Our friends at Fox Business are back with information to help us understand the recent global bank downgrade by Moody’s. If you’re like me, you may be wondering, how does this affect my bottom line? Cheryl Casone answered a few of our burning questions about what this means while discussing how this may affect us personally.
Citing ongoing global economic turmoil and housing woes in the U.S., among other things, Moody’s lowered the credit ratings on a host of global banks. While not unexpected – Moody’s said earlier this year that cuts were possible – the downgrades are nevertheless fresh evidence of a troubled global economy. Among the names downgraded were Bank of America, Goldman Sachs, Citi and Morgan Stanley. But, what does that mean in terms we can understand? Fox Business Network anchor Cheryl Casone weighs in below.
What happened with Moody’s today? What does the Moody’s downgrade mean?
Moody’s basically told all the banks that they are taking too much risk, and they need to put more money in their “savings” accounts. Moody’s believes the big Wall Street banks are in troubled waters because of all the problems in Europe and the slower economy here in the United States. Banks all do business with each other by lending each other money every day and every night. Moody’s is concerned about that. They also do a lot of “deals” amongst themselves that are incredibly complicated. Moody’s doesn’t like these deals.
Why does this matter to me? What affect will this have on my wallet?
This downgrade is going to affect everything from credit cards, to small business loans, to mortgages. When banks have to put money aside, that means they lend out less money to someone who wants to start a cupcake business for example. Even though interest rates are low, people looking to buy a new home are going to face increased scrutiny just because the banks are nervous. Moody’s went on the attack Thursday, and when banks feel attacked they seize up lending. It’s going to be a huge problem for all of us, and things are hardly great right now!
If I bank at or have a loan with any of the banks who have been downgraded, will I be affected at all?
If you already have a loan with the banks that have been affected by Moody’s nothing will change for you. But those looking for new loans are going to struggle.
If I want to take out a loan, should I avoid going to the recently-downgraded banks? Are they “bad” banks?
If you are looking to get a loan or a mortgage right now, my advice is to go to a community bank or local bank in your area. What happens when the big banks seize up lending, is the smaller banks reap the benefit. Look at a bank that operates in your neighborhood, they will be much more willing to work with you. For now, the big banks will be nothing but a headache for you, and the rough economy is enough for you to worry about right now!
At the risk of sounding alarmist, things are about to get real with the US economy because the banks seizing up credit means small business owners and potential homeowners will get turned down for loans. However, besides understanding what this means for us personally, the important lesson for all of us is to save more money and keep cash as king.
What are your thoughts on the Moody’s downgrade?