Turns out the US Debt Rating was Cut from AAA to AA

[wwswimming]

We all heard about US bonds having to pay a higher percentage rate than Warren Buffett.

But it took an explanation from Daryl Bradford Smith & Mohammed Rafeeq for it to make sense -
http://iamthewitness.com/audio/Muhammad.Rafeeq/TFC.SMITH.RAFEEQ.27-03-2010.mp3

The deal is, the US is officially allowed to have an "AAA" rating - but buyers insist on receiving the same interest as AA debt.

Background - US government tried to borrow $118 Billion last week, a combination of new debt and old debt. The US gov. budget deficit in Feb. 2010 (just for one month) was $221 Billion (they're currently growing the deficit at the rate of $2.64 Trillion per year.)


In another part of the broadcast, they talk about the Madoff Scam-within-a-Scam.

Because Madoff pleaded guilty to a financial crime, his investors are allowed to be compensated for their alleged losses by the US government. Not only are their losses covered - the investors are also making claims for the earnings they allege they would have earned for a normal investment.

And because Madoff has pleaded guilty - no proof is required.

Guess who pays for it ? US taxpayers.

It looks to me like what happened is, Madoff realized they were $X Billion in the whole, and they decided to make use of a law that allows investors to be compensated in the case of fraud (like the FDIC, but a different fund.) But first they needed somebody to confess.

It looks like the Madoff scam may not be the original Ponzi scheme.

Rather, it looks like the Madoff scam is using the claim of a financial crime to compensate investors who otherwise would have lost $50 to $75 billion. Clever.


Still a little early to say for sure, have to wait for the dust to settle.


Smith is a historian & retired accounting professor in France. Mohammed Rafeeq is an English guy who derives his knowledge about the financial industry from the fact that he works in the financial industry.

 

[StageLeft]

OR: Why the market does what it thinks is right regardless of what a rating agency says?

 

[heyheybooboo]

Just a little heads up before this thread goes to crap (unless it's already there - LOL).

February is typically a poor month for tax receipts. Not surprisingly, April and August are typically big months for tax receipts.

All I got to say: I hope 'we' remember who our 'friends' were in one of our greatest times of need. Otherwise ....


--

 

[JEDIYoda]

We all heard about US bonds having to pay a higher percentage rate than Warren Buffett.

But it took an explanation from Daryl Bradford Smith & Mohammed Rafeeq for it to make sense -
http://iamthewitness.com/audio/Muhammad.Rafeeq/TFC.SMITH.RAFEEQ.27-03-2010.mp3

The deal is, the US is officially allowed to have an "AAA" rating - but buyers insist on receiving the same interest as AA debt.

Background - US government tried to borrow $118 Billion last week, a combination of new debt and old debt. The US gov. budget deficit in Feb. 2010 (just for one month) was $221 Billion (they're currently growing the deficit at the rate of $2.64 Trillion per year.)


In another part of the broadcast, they talk about the Madoff Scam-within-a-Scam.

Because Madoff pleaded guilty to a financial crime, his investors are allowed to be compensated for their alleged losses by the US government. Not only are their losses covered - the investors are also making claims for the earnings they allege they would have earned for a normal investment.

And because Madoff has pleaded guilty - no proof is required.

Guess who pays for it ? US taxpayers.

It looks to me like what happened is, Madoff realized they were $X Billion in the whole, and they decided to make use of a law that allows investors to be compensated in the case of fraud (like the FDIC, but a different fund.) But first they needed somebody to confess.

It looks like the Madoff scam may not be the original Ponzi scheme.

Rather, it looks like the Madoff scam is using the claim of a financial crime to compensate investors who otherwise would have lost $50 to $75 billion. Clever.


Still a little early to say for sure, have to wait for the dust to settle.


Smith is a historian & retired accounting professor in France. Mohammed Rafeeq is an English guy who derives his knowledge about the financial industry from the fact that he works in the financial industry.

all suspect until you provide proof...link.......

 

[LegendKiller]

Only a moron would believe this.

Not all AAA bonds are priced the same, not all AAA bonds are priced narrower than AA bonds. Asset classes, supply vs demand, duration, convexity...etc...all factor into pricing.

There are many factors in investing in different assets. Preferred habitat, preferred duration, preferred tenure, preferred class. The fact that BRK debt IS so rare means it will trade at a premium to other debt.

Only somebody ignorant in finance wouldn't know this.

 

[Narmer]

So did the Fed fail to sell all their debt or not?

 

[LegendKiller]

So did the Fed fail to sell all their debt or not?

Fed only brought their holdings of gov't debt back to historical levels.

 

[Narmer]

Fed only brought their holdings of gov't debt back to historical levels.

Is that a yes or no? If they did sell all their debt, did they sell it at the expected yield?

 

[JS80]

So did the Fed fail to sell all their debt or not?

I think you're confusing the US Treasury with the Federal Reserve.

But my guess is you're referring to this http://www.ft.com/cms/s/0/c51fbbce-3908-11df-8970-00144feabdc0.html

Regardless, the fact that you do not have a clue about how the system actually works, I don't think you're qualified to debate this.

