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S&P Global Debt Chief David Beers With Larry Kudlow On U.S. AAA Downgrade (VIDEO)

CNBC Video - David Beers with Larry Kudlow - July 27, 2011

Read the transcript at CNBC...


GLOBAL FINANCIAL ARMAGEDDON - If U.S. Is Downgraded By Any Ratings Agency, A Technical Default Occurs And Possibly TRILLIONS In U.S. Sovereign CDS Must Be Honored And Paid - DERIVATIVES NIGHTMARE SCENARIO

The risk that few are discussing is the possible trigger of a 'default credit event' by an S&P (or Moody's) downgrade of the U.S. AAA rating.  It is likely that Wall Street, and perhaps even the Fed have written the majority of CDS on the United States and they are probably unhedged given the implicit belief that the U.S. would never allow a default.  Since derivatives are unregulated and not traded on an open exchange, no one knows how many billions or possibly trillions of U.S. Sovereign CDS are out there.  A downgrade and therefore technical default would be the ultimate Black Swan event, and unleash a financial chaos never before seen.

Financial Armageddon 101.

Ultimately, this is why I doubt we will see a downgrade from either ratings agency despite the Obama debt ceiling deal not even meeting 50% of the target that S&P identified ($4 trillion in deficit reduction) last week as the minimum package for avoidance.

An unhedged Wall Street is certainly praying for this to be the case.

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Reader Comments (15)

U.S. downgrade does not bother me. I got a negative FICO score.
Aug 1, 2011 at 7:33 PM | Unregistered CommenterTR
Wouldn't bother me either TR. We deserve it. We've earned it thru irresponsibility.
Aug 1, 2011 at 7:36 PM | Registered CommenterDailyBail
DB, I'm one of them there Americans. It don't be my fault.

Aug 1, 2011 at 7:45 PM | Unregistered CommenterTR
That is a beautiful quote. I have never mentioned this but the Dalai Lama's brother lived here in bloomington from around 1960 until he died last year. He had 3 sons, Kunga (my brother's best friend) Lundrup and Jigme. I grew up with all 3 of them, elementary, middle and high school. And the Dalai Lama has visited here often to see his brother and stay at the national center that was built here in his honor.

Yet still I had never seen that quote. I'll repeat. That was awesome. Everyone should check this out.

Aug 1, 2011 at 7:51 PM | Registered CommenterDailyBail
House votes to raise debt limit, cut spending

It's a done deal.

Aug 1, 2011 at 7:54 PM | Registered CommenterDailyBail
DB, I'm JEALOUS. I would think you had a wonderful childhood with these people in your life.
Aug 1, 2011 at 8:11 PM | Unregistered CommenterTR
Oh, Just in Case You Fear the Debt Deal May Slow the Wars
Economics of Contempt tweets:

Note that the President and Congress will be allowed to use supplemental war approps bills to bypass the sequestration. Loophole city.


Aug 1, 2011 at 8:13 PM | Unregistered CommenterLiberatedCitizen
TR...they were different than you would imagine. They were American kids essentially. Born and raised in a college town. They were no different than anyone else. Jigme was in the NYT quite a bit though in the past 5 years or so for the 'Walk For Tibet he did each year. Sadly he was killed on a dark highway in Florida a few months ago while doing his walk.


Aug 1, 2011 at 8:17 PM | Registered CommenterDailyBail
Thanks for the links LC. I'm checking them all out now.
Aug 1, 2011 at 8:18 PM | Registered CommenterDailyBail
SEC, Treasury, Wall St, Fed Reserve, Moody's etc are all part of the same close knit SYNDICATE. Nothing will be done against the interests of the others. Its honor among thieves. They have already got the end decided upon, the rest is theatrics for the cameras. There are no 'rogues' in their syndicate, only those who pose as such for the sheeple. If a downgrade is agreed on under the table, insiders will ignore it as "factored in" or it will be used for the 911 "pull it" of the economy as iintended. No surprises- at least not for the controllers.
Aug 1, 2011 at 9:23 PM | Unregistered CommenterSyndicate
Your welcome DB Moody's should be investigated too those ratings agencies are pigs tied to the bankers remember how well they rated all the toxic loans

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This still really ticks me off buffet had share's in Moody's

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Aug 2, 2011 at 12:44 AM | Unregistered CommenterLiberatedCitizen
David Beers and the rest of the Flim-flam operators at the ratings agencies should be in the defendant's dock fighting for their freedom after the exposure of such wonderful products as "Timberwolf" and the AAA ratings for Lehman and Bull Stearns, instead these goons are now threatening the financial future of the USA.
Aug 3, 2011 at 2:53 PM | Unregistered CommenterDoug Welch

Agreed on the failures of the ratings agencies no question, but the US deserves to lose its AAA rating. The sooner the better in fact. We have earned it thru wanton fiscal mismanagement. And losing it might help wake up Washington to the reality of the budget nightmare. Then perhaps we will finally cut defense and the war machine. It's the simplest place to start cutting.
Aug 3, 2011 at 2:57 PM | Registered CommenterDailyBail
Thurs. a unknown put a1billion bet that US would would lose trip/A rating (inside info) I belive Geo Soros is the man
he sold off his gold a couple months ago.
He tanked the GB pound a couple years ago.
Aug 6, 2011 at 10:00 AM | Unregistered Commenterexpat

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