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

Phoenix Capital Research's picture

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tony bonn's picture

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....

Obvious Paradox's picture

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".

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.

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

RiverRoad's picture

kaiserhoff @11;25:   Free markets rule and will do what TPTB don't have the "thimbles" to do.    +1

zeroman's picture



boredbutdeadly is right..non issue

ZeroAffect's picture

The affect of higher interest rates on the banks and the economy........KABOOM

BeerGoggles's picture

the stock Graham summers had subscribers buy a few weeks ago just fell 25%.



boredbutdeadly's picture

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.


onlooker's picture

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

cranky-old-geezer's picture

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.

dxj's picture

Ironic that the person calling another clueless is quick to talk about things he himself is clueless about - i.e. the Constitution.

Clowns on Acid's picture

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.


falak pema's picture

let berlusconi bunga bunga the Italian economy and the banks are toast...

LookingWithAmazement's picture

"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.

LawsofPhysics's picture

Graham,  where is Wells Fargo relative to these big boys?

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.


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...

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.