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Five days ago a great white hope appeared for the great bankrupt Golden State (Baa1/A-), in the form of $2 billion in GO bonds, which were supposed to be promptly syndicated via underwriters JPMorgan and Morgan Stanley. This would have been the first bond sale for California since November: a critical milestone as the state creeps ever closer to a full-on default. Unfortunately, the creeping just turned into a casual jog after Jane Wells (@janewells) just tweeted that California has cancelled its bond sale “after legislature fails to approve cash management flexibility bill [the] Treasurer said he needed to attract investors.”

“For a AAA government to be downgraded, Moody’s must have concluded that the deterioration in credit
metrics is (1) observable and material in absolute terms; (2) observable and material in relative terms;
and (3) unlikely to be reversed in the near future. The decision underlying a potential downgrade would
also depend on the extent of the actual and potential deterioration of a government’s balance sheet;
whether a country’s economic model can be regenerated, thereby allowing the economy to rebound; and
whether governments can repair their fiscal position by raising taxes or cutting expenditure.”

Tja, wann in 2010 werden die sich an ihre Kriterien erinnern ?

allerdings ist wie immer alles relativ  :

“Moody’s believes that there will always have to be at least one Aaa issuer — an ‘anchor’
of the rating scale. Without it, the “rating scale” becomes meaningless.”

The 2011 Obama Budget
Along with Mr Obama’s proposed fiscal 2011 budget totalling $US 3.8 TRILLION, the White House
recently released a prediction that US debt levels would reach 77 percent of US annual GDP – by 2020.
The US Treasury’s funded debt as of February 16 was $US 12.385 TRILLION. According to the US
government’s Bureau of Economic Analysis, the advance estimate of real 2009 GDP showed a growth of
0.1 percent from the equivalent period in 2008. US real GDP in 2008 decreased by 1.9 percent. There is
as yet no precise figure for US GDP in 2009, but the CIA fact book estimates it at $US 14.270 Billion.
Two facts not in the CIA’s book should stand out in bold relief. First, if the CIA is right, the new
Treasury debt limit of $US 14.294 TRILLION is now HIGHER than US GDP. Second, current US
Treasury funded debt at $US 12.385 TRILLION (see above) is the equivalent of 86.8 percent of the CIA’s
estimate of US GDP in 2009.
So where did the White House get its estimate that US debt levels will reach 77 percent of US annual
GDP ten years from now? The same place it gets all its economic projections from: Wishful thinking.
For decades, that has been good enough. But it won’t be good enough for much longer, as the Treasury’s
TIC report makes perfectly clear.

1.     “Bubbles generally are perceptible only after the fact.  To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong.  While bubbles that burst are scarcely benign, the consequences need not be catastrophic for the economy” -  Alan Greenspan June 17, 1999

2.     “It was far from obvious that bubbles, even if identified early, could be preempted short of the central bank inducing a substantial contraction in economic activity – the very outcome we would be seeking to avoid. Prolonged periods of expansion promote a greater rational willingness to take risks, a pattern very difficult to avert by a modest tightening of monetary policy…we recognized that, despite our suspicions, it was very difficult to definitively identify a bubble until after the fact…the idea that a collapse of a bubble can be softened by pricking it in advance is almost surely an illusion”  — Alan Greenspan August 30, 2002

3.     “There is no housing bubble to go bust”… “Home-price increases largely reflect strong economic fundamentals.”– Ben Bernanke, October 27, 2005

4. “the impact on the broader economy and financial markets of the problems in the sub-prime markets seems likely to be contained,”
Ben Bernanke, 28 March 2007

5. “And we will never return to the old boom and bust”
Gordon Brown, 21 March 2007

6. Oct. 29 (Bloomberg) — U.S. Treasury Secretary Timothy Geithner said commercial real estate woes won’t set off a new banking crisis, in remarks to the Economic Club of Chicago.
“I don’t think so,” Geithner said, when asked whether commercial real estate could set off another banking meltdown. “That’s a problem the economy can manage through even though it’s going to be still exceptionally difficult.”

http://www.youtube.com/watch?v=l6nMHwF6Ks8&feature=player_embedded

Office of the Special Inspector General
for the Troubled Asset Relief Program

(Leitung: Neil Barofsky)

Quarterly Report to Congress
January 30, 2010

Executive Summary (S. 6)

• To the extent that huge, interconnected, “too big to fail” institutions contributed
to the crisis, those institutions are now even larger, in part because of the substantial
subsidies provided by TARP and other bailout programs.

• To the extent that institutions were previously incentivized to take reckless risks
through a “heads, I win; tails, the Government will bail me out” mentality, the
market is more convinced than ever that the Government will step in as necessary
to save systemically significant institutions. This perception was reinforced
when TARP was extended until October 3, 2010, thus permitting Treasury to
maintain a war chest of potential rescue funding at the same time that banks
that have shown questionable ability to return to profitability (and in some cases
are posting multi-billion-dollar losses) are exiting TARP programs.

• To the extent that large institutions’ risky behavior resulted from the desire to
justify ever-greater bonuses — and indeed, the race appears to be on for TARP
recipients to exit the program in order to avoid its pay restrictions — the current
bonus season demonstrates that although there have been some improvements
in the form that bonus compensation takes for some executives, there has been
little fundamental change in the excessive compensation culture on Wall Street.

• To the extent that the crisis was fueled by a “bubble” in the housing market, the
Federal Government’s concerted efforts to support home prices — as discussed
more fully in Section 3 of this report — risk re-inflating that bubble in light of
the Government’s effective takeover of the housing market through purchases
and guarantees, either direct or implicit, of nearly all of the residential mortgage
market.

Stated another way, even if TARP saved our financial system from driving off
a cliff back in 2008, absent meaningful reform, we are still driving on the same
winding mountain road, but this time in a faster car.