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Posts tagged ‘Credit rating’

Spain’s Collapse is No Little Thing

A logo of the Standard & Poor's AA- rating

A logo of the Standard & Poor's AA- rating (Photo credit: Wikipedia)

By the Daily Bell

S&P cuts Spain’s credit rating by two notches to BBB+ … Standard & Poor’s cut Spain’s sovereign debt rating Thursday by two notches, warning that the government’s budget situation is worsening and that is likely to have to prop up its banks. S&P cut the country’s rating to BBB-plus and added a negative outlook, saying it expected the Spanish economy to shrink both this year and next, raising more challenges for the government. Esther Barranco, a spokeswoman for the Economy Ministry, told Reuters: “They haven’t taken into consideration the reforms put forward by the Spanish government, which will have a strong impact on Spain’s economic situation.” S&P also said that eurozone-wide polices were failing to boost confidence and stabilize capital flows, and that the region needed to find ways to directly support banks so that governments were not forced to take on those burdens themselves.” – UK Telegraph

full article at source: http://www.thedailybell.com/3838/Spains-Collapse-is-No-Little-Thing

Comment:

The dictates from Berlin regarding the Austerity measures are causing enormous hardship on people and it is also strangling any attempt by the same people to conduct business. The cost base is out of whack with local economies .We are forced to use an overpriced currency. Anywhere else in the world if you take on austerity you also devalue your currency .This has the effect of bringing down the cost of creating employment for foreign companies and with this advantage in time you offset the effects of the austerity by supplying new employment opportunities and thus create demand in the domestic economy .We have now gone through four years of severe austerity in Ireland and things are only getting worse. Austerity alone is not working !

There is no demand in the local economy, fear has taken hold and people are holding on to every penny they have for fear of getting their P45 someday. There are no realistic job opportunities for people in their 40, and without any massive investment by the government in up-skilling or re-education, things are looking bleak to say the least .We need massive investment in people and not in Banks. The faceless moneymen are now controlling the corridors of power in Brussels and democracy is losing ground.

In Ireland we are under the power of puppets that have no say in the running of our country. Even the latest text in the referendum we are about to vote on has had no Irish political input it was dictated from the ministry of finance in Berlin. The sham of going to the polls and been told we are an independent nation is an insult to the dead of 1916 who fought for an independent republic. The spineless politicians in government are nothing more than collaborators for the new masters of Europe in Berlin,

They deserve to be hounded out of office and jailed for their treachery!

 

what is a credit default swap ?and why we should be trembling right now!

Allow me to teach you what a credit default swap is and why it’s so important to what is happening to the economy today.

Virgle Kent borrows $50 from me. I want to get insurance on his debt in case he goes broke. I go to Roissy and say, “Hey, Virgle Kent owes me $50. Can you insure that debt?”

“I’ll insure it if you pay me $4 a year,” Roissy says.

“Done!”

Roissy is betting that VK will pay me back, especially since he did his homework by looking at VK’s credit rating and saw it was superb. Roissy wrote me a credit default swap, an unregulated derivative invented in 1995 by JP Morgan.

Unfortunately Roissy has some problems with his business, and he no longer even has $50 to pay me in case VK goes broke. The premiums I gave him are long gone. Credit agencies notice this and tell Roissy to find some cash or his credit rating goes down. Roissy is fucked because if his credit rating goes down then he won’t be able to raise cash at good rates to keep his business open (today’s large businesses need a constant flow of credit to maintain operations). Sure enough his rating gets killed and Roissy goes bankrupt.

Now I’m in trouble. The debt I had on my books that was insured is now uninsured. The agencies look at my books and see I have this exposed debt and they downgrade my ass. I have no choice but to enter bankruptcy as well. But I happened to be knee deep in the CDS game too. I wrote a ton of them for Arjewtino, insuring the debt owed to him by other parties. When I go down it puts pressure on him. Like dominoes we fall.

In the carnage it turned out that the ratings we used to judge each other’s debt worthiness was bogus from the start. Essentially we all gambled like we would at a blackjack table, but we did it while drunk. And blind.

The insurance company AIG wrote $78 billion worth of swaps.

Ivy League MBA’s turned the CDS into an even more insidious device. In ways that I will not begin to understand, swaps were used not just to insure against debt but to speculate if companies would fail or not. It turned out that while VK only owed me $50, there were swaps written worth $500 between parties that VK didn’t even know about! The swaps became a means to make money instead of a simple insurance policy. This was enabled by a government run by politicians whose treasure chests were stocked full of kind donations from the big bankers. They did not hesitate to look the other way.

A lot of swaps were written by banks and businesses that are now very sick from making bad bets and possibly outright fraud in the housing boom. (Who would have thought that giving no money down / no-doc loans was a bad idea?)

Here’s the bad news:

…there are $45 trillion of credit default swaps out there. A default on a mere 10% would cause an economic disaster. Unfortunately, it’s guaranteed to happen.

Actually that was the good news. Here’s the real bad news:

The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that’s 1,000 trillion dollars. How is that figure even possible? The gross domestic product of all the countries in the world is only about 60 trillion dollars. The answer is that gamblers can bet as much as they want.

The quote up top was said by Henry Paulson

 

S&P States the Obvious

By Ron Paul

Politicians did not get much time to pat themselves on the back for supposedly rescuing the economy with the debt limit deal last week. The ink was barely dry when Standard & Poor’s downgraded the US debt ratings anyway, roiling world financial markets.  Anyone who has taken an honest look at the government’s fiscal situation, taken into account how Washington works and the direction it is going would have a very difficult time arguing with S&P’s decision, although a strong case can be made that this was too incremental a downgrade and that it took far too long for S&P to admit the obvious.

