Saturday, Jan 30, 2010
Banks still going down
Reuters: UK no longer among most stable banking systems-S and P
I was surprised that this did not get reported in any news BBC or SKY or radio.
This S & P report states that banks are not as safe as houses.
Posted by deepak @ 12:25 PM (1167 views) Add Comment
12 Comments
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1. Pyracantha said...
Still not a ratings downgrade, just a shot across the bows.
2. icarus said...
They are as safe as house prices.
3. sneaker said...
Where were these people before we had the greatest financial crash of all time?
Would have been nice to know before the collapse happened.
4. icarus said...
They were giving AAA ratings to securitised mortgages.
5. drewster said...
What icarus says.
The ratings agencies (S&P, Moodys, Fitch, etc.) have consistently been lagging the markets by 18 months or so. I expect next year they'll downgrade Greek bonds.
Typical examples of failure:
- Enron: they didn't downgrade the company's bonds until four days before it went bankrupt.
- Lehman Bros: they didn't downgrade the bonds until the actual day it went bankrupt.
6. jack c said...
There is a huge conflict of interest regarding the ratings agencies - a little digging and delving will reveal all on where their payments come from for issuing those AAA ratings. From memory (and I stand to be corrected) NR was still receiving AAA ratings before it went cap in hand to the BOE etc...
7. deepak said...
Drewster: If I take your chain of thought forward:
What does it mean is the real situation is now if this statement is out of date by 18 months??
8. alan said...
A great deal of each banks security (for mortgages) is affected by house prices. UK banks have watched the US situation very carefully and don't want to trigger mortgage defaults where the banks are unable to get their money back via the reposession route.
Thus banks are only "as safe as house prices"...Thanks Icarus.
9. Icarus said...
Rating agencies played a pivotal role in causing the crisis. Their AAA ratings meant that MBS, CDO, and SIV securities were readily purchased by institutional investors (including, perhaps, your pension fund) because they paid higher yields than other, similarly rated, securities. These securitisations then made possible the origination of large pools of low-quality individual mortgages that enabled over-leveraged consumers and investors to purchase over-valued housing. Toxic loans became highly rated debt securities. Investors in credit derivatives took on exposure to losses in the underlying mortgages that was far larger than the underlying loan balances. The regulatory capital requirements for holding these rated instruments were also far lower than for directly holding the toxic loans.
10. freemanphil said...
Ratings agencies = moral hazard, period. The policy of using them for national policy is an outrage none of us should suffer.
People used to look at the actual performance of a business, now they just look at somebody else's short hand grade of it. Summarizing a nation's banking system with a single code is ludicrous. It is the ultimate Orwellian speak, Double Plus = AAA.
11. drewster said...
Deepak - The situation today is as we know it, from reading the articles posted on here.
In April 2008, 21 months ago, RBS announced a massive rights issue. That's one sign.
In October 2008, 15 months ago, RBS was effectively nationalised by the government (58% ownership). That's another sign.
Today, January 2010, the ratings agencies finally catch up and declare that the UK's banking sector is "no longer amongst the most stable".
With reaction times like that, I really hope they don't have driving licences....
12. rumble said...
Ratings agencies = just another bunch's opinion, and we've seen how accurate the "expert's" opinions can be.