank of NY, and State Street, because the U.S. Government will bail them out in case of default because their default would take down the entire U.S. financial system.

    S&L Bailout x 100, anyone? LTCM x 1,000?

    Look for an insane week, yet again.

    JPMorgan Chase, Large U.S. Banks Have Ratings Raised by Moody's

    By Joseph N. DiStefano and Steven Bodzin

    http://www.bloomberg.com/apps/news?pid=20601087&sid=abohn9cD2fIw&refer=home

    March 3 (Bloomberg) --
    JPMorgan Chase & Co., Bank of New York Co. and State Street Bank & Trust Co. gained higher credit ratings from Moody's Investors Service Inc., which said the U.S. government would back the banks if they faced default.

    Moody's left New York-based Citigroup Inc. and San Francisco-based Wells Fargo & Co. unchanged because their financial strength ratings -- an element of their overall ratings -- already were at the top of the scale, the New York- based service said in a statement yesterday. Moody's raised Bank of America Corp.'s rating for reasons unrelated to federal aid.

    Moody's announced new guidelines for bank credit ratings last month that consider financial strength along with any support companies may get from government and financial institutions if they get into serious trouble. Such backing might be offered if regulators conclude the effects of a failure would be catastrophic for the nation's economy, a concept rooted in banks' financial woes in the 1980s.

    The changes affected ``only a few banks'' in the U.S. because the nation is a ``low'' support country, Moody's said. Each of Canada's six biggest banks, including Toronto-based Royal Bank of Canada, gained higher ratings earlier yesterday because of the new criteria.

    `Too Big to Fail'

    ``People already feel like they're too big to fail,'' said Jonathan Hatcher, senior research analyst for corporate bonds at Delaware Investments, which holds $98 billion in corporate bonds.

    Moody's gave JPMorgan, of New York, and State Street, of Boston, ratings of Aa2, a level higher than their prior Aa3. Bank of New York rose two notches to the highest rating, Aaa, from Aa2. A higher credit rating can lower a company's cost of raising money by signaling to lenders and investors that they face less risk.

    The ratings service gave JPMorgan a 98 percent chance of enjoying government support because of its work clearing government securities, its extensive derivative operations and its large deposit share. Moody's assigned Bank of New York a 95 percent chance because of government clearing work and State Street a 70 percent chance because it dominates U.S. mutual fund servicing. The service rated Citigroup at 98 percent and Wells Fargo at 70 percent.

    Rival credit rating firms including Standard & Poor's haven't adopted Moody's new criteria. Royal Bank of Scotland Group Plc, Dresdner Kleinwort and Societe Generale SA objected to the new system last month because it ranked Iceland's three biggest banks as better credits than ABN Amro Bank NV and ING Bank NV, citing the Icelandic government's statements in support of its banks.

    Moody's made the switch to make its ratings reflect reality, said Gary Bauer, Moody's managing director for banks in the Americas.

    `Interesting' Upgrades

    The new policy has the potential to produce ``really interesting'' upgrades in Japan, where government support helped banks stay solvent during the 1990s, Hatcher said.

    New Moody's ratings for banks in Japan, China, Australia, and other Pacific countries are due March 23. Ratings scheduled for March 9 include banks in France, Italy, Israel and Latin America.

    The company upgraded Bank of America to A from A- for financial strength, lifting its deposit and senior debt ratings to Aaa. The agency said that while the government was 95 percent likely to help the bank stay solvent, its financial position gave it the highest rating without considering government aid.
     
  2. nkhoi

    nkhoi Moderator

    it is given, extra credit rating go to the banks which belong to the PPT.
     
  3. And the PPT will be reaching into our pockets, nk.

    Don't you wish we could leverage bad debt and shift the consequences onto the government (i.e. taxpayers)?

    I'd go hog wild on margin the likes of which the world has never seen.


    Such backing might be offered if regulators conclude the effects of a failure would be catastrophic for the nation's economy, a concept rooted in banks' financial woes in the 1980s.

    ...

    The ratings service gave JPMorgan a 98 percent chance of enjoying government support because of its work clearing government securities, its extensive derivative operations and its large deposit share. Moody's assigned Bank of New York a 95 percent chance because of government clearing work and State Street a 70 percent chance because it dominates U.S. mutual fund servicing. The service rated Citigroup at 98 percent and Wells Fargo at 70 percent.
     
  4. why don't we just nationalize the banks then. Pay all these wall street douche bags government salaries, like mail men. If my tax dollars are going to bail out some people making $30 million a year, I am going to be very pissed. Open your eyes America.
     
  5. nkhoi

    nkhoi Moderator

    http://www.gold-eagle.com/editorials_05/mchugh020207.html

    does 099N ring the bell? ask yourself when and where fresh money show up, (hint: it is in gov't daily report) and with that hugemongo amount of cash, which stocks can absorb it without busting a vein, which index can be easily raise, what time to maximize the buying impact etc...
     
  6. Excellent Commentary All......................................

    For those of you who remember the governments role in the S&L fiasco in the USA...whereby the S&L industry became insolvent...A gentleman named Bill Seidman spearheaded a massive bailout plan...which indeed worked...and was moreless facilitated by playing with short term versus intermediate interest rates....

    http://www.time.com/time/magazine/article/0,9171,972187-2,00.html

    The point is that the US is a long long way from a 13-15% government debt world ...such as is Brazil, Iceland, Turkey...

    and would thereby probably use a similar approach as was utilized in the Seidman case..
    ..............................................................................................

    Basically the US has orchestrated a catch 22 interest rate currency game whose glue is ...the desired continued well being of the non US world economies....Thus it will be the taxing power of all the world's economies...bailing out the US banking problems...albeit somewhat of an indirect approach...
     
  7. "The point is that the US is a long long way from a 13-15% government debt world."

    that's true, but the US has been there before and will undoubtedly see that again. Standard and Poors projects the US govt will lose it's AAA rating by 2012, and will achieve junk status in the next couple decades when our medicare liabilites go up 10 fold. a national healthcare system would/will only add to that.
     
  8. Excellent Commentary.............

    Yes ....and were actually above these levels in the 79-80 period...due to energy issues...during the Carter era...

    18% 90 day bills....and 14% tax free nuveen mits were very attractive....and from this interest rate pinnacle....was a 26 year move down....

    Look at the following current central bank breakdown...

    http://www.fxstreet.com/fundamental/interest-rates-table/

    It would certainly be interesting to see if the EIU or other think tanks have pre-developed models regarding future expectations as US economics events unfold...particularly the demographics which are highly predictable....

    It would be interesting to view their currency yield matrix predictions...

    However I have yet to read any work that was very accurate...Most was just after the event blabber...
     
  9. empee

    empee

    isn't this really all the democrats fault?
    :p
     
    #10     Mar 4, 2007