While One Hand Distracts with California Terrorism, S&P Downgrades Every Major US Financial Institution

by John Galt
December 2, 2015 20:30 ET

To quote Tom Brady in the now infamous fantasy football commercial:

As America is totally freaked out about an apparent Islamist based terrorist attack in San Bernardino, CA, Standard and Poors decided to take a peculiar rating action which will impact the American economy in 2016 far worse than anything short of a biological or nuclear terrorist attack. From the Financial Times tonight:

S&P cuts ratings on 8 US banks

The title doesn’t tell the tale. For those who are subscribed to S&P services (I can not reprint their information) this was the headline which is much more dramatic:

U.S. Global Systemically Important Bank Holding Companies Downgraded Based On Uncertain Likelihood Of Government Support

That was at 7:14 p.m. Eastern Time. What does this mean for the upcoming year of American discontent?

More from the FT article:

The agency said the move reflected its view that the US government’s likelihood of providing aid to banks was now “uncertain”.

Based on our review of progress made toward putting in place a viable US resolution plan, we now consider the likelihood that the US government would provide extraordinary support to its banking system to be “uncertain” and are removing the uplift based on government support from our ratings.

The move comes after the Federal Reserve proposed a rule on banks’ “total loss absorbing capacity”, or TLAC, earlier this year, that said that banks must carry capital and liabilities equal to 18 per cent of risk-weighted assets that can be written off during times of trouble.

Here is a chart of the actions taken today from S&P:


This means that the Fed has given the warning to themselves as after all these are the shareholding institutions which make up the Federal Reserve and that soon they are going to finish the harvest of the suckers by rapidly increasing interest rates and eventually creating a crisis far worse than 2008-2009 which will require an entire reset of the United States financial system.

In the mean time, please watch what’s happening in California and ignore the moves happening behind the scenes as this will not impact your household until it does.

The good news tonight? S&P futures are up, so who cares!

Comments are closed.

%d bloggers like this: