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Moody's Goes on Downgrading Spree

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Published on Jun 22, 2012

Moody's Analytics downgraded its ratings for 15 of the world's largest banks late Thursday afternoon. Moody's stated that each of the banks has "significant exposure" to the volatility of the capital markets.

Bank of America, JPMorgan Chase and Goldman Sachs were among the American banks affected. Some of Europe's largest banks, including Barclays, Deutsch Bank and HSBC, were also downgraded.

A downgrade usually makes it more costly for banks to raise money by selling debt. When a bank's credit rating is downgraded, it is considered to be a riskier investment; therefore investors demand higher interest.

However, with interest rates already at rock-bottom, Moody's downgrades might actually have little effect on the banks' cost of funding. In a sign that investors shrugged off the downgrades, the stock market actually rallied after the news was announced.

Moody's was essentially adjusting its outlook to something investors were already well aware of.

Yet the announcement highlights the fact that American and European banks have still not fully recovered. The Trumpet does not believe they will. Although the banking system is experiencing a protracted disaster, much more important than the financial repercussions are the political repercussions. Watch for European leaders to actually use this crisis to transform the structure of the European Union. A federal European superpower will emerge soon.

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