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Moody's Says It Expects To Place US Rating For Downgrade Review If No Progress On Increasing Statutory Debt Limit

Tyler Durden's picture


From Moodys, which now appears to have been hacked by Greece (in what may or may not be considered an act of war): "If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the Aaa rating....Although Moody's fully expected political wrangling prior to an increase
in the statutory debt limit, the degree of entrenchment into
conflicting positions has exceeded expectations. The heightened
polarization over the debt limit has increased the odds of a short-lived
default. If this situation remains unchanged in coming weeks, Moody's
will place the rating under review.
Translation: unless America promises to increase its total debt to 120% of GDP in one year, the current debt which is just under 100% will be downgraded.

From Moody's:

New York, June 02, 2011 -- Moody's Investors Service said today that if there is no progress on increasing the statutory debt limit in coming weeks, it expects to place the US government's rating under review for possible downgrade, due to the very small but rising risk of a short-lived default. If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the Aaa rating.
Although Moody's fully expected political wrangling prior to an increase in the statutory debt limit, the degree of entrenchment into conflicting positions has exceeded expectations. The heightened polarization over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody's will place the rating under review.
Moody's had previously indicated that its stable outlook on the Aaa rating was based on the assumption that meaningful progress would be made within the next eighteen months in adopting measures to reverse the country's upward debt trajectory. The debt limit negotiations represent a real near-term opportunity for agreement on a plan for fiscal consolidation. If this current opportunity passes, Moody's believes that the likelihood of anything significant being accomplished before the next presidential election is reduced, in part because the two parties each hopes to capture both a congressional majority and the presidency in the
2012 election, after which the winning party could achieve its own agenda. Therefore, failure to reach an agreement as part of the current negotiations would increase the likelihood of a negative outlook in the near term, because the upward debt trajectory would still be in place. At present, this appears the most likely outcome, in Moody's opinion.
However, if the debt limit is raised for a short period to allow continued negotiations on a long-term deal, Moody's might delay any rating action on the rating outlook pending the outcome of those negotiations, assuming that the negotiations appeared likely to accomplish a substantive change in the debt trajectory.
These developments have the following rating implications.
 1) The likelihood that Moody's will place the US government's rating on review for downgrade due to the risk of a short-lived default has increased. Since the risk of continuing stalemate has grown, if progress in negotiations is not evident by the middle of July, such a rating action is likely. The Secretary of the Treasury has indicated that the government will have to drastically reduce expenditure sometime around August 2 if the debt limit is not raised; the initiation of a rating review would precede this date.
 2) If a debt-ceiling-related default were to occur, Moody's would likely downgrade the rating shortly thereafter. The extent of and length of time before a downgrade would depend on how factors surrounding the default affect the government's fundamental creditworthiness, including (a) the speed at which the default were cured, (b) an assessment of the effect of the default on long-term Treasury borrowing costs, and (c) measures put in place to prevent a recurrence. However, a rating in the Aa range would be the most likely outcome. Any loss to bondholders would likely be minimal or non-existent, as Moody's anticipates that a default would be cured quickly.
3) If default is avoided, the Aaa rating would likely be affirmed after any review. Whether the outlook on the rating would be stable or negative would depend upon whether the outcome of the negotiations included meaningful progress toward substantial and credible long-term deficit reduction. Such reduction would imply stabilization within a few years and ultimately a decline in the government's debt ratios, including the ratio of debt to GDP.


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Thu, 06/02/2011 - 13:38 | 1333025 oogs66
oogs66's picture

So if you don't promise to increase your debt we will downgrade your existing debt?  LOL!

Moogy says 'more debt good, less debt bad'   yeah, that makes sense

Did Uncle Warren approve this?

Thu, 06/02/2011 - 13:36 | 1333044 TheTmfreak
TheTmfreak's picture

That is literally what they're saying.

When has anybody ever used more credit and gotten a better credit rating BECAUSE of the credit? (I thought credit ratings were about the ability to pay back credit based on past experiences...)

If you pay off a credit card, with another credit card... thats not paying off debt.

Thu, 06/02/2011 - 13:40 | 1333059 Dolar in a vortex
Dolar in a vortex's picture

Wow! Whose pocket are they in?

