Tag Archives: downgrade

The Dodd-Frank downgrade.

The Dodd-Frank downgrade.

What comes through in the Moody’s assessment [the credit-rating downgrade of 15 banks] and in any review of their returns on equity is that banks have lost significant ability to generate earnings to offset the inevitable losses. The lost earnings power is surely due in part to reduced leverage, which helps protects taxpayers.

But 2,300 pages of Dodd-Frank and countless other federal efforts to put sand in the financial gears are also taking their toll. The Obama tax and regulatory frenzy, of which Dodd-Frank is a part, weighs on economic growth. Those are our words, not Moody’s, but the rating agency does note that the abysmal economic environment is a drag on ratings for everyone.

Life after the downgrade

Life after the downgrade.

An excellent summary of the consequences of a lower credit rating for the U.S. government.

There is a lot of anger at the moment in the US over the embarrassment of the downgrade, as well as shock. I’m most amused by the shock, to tell the truth. S&P didn’t say anything yesterday that was not common knowledge and common sense. If you had to rate a potential investment that had an income of, say, $22,000 a year but had costs of $37,000 per year, a standing debt of $143,000, and contracted future debt that exceeded $1 million, would you give that investment a gold-plated AAA rating and buy their bonds at the lowest interest rate possible, or at all? Of course not, but that’s exactly the fiscal situation of the US, at a 100,000,000:1 scale.

Downgrade could come as soon as Friday

The day of reckoning looms even closer: Credit rating downgrade for the U.S. government could come as soon as Friday. Key quote:

It’s not the debt ceiling that’s triggering a potential ratings change — it’s the trajectory of debt generated by the federal government.

And this:

The problem, as [the ratings agencies] see it, is not that America can’t pay its debts next month, but that America has grown its debt to such a degree that we can’t pay them in the long run without serious restructuring of the federal government — and this administration refuses to consider it: