CNN: Boehner plan would "probably" result in S&P ratings downgrade

[Drachen]

I definitely see the potential for economic hard. Anytime the economy tanks you see commodities such as oil and gold rise. Thats pretty basic. That being said, if the 2007-08 financial crisis didn't generate financial reform then you'd have to imagine that the bond market would have to have an effect greater than the previous crisis to generate such reform. I don't think thats really going to happen because even now those bonds are selling very well. So even now, at midnight before the debt crisis with no apparently solution with a looming rate hike these bonds are selling well. I just find it hard to believe that all of a sudden they're going to flip based on a ratings agency given the relative weakness of other bonds.

well at that time the Fed was able to cut rates which increased the value of all of the bondholders' assets so the situation which I described did not happen. The other difference is that people were pulling their money out of the stock market and putting it in the bond market as well as commodities. This could be a rare situation where both bonds and stocks are not attractive investments and therefore the only game in town would be commodities. The other big difference between 2008 and now is that in 2008, 2008 hadn't happened 3 years earlier.

[cheguevara]

But Obamageddon has come!

hide your daughters! Obama is raping everyone out here!

[MannyIsGod]

well at that time the Fed was able to cut rates which increased the value of all of the bondholders' assets so the situation which I described did not happen. The other difference is that people were pulling their money out of the stock market and putting it in the bond market as well as commodities. This could be a rare situation where both bonds and stocks are not attractive investments and therefore the only game in town would be commodities. The other big difference between 2008 and now is that in 2008, 2008 hadn't happened 3 years earlier.

I'm trying to tell you that there is little evidence that bonds aren't attractive investments right now as this situation is unfolding even as most people expect a downgrade. I'm arguing that a downgrade has already been factored in by the bond market. Where's the panic?

[RandomGuy]

I'm trying to tell you that there is little evidence that bonds aren't attractive investments right now as this situation is unfolding even as most people expect a downgrade. I'm arguing that a downgrade has already been factored in by the bond market. Where's the panic?

I don't think the bond market has fully factored in a downgrade yet.

Yields haven't risen enough to compensate for the rise in interest rates that a downgrade would entail.

It seems the consensus has been "no way they (congress) would be that stupid".

Not saying its a good assumption, just the working assumption.

It would seem the tea party really is that stupid. SURPRISE!!!!

Down is down 1.5% today, BTW, with bond yields on the 10 year notes up.

It would seem that they are factoring it in now.

[Drachen]

I'm trying to tell you that there is little evidence that bonds aren't attractive investments right now as this situation is unfolding even as most people expect a downgrade. I'm arguing that a downgrade has already been factored in by the bond market. Where's the panic?

I think that everyone is still holding onto hope that it will get done. I don't think that it has been factored in yet. The dow was increasing until a week ago and is now falling. I think we are seeing the process of it getting priced in. Also, the ratings agencies have said that there is a 50-50 chance of a downgrade so even if you are correct, the pricing in of a 50 % chance of a downgrade would happen over time. In the event of a default, though, that other 50% gets priced in all in one day. Pretty catastrophic.

[SnakeBoy]

I hate it when you guys force me into defending Obama, but given the level of the economic crisis that unfolded prior to his taking office and the level of the the current situation your statement is out of context bull .

Yeah we had to take all the actions taken in order to "prevent the crisis on wall street from becoming a crisis on main street". How's it worked out for main street? In case you haven't noticed economic armegeddon has been occuring for millions since we "had" to save the TBTF's from themselves. Look at Drachen's dire predictions of what will happen Aug 2nd...the wealthy will shift investments and continue to be wealthy and the non wealthy will struggle. That's not armegeddon, that's business as usual.

And I wasn't comparing 9/11 to the financial crisis. I was comparing the politics of fear mongering. Works for every situation it seems.

[ElNono]

Missing my point again. I'm not arguing against that. I'm arguing against it being enough of a catalyst for real legislative change. Especially when you consider the way the word trillion is tossed around now. 100 billion is simply not a game changer, IMO. I'm not arguing its insignificant in the least.

ok

[Th'Pusher]

Kind of funny in retrospect. LOL @ $51B

http://abcnews.go.com/Archives/video...nking-14171073

[Th'Pusher]

I mean BHO really did a number to the economy in his 2.5 years in office...

[ChumpDumper]

In case you haven't noticed economic armegeddon has been occuring for millions

lol using hyperbole to criticize hyperbole

[MannyIsGod]

I think that everyone is still holding onto hope that it will get done. I don't think that it has been factored in yet. The dow was increasing until a week ago and is now falling. I think we are seeing the process of it getting priced in. Also, the ratings agencies have said that there is a 50-50 chance of a downgrade so even if you are correct, the pricing in of a 50 % chance of a downgrade would happen over time. In the event of a default, though, that other 50% gets priced in all in one day. Pretty catastrophic.

Downgrade and default are two different things. I'd agree things get FAR worse with a default.

[MannyIsGod]

Yeah we had to take all the actions taken in order to "prevent the crisis on wall street from becoming a crisis on main street". How's it worked out for main street? In case you haven't noticed economic armegeddon has been occuring for millions since we "had" to save the TBTF's from themselves. Look at Drachen's dire predictions of what will happen Aug 2nd...the wealthy will shift investments and continue to be wealthy and the non wealthy will struggle. That's not armegeddon, that's business as usual.

Thats pretty funny considering what you're complaining about. But not, millions have not seen "armegeddon" and considering how Obama's plan has been to help those people I don't think you can be critical of his stance on that.

Yes its bad. That doesn't mean it wouldn't have been far far worse.

You think Aron Ralston complains about missing part of his arm when contemplating the alternative? Not acknowledging that the system would have completely collapsed - and our way of life with it - had they acted when they did is some really poor revisionist history.

Also, Obama didn't pass TARP.

And I wasn't comparing 9/11 to the financial crisis. I was comparing the politics of fear mongering. Works for every situation it seems.

Fear mongering isn't fear mongering when there's an actual reason to be scared. THAT is the point.

[SnakeBoy]

Fear mongering isn't fear mongering when there's an actual reason to be scared. THAT is the point.

So you must be terrified of next week. What do you think is going to happen to you?

[SnakeBoy]

lol using hyperbole to criticize hyperbole

It's not hyperbole when you're describing something that has actually happened.

[RandomGuy]

Yeah we had to take all the actions taken in order to "prevent the crisis on wall street from becoming a crisis on main street". How's it worked out for main street? In case you haven't noticed economic armegeddon has been occuring for millions since we "had" to save the TBTF's from themselves. Look at Drachen's dire predictions of what will happen Aug 2nd...the wealthy will shift investments and continue to be wealthy and the non wealthy will struggle. That's not armegeddon, that's business as usual.

And I wasn't comparing 9/11 to the financial crisis. I was comparing the politics of fear mongering. Works for every situation it seems.

Not saving the TBTF banks would have had the following effect:

Bank 1
Assets 100, liabilities 90, equity 10 (A-L = E)

Bank 2
Assets 100, liabilities 90, equity 10

Bank 3
Assets 150, liabilities 130, equity 20


Economic crisis hits. All banks have a small amount of asset loss.
Step 1
Bank 1
Assets 98, liabilities 90, equity 8

Bank 2
Assets 98, liabilities 90, equity 8

Bank 3
Assets 145, liabilities 130, equity 15

So far so good. All three are solvent.
Did I mention that all three banks, as part of their assets, hold each other's bonds? No? Keep that in mind, it gets important.

Step 2
Bank 1 had a bit more exposure to a certain sector than they realized, and one of their counter party deals comes due early.
Assets 90, liabilities 92, equity -2

Whoops.

Bank 1 can no longer pay on all of its obligations. i.e its bonds. This is where the write downs suddenly come into play. Bank 2 and 3 have to write down the values of Bank 1's bonds, and sustain ongoing losses.

Step 3, write down on Bank 1
Bank 1
Assets 90, liabilities 92, equity -2
Bank 2
Assets 93, liabilities 91, equity 2
Bank 3
Assets 137, liabilities 138, equity -1

What do you think will happen to Bank 3 bonds? You know, the ones that Bank 2 is holding? Bank 2, already under stress, has a capital cushion of 2, before that write down.

This is how interlinking causes cascading failures.
Bank 1's over exposure to the housing market ripples through the other two at the same time they are under stress.

