Moody's keeps the United States AAA credit rating but gives a negative outlook.
From their press release:
Moody's Investors Service has confirmed the Aaa government bond rating of the United States following the raising of the statutory debt limit on August 2. The rating outlook is now negative.
Moody's placed the rating on review for possible downgrade on July 13 due to the small but rising probability of a default on the government's debt obligations because of a failure to increase the debt limit. The initial increase of the debt limit by $900 billion and the commitment to raise it by a further $1.2-1.5 trillion by yearend have virtually eliminated the risk of such a default, prompting the confirmation of the rating at Aaa.
In confirming the Aaa rating, Moody's also recognized that today's agreement is a first step toward achieving the long-term fiscal consolidation needed to maintain the US government debt metrics within Aaa parameters over the long run. The legislation calls for $917 billion in specific spending cuts over the next decade and established a congressional committee charged with making recommendations for achieving a further $1.5 trillion in deficit reduction over the same time period. In the absence of the committee reaching an agreement, automatic spending cuts of $1.2 trillion would become effective.
Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.
In conjunction with this action, Moody's has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the US government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks. We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the US government or the affected financial institutions.
The triple-A rating on U.S. government bonds is one of the main reasons why many investors, including other major central banks, hold these dollar assets.
Take this top-level rating away and many will be forced to sell. The diversification flows into other major currencies, which have been a major source of dollar weakness in recent years, will only accelerate.
Moody's slashed Greece's credit rating by three notches on Monday due to an increased default risk, raising the specter that the distressed euro zone sovereign may have to restructure its debt, perhaps before 2013.
The move increased pressure on euro zone leaders to ease repayment terms on bailout loans to Athens, just as Germany and its allies seem to have turned their backs on more radical steps to help it reduce its debt through bond purchases or buy-backs.
Moody's Investors Service downgraded Greek debt to B1 from Ba1 -- lower than Egypt -- and said it may cut further, drawing an indignant protest from the Greek Finance Ministry.
This downgrade caused Greece's Credit Default Swaps to hit a record high:
Five-Year CDS On Greece Hit 1035BPs Intraday, Above Record Close of 1032BPs
Cost Of One-Year CDS On Greece Rises 6.1% - Markit
$476 Mln New CDS Traded On Greece In Week Ended Feb. 25 - DTCC
The cost to insure EUR10 million of Greek bonds for five years spiked 5.3%, or $52,000 a year,
Meanwhile the EU just did something completely practical, they just voted to ban CDS speculation:
The European Parliament voted Monday to stop investors from buying insurance for government debt if they don't own the underlying bond, as it seeks to fight financial speculation.
A Senate panel investigating the causes of the nation's financial crisis on Thursday unveiled evidence that credit-ratings agencies knowingly gave inflated ratings to complex deals backed by shaky U.S. mortgages in exchange for lucrative fees. - McClatchy News Reporting
We all are aware that credit ratings agencies played a major part in the financial meltdown. So, naturally one would expect to see major reforms originating from Congress.
Not only is this ignored in legislation that has any chance of passing, the New York Times is reporting we never will.
When the financial crisis began, few players on Wall Street looked more ripe for reform than the Big Three credit rating agencies.
It wasn’t just that Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, played a crucial role in the epochal housing market collapse, affixing their most laudatory grades to billions of dollars worth of bonds that went bad in the subprime crisis.
Several weeks ago there were these serious allegations from a former Moody's executive, Eric Kolchinsky:
Kolchinsky said Moody's "gave a high rating to a complicated debt security in January 2009 knowing that it was planning to downgrade assets that backed the securities. Within months, the securities were put on review for a downgrade.
"Moody's issued an opinion which was known to be wrong," Mr. Kolchinsky wrote in a July letter to the rating firm's chief compliance officer, a copy of which was reviewed by The Wall Street Journal. In the letter, Mr. Kolchinsky cited other instances in which he believes inflated ratings were given to securities.
The headline is misleading for a charge off means the credit card company has determined they ain't ever seeing the money. So the number of Americans unable to actually make their payments is probably higher. This news is two days old but significant considering unemployment is skyrocketing past estimates. Credit card charge-off rate nears 10% -Moody's:
The Moody's Credit Card Index's charge-off rate -- debts that card issuers believe they will never collect -- rose to nearly 10 percent in April, the highest level in the index's more than 20-year history, the report said.
This pace of rising charge-offs is unprecedented as year-over-year changes continue to surpass the magnitude of either increases or decreases experienced during any previous period
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