How will we know if this financial bill does any good? If financial stocks get downgraded 

The strength of Goldman Sachs, Citigroup, and JP Morgan is not the same thing as the strength of the economy and the strength of the country — or even the strength of the stock market.

For instance, on the day after the Senate passed the financial regulation bill, those three stocks were all up, while the Dow Jones Industrial Average was down.

Standard & Poors yesterday came out with an interesting report yesterday about how the financial regulation bill could lead — but has not yet led — to a downgrade in the credit-worthiness of big banks. If the bill actually removes bailout protections from these banks, they will become greater lending risks, which is a good thing. Bloomberg reports:

S&P cut its outlook for Bank of America and Citigroup to negative from stable in February because of uncertainty about the government’s willingness to repeat a bailout. The same month, Moody’s Investors Service cut its ratings on preferred shares of Morgan Stanley by three notches and of Goldman Sachs by one as it removed the assumption of government support for those securities.

Now, this S&P report holds open the possibility that the banks don’t really benefit from a bailout, but still, those who oppose bailouts (and everyone says they do), a good sign that the bill really makes bailouts less likely would be another downgrade of the big banks.

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Timothy P. Carney

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