Thu, 06/02/2011 - 13:49 | 1333093 AR15AU
AR15AU's picture

Anyone who uses Moodys to make investment decisions is FUCKING INSANE.

Thu, 06/02/2011 - 14:04 | 1333171 camaro68ss
camaro68ss's picture

you got to shoot yourself in the face to stay alive.... you guys ready?..... one, two ,three, FIRE!

Thu, 06/02/2011 - 14:13 | 1333233 andybev01
andybev01's picture

I think it's more akin to selling your children into slavery than shooting yourself but that won't affect me, I have no children.

Thu, 06/02/2011 - 14:32 | 1333332 wisefool
wisefool's picture

This is my printing press.

This is my tax code.

One is for killing peoples way of life.

The other just makes it more fun.

Thu, 06/02/2011 - 15:02 | 1333464 max2205
max2205's picture

This message brought to you (Congress) by the Association of FED and Treasury.

Warning, sideeffects incude vomiting, diahreha, loos of foreskin and testicles, loss of vision and hairloss.

Fuck you Moody's!!!

Thu, 06/02/2011 - 13:52 | 1333115 equity_momo
equity_momo's picture

Youll be shocked to hear that even you sir , a mere plebian , like all of us at ZH , can infact improve your credit rating by taking out more credit or debt.  

I got rid of my mortgage last year and my credit score went from near perfect to average in one fail swoop....   ask around , it happens to every individual or entity. More debt = higher "score" or rating.

I will probably get turned down if i ever want a credit card due to the fact i have savings but no debt.   Bizarro World , one which is going to collapse.  Ho-hum.

Thu, 06/02/2011 - 13:55 | 1333144 centerline
centerline's picture

Yup.  They like to a see a combination of debt and good servicing of that debt.  If you fail to have debt (or enough debt) or fail to service the debt, your rating will drop.

Thu, 06/02/2011 - 14:02 | 1333156 LongBalls
LongBalls's picture

Who give's a chit. The money you save by being a debt free customer that pay's in cash far out weights any mere 5% bump in your interest payment for a loan on goods. 

There are a lot of people who wish they were in your position.



Thu, 06/02/2011 - 14:08 | 1333197 equity_momo
equity_momo's picture

I rent....

 i just had an out on my property that is now underwater , so i took it. I wont be high fiving until i have zero monthly checks going to my living accomodation.

Thu, 06/02/2011 - 14:02 | 1333159 Robot Traders Mom
Robot Traders Mom's picture

Yeah, this fucking kills me. I own a house and am and have been current. I took out a credit card about 5 years ago to bring my "credit" up. I would put $3-4k/month on it and pay it off immediately. They cancelled it on me last year saying something along the lines of no longer fitting into their credit profile.

I have no debt outside of a mortgage, a substantial income, and I have an average credit score.

If I were to go into a BMW dealership today, I would get a shittier rate than a 19 year-old college girl with a part-time job, $20k/yr income, and 8 credit cards.

This is the only proof I need that the world we live in is one giant ponzi.

Thu, 06/02/2011 - 14:07 | 1333210 equity_momo
equity_momo's picture

Its fucked up thats for sure..

im done with worrying about it - most of us here know whats happening. We can either prepare so we are in a better position that the 19yr old college girl , or we can drink to forget and live like the rest of the walking mooks out there.

Sometimes i think theyre happier but id rather understand the game than be a mark.

Thu, 06/02/2011 - 14:16 | 1333232 Robot Traders Mom
Robot Traders Mom's picture

Sometimes i think theyre happier but id rather understand the game than be a mark.


Thu, 06/02/2011 - 15:07 | 1333470 max2205
max2205's picture

I bet Obamarama would give you a $100k student loan...too bad you can't buy food with it

Thu, 06/02/2011 - 15:24 | 1333592 Ben Fleeced
Ben Fleeced's picture

Oh yes you can!

Thu, 06/02/2011 - 14:19 | 1333243 Thomas
Thomas's picture

I have no debt whatsoever, own my house, plenty of assets and my credit rating totally sucks.

Thu, 06/02/2011 - 14:26 | 1333276 TheTmfreak
TheTmfreak's picture

See my post below.

