S&P Cuts US Credit Rating For First Time In Modern History

[justdrew]

So, any idea that this downgrade would scare people from bonds to equities can probably be laid aside.

well, what are trading volumes like? The big money got out early I bet, and the rest of the slide driven by smaller scale sell orders and few buy orders. That big money got out in perfect time to free up a lot of cash, tens of billions, to be dumped into higher yielding T-bills, that will soon be issued. This sell-off may have been the only way to generate sufficient cash to buy those t-bills.

also, banks are now complaining about too many people holding cash, big volumes in cash accounts that have to be insured with the FDIC. Mellon IIRC is now charging to hold your money. They say they can't invest it, because people can pull the money at any time. but that's always the case, and they can borrow from the fed at near zero to cover withdrawals, so it seems like an odd thing to say.

---

Airplane banner calls for S&P officials to ‘all be fired’

By David Edwards | Tuesday, August 9th, 2011 -- 2:45 pm

Tags: business insider, public backlash, street headquarters

Public backlash over the decision to downgrade U.S. credit has finally reached Standard & Poor's doorstep -- or at least their airspace.

An airplane was seen flying over the credit ratings agency's Wall Street headquarters Tuesday that said, "Thanks for the downgrade, you should all be fired." (Business Insider has a photo.)

Fortune revealed that the woman responsible for the stunt is a Midwestern investment banker who is fed up with politicians and the financial industry. She wished to remain anonymous because she fears for her job.

"I originally wanted to fly it over Washington, D.C., but learned that you can't do that," she told Fortune's Dan Primack.

"So I chose Wall Street instead, but didn't specifically intend it to fly over S&P. I'm just a mother from St. Louis who feels the only reason we got downgraded was people in politics."

Matthew Applegate was reportedly the pilot who flew the mission. While he was not available to comment, a competitor said that the typical charge was about $1,500.

[barracuda]

The DOW has gone up 500 points in the last hour or so. The system is totally irrational.

Bernanke's two year ZIRP announcement forces investors into equities for the moment, in lieu of any other possible place to sit.

The ten, five and two year Treasury yields are now sitting at record or near-record lows, with no change in the forseeable future of the next two years.

[justdrew]

The DOW has gone up 500 points in the last hour or so. The system is totally irrational.

Bernanke's two year ZIRP announcement forces investors into equities for the moment, in lieu of any other possible place to sit.

The ten, five and two year Treasury yields are now sitting at record or near-record lows, with no change in the forseeable future of the next two years.

but the prices are set by auction, isn't the point of the "downgrade" to force those auctions to go higher?

[barracuda]

Why would they go higher if the primary dealers can still borrow at the discount window for nothing in order to purchase treasuries (and stocks)? ZIRP = unlimited liquidity for the banks. Money for nada.

[seemslikeadream]

if a mod sees this could you please merge it with the other thread....I goofed....sorry

Michael Moore
@MMFlint Michael Moore
Here's how they roll in Italy when it comes to these bastards:

"Pres Obama, show some guts & arrest the CEO of Standard & PoorsThese criminals brought down the economy in 2008 and now they will do it again," Mr. Moore wrote.

[...]

Mr. Moore went on to note that the "owners of S&P are old Bush family friends," continuing a theme he has developed through several films about capitalism as essentially a crony system for the rich and Wall Street, especially the Bush family.

He went on to link approvingly to an article last week in the Guardian, a left-wing British newspaper, about a police raid in Milan against the offices of S&P and fellow ratings agency Moody's. Italian police were searching for evidence on whether the rating agencies, in the words of a local prosecutor, "respect regulations as they carry out their work."

"Here's how they roll in Italy when it comes to these bastards," Mr. Moore cheered.

Police raid Milan offices of Moody's and Standard & Poor's

Chief prosecutor of Trani conducts investigation into whether the two rating agencies abide by regulations

John Hooper in Rome
guardian.co.uk, Thursday 4 August 2011 21.02 BST
The raids took place on Wednesday as Silvio Berlusconi addressed parliament

As stock and bond markets across the world tumbled on fears about Italy and Spain, it emerged that police acting on orders from prosecutors had raided the Milan offices of rating agencies Moody's and Standard & Poor's as part of continuing investigations into their role in the recent financial turmoil.

