Skip to comments.The Doomsday Scenario Has Happened: Here's What Banks Said They Would Do
Posted on 08/06/2011 6:03:44 AM PDT by blam
The Doomsday Scenario Has Happened: Here's What Banks Said They Would Do
US Treasury Building
Aug. 6, 2011, 7:29 AM
Friday night the S&P downgraded the U.S. credit rating from AAA to AA+.
To bankers, a default, resulting in a downgrade, coupled with higher capital requirements is the "doomsday scenario" that banks said they were preparing for last month. This is totally different from a default, but banks were preparing for both.
Phillips, a political economist at Goldman Sachs, warned clients on a conference call last month that financial sector banks might have higher capital requirements if Treasuries are downgraded. "The complicated factor comes in with some of the larger firms, there could be a slight uptick in the calculated capital required to be set aside related to holdings. But a very minor change in capital requirements."
We wrote an article back then about what they were doing to prepare in the event of the doomsday scenario. Here it is:
The Wall Street Journal says that "according to one banking industry representative, there are indications banks are beginning to take steps to adjust their holdings of Treasuries to prepare for the possibility of default."
So it sounds like banks are preparing to dump Treasuries in the event of a default, because ratings agencies have indicated that they will downgrade the U.S. if there is a default. In fact, they've said that ratings agencies might downgrade the U.S. to AA within 90 days even if there isn't a default. If there's isn't a "credible" plan, S&P says it will downgrade the U.S. (long-term only) to AA.
But of course there's a good chance they won't. If the U.S. avoids a default,
(Excerpt) Read more at businessinsider.com ...
"On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency."
Now, then, of course Yields have not gone up but down, and so it must be concluded that the big buyer of treasuries in the past week was none other than the US gov't itself and its surrogates, fighting to keep rates down. Or maybe they just got lucky and the european collapse really did send capital into treasuries, on the principle that a likely (US) downgrade is better for capital preservation than a likely (euro) default.
In their usual form, the commie left blames everything but their own actions that brought us to this point in the first place.
“the madness of the right has made America a fundamentally unsound nation.”
Actually, it’s the pig-headedness of progressives—insistent on ratcheting up Uncle Sam’s share of the economy to 25% of GDP (even though the nation somehow managed to survive 220 years with the federal “take” never exceeding 20%)—that has led to our present plight. Once we remove our intransigent president from the Oval Office, we will discover just how easy it is to get ourselves back to a fiscally sustainable glide path.
Balderdash on this kind of talk, of course.
Taxes can be tuned, but are probably on the high side of optimality, especially with a sick, nervous economy. What with business flight or return, the US usually has gotten about 20% of GDP as Federal revenue no matter what the nominal tax rates. But by easing tax rates the GDP has historically been freed to rise by more than the factor of the tax rate cut. It used to be that taxation was seen as the art of getting the most feathers with the least hissing — now there’s an all out vendetta on the golden goose.
And sometimes the truth between two “extremes” isn’t in the middle but at one end.
“if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency”
Yeah, because if we would (not that we could) just give them enough to cover the deficit, it’s not like they would increase spending. It’s all our fault.
People won’t long tolerate attempt at this high a take. They’ll go Galt like crazy which is a double whammy on absolute revenues.
What I get from this is the euro is backed by nothing but words on paper, and the dollar is backed by trillions of dollars of actual,honest-to-goodness debt.
They never think about the lunacy of their OWN words or actions.
It couldn't be because of all their precious "entitlement" programs, their taxes on the "rich" and job killing agencies like the EPA. And don't even get me started about their effing unions.
They haven't seen madness yet. They shall rue the day, and it is near!
-——the commie left blames everything but their own actions ——
They have no choice but to blame others
1. there is an election coming
2. It’s Friday morning and they are unable to meet the payroll without more of the same.
We are being set up for higher taxes. Remember: Socialist idea of “rich” is anyone with a job. Watch out for all sorts of hidden “AVT”.
Correct. The administration has the bureau of printing and engraving working overtime. They print 20s and 100s so fast they can’t even get the imprint on the paper straight and even. His government is buying its own T-bills with Fiat Scrip that is worthless. All in an attempt to hoodwink other T-bill investors ‘America is a Good Buy’....ha, Standard and Poors just took care of that shit right there.
Bankers are ecstatic. In an economy where interest rates paid to customers are nearly non-existant and crdit card rates charged to customers are already well north of loan shark rates, the bankers will now raise the already high rates to stratospheric levels.
Doctor Doom is getting more and more bearish.
JohnGaltFLA (URL) on Aug 5, 10:36 PM said: @pokersensei: You can tell this was inserted for drama and 100% bull crap. This "analyst" has never bought a futures contract in his or her life much less understands how our markets work. 50% down mean that every bear with an outlier put is out having massive sex with entire strip clubs tonight and filming it while flipping off the camera saying "yo yo yo dog" to the BI crowd.
I only understand about 20% of that, but the visual made me chuckle
Wow, you’re catching on. This is a set up. 1) The “too big fail banks” are not making money in mortgage selling business. With a AA- rating they are justified in charging higher interest rate. 2) The progressive socialist (forget the R’s and D’s) need to pass as many “hidden taxes” as possible before 2012 election when Balance Amendment become an issue. Watch the other hand.
To bankers, a default, resulting in a downgrade, coupled with higher capital requirements is the "doomsday scenario" that banks said they were preparing for last month.
Then, she concluded:
So it sounds like banks are preparing to dump Treasuries in the event of a default, because ratings agencies have indicated that they will downgrade the U.S. if there is a default.
Now, other than the whole thing reading as if it were written by third grader (normal for "Business Insider"), the conclusion is not justified by the first statement.
Raising capital requirements is different from dumping Treasurys. Dumb article.