Why should it be assumed that you should be trusted with large amounts of debt if you can't even show you can handle debt responsibly? (by having no debt)

Credit rating is way way over relied upon however.

Thu, 06/02/2011 - 14:33 | 1333265 TheTmfreak
TheTmfreak's picture

While I'm not arguing for the system, to me it makes sense that you must have some sort of debt to show that you can be responsible with debt.

While I think its ludicrious that overnight somebody's credit score can drop as a result of paying off a mortgage its not that irrational to understand.

Can't handle taking high amount of debt? Why should you have a large credit rating? I do think that credit ratings should take into account asset/debt ratio however. But then again thats the lenders responsibility to look at. The problem I see with the system is the over reliance on some magic number that, like I've stated, doesn't even take into account assets.

Thu, 06/02/2011 - 14:35 | 1333331 Rynak
Rynak's picture

I get no credit AT ALL, because........ umm, i think it's because i cannot be fired (freelancer)

Thu, 06/02/2011 - 13:48 | 1333087 rsi1
rsi1's picture

  • of course, otherwise the ponzi ends!

Thu, 06/02/2011 - 14:10 | 1333205 jus_lite_reading
jus_lite_reading's picture

^^THIS^^ Everything else is just noise

Thu, 06/02/2011 - 13:48 | 1333089 Quinvarius
Quinvarius's picture

They know we pay the interest on our debt with new debt.  We don't have the tax base to cover it and continue functioning.

Thu, 06/02/2011 - 13:53 | 1333119 Robot Traders Mom
Robot Traders Mom's picture

That is exactly right. Moody's/S&P/Fitch rate on the ability to payback their debt, not the strength of their currency.

As fucked up as it is, the US could never theoretically default by not paying, as they are the reserve currency. They can devalue the dollar to infinity, but they will pay, albeit worthless dollars.

This is the fucked up system that we live in. I am a broker and can tell you that the municipal and corporate bond rating system is one of the biggest jokes in the financial system.

Meredith Whitney is not wrong, just early.

Thu, 06/02/2011 - 14:04 | 1333172 centerline
centerline's picture

That pretty much sums it up for most people here... just early.

Thu, 06/02/2011 - 13:59 | 1333163 crazyjsmith
crazyjsmith's picture

Yep, just like the alcoholic who wakes up with a blistering Hangover and thinks the only solution to cure that hangover is to grab a beer and start drinking again. 

Or the Heroin addict who can't stop shaking from withdrawals, feels the only way to cure the shakes is to grab the needle.

Or the starving crackhead who will use his last $5 bucks, not on a burger, but another hit.


Hello, my name is Earth, and we clearly have not met. 


Thu, 06/02/2011 - 15:29 | 1333603 Citxmech
Citxmech's picture

“If you’re living high on that cheap credit hog,
Don’t look for cure from the hair of the dog.
Real savings come first if you want to invest,
The market coordinates time with interest.

“Your focus on spending is pushing on thread -
In the long run, my friend, it’s your theory that’s dead.
So sorry there, buddy, if that sounds invective,
Prepare to get schooled in my Austrian perspective.


Keynes v. Heyak, Pt I.

Good shit there boss.

Fri, 06/03/2011 - 08:34 | 1335231 thriftymost
thriftymost's picture

The Austrian perspective is a rich man's one.  I save money and want govt. to leave me alone--why doesn't everyone else?

Most people, though, don't have any money, or the means to acquire it.  They go into debt because without a mortgage they don't have anywhere to live, without a car lease they can't get to work, and so on.

Austrians, like Objectivists, live in a fantasy world of narcissistic delusions.  It's all a fraud.  And it's utterly inimical to progress.

Thu, 06/02/2011 - 14:07 | 1333190 LongBalls
LongBalls's picture

This is nothing more than a shake down to force Congress to up the debt limit in conjunction with forcing them to make modest cuts in spending that will extend out 5-10 years. Notice the recent take down in the market as insurance. These pukes are not even TRYING to hide it anymore. They own this country. At least until the medium of exchange is changed.


Thu, 06/02/2011 - 14:41 | 1333373 mayhem_korner
mayhem_korner's picture

Ya can't fix stupid...

We're so cooked.