Italian shares plunged on Thursday, with some leading firms losing more than 10% of their value. But the closing level of the benchmark FTSE MIB index was not released for reasons that remained unclear more than an hour after the close.

Among the factors behind the share fall was a widening of the risk premium on Italian state debt. The extra return demanded by investors for holding benchmark 10-year Italian bonds rather than the German equivalents touched 3.7 percentage points.

Carlo Maria Capistro – chief prosecutor of Trani, a small Adriatic port – told Reuters that his office was checking to see whether the rating agencies "respect regulations as they carry out their work". The raids took place on Wednesday as Italy's prime minister, Silvio Berlusconi, addressed parliament on the mounting crisis.

He and other leading Italian politicians often cite speculation as a cause of market storms that involve a run on the country's shares or bonds. And the media habitually depicts sell-offs as attacks on Italy.

S&P, which along with other rating agencies has been strongly criticised in Europe for downgrading countries such as Greece, said in a statement it believed the Trani inquiry "has no foundation". It added: "We shall strenuously defend our work, our reputation and that of our analysts."

Moody's said it took "its responsibilities surrounding the dissemination of market-sensitive information very seriously", and was co-operating with the authorities.

The Trani prosecutors began investigating Moody's in May last year after a complaint by two consumer associations about a report from the ratings agency which said the Italian banking system was at risk from the crisis in Greece. It sparked a round of selling on the Milan bourse.

It is not clear why the consumer groups took their grievances to out-of-the-way Trani, but Italian prosecutors have wide, discretionary powers to look into alleged offences brought to their attention.

This is not the first time Trani's prosecutors have hit the headlines. Last year, they investigated Berlusconi on suspicion of having pressured Italy's broadcasting watchdog to get a programme critical of his government taken off the air.

Standard & Poor's came under scrutiny in May after it threatened to downgrade Italy's credit rating because of its huge public debt. Italy is proportionately the second most highly indebted country in the eurozone after Greece.

The inquiry has since been widened to include a report by S&P last month in which it criticised the government's austerity measures. Those questioned by the Trani prosecutors include the president-designate of the European Central Bank, Mario Draghi; Italy's finance minister, Giulio Tremonti, and a former prime minister, Romano Prodi.

A separate inquiry is being conducted by prosecutors in Rome into market panics in June and July. Italy's stock market regulator, Consob, last month summoned Moody's and S&P for meetings and urged them not to release their statements during market hours.

Elio Lanutti, president of one of the consumer groups that sparked the inquiry, said: "The three 'sisters' – Standard & Poor's, Moody's and Fitch – are an erratic danger to state sovereignty in the areas of economics and finance".

[bks]

barracuda wrote:

Why would they go higher if the primary dealers can still borrow at the discount window for nothing in order to purchase treasuries (and stocks)? ZIRP = unlimited liquidity for the banks. Money for nada.

And of course, the interest on those treasuries is paid by the US Treasury. This is a policy that literally ensures that the primary dealers and others in a position to borrow billions at the discount window can siphon off money from taxpayers for doing fuck-all except being TBTF.

It's just a continuation of the bailout, and an opportunity for the banks to stockpile more cash at our expense.

[MacCruiskeen]

Don't trust the man in the pub.

Sunday 07 August 2011
by Andrew Fisher

http://www.morningstaronline.co.uk/inde ... ull/107995

If someone walks into a pub and declares their jacket to be worth £300, but everyone else declares it to be worth a mere £50 - has £250 been wiped off the economy?

It's an interesting question, because last week the Guardian website squealed that "world stock markets tumbled sharply again on Thursday, wiping nearly £50bn off the value of Britain's biggest listed companies."

Further into the belly of the article we learn that in fact it's worse - £110bn has been wiped off in the past week. Whoops.

Now that is careless - Britain's biggest companies have lost £110bn! But it's nonsense.

Let's go back to our friend in the pub with his £300 jacket and assume he's a scam artist.

He walks in and says: "Here's my £300 jacket," and he has planted a couple of his mates in the pub to talk it up, say how lovely it is - rather reminiscent of the emperor's new clothes isn't it? - and fool some mark into paying £300 for a £50 coat.

If the mark buys, then he has lost £250.

That is because the asset has a clear value - £50.

Back in the stock market, this fluctuation between confidence and panic would not be a problem if it was only one rogue scam artist - the problem for the stock markets is that this is how the system works.

