What Happens When the US Banks Take a Hit On Their Senior-most Assets? Pt 2

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Tue, 08/02/2011 - 15:09 | 1517810 tony bonn
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there is not  a scenario in the world where any usa ratings agency would lower their ratings of usa debt from aaa.....such an action would bring on instant murder by the usa army delta force assassination squad, nationalization of fasb, and laws to declare usa debt aaa.....

it just isn't going to happen....

Tue, 08/02/2011 - 12:52 | 1517173 Obvious Paradox
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The AAA rating will not be down graded. Obummer has told the ratings agencies if they even think about it they will experience "Change you can believe in".

Tue, 08/02/2011 - 13:15 | 1517284 hannah
hannah's picture

+1000 no way they will downgrade when we push trillions of dollars towards the banking system which they are a part of......if they did downgrade, then congress would just pass a law that AAA is now AA then A the whatever....just like europe did.

Tue, 08/02/2011 - 12:36 | 1517063 Bear
Bear's picture

Why would the rating agencies ever think of lowering the AAA rating ... these are the same guys that govern DC and WS ... the only reason that is was ever brought up was to scare the sheeple

Tue, 08/02/2011 - 12:28 | 1517018 RiverRoad
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kaiserhoff @11;25:   Free markets rule and will do what TPTB don't have the "thimbles" to do.    +1

Tue, 08/02/2011 - 12:27 | 1517017 zeroman
zeroman's picture

THIS IS SOOOOO STUPID. WHO CARES. FASB WILL TAKE CARE OF THIS JUST LIKE ALL THE OTHER CRAP. ARE YOU KIDDING?  YOU GUYS DON'T GET IT.  THE FED IS WAY TO FAR DOWN THE ROAD NOW TO EVEN THINK ABOUT LETTING THE BANKS BECOME A PROBLEM AGAIN.  TOTAL WASTE OF TIME GUYS.

Tue, 08/02/2011 - 12:11 | 1516972 Arch Duke Ferdinand
Tue, 08/02/2011 - 11:49 | 1516886 MAGICWIZARD
MAGICWIZARD's picture

boredbutdeadly is right..non issue

Tue, 08/02/2011 - 11:48 | 1516880 ZeroAffect
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The affect of higher interest rates on the banks and the economy........KABOOM

Tue, 08/02/2011 - 11:28 | 1516814 BeerGoggles
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the stock Graham summers had subscribers buy a few weeks ago just fell 25%.

LOL.

What...again?!

Tue, 08/02/2011 - 11:28 | 1516813 boredbutdeadly
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The risk based capital guidelines do not concern themselves with ratings.  US Treasuries are explicitly assigned the lowest risk rate, and this will not change, no matter what the rating agencies do (do you really expect the fed to push for a regulatory change on this?).

Of course, other financial players, such as insurance companies and pension funds, might have a problem.  However, I fully expect them to simply change their investment policy to allow them to continue doing what they are doing.

Looks like a tempest in a teapot.

 

Tue, 08/02/2011 - 11:22 | 1516782 onlooker
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What are the Vegas odds on this bet? Why would the most powerful government and the other governments like China, and the Worlds most powerful wealthy let this happen? I dont think so.

think about it

Tue, 08/02/2011 - 12:59 | 1516756 cranky-old-geezer
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Articles like this clearly displaying author doesn't know what the FUCK he's talking about detract from ZH's credibility.

US Treasury debt will keep AAA rating and not be defaulted on. If necessary POTUS will take 14th amendment authority on executive order and borrow enough to pay interest and maturing debt, irrespective of the debt ceiling, which isn't constitutionally mandated.

Constitution trumps acts of congress when push comes to shove. POTUS has constitutional authority to borrow enough money to pay federal government debt without approval of congress.

This has to be what Obame told UST bondholders, while telling the public default was imminent.

Actually he's right on both counts. Default on Treasury debt wouldn't happen, but default on current appropriations and expenditures would happen if congress didn't raise the debt ceiling. Bondholders would be paid but wages, salaries, entitlements, welfare, light bills, water bills, rent, invoices, and other current expenses wouldn't be paid. Treasury debt would be paid but current government operations would shut down.

That's the little truth POTUS doesn't want people to know about. Bondholders getting paid while government employees, contractors, vendors, entitlement recipients, welfare recipients, don't get paid would create a firestorm of protest that would cost Obame any chance of being reelected.

American sheeple think the president can do anything he wants. They wouldn't understand why Obame's "stash" ran out, and confidence in him would collapse.

Tue, 08/02/2011 - 13:05 | 1517236 dxj
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Ironic that the person calling another clueless is quick to talk about things he himself is clueless about - i.e. the Constitution.

Tue, 08/02/2011 - 11:10 | 1516744 Clowns on Acid
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Okay so USTs lose their AAA rating...would seem that all financial text books will have tro change theuir definition of the "risk free" rate from USTs to the rate of MSFT bonds ?

Maybe even the gold lending/ borrowing rate = risk free rate.

What will constitute "risk free" rate for all the futures and options formulas? Lotsa software / code changes in the electronic trading systems.

 

Tue, 08/02/2011 - 10:25 | 1516617 falak pema
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let berlusconi bunga bunga the Italian economy and the banks are toast...

Tue, 08/02/2011 - 10:24 | 1516613 LookingWithAmazement
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"What Happens When the US Banks Take a Hit On Their Senior-most Assets?"

The rules will simply be changed. Greek eurobonds being junk now, may still serve as collateral at the ECB; before the crisis this was supposed to be impossible and unthinkable. Same will happen in the US. Ratings lowered to junk? No big deal, just keep your junkbonds, because otherwise ... you know, armageddon and so. The collateral rules are smoke and mirrors, just rituals.

Tue, 08/02/2011 - 10:19 | 1516593 LawsofPhysics
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Graham,  where is Wells Fargo relative to these big boys?

Tue, 08/02/2011 - 10:08 | 1516547 Sudden Debt
Sudden Debt's picture

Banks will survive a downgrade. At least if rates rise accordingly. Let's say to 5 or 6% on a 10yr for example.

 

Tue, 08/02/2011 - 12:32 | 1517044 hardcleareye
hardcleareye's picture

They cannot allow rates to rise without losing complete control of montary policy (some would argue that has already occured).  However, if rates rise they will have to remove liquidity or things go real bad

"The disturbing fact about this, however, is that inflation dynamics can potentially become unstable when a massive stock of base money is being kept in check by very low interest rates. This is because small increases in interest rates from near-zero levels imply huge changes in liquidity preference and velocity. If those changes are not offset by opposite and proportional changes in the monetary base, strong inflation pressures are likely to follow." http://www.hussmanfunds.com/wmc/wmc110124.htm

Add to that the article Tyler wrote a while ago about the Feds taking on interest default swaps..  if interest rates rise this thing implodes......  of course there are a shit load of others things that can also cause this to implode...

Tue, 08/02/2011 - 11:25 | 1516795 kaiserhoff
kaiserhoff's picture

Higher rates will torch their balance sheets, again, but it has to happen.

The biggest problem is that our dictators, er, leaders, on both sides of the pond, hate and fear free markets.

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