Thu, 06/02/2011 - 13:33 | 1333026 tao400
tao400's picture

Wow. Have not looked at the market but am going to right now.

Thu, 06/02/2011 - 13:38 | 1333029 TruthInSunshine
TruthInSunshine's picture

Hey, I remember when Congress initially rejecting TARP and the 8% intraday equities drop that scared the living beejeezus out of 401(k)/IRA/Pension Plan holders, getting them to panic and call their elected representativesTM.

Oldest trick in the book, Moody's.

Thu, 06/02/2011 - 13:38 | 1333051 cougar_w
cougar_w's picture

The plutocrats want that sweet, sweet QE3 sugar so bad they can't stand it. They're going to be pulling out all the stops now br'utha. Everything now, all the time, every day and every night, until The Bernank is just forced -- forced I tell you, oh the humanity -- to print more money for his important friends.

Thu, 06/02/2011 - 13:47 | 1333106 Oh regional Indian
Oh regional Indian's picture

"oh, the humanity" is always funny.

But yes, the summer squeeze is on, and I'm not talkign lemons here.


Thu, 06/02/2011 - 13:34 | 1333032 slaughterer
slaughterer's picture

That killed the rally!  Thanks Moody's!

Thu, 06/02/2011 - 13:52 | 1333118 Cdad
Cdad's picture

What...the whole three minutes worth of it?  I can see where a guy would be pissed about the lost productivity.


Thu, 06/02/2011 - 13:34 | 1333035 cougar_w
cougar_w's picture

When did Moodys become a arm of AlQueda? Because this is nothing but terrorism aimed at our freedoms.


Thu, 06/02/2011 - 13:37 | 1333046 TheTmfreak
TheTmfreak's picture

Economic terrorism to be precise.

Thu, 06/02/2011 - 13:38 | 1333036 A_MacLaren
A_MacLaren's picture

Right on cue.

Thu, 06/02/2011 - 13:35 | 1333038 Putty
Putty's picture

This makes perfect sense.

Thu, 06/02/2011 - 13:46 | 1333084 Rynak
Rynak's picture

.sense makes this, No

That's what you get for computing credit ratings on little-endian hardware.

Thu, 06/02/2011 - 13:39 | 1333043 nathan1234
nathan1234's picture

Republicans own Moody's

Thu, 06/02/2011 - 13:37 | 1333049 Long-John-Silver
Long-John-Silver's picture

The Sheeple will soon demand QE3. The unfolding plan continues.....

Thu, 06/02/2011 - 13:40 | 1333058 cougar_w
cougar_w's picture

Yes the war in the east is proceeding spendidly.

Thu, 06/02/2011 - 13:54 | 1333124 Oh regional Indian
Oh regional Indian's picture

it is, isn't it? The other ring of fire. AfPakIr. Look at poor pakistan especially. Played like patsies through a deeply corrupted government. Every day, it's being made to look like an ungovernable nation, perhaps ready for some martial law again. Then, all bets are off. Pakistan and Tibet are the two fulcrums (Kashmir espicially) for various historical reasons.

Fascinating times, like watching reality kicking fiction's ass.


Thu, 06/02/2011 - 14:02 | 1333142 cougar_w
cougar_w's picture

Then maybe what you need is some better fiction:

Where we answer with a resounding "Yeah baby" the eternal question -- can you really get blood from a turnip?

Thu, 06/02/2011 - 14:11 | 1333214 Oh regional Indian
Oh regional Indian's picture

your writing? Interesting. With the Fed bit, clearly a ZH reader. 


Thu, 06/02/2011 - 14:23 | 1333259 cougar_w
cougar_w's picture

Mine. And I notice over time that my fictional treatment of the banking class is becoming increasingly harsh. That too, I suppose, is the imprint of a ZH reader.

Hmm. And I was suddenly just wondering what might happen if Fortran "accidentally" hacked into a ratings agency, found a computer running a financial test model and "inadvertently" corrected some faulty assumptions for them as a "service" and didn't actually tell anyone? And the undoctored real results went out on the news wires because nobody actually looks at that this cr*p anymore, you know.

That would be really funny. Ha ha.

Okay gimme a couple days ... this should be good ...

