Reaction to Moody's downgrade of big banks
What does this mean for our money?
- Duration 4:02
- Date Jun 22, 2012
What does this mean for our money?
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We're gonna check in on the markets today looking better than they did yesterday when we had one of the worst trading sessions of the year.
This is after news that some of our biggest most prestigious banks.
Are starting the day with lower credit ratings downgrades happening last night the familiar names you know like Bank of America.
Citigroup JPMorgan Chase Goldman Sachs.
And Morgan Stanley what does this mean for us in our money.
And our banks telecast Farina senior correspondent for the -- is his network is with that some might -- toll associate editor.
For Barron's Magazine welcome to you both might what does this mean for our money.
Well I mean bottom line it doesn't really change very much in terms of the average person's deposits -- things like that what it does mean is the recognition and by the way this was months in coming we were sort of expecting this a recognition.
That the economic conditions and the regulatory conditions have worked against banks they're going to be less profitable they may have higher borrowing costs and it might be you know one more thing that is a bit of a headwind to the economy I don't think though.
A real big surprise or -- big change in behavior just in the short term for the backs Charlie is our financial system safe.
That's -- -- those very loaded questions.
I can't tell you what's gonna happen in Europe and part of this is is is a reaction to what's going in Europe.
We know all these banks have you know.
Deals with the European banks -- the on the -- insurance policies and on Baghdad over there.
So this could be for telling something bad if -- if the financial crisis in Europe doesn't stop but I'll disagree this is bad for the bottom line for American I'll tell you why.
The reason is that when you lower debt debt ratings there's all sorts of things that -- -- in terms of capital standards -- all the new rules that have been placed.
This is the listing the US economy needs it right now because the banks are going to be less hesitant more hesitant.
To lend to small businesses.
This is pretty bad given the context.
That we are going likely into a recession mean when you talk to most economists they say they'll likely that the recession of a recession.
Where he's or at least you know very very very slow growth more slow slower than it is now it is very likely and this could be what pushes us over the.
-- are you hearing that as well that this could be a precursor to another sign that we're headed towards a recession.
It -- it doesn't help I think that the big thing -- to putting context is the tangible results of a lower credit rating which is higher borrowing cost for banks that need to have more capital have mostly been put in place right now today the stocks and bonds of banks are going up because we sort of already built this and expectations I agree with the sorry guys the appetite for aggressive lending is only going to be diminished.
By this action but I don't think this is a really the big swing factor as to whether -- I I think USA I think you have to delineate between the market reaction and the real economy reaction yes the market reacts before the thing gets put into place.
But the -- the fact of the matter is all these banks have now been downgraded.
Right now they have to ramp up their sort of credit standards we can't just lend to anybody if they weren't lending to anybody in the past.
This is pretty bad if you if you if you looking form increased business -- this is not a good sign it -- huge -- Let me ask you this because both you and -- product new regulations.
Did we put in the new regulations to make the banking system safer -- we have the stress testing out the banks and that they would be safe.
Is this showing us that the banks are safer.
Or less -- when you know here's a -- There's -- thing we we should also put another context is a political figure Moody's was very late on the financial crisis.
So they don't want to be late on whatever is coming next and you know there's a lot of stuff coming out of your.
So remember they you know a lot of you -- -- -- there's there are people out there making the case that the banks that Moody's is over reacting to what's going to Europe I will say this though.
Banks being -- -- like this is not good for the US economy they're gonna be less more hesitant to lend to small businesses even though they were.
Not doing that much of it in the first place we are slowing down our economy.
This is something that could push us into recession no doubt Charlie -- thank you for the -- -- big story will continue to watch it.