6 replies to this topic

[maple_leafs182]

Nov. 29 (Bloomberg) -- Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the world’s biggest lenders.

Source

Doesn't look like things are going to get any better.

[Bonam]

Doesn't look like things are going to get any better.

What leads you to that conclusion? Having a credit agency finally start appropriately cutting the credit rating of financial institutions that have taken on heavy risk burdens seems a good thing, as opposed to rubber stamping everything with AAA.

[RB]

What leads you to that conclusion? Having a credit agency finally start appropriately cutting the credit rating of financial institutions that have taken on heavy risk burdens seems a good thing, as opposed to rubber stamping everything with AAA.

Well if these institutions don't have AAA ratings their products are not sold in some market space, e.g. affects the insurance side of the business. The financial section is a heavy weight in the market, these ratings tell on the stock prices, and it affects the entire global economy. Recently, BAC (trading just around $5 was $19 not so long ago), GS (now $89, year ago $175), CITI (reverse split their stock now trading in the $20's) stocks have been sliding downwards in the past year. Seems to me this is bad news for the banks. Brace yourself for some not so good news.

[Bonam]

Well if these institutions don't have AAA ratings their products are not sold in some market space, e.g. affects the insurance side of the business.

Well, maybe their products should not be sold in some markets, if they aren't safe enough to be sold in those markets.

The financial section is a heavy weight in the market,

Too much so. I would argue that the financial sector represents too big a chunk of the economy for the services that they provide, relative to other sectors.

these ratings tell on the stock prices, and it affects the entire global economy.

The global economy is affected by many things. It'll survive a credit downgrade on a couple banks, I'm sure.

Recently, BAC (trading just around $5 was $19 not so long ago), GS (now $89, year ago $175), CITI (reverse split their stock now trading in the $20's) stocks have been sliding downwards in the past year. Seems to me this is bad news for the banks.

Bad for those banks, good for some of their competitors. BAC is losing market share to other banks and credit unions. No big deal there, except for BAC shareholders I suppose. Hopefully those investors knew to diversify and/or hedge and/or limit their losses. If not, sucks to be them, maybe they won't make the same mistake next time.

Brace yourself for some not so good news.

What's to brace for? Stock prices go up and down on a daily basis, driven by all kinds of news, general sentiment, economic data, and many other factors. People make money when the markets go down just as they do when the markets go up. The markets have gone down many times in the past, and will again many times in the future. I'm not worried.

Edited by Bonam, 29 November 2011 - 11:48 PM.

[dre]

The global economy is affected by many things. It'll survive a credit downgrade on a couple banks, I'm sure.

Of course... The economy will survive pretty much anything besides the extinction of the human race. Its not possible for it to really "die". And monetary phenomenon can only do temporary damage. Even if every bank on earth failed the economy would survive.

Banking doesnt drive the economy, its driven by aggregate demand. Economy drives the banking industry not the other way around.

Of course modern bankers would have us believe that they are absolutely crucial to the economy and that the only reason people produce things is because they banks lends them the money to do it. But anyone with even a passing understanding of supply and demand knows that not only is this false, its utterly backwards.

Edited by dre, 07 December 2011 - 10:01 PM.

[dre]

Well if these institutions don't have AAA ratings their products are not sold in some market space, e.g. affects the insurance side of the business. The financial section is a heavy weight in the market, these ratings tell on the stock prices, and it affects the entire global economy.

Yeah well thats a huge problem. The financial industry is about 100 times as large as it needs to be and its a huge drain on the rest of the economy, and one of the root causes of the business cycle, recessions, and depressions.

It needs to be dramatically truncated. Most of it should simply be shut down.

[msj]

1) Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world -- Jim Trotter.

2) The function of a ratings agency is to visit the field at the end of the battle and shoot the wounded -- John Heimann.