 

[Narmer]

I think you're confusing the US Treasury with the Federal Reserve.

But my guess is you're referring to this http://www.ft.com/cms/s/0/c51fbbce-3908-11df-8970-00144feabdc0.html

Regardless, the fact that you do not have a clue about how the system actually works, I don't think you're qualified to debate this.

I meant Treasury. And I do have a clue as to how the system works. Do you?

EDIT: 'Fed' rolls of the tongue much better than 'Treasury', even when writing.

 

[Narmer]

Anyway, I hope this affects the dollar in a negative way. I need to sell some foreign currency I've been holding since last summer.

 

[LegendKiller]

I meant Treasury. And I do have a clue as to how the system works. Do you?

As somebody who buys debt, sellers of debt never sell it at the rate they think they will sell it.

Different asset classes have different spreads. All you have to do is take a look at a AAA timeshare bond vs a A credit card bond. A AAA timeshare bond will trade at a discount vs the A credit card bond.

Comparing the IIRC the first-ever debt sale for BRK to a nearly daily sale for the treasury, is silly. It does not even count in maturity or supply or asset class.

Only a fucking financial retard would treat all bonds the same regardless of the above. Furthermore, your simplification of the situation for the advancement of your argument only highlights your intended motivation, which is not to debate, nor learn, but to stick to a neanderthalic viewpoint.

 

[Narmer]

As somebody who buys debt, sellers of debt never sell it at the rate they think they will sell it.

Different asset classes have different spreads. All you have to do is take a look at a AAA timeshare bond vs a A credit card bond. A AAA timeshare bond will trade at a discount vs the A credit card bond.

Comparing the IIRC the first-ever debt sale for BRK to a nearly daily sale for the treasury, is silly. It does not even count in maturity or supply or asset class.

Only a fucking financial retard would treat all bonds the same regardless of the above. Furthermore, your simplification of the situation for the advancement of your argument only highlights your intended motivation, which is not to debate, nor learn, but to stick to a neanderthalic viewpoint.

Please tell me what my argument or motivation was? I asked a fucking simple question and you couldn't give me a simple answer. I have no horses in this race so take your high-minded arrogant mindset and shove it up your ass.

EDIT: "The bailout will be a boon for the world." Guess who said that?

 

[Fern]

Well, whether or not the rating has been cut, IMO the important point would be the US gov having to pay higher rates of interest. Too much money already goes for debt service.

I need much more proof ATM to belive the fed gov is gonna 'bailout' Madoff's investors.

Fern

 

[LegendKiller]

Please tell me what my argument or motivation was? I asked a fucking simple question and you couldn't give me a simple answer. I have no horses in this race so take your high-minded arrogant mindset and shove it up your ass.

EDIT: "The bailout will be a boon for the world." Guess who said that?

And I am telling you that it is NOT a simple answer. Why don't you get your head out of your ass?

So fucking what? Are we, or are we not, going to realize an $8BN gain on Citi? Did we, or did we not, receive a gain from BoA, GS, and JPM repayment? Did we, or did we not, prevent an utter collapse of the financial system which would have done far more damage?

 

[Thump553]

Please provide some proof for your Madoff reimbursement allegations. They seem pretty hokey to me.

 

[UglyCasanova]

Only a moron would believe this.

Not all AAA bonds are priced the same, not all AAA bonds are priced narrower than AA bonds. Asset classes, supply vs demand, duration, convexity...etc...all factor into pricing.

There are many factors in investing in different assets. Preferred habitat, preferred duration, preferred tenure, preferred class. The fact that BRK debt IS so rare means it will trade at a premium to other debt.

Only somebody ignorant in finance wouldn't know this.

True but the bizarre thing about this is the fact that Treasuries are generally used as the measure for the risk free rate. It is exceptionally rare for a corporate bond to trade below this, for the simple fact that a corporation is most certainly not risk free. It can not simply issue more taxes to pay its debt. There are AAA rated corp bonds that will come close to the rf, but there is always that thing called a market risk premium added in.

And the bit about Berkshire's debt issues being rare, what does that matter? Investors are not going to accept a lower return than from a treasury just for the simple fact that there are not many BRK bonds on the market. What would be the purpose, bragging rights? There is more to play here than supply and demand, but I don't think that a 3 mo. Treasury is going to be dislodged from its rf spot anytime soon.

 

[LegendKiller]

True but the bizarre thing about this is the fact that Treasuries are generally used as the measure for the risk free rate. It is exceptionally rare for a corporate bond to trade below this, for the simple fact that a corporation is most certainly not risk free. It can not simply issue more taxes to pay its debt. There are AAA rated corp bonds that will come close to the rf, but there is always that thing called a market risk premium added in.

And the bit about Berkshire's debt issues being rare, what does that matter? Investors are not going to accept a lower return than from a treasury just for the simple fact that there are not many BRK bonds on the market. What would be the purpose, bragging rights? There is more to play here than supply and demand, but I don't think that a 3 mo. Treasury is going to be dislodged from its rf spot anytime soon.