It is for this reason that seemingly sensible, educated, intelligent people panic when anyone points out the emperor's flies are undone, let alone that his old chap is hanging out.

So when AAA-rated collateralised debt obligations - £300 jackets - are pointed out to be near junk - £50 jackets - the system seizes up in the same way that the mark in the pub won't buy from the scam artist again.

On such occasions these same great brains, who never predicted this could happen, start using infantile playground language - warning against "scaring off the confidence fairy" or "talking down the economy" - as if a sound economy would collapse because someone says something negative.

Much in the same way that most of us aren't reduced to gibbering wrecks because someone tells us "you're a git," sound economies don't collapse because of a few words.

Of course, in 2008 economies started collapsing for the very real reason that they were based on the valuation of scam artists.

Governments around the world stepped in and guaranteed much of the scam artists' nigh on worthless assets.

The question is will the government, like the mark in the pub, be fooled twice and bail out, or will it learn from its mistakes and nationalise, control and operate its assets in the public interest - maybe even taking on the all-powerful mafia behind the scam artists - bond markets?

For those of a left-wing disposition shouldn't we be asking: "Do we need a stock market? Shouldn't we shut it down?" when it simply serves to create destabilising panics and to distort the economy.

http://www.morningstaronline.co.uk/inde ... ull/107995

[justdrew]

yeah, yields are down, so... I'd say at least this makes s&p look foolish. but probably not as foolish as people selling into this kind of plunge. It almost seems handy though, if it weren't for this stock sell-off, B.B. might even have some trouble selling all those treasuries he needs to sell?

Treasuries Surge After S&P Downgrade Fuels Safety Bid, Stock Indexes Sink

Treasuries surged as tumbling stock markets sparked demand for the safety of government debt, reversing an initial decline sustained in response to Standard & Poor’s decision to cut the U.S. long-term credit rating.

Two-year yields fell to a record low after Japanese Finance Minister Yoshihiko Noda said Treasuries were attractive. U.S. 30-year bonds gained as much as two points before the Federal Reserve convenes a policy meeting tomorrow and Treasury will hold the first of three debt auctions totaling $72 billion. Group of Seven nations said they will take every action necessary to stabilize financial markets after S&P on Aug. 5 lowered the U.S. rating by one level to AA+.

“Not only is the economy not growing as most would like, but there is a concern that fiscal and monetary authorities are powerless to do more for the economy,” said Michael Pond, co- head of interest-rate strategy in New York at Barclays Plc, one of 20 primary dealers that trade with the Fed. “The increased volatility in the market will decrease risk taking from dealers ahead of the auctions, but there is still plenty of demand for Treasuries, so the auctions should go well.”

Yields on 10-year notes fell 21 basis points, or 0.21 percentage point, to 2.35 percent at 1:55 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.125 percent securities maturing in May 2021 rose 1 27/32, or $18.44 per $1,000 face amount, to 106 23/32.

The two-year note yields decreased as much as six basis points to the all-time low of 0.2283 percent, breaching the previous 0.2527 percent record reached on Aug. 4.

Bill Market

Treasury auctioned $29 billion in three-month bills at 0.045 percent. The bid-cover ratio, which compares bids received to bills sold, was 4.09. The Treasury also sold $27 billion in six-month bills at 0.065 percent.

The U.S. plans to sell $32 billion of three-year notes on Aug. 9, $24 billion of 10-year notes on the following day and $16 billion of 30-year bonds on Aug. 11.

The Federal Open Market Committee will probably leave the fed funds target rate at zero to 0.25 percent tomorrow, according to the median forecast of 101 economists in a Bloomberg News survey.

“We are trading the low-growth picture as one of the primary engines for the economy of late -- government spending - - has been constrained,” said Michael Cheah, who oversees $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. “The downgrade adds more uncertainty to the growth picture, which means Treasuries are what to buy. Now the market will look to the Fed tomorrow to see where they stand.”

Stocks Tumble

The S&P 500 Index fell 4.7 percent, reaching its lowest level since October.

U.S. government bonds declined earlier today as trading began in Asia after S&P downgraded the U.S.’s AAA long-term credit rating following the close of markets on Aug. 5. It cited the nation’s political process, criticizing lawmakers for failing to cut spending or raise revenue enough to reduce record budget deficits.

“S&P demonstrated some spine,” said Bill Gross, who runs the world’s biggest bond fund in Newport Beach, California, at Pacific Investment Management Co. “They spoke to a dysfunctional political system. They spoke to deficits as far as the eye can see. They finally got it right,” he said in an interview with Tom Keene on Bloomberg Television yesterday.

S&P lowered credit ratings on debt issued by Fannie Mae, Freddie Mac, and other lenders backed by the federal government, citing the U.S. loss of its AAA status.

The mortgage finance companies were lowered one step from AAA to AA+, S&P said in a statement today. The downgrade reflects their “direct reliance on the U.S. government,” S&P said.

Europe Moves

Group of Seven nations sought to head off a collapse in investor confidence after the U.S. sovereign-rating cut and a slump in Italian and Spanish debt intensified threats to the global economy.

G-7 finance ministers and central bank governors pledged in a statement to “take all necessary measures to support financial stability and growth.” Officials will inject liquidity and act against disorderly currency moves as needed, they said after a call late yesterday European time. The G-20, which includes emerging markets, issued a similar communique.

“We are seeing flight to quality, given the uncertainty around the downgrade and what it means for risk assets and the economy,” Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, which as one of the 20 primary dealers is obliged to participate in U.S. debt offerings. “The market has come to the realization that growth expectations in the second half of the year will have to come down.”

[Saurian Tail]

The DOW has gone up 500 points in the last hour or so. The system is totally irrational.

Bernanke's two year ZIRP announcement forces investors into equities for the moment, in lieu of any other possible place to sit.

The ten, five and two year Treasury yields are now sitting at record or near-record lows, with no change in the forseeable future of the next two years.

Thanks for the insight Barracuda ... So I did some poking around to learn more about ZIRP. It's fascinating. It probably deserves its own thread.

Here is a quick take on today's events from ZeroHedge:

On Perpetual ZIRP, by Bruce Krasting on 08/09/2011 17:37 -0400
http://www.zerohedge.com/contributed/perpetual-zirp

I had this to say last week:

The Fed could easily attempt to buy some market peace by issuing a statement that the policy of zero interest rates would be extended for a minimum period of one year. I consider this to be a “high probability" to happen in the next 30 days.

I got it right, but I got it completely wrong. I feared that the Fed could extend the ZIRP language for as long as a year. Not in my wildest dream did I think they could take the extremely risky move of guaranteeing that interest rates will remain at zero for another 24 months. Having been shocked, my thoughts.

*This action is indefensible on economic merits. This move is not motivated by sound monetary policy. It’s motivated by politics. This is a payback to Obama. Shame on the Fed for mixing politics with money.

*We will not go two years with this monetary policy without inflation (measured by core) exceeding the previously stated commitment by Bernanke that policy would not be allowed to rise above 2%. Bernanke and the dove members that signed onto this policy have lied to the American people. Bernanke has done it on 60 Minutes. He has done it to Congress. Shame on all of them.

*The Fed has taken away its ability to react to a situation that would require them to tighten. We are now on a one-way street. There is no way to turn around anymore. I believe the Fed has abdicated its responsibilities under the dual mandate. The have no ability to react if inflation should pop up in a year from now. Even worse, they have no policy options should there be a run on the dollar. The possibility of a run on the buck has gone up exponentially as a result. Should that happen, the Fed will have left us economically defenseless. Shame on the Fed for making us more vulnerable to a speculative attack.

*The stock market run up this afternoon is the Bernanke Put at work. Lets be clear on the consequences of Perpetual ZIRP. From this day onward every buy and hold investor who acquires Treasury debt with maturities of less than five-years is GUARANTEED TO LOSE MONEY. So if you accept that, then stocks have to look better. Shame on the Fed for debasing money and punishing savers.

*We have only one monetary policy. Juice stock multiples. This is the farthest thing from “Progressive” economics as you can get. We have a policy in place that is designed to make wealthy people wealthier. At some point there will be a social cost to this. The fires and riots in London were triggered by a shooting. Underneath is a rage between haves and have nots. Shame on the Fed for rigging the outcome for fat cats. Double shame on them for when our streets are filled with rage.

