The Bright Side to This Madness

Thursday was the Dow's second-worst performance of the year as a wild first-half rapidly nears completion. A Moody's downgrade of multinational banks had been rumored for weeks, and there had been rampant speculation that Morgan Stanley (MS) would be given a three-notch pasting. Moody's showed mercy and only lowered Morgan Stanley's rating by two notches, yet the market's harsh reaction indicates surprise, to say the least. With seemingly countless downgrades of both banks and sovereigns over the past few weeks, why did the market react so negatively to an event that shouldn't have surprised anyone?

 I believe the severity of the market's reaction was due to the inclusion of some names that one wouldn't normally associate with the European debt crisis. By downgrading the likes of the Royal Bank of Canada (RY), UBS (UBS), Credit Suisse (CS) and HSBC (HBC) along with the usual suspects, Moody's is saying these multinationals are tied together more closely than many of us suspect. Perhaps, through derivatives or other opaque instruments, the connections are greater than they appear on the surface....313 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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