Credit card bonds were priced under Treasuries at several times in the past several years.

You don't think so? There are many people who would look to purchase a different asset class than others in the portfolio for many reasons, purchasing at a premium.

 

[Narmer]

And I am telling you that it is NOT a simple answer. Why don't you get your head out of your ass?

So fucking what? Are we, or are we not, going to realize an $8BN gain on Citi? Did we, or did we not, receive a gain from BoA, GS, and JPM repayment? Did we, or did we not, prevent an utter collapse of the financial system which would have done far more damage?

You sure have a roundabout way of answering questions. A direct answer would've sufficed. WRT your statement, I noticed you fail to mention the $160b AIG still owes us. As for 'utter collapse of the financial system', I have no idea what would have happened and neither do you. But I certainly know one thing, it certainly hasn't been a 'boon' by any stretch of the imagination, unless if you work on Wall Street.

 

[LegendKiller]

You sure have a roundabout way of answering questions. A direct answer would've sufficed. WRT your statement, I noticed you fail to mention the $160b AIG still owes us. As for 'utter collapse of the financial system', I have no idea what would have happened and neither do you. But I certainly know one thing, it certainly hasn't been a 'boon' by any stretch of the imagination, unless if you work on Wall Street.

Again, so what about AIG? The company makes shit-tons of money and will continue to do so in the future. They have a massively successful and profitable insurance arm. They will likely repay TARP.

I do know, for certain, the market would have collapsed. I saw how the market responded to Bear and then Lehman. I saw how you couldn't even sell commercial paper overnight. Get that through your head, nobody was even willing to accept highly rated lending overnight. That has *never* happened before.

That benefit alone makes it a boon.

 

[Narmer]

Again, so what about AIG? The company makes shit-tons of money and will continue to do so in the future. They have a massively successful and profitable insurance arm. They will likely repay TARP.

I do know, for certain, the market would have collapsed. I saw how the market responded to Bear and then Lehman. I saw how you couldn't even sell commercial paper overnight. Get that through your head, nobody was even willing to accept highly rated lending overnight. That has *never* happened before.

That benefit alone makes it a boon.

Well, when you can define what you say then how can you be wrong? Anyway, you've certainly haven't convinced me or others that it has been a 'boon', but you've certainly convinced yourself. As for AIG, I don't know. With them selling their most valuable assets to pay off the government, I don't see this ending well. Selling your Asian insurance arm when that region is booming smacks of desperation and comes nowhere near to paying off TARP. They'd have to sell a lot more assets, which is ironic giving that their financial speculation arm ends up destroying the whole company.

 

[LegendKiller]

Well, when you can define what you say then how can you be wrong? Anyway, you've certainly haven't convinced me or others that it has been a 'boon', but you've certainly convinced yourself. As for AIG, I don't know. With them selling their most valuable assets to pay off the government, I don't see this ending well. Selling your Asian insurance arm when that region is booming smacks of desperation and comes nowhere near to paying off TARP. They'd have to sell a lot more assets, which is ironic giving that their financial speculation arm ends up destroying the whole company.

There is no convincing you, of that I am sure.

Their "most valuable" assets? The growth target for asia was built into the selling price, which is why AIG stock shot up ~50% after the announcements. You forgot that, didn't you?

 

[UglyCasanova]

Credit card bonds were priced under Treasuries at several times in the past several years.

You don't think so? There are many people who would look to purchase a different asset class than others in the portfolio for many reasons, purchasing at a premium.

I find the bolded part hard to believe.

Also a Berkshire Hathaway Bond and a United States Treasury Bond are in the same fixed-income asset class. And sure diversification is the cornerstone of portfolio management, but that does not explain why the corp bond of Berkshire, Lowe's, Johnson & Johnson and Proctor & Gamble if I'm not mistaken traded a few basis points below a Treasury issue of the same maturity.

 

[LegendKiller]

I find the bolded part hard to believe.

Also a Berkshire Hathaway Bond and a United States Treasury Bond are in the same fixed-income asset class. And sure diversification is the cornerstone of portfolio management, but that does not explain why the corp bond of Berkshire, Lowe's, Johnson & Johnson and Proctor & Gamble if I'm not mistaken traded a few basis points below a Treasury issue of the same maturity.

There were several points in 2006 where this happened. It was an interesting dynamic.

The bond market is a bit funky. It is all about preferred habitat and what's "hot" at any given time.

 

[Narmer]

There is no convincing you, of that I am sure.

Their "most valuable" assets? The growth target for asia was built into the selling price, which is why AIG stock shot up ~50% after the announcements. You forgot that, didn't you?

It's your job to convince me and you're not doing a good job. We can agree that it may have been a good short-term move to have TARP, but it hasn't been a boon. I will take it that that was a subjective statement.

As for AIG, after selling their "crown-jewel", now what? What other part of the company will they sell in order to pay the government? I certainly hope you're right as I am a taxpayer, but $165b is not something you can just write a check for, at least not unless inflation shoots up.