*Zero interest rates also means Zero risk. I think the change in Fed language will exacerbate recent short-term funding liquidity. I think we will see this appear (again) sooner versus later. I think Zero interest rates discourages leveraged investing. This policy will dry up liquidity in the asset backed market (Shadow banking system). I'm looking for evidence of this in the Euro Dollar funding markets. I am also looking for it to occur in the Term Commercial Paper market. Shame on the Fed for setting us up for this systemic risk.

*Brazil, Argentina, Korea, Indonesia are going to scream bloody murder over perpetual ZIRP. Russia is likely to get downright ugly with their rhetoric. I wouldn’t be surprised if they took this opportunity to vote with their feet and just abandon the dollar as a reserve holding. China will also make noise. They will make more calls for a new international currency to replace the dollar. The Central bankers in Japan and Switzerland are puking in the trashcan over this. Bernanke is exporting US deflation to them. Shame on the Fed for pursuing Beggar my neighbor policies. They deserve all the global criticism they are about to get.

*Bernanke bills himself as a student of the Depression. He has said over and over that he would not make the mistakes that the Fed made in 1937 when a tightening of monetary policy triggered another wave of deflation. I think the history books will look at the Fed and August of 2011 and draw a similar conclusion. At a critical time in history the Fed has taken action. The mistake of 72 years ago DID cause a recession that lasted a few years. The mistakes of 2011 will mark a point in history where America turned a corner downward. One that will take a few decades to recover from. The history books will shame Ben.

[Stephen Morgan]

And the Fed's reponse is......nothing!

What would you do?

[beeline]

And the Fed's reponse is......nothing!

What would you do?

Massive public spending on infrastructure, WPA-style. Put the unemployed back to work. Reinstate Glass-Steagall. For starters.

[Canadian_watcher]

And the Fed's reponse is......nothing!

What would you do?

Massive public spending on infrastructure, WPA-style. Put the unemployed back to work. Reinstate Glass-Steagall. For starters.

trouble with this, from a female point of view, is that infrastructure 'make work projects' really only employ males. Which is better than nothing, I guess, but it drastically shifts micro economies and balances of power.

[beeline]

And the Fed's reponse is......nothing!

What would you do?

Massive public spending on infrastructure, WPA-style. Put the unemployed back to work. Reinstate Glass-Steagall. For starters.

trouble with this, from a female point of view, is that infrastructure 'make work projects' really only employ males. Which is better than nothing, I guess, but it drastically shifts micro economies and balances of power.

While that is for the most part true, one aspect of government spending is that a percentage of the dollar amounts and/or contracts must go to minority, women and disabled-owned enterprises, and even on the larger contracts, which go to more typical businesses, those businesses must (or at least, are supposed to) hire/subcontract to a percentage of M/W/DBEs. At least, that's how it is supposed to work, I'm not saying that it always does, you still have to have people enforcing the regulations.

[Stephen Morgan]

And the Fed's reponse is......nothing!

What would you do?

Massive public spending on infrastructure, WPA-style. Put the unemployed back to work. Reinstate Glass-Steagall. For starters.

I meant in terms of interest rates. The Fed doesn't do any of those things, not being the legislative or executive arm of the state.

And the Fed's reponse is......nothing!

What would you do?

Massive public spending on infrastructure, WPA-style. Put the unemployed back to work. Reinstate Glass-Steagall. For starters.

trouble with this, from a female point of view, is that infrastructure 'make work projects' really only employ males. Which is better than nothing, I guess, but it drastically shifts micro economies and balances of power.

And who could possibly want to simultaneously improve the fabric on the nations architecture and infrastructure and reinvigorate the economy through stimulation and demand management if its going to drastically shift micro economies and balances of power? Look at it this way, if you will, male unemployment is higher, the effect of the recession has been much greater on men, with the downturn in construction and so on, so this will be drastically shifting things back to how they were before being drastically shifted by the band of bankers who destroyed the previous functioning of the economy. After all, increasing the income of those who would be employed would increase demand throughout the economy and therefore increase employment levels and demand for labour, with an accompanying rise in average wages for all. Do you really want to refrain from making people better off because in some homes it might allow men economic independence from women?

[eyeno]

Until the lobby system of giving politicians money is taken out of the equation there is no hope. As long as politicians can accept money from lobby the circus will continue as it is. Legal bribes are killing us all.