Alright, so let’s dive into this article about Moody’s downgrading the US rating. Not really sure why this matters, but Moody’s decided to pull the trigger and knock the US down a notch from Aaa to Aa1. Does it make a difference? Who knows, really? We pondered the consequences of a downgrade a while back when Moody’s was turning a blind eye to the obvious signs.
Market-wise, will this downgrade cause chaos on Monday? It’s anyone’s guess. Back in 2011, S&P’s downgrade led to a major drop in US stock prices, but things bounced back quickly. People were probably just panicking about what the downgrade could mean for the financial system. But will financial plumbers care this time around? Probably not at all.
Banks’ capital calculations won’t be affected by the rating shift. Regulators don’t really differentiate between Aaa and Aa1 when it comes to setting risk-weights. So, even if Moody’s had gone all out and dropped the rating three notches to Aa3, it wouldn’t have changed a thing. Collateral management? Well, a downgrade to Aa1 won’t likely have much impact there either. The haircut on US Treasuries is more about maturity and security type, not ratings. And at LCH, a downgrade won’t shake things up. So, in terms of mechanics, it’s all good.
Moving on from the finance world, Moody’s might be in for a bumpy ride. Back in 2011, S&P’s downgrade led to a lot of drama. Treasury Secretary Tim Geithner wasn’t too happy, and filmmaker Michael Moore even called for the CEO’s arrest. Things got so heated that someone flew a banner past the rating agency’s office calling for firings. And let’s not forget the $5 billion lawsuit that came S&P’s way for allegedly misleading banks before the financial crisis. Moody’s might want to brace themselves for some fallout.
As for the White House, they’ve brushed off the analysis and taken a swipe at Moody’s chief economist. Not really sure where this is all going, but it seems like tensions are running high. Maybe Trump will take this downgrade personally and seek some payback. Will the SEC be able to stay neutral in all this? Who knows, it’s a wild ride out there. But hey, nobody takes Zandi’s analysis seriously anyway, right?
In the grand scheme of things, a one-notch downgrade might not rock the boat too much in the markets. But it’s still a big deal. Moody’s has been warning about the US’s shaky financial situation for a while now. They pinned the Aaa rating on the country’s economic strength and its role in global finance. But times have changed, and Moody’s is just keeping it real with this downgrade.
