Wednesday, September 21, 2011

Downgraded USA Guarantees SBA Loans for Downgraded Banks

The saying "something's rotten in Denmark" comes to mind...

Earlier today a video was uploaded to the YouTube White House channel that shows Vice President Joe Biden announcing $20 billion in additional small business lending.

Here is that video (note the list of financial institutions that Biden begins to list at about 1:15 into this video):

Now, from Reuter's:

"Moody's downgrades big banks on changed policy"

Wells Fargo's holding company senior debt was lowered only one notch to "A2" from "A1." Citigroup's short-term rating for the holding company was changed to "Prime-2," which Moody's noted is typical for companies with the same long-term rating as Citigroup.

The holding company's short-term rating had been exceptionally high because those creditors benefited the most from government support during the financial crisis, Moody's said.

Moody's changed only the short-term rating of the Citigroup holding company and left in place its ratings on the holding company's long-term debt, as well its short- and long-term ratings on the main Citibank subsidiary.

Moody's said the long-term outlook on the three banks' ratings remains negative.

Wells Fargo responded with a statement noting Moody's actions on some of its obligations reflected a change in the agency's view of government support, as opposed to a new opinion of the bank itself.

Bank of America said through a spokesman that the downgrade was due to forces beyond its control and asserted it has a healthy liquidity cushion of $400 billion. All of its planned borrowing needs have been prefunded for the rest of 2011, the spokesman said.

Citigroup said in a statement that Moody's downgrade affects less than 1 percent of its funding. The decision will not affect its funding needs, it said.

You can read the remainder of the above article from Reuter's HERE.

Citigroup and Wells Fargo were both mentioned by Biden. Is it just me or does it not seem like a good idea to back what could be be "bad money" with what could be more "bad money?" The U.S. has been downgraded and now they're (we're) backing up the loans made by 2 banks that have been downgraded and the only entity in this 3-way mixture (bank=debtee - govt=backer - small business=debtor) that hasn't been downgraded is the small business/person that is seeking a loan. Doesn't make sense to me, but, I'm far from a financial guru. Feel free to correct me in the comments below.