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The long-awaited downgrades of big U.S. and U.K. banks from Moody's could come after the U.S....

The long-awaited downgrades of big U.S. and U.K. banks from Moody's could come after the U.S. close tonight, reports Sky News' Mark Kleinman. Morgan Stanley (MS) is an especially interested party (I, II)
Comments (12)
  • Michael Clark
    , contributor
    Comments (8466) | Send Message
     
    Let's go back to mark-to-market accounting and see what we really need to do about our banks. I think all the banks are insolvent and we're just wasting time and money pretending it's not so.

     

    We need to actually start working on the problem of how to restructure our Zombie Bank system so we can have a working banking system. NOw the banks can't lend money because all their money has to go into protecting their hidden bad loans and hidden derivative liabilities.
    21 Jun 2012, 08:49 AM Reply Like
  • aniyf
    , contributor
    Comments (6) | Send Message
     
    Retail banking and investment banking should be separated where it is not. Otherwise the system is paralyzed by the risk takers and creative folks looking for huge bonuses. Lets go back to basics.
    21 Jun 2012, 09:07 AM Reply Like
  • BannerGlobal
    , contributor
    Comments (8) | Send Message
     
    the truth is that the entire financial system in both the US and Europe is deeply insolvent. the suspension of MTM accounting was done in order to hide the Feds own insolvency as the real value of its MBS and other crap assets is near zero. same is true for ECB, which holds huge amounts of sovereign debt, the value of which is collapsing.
    21 Jun 2012, 09:36 AM Reply Like
  • DaLatin
    , contributor
    Comments (1522) | Send Message
     
    Bazel 3 weeee I'll have Dick Bove squash this chatter ASAP..

     

    As I've been told by several CPAs.Banks pushing for every trick under the sun to value things higher to meet Bazel..

     

    Water fountains at replacement cost ! ha ha ha ha
    21 Jun 2012, 09:40 AM Reply Like
  • billmichael
    , contributor
    Comments (104) | Send Message
     
    Where was Moody's during the run-up to the mortgage meltdown? Shouldn't always believe what you hear.
    21 Jun 2012, 09:46 AM Reply Like
  • dixie
    , contributor
    Comments (276) | Send Message
     
    Remove your blinders. There is a DIFFERENCE between the big US banks and the banks on main street. Only a moron can believe that all banks are insolvent.
    21 Jun 2012, 10:06 AM Reply Like
  • Tack
    , contributor
    Comments (12962) | Send Message
     
    Predictably, this headline brought out the howls about banks and the bogeyman word, "solvency." There's a huge misunderstanding about solvency, as it applies to the world's large banks, as opposed to the implications of that word in the private sector or for individuals.

     

    When individuals become insolvent, they're finished because, absent winning the lottery, their access to capital, with which to make further income, is destroyed. Banks, on the other hand, are part of the distribution system for the money supply. As such, when money "disappears," the world's governments and monetary authorities replenish that money supply because it's vitally necessary to maintain commerce. Therefore, other than an accounting nicety, solvency is a rather irrelevant issue for banks.

     

    Banks make their money by deploying their liquidity. The solvency debate has almost no impact on this issue. In fact, if loan values appear on bank books at higher than MTM, as some argue, that just frees up more money for lending, while still allowing capital ratios to appear higher. The present problem is that banks are not deploying their money because, despite overwhelming liquidity, they find the returns, versus the business risks, too low. The reason that they're too low is not related to MTM or solvency; it's a direct outgrowth of ZIRP. ZIRP is suppressing economic activity by making it unattractive for banks to expand private credit, simple as that.

     

    And -- oh, by the way -- Moody's can declare anything they wish. It has virtually no impact on the banks operating mechanics because they don't borrow from the market; they get funded by the Fed, which doesn't give a rat's patootie about what Moody's thinks. Banks actual balance sheets, liquidity and attractiveness of lending opportunities appears exactly the same after Moody pronouncements, as before. Just noise.

     

    So, if you want to see the economy pop, get rid of impediments to bank lending and make the returns more attractive. Our present rearview-mirror approach, appealing to persistent populist outrage, manufactured and fanned by the media, has been doing the opposite.
    21 Jun 2012, 12:00 PM Reply Like
  • bess
    , contributor
    Comments (5) | Send Message
     
    Hi Tack,
    Thanks for clarifying the difference between individual and bank solvency. One thing puzzles me, though; how does ZIRP make it unattractive for banks to expand private credit? Any elaboration you care to provide is much appreciated (including referral to a site where it's explained).
    21 Jun 2012, 01:30 PM Reply Like
  • Tack
    , contributor
    Comments (12962) | Send Message
     
    bess:

     

    ZIRP, as presently practiced by the Fed has two negative effects on bank lending to the private sector:

     

    1) The Fed has made it possible for the banks to borrow almost limitless amounts of money and to hold that money in relatively risk-free Treasuries.

     

    2) By actively trying to suppress interest rates, the Fed has made the extra return that the banks would make by making private-sector loans, versus parking money, unattractive, given the commercial risks involved. Placing money at risk for many years at ultra-low rates exposes the banks to risk of losses should short-term rates increase or if the borrower should fail.

     

    Given the foregoing, I'd be loath to lend, except to the most credit-worthy borrowers and, even then, with provisos, like floating rates, that would protect me from adverse interest-rate moves.

     

    P.S. I've also contended, ironically, that when the fed announces that it expects to maintain low rates indefinitely, that borrowing demand suffers, as well. Borrowers are motivated by fear that rates will go higher. If you take that away, they get very complacent about making purchase/borrowing decisions, given their existing state of apprehension. The Fed needs to overcome one fear of borrowers (the economy, etc.) with another fear (that the good deals will expire).
    21 Jun 2012, 01:48 PM Reply Like
  • eabyrd
    , contributor
    Comments (311) | Send Message
     
    Translation: Ratings agencies may tell public what they already know way behind the curve. Great job at predicting the past, agencies.
    21 Jun 2012, 01:27 PM Reply Like
  • msphar
    , contributor
    Comments (161) | Send Message
     
    Moody's is taking this baby to full term and probably breeched as well and we still don't know whether its a boy or a girl, just like in the old days.
    21 Jun 2012, 02:07 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
     
    Annoyingly, this downgrade is well overdue. Why the timing here? CYA.
    21 Jun 2012, 04:28 PM Reply Like
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