If you don't stop the "first domino", you WILL end up with the Great Depression all over again.

I always marvel at "free market" fanatics who dont' seem to understand how exactly "free markets" work, and think that the bailout was some Democrat plot.

[ChumpDumper]

It's not hyperbole when you're describing something that has actually happened.

Do you know what hyperbole means?

[SnakeBoy]

Not saving the TBTF banks would have had the following effect:

Bank 1
Assets 100, liabilities 90, equity 10 (A-L = E)

Bank 2
Assets 100, liabilities 90, equity 10

Bank 3
Assets 150, liabilities 130, equity 20


Economic crisis hits. All banks have a small amount of asset loss.
Step 1
Bank 1
Assets 98, liabilities 90, equity 8

Bank 2
Assets 98, liabilities 90, equity 8

Bank 3
Assets 145, liabilities 130, equity 15

So far so good. All three are solvent.
Did I mention that all three banks, as part of their assets, hold each other's bonds? No? Keep that in mind, it gets important.

Step 2
Bank 1 had a bit more exposure to a certain sector than they realized, and one of their counter party deals comes due early.
Assets 90, liabilities 92, equity -2

Whoops.

Bank 1 can no longer pay on all of its obligations. i.e its bonds. This is where the write downs suddenly come into play. Bank 2 and 3 have to write down the values of Bank 1's bonds, and sustain ongoing losses.

Step 3, write down on Bank 1
Bank 1
Assets 90, liabilities 92, equity -2
Bank 2
Assets 93, liabilities 91, equity 2
Bank 3
Assets 137, liabilities 138, equity -1

What do you think will happen to Bank 3 bonds? You know, the ones that Bank 2 is holding? Bank 2, already under stress, has a capital cushion of 2, before that write down.

This is how interlinking causes cascading failures.
Bank 1's over exposure to the housing market ripples through the other two at the same time they are under stress.

If you don't stop the "first domino", you WILL end up with the Great Depression all over again.

I always marvel at "free market" fanatics who dont' seem to understand how exactly "free markets" work, and think that the bailout was some Democrat plot.

I always marvel at those who think TARP or doing nothing were the only options.

[Drachen]

Downgrade and default are two different things. I'd agree things get FAR worse with a default.

the moment we can't borrow any more we default. If we can't pay defense contractors for their work: default. If we can't pay principal and interest on our debt: default. If we can't send out SSI checks: default. etc.

[Wild Cobra]

the moment we can't borrow any more we default. If we can't pay defense contractors for their work: default. If we can't pay principal and interest on our debt: default. If we can't send out SSI checks: default. etc.

So....

Should we borrow more to cover today's costs, almost insure default for my children?

Maybe we should find real solutions.

[ChumpDumper]

So....

Should we default now while we're saying we're looking for a real solution?

[MannyIsGod]

So you must be terrified of next week. What do you think is going to happen to you?

I am fairly scared of what might happen. I'm very close to finishing up my two degrees. Should there be a problem financing the system that is providing me those degrees then I'm not going to be very scared. If the government runs out of money then it obviously has huge effects.

I'm definitely not happy about the prospect of all of this going down when I can see the finish line.

[SnakeBoy]

So....

Should we borrow more to cover today's costs, almost insure default for my children?

Maybe we should find real solutions.

No No No! We must do whatever it takes to continue business as usual. Otherwise the average americans might lose their job, their home, have a lower standard of living...oh wait nevermind.

[MannyIsGod]

I'm a lot more scared of this than I ever have been of the prospect of being the target of some terrorist. Thats for damn sure.

[MannyIsGod]

No No No! We must do whatever it takes to continue business as usual. Otherwise the average americans might lose their job, their home, have a lower standard of living...oh wait nevermind.

Complete and utter strawman. Don't change your tune now. Stick to your guns that this isn't serious.

[SnakeBoy]

I am fairly scared of what might happen. I'm very close to finishing up my two degrees. Should there be a problem financing the system that is providing me those degrees then I'm not going to be very scared. If the government runs out of money then it obviously has huge effects.

I'm definitely not happy about the prospect of all of this going down when I can see the finish line.

So your only thinking short term. Take a long term look and you might be more scared.