Standard & Poor's Ratings Services said today that it lowered its issuer credit ratings and related issue ratings on 10 of 12 Federal Home Loan Banks (FHLBs) and the senior debt issued by the FHLB System to 'AA+' from 'AAA'. We have also lowered the ratings on the senior debt issued by the Federal Farm Credit Banks to 'AA+' from 'AAA'. The ratings on the individual farm member banks are not affected. In addition, we have lowered the senior issue ratings on Fannie Mae and Freddie Mac to 'AA+' from 'AAA'. Our 'A' subordinated debt rating and our 'C' rating on the preferred stock of these entities remain unchanged. Finally, we have affirmed the short-term issue ratings for these entities at 'A-1+' and removed them from CreditWatch Negative where they were placed July 15, 2011. ...
The downgrades of 10 of the 12 FHLBs and the FHLB System's senior debt reflect a one-notch reduction in the U.S. sovereign rating. Before we downgraded the U.S., under our GRE criteria, 10 of the 12 FHLB banks were rated 'AAA', the same level as the U.S. sovereign because they have either 'aa+' or 'aa' stand-alone credit profiles and we classify them as having a very high likelihood of receiving support from the government if needed. The FHLBs of Chicago and Seattle were already rated 'AA+' prior to the U.S. sovereign downgrade as they have lower stand-alone credit profiles ('aa-' and 'a+', respectively) than the other 10 FHLBs.
This is a firestorm in the making. There appears to be no place to hide and it in effect becomes another way to create inflation. Historically August seems to be a volatile month. I remember 1998 with LTCM and Russian and Thailand, since I was in both countries opening my companies.
Somehow we really need some leadership....
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