Bernanke signals another rate cut and Greenspan tells the Gulf countries to get out of the dollar.
The effect of this is are a record low dollar, record high commodity prices and higher inflation.
Yesterday the rating companies Moody’s and S&P renewed their first-class AAA rating for mortgage insurer MBIA. This is a bad joke and exposes the whole rating system as a fraud.
Mish compares MBIA with pharma giant Pfitzer, which was downrated from AAA in December:
- Profit margin -61.76% vs. +17.07%
- Return on Equity -35.54% vs. +12.13%
- Revenue $3.12 Billion vs. $48.61 Billion
- Earnings Per Share -$15.22 vs. +$1.20
- Total Cash $5.73 Billion vs. $20.30 Billion
- Total Debt $17.44 Billion vs. $8.69 Billion
So why does Moody’s give an AAA rating to MBIA when it is obvious that MBIA is financial junk?
The decisions by Moody’s and S&P to retain the ratings protected as much as $637 billion of debt from downgrade, avoided fire sales of municipal bonds and helped save banks from as much as $70 billion of losses, based on Oppenheimer & Co. estimates.
The banks pressed Moody’s to keep the music going and the Fed and the Federal Exchange Commission seem to agree that lying is currently the best thing to do. The problem is of course that everybody looks right through this and any trust in the U.S. financial system erodes.
With the loss of trust the music one day will stop and there will be no chairs to sit down on. Then the government will bailout the banks by nationalizing the banking system.
The FT’s Martin Wolf says a $1 trillion national bailout of the banking system will not matter much. Well, maybe not to him.
But U.S. taxpayers will have to pay for this one way or another. Either through decades of higher taxes or through inflation. Most likely we will see both.
These are the penalties for the U.S. for living beyond its means. But while the profits of living beyond the means went mostly to the rich, the costs will be put on everyone.