Thu, 06/02/2011 - 19:26 | 1334321 Sokhmate
Sokhmate's picture

By Fortran, do you mean the big-titted, blue-skinned hairy angel?

Thu, 06/02/2011 - 15:01 | 1333443 leonard1234
leonard1234's picture

Everyone who is in commodities will demand QE3, not just the sheeple.  Half the people on ZH want/expect QE3.

Thu, 06/02/2011 - 16:20 | 1333799 gabeh73
gabeh73's picture

This is true. I wanted QE3 last month. Now I hope they wait and cause a bigger sell off first, because I sold my paper silver and I have no problem holding my physical silver.

Thu, 06/02/2011 - 13:41 | 1333050 amsterdam
amsterdam's picture

Bozo rating agencies - more and more a joke of an institution but hey, for a lack of a better option let's bank their word.

Thu, 06/02/2011 - 13:41 | 1333052 digalert
digalert's picture

Last year this time "we're in the summer of recovery"?


Thu, 06/02/2011 - 13:45 | 1333069 knukles
knukles's picture

Must have been that Anthropological Global Warming fucked it all up but no worry, there's an App for it.

Thu, 06/02/2011 - 13:47 | 1333103 cougar_w
cougar_w's picture

I think that supposed to be anthropogenic.

Anthropological implies that the cavemen did it. But we all know it is more politically correct and probably closer to the truth to just blame Canada.

Thu, 06/02/2011 - 14:05 | 1333174 knukles
knukles's picture


Fri, 06/03/2011 - 08:44 | 1335296 thriftymost
thriftymost's picture

our home and native land, owned by the Queen of England.

Thu, 06/02/2011 - 14:56 | 1333415 mayhem_korner
mayhem_korner's picture

Last year this time "we're in the summer of recovery"?

Timmah got his AA notes mixed in with his op-ed...

Thu, 06/02/2011 - 13:42 | 1333068 Cdad
Cdad's picture

Translation: unless America promises to increase its total debt to 120% of GDP in one year, the current debt which is just under 100% will be downgraded.

Ummmm...what was that now?

Anyone have a baggie of hopium on them?  I don't think I can take any more cognitive dissonance today with such a clean bloodstream.

Thu, 06/02/2011 - 13:44 | 1333077 Quinvarius
Quinvarius's picture

They are correct.  If you stop funding the ponzi, the ponzi breaks.  We pay our interest with new debt.

Thu, 06/02/2011 - 13:47 | 1333078 youngman
youngman's picture

I thought the Oracle of Omaha owned part of Moodys.....hes a democrat by the way....

We are in strange times....where is Jim Morrision LSD needed for this bizarro if you don´t raise the credit card limit....we downgrade you for trying to live within your means...thats it...I want my money back from my College for my Economics classes....they were all todays prices

Thu, 06/02/2011 - 13:48 | 1333080 equity_momo
equity_momo's picture

There is only 1 asset class in the entire World that deserves to be AAA , that is Gold. It is completely unimpaired by debt and has no industrial use. Its simply money. And therefore it will ultimately be the AAA benchmark more and more seek out.

Fri, 06/03/2011 - 08:52 | 1335353 thriftymost
thriftymost's picture

Agreed on all points except "no industrial use." Gold, silver, and platinum all have vitally important industrial uses (think gold in your computer, silver in your cellphone, platinum in your car), without which the world as we know it really would come crashing to a halt.  That's what makes them true stores of value, not just shiny rocks.

Besides all that, of course, there's social credit, which if intelligently employed really does beat the gold standard, but maybe that's another topic.

Thu, 06/02/2011 - 13:49 | 1333097 carbonmutant
carbonmutant's picture

The lie has more credibility than the truth...

Thu, 06/02/2011 - 13:52 | 1333113 tickhound
tickhound's picture

Hence the reason insolvency is bullish...

Thu, 06/02/2011 - 13:52 | 1333130 TruthInSunshine
TruthInSunshine's picture


"During times of universal deceit, telling the truth becomes a revolutionary act."
-- George Orwell
Thu, 06/02/2011 - 14:08 | 1333196 cougar_w
cougar_w's picture

That quote never gets old. Sadly, it seems more applicable with each passing day.

We are shortly going to learn something very important about truthiness. Or at least, some of us will learn it. The importance of truth, it's value in the world, how it can be traded, how it structures society. All that we forgot about truthfulness will be relearned the hard way, for having lost sight of it for too long. How well we carry that lesson into the future, how we garb it and how we teach it to later generations, will decided if (or perhaps how soon) we go down this very same road again one day, down down down into the swarming Hell of lies.

Thu, 06/02/2011 - 13:46 | 1333099 carbonmutant
carbonmutant's picture


Thu, 06/02/2011 - 13:51 | 1333108 Hondo
Hondo's picture

Moody's, home of the insane statisticians.  Being able to issue more debt than can never be paid off is now considered AAA worthy........

Thu, 06/02/2011 - 13:52 | 1333116 Franken_Stein
Franken_Stein's picture


Gold down by another brutal 0.47 % today.

We're ruined.


Thu, 06/02/2011 - 14:06 | 1333203 knukles
knukles's picture

Sure glad I'm long salted Wolfram crap and not taking that hit!

Thu, 06/02/2011 - 13:53 | 1333121 youngman
youngman's picture

and we all wonder how the morgage fiasco the bonds got the AAA ratings...this pretty much shows you how they think.....if its bad...its AAA

Thu, 06/02/2011 - 13:56 | 1333135 Racer
Racer's picture

Doctor to patient:

Unless you increase your heroin intake, you are going to die

Thu, 06/02/2011 - 14:00 | 1333152 r101958
r101958's picture

Moody's, Fitch and S&P....what a farce.

Thu, 06/02/2011 - 14:00 | 1333164 AldoHux_IV
AldoHux_IV's picture

Job application for the fed chief for Zandy-- can only explain such ass backwards way of thinking followed up with idol threats.

Thu, 06/02/2011 - 14:04 | 1333168 Insiderman
Insiderman's picture

The debt limit increase relates to the credit rating; the spending reductions relate to the rating outlook.  The former is current situation, the latter is forward looking.

Thu, 06/02/2011 - 14:10 | 1333206 Franken_Stein
Franken_Stein's picture


But the future of today is the present of tomorrow.


So increasing debt today is good, doing it tomorrow is bad.

But when tomorrow becomes today, then it's good again.


Whew !


Thu, 06/02/2011 - 19:30 | 1334343 Sokhmate
Sokhmate's picture

+50 points to your credit score.

Thu, 06/02/2011 - 14:06 | 1333179 Hubbs
Hubbs's picture

Wasn't it in Roubini's RGE Monitor editorial section where he said that any sovereign country's debt which requires a AAA rating by S&P, Fitch or Moody's to maintain its AAA rating does not deserve to have a AAA rating in the first place. There! How about them apples?!

Thu, 06/02/2011 - 14:07 | 1333209 knukles
knukles's picture

RGE "Real Groucho Explination"

Thu, 06/02/2011 - 14:13 | 1333223 plocequ1
plocequ1's picture

Gold down, DXY down, NFLX up. Im confused. 

Thu, 06/02/2011 - 14:15 | 1333226 TruthInSunshine
TruthInSunshine's picture

Paul Krugman just called me and told me Moody's is very wrong, and that not only will they raise the debt ceiling, but that we're about to pay off existing and 50 years' worth of future debt via the printing press, which will dramatically boost GDP & GNP, while also dramatically lowering the prices of commodities and tamping down inflation.

All is well.

Thu, 06/02/2011 - 14:56 | 1333414 cougar_w
cougar_w's picture

What took them so long? All this worry over nothing.

Thu, 06/02/2011 - 16:09 | 1333764 TruthInSunshine
TruthInSunshine's picture

He said that he was finishing his latest article for Modern Keynesian magazine, titled 'Yes, You Can Eat Fiat.'

Thu, 06/02/2011 - 14:15 | 1333228 firefighter302
firefighter302's picture

There is no end to the absolute insanity of it all.



Thu, 06/02/2011 - 14:14 | 1333229 wisefool
wisefool's picture

Positive Factors Affecting your credit score

-You have a 30 year credit history, where you have paid off your revoling balances on time, every single month.

Negative Factors Impacting your FICO score

-Your average balance is $1500. Your total credit limit is $5000. This means creditors might not trust you.


I've told this story here before, but one of my most early coworkers/mentors had a perfectly manicured, paid off house. two vehicles in good repair, one was 5 years old. The other 14 years old. The man had a few dozen unopened "live" paychecks in his top, unlocked desk drawer. He did not brag about any of this, but it comes out when you work in a group of people in tight quarters.

Getting ready to send his daughter to college. Pre-Med. State university (in-state tutition). Goes to his bank (of 30 years) to get his travelers checks, but they advise him that it would be better to get a rewards credit card from one of thier partners to buy gas for the trips to get her all moved in and comfortable.

Typed his SSN into thier affiliates credit verification system, and he was, of course given a 600 credit score and denied the credit card. That did not make him mad. He got mad when they said he should prefund a similar version of the card that had a 3% initial vig, so that some day he might be able to get the same type of credit card his daughter would have been harresed into taking for the next 4 years with a $10k limit. That kinda made him mad.

Thu, 06/02/2011 - 14:27 | 1333279 Head for the Hills
Head for the Hills's picture

No surprise.  FICO is nothing to do with creditworthiness.


It is the ability to lick a stamp and mail a check for any amount month after month without any hesitation or thought.

Thu, 06/02/2011 - 14:29 | 1333314 Bastiat
Bastiat's picture

Credit score reflects their expected return on the money they lend you.  If you pay off every month they can't make any money.  They suck.  People are deluded into thinking it is some reflection on their financial responsibility or that banks are a public service.  Vampire Squid is a better description--it rates you on how much blood it can suck out of you.

Thu, 06/02/2011 - 14:46 | 1333377 wisefool
wisefool's picture

Agree with both of you. The government bailouts, subsidies, tax code and the Fed is the buerocrat showing up everyday licking a stamp and saying it is okay no matter what you do. As long as you get other people to do what we want (the plebs) to do. American Community Improvement/McMansion Act

The Vampire Squid should be allowed to compete for resources and succeed or fail. But each has a leash on the other. (revolving door between wall street and washington) And they can collectively force you to comply either at the point of a gun, or through market speculation/manupulation for the things you need to survive and raise a family.


Then we have these rating agencies and MSM as the 3rd blind mouse in the chorus.

Thu, 06/02/2011 - 14:12 | 1333231 Racer
Racer's picture

And the market loves the possibility of a US downgrade... couldn't get any 'better' news tthan that bad news for market to soar

Thu, 06/02/2011 - 14:14 | 1333237 FubarNation
FubarNation's picture

Did these guys take a few lessons from Joe Goebeles?


Thu, 06/02/2011 - 14:35 | 1333328 cougar_w
cougar_w's picture

Are you referring here to Saint Goebbels, patron of their entire industry and beloved muse to all their arts? That Goebbels? Because in that case yes they are quite familiar with his teachings.

Thu, 06/02/2011 - 14:15 | 1333240 PulauHantu29
PulauHantu29's picture

A Downgrade?

Out of the Blue?

"No one saw this coming," said the Bankers to Congress.

Thu, 06/02/2011 - 14:21 | 1333266 buzzsaw99
buzzsaw99's picture

Clearly Moody's works for the banks.

Thu, 06/02/2011 - 14:40 | 1333369 web bot
web bot's picture

So if you stop borrowing for the right reasons... that's bad and you a downgrade...

If you borrow more for the wrong reasons... that's good and you are left alone...


Thu, 06/02/2011 - 14:42 | 1333375 Hal n back
Hal n back's picture



confirms that to fix the debt problem we need more debt. 


who da thunk it?


Thu, 06/02/2011 - 14:46 | 1333379 Arch Duke Ferdinand
Arch Duke Ferdinand's picture

An Open Letter to the Troops: You’re Not Defending Our Freedoms...

Hail Caesar President Obama/Potus...

Thu, 06/02/2011 - 14:45 | 1333386 GOSPLAN HERO
GOSPLAN HERO's picture

"If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State."

--Joseph Goebbels, National Socialist German Workers Party, Propaganda Minister

Thu, 06/02/2011 - 14:48 | 1333402 YesWeKahn
YesWeKahn's picture

We already know how the white house will respond:

"well, Moody have rated subprime mortgages as AAA and caused the great recession. We don't think they have any credibility left."

They said that when SP put US debt on negative outlook.

Thu, 06/02/2011 - 15:43 | 1333472 TomGa
TomGa's picture

Under the Patriot Act, Moody's must be dealt with as a terrorist organization now that it has made terroristic threats against the United States like that.


Send in the SEALs.



Thu, 06/02/2011 - 20:51 | 1334488 Milestones
Milestones's picture

I like the way you think!!      Milestones

Thu, 06/02/2011 - 15:06 | 1333486 alfred b.
alfred b.'s picture


 ...don't know what the fuss is all about;  we ALL know that Obama is gonna cave in saying:  "this is the best possible deal available....again we have saved the economy....not doing this would have caused catastrophic damage....blah blah blah......!



Thu, 06/02/2011 - 15:44 | 1333662 Miles Kendig
Miles Kendig's picture

And I'm busy lambasting the EU for its ineptitude and catch this gem.  TPTB are pleased that they have control of the reserve currency rendering trifles like debt to GDP metrics obsolete.  No wonder the ratings agencies thought sub-prime BBB- tranches were all really AAA.

Makes me wonder if Lindsay Lohan and Warren Buffett have hooked up

Thu, 06/02/2011 - 15:46 | 1333664 russwinter
russwinter's picture

The debt limit situation and headline is a straw man side show to what Moodys is really warning about, credible deficit reduction.  They could take care of the debt limit at any time, the rest is problematic. 

In Moody own words;

3) If default is avoided, the Aaa rating would likely be affirmed after any review. Whether the outlook on the rating would be stable or negative would depend upon whether the outcome of the negotiations included meaningful progress toward substantial and credible long-term deficit reduction. Such reduction would imply stabilization within a few years and ultimately a decline in the government's debt ratios, including the ratio of debt to GDP.


Thu, 06/02/2011 - 16:25 | 1333833 rufusbird
rufusbird's picture

Gee, I can't help wondering how many phone calls Moody's had to make that "analysis".

Thu, 06/02/2011 - 16:38 | 1333866 SilverDoctors
SilverDoctors's picture

The day Moody's downgrades the US is the day they're legislated out of business.

Thu, 06/02/2011 - 16:44 | 1333896 lizzy36
lizzy36's picture

This little exercise has Geithners finger prints ALL OVER IT. He called up Moody's and asked them for this little "favor' (quid pro quo TBD).

Obama is getting rolled by the Republicans who refuse to raise the debt limit without dollar-for-dollar spending cuts.

The needed to get this process moving again. One hand washing the other.......kinda makes one want to PUKE.

Thu, 06/02/2011 - 17:14 | 1333981 CompassionateFascist
CompassionateFascist's picture

They'll cut a deal involving (fake) expenditure cuts and real tax increases....or Boner will cry some more. No, he'll probably weep whatever happens.

Thu, 06/02/2011 - 17:17 | 1334004 Quantum Nucleonics
Quantum Nucleonics's picture

The way I read it, Moody's is implying that simply raising the debt level isn't enough, there should be big spending cuts in order to keep from downgrading US debt.  Is Moody's telling Geithner, somewhat more eloquently, to f-off?

Thu, 06/02/2011 - 20:22 | 1334439 DollarDive
DollarDive's picture

Baaaaaa Baaaaaa Baaaaaa   BaaaQE3

The Sheeple have spoken !!

Moodys really sucks - let's get all the sheeple to believe the world will end if the debt limit is not raised.

Moody's is a credible source right ?........yeah right.  They're trying to put pressure on government to react and raise the limit.  A Fucking Farce.  

QE3 is coming sooner and faster than you believe.  

Don't be a Dip - Buy the Dips !!

Thu, 06/02/2011 - 21:41 | 1334585 zippy_uk
zippy_uk's picture

2 pennith on ratings agencies....


Thu, 06/09/2011 - 06:59 | 1353954 bernadethB
bernadethB's picture

If Congress fails to vote for a limit increase, it could lead to much higher taxes, a reduction of expected services or both. Those dependent on Social Security may be left out in the cold. The loss of Medicare could drive healthcare expenses to levels beyond the reach of most people. Interest and credit rates could drastically increase, as well as taxes.

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