Nonetheless, the administration nitpicked over a $2 trillion “mistake.” S&P rejoined with the fact that $2 trillion here or there hardly makes a difference in the time frame under discussion.  That, if nothing else, should tell you the magnitude of the problem.  $2 trillion has become a drop in the bucket.

full article here at source:http://www.thedailybell.com/2803/Ron-Paul-SP-States-the-Obvious

Liar, Liar, European Pants on Fire!

By  Reggie Middelton 

When I say that much of the EU is lying about their financial prospects and Greece (among other countries) will restructure or default, you may or may not listen (quite possibly to your detriment). When the ratings agencies (who are always accurate and timely) say restructuring is on the horizon (a year after me) and the head of the Euro-zone finance ministers finance ministers outright says ‘Of course we’re lying’, then what do you do? There are rumblings and most likely a tacit agreement that Greece will get its emergency loan debt restructured. Reference:

  • (Reuters/CNBC) S&P Cuts Greek Rating; Moody’s Warns of DowngradeStandard & Poor’s slashed the nation’s rating to B from BB-, while rival agency Moody’s announced that it put Greece on review for a potential downgrade of its current B1 rating. “In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds,” S&P said in a statement, warning that more downgrades could come. It said its projections suggest that principal reductions of 50 percent or more could be needed to restore Greece’s debt burden to a sustainable level. Greece, whose fiscal slippages triggered Europe’s debt crisis, is rated junk by all three major rating agencies. [BoomBustBlog research considered Greece junk a year before all three ratings agencies took appropriate action.] Moody’s placed Greece’s B1 sovereign credit rating on review for a possible downgrade after the country revised upward its general deficit for 2010, increasing uncertainty about the sustainability of its deficit. Moody’s said a multi-notch downgrade is possible if it concludes that Greece’s debt metrics are on an unsustainable path. “In Moody’s view, such conditions would materially increase the risk of debt restructuring over the short to medium term,” the agency added. “Fitch rates Greece at BB+ with a negative outlook. The agency does not comment on market speculation,” it said in a statement.

  • European Officials to Revamp Greek Aid: European officials are preparing to revamp Greece’s bail-out package after concluding that Athens would be unable to raise money in the markets early next year, as envisaged under a €110 billion ($158 billion) rescue plan. Euro zone ministers this weekend publicly acknowledged that Greece would probably need additional cash from the European Union or other international institutions. We think that Greece does need a further adjustment programme,” said Jean-Claude Juncker, Luxembourg’s prime minister and chairman of the eurogroup of finance ministers. George Osborne, UK chancellor of the exchequer, said changes to the Greek bail-out programme were “inevitable”.Although such a conclusion had been widely accepted by analysts and officials working on the issue, the public recognition marks a turning point in the debate over Greece’s future.

We have been alleging that Greece would be force to restructure for well over a year now (see I Think It’s Confirmed, Greece Will Be the First Domino to Fall and then reference Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!). Those who would have followed our advice would have been ahead  of all three agencies’ downgrade to junk, ahead of the total obliteration of Greek bank’s public equity, and ahead of the near halving of Greek publicly traded debt. Well, now it’s time to pay attention to my calling the bluff of those banks that say a Greek default will do no material harm – With Greek Debt Yielding 20%+ and Trading at Half Par Value, European Banks Are Trapped! Monday, April 25th, 2011

For those who feel these analyses are barking up the wrong tree, simply realize that a maturity extension is a restructuring – economically, it is essentially a default. The articles above discuss maturity extensions and/or coupon reductions in the emergency loans given. Would anyone be willing to wager whether or not the bonds purchased by the ECB, et. al. are next up? I say damn near guaranteed. After all, Greece cannot dig itself out of this hole. The hole must be partially filled with the sacrifices of the debt investors who put money into Greece. It’s really as simple as that.

This perspective on Greece’s prospects is actually quite optimistic compared to raw calculations and the absence of anything resembling a modicum of credibility, honesty, or the truth!

Roughly 14 months ago, I went through efforts to clearly illustrate how the reportings of the EU and Greece (as well as the financial reportings of most of the highly indebted EU nations) no only cannot be trusted, but amount to either outright lies or gross inaccuracies that have been repeated in a serial nature. This is evidenced by the postings from the beginning of last year:

  1. Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest?
  2. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

Well the WSJ blog reports more of the same as “Luxembourg Lies on Secret Meeting”:

Is lying considered an appropriate mode of communication for euro-zone leaders? We have to wonder after a strange episode on Friday evening. Here’s what happened:

Just before 6 p.m., German news magazine Spiegel Online distributed a report saying that euro-zone finance ministers were convening a secret, emergency meeting in Luxembourg that evening to discuss a Greek demand to quit the euro zone. Calls from reporters flooded in to Guy Schuller, the spokesman for Luxembourg Prime Minister Jean-Claude Juncker, the man who is the head of the Eurogroup council of euro-zone finance ministers. In a phone call and text messages with two reporters for Dow Jones and the Wall Street Journal, Mr. Schuller repeatedly said no meeting would be held. He apparently said the same to other news outlets; at least one more moved his denials on financial newswires.

Of course, there was a meeting–although not, apparently, to talk about Greece quitting the currency, which would be an extreme step to say the least. Mr. Juncker even said a few words to reporters who had hustled to Luxembourg to stake out the gathering.

So why the lie? “I was told to say there was no meeting,” said Mr. Schuller, reached by telephone Monday. “We had certain necessities to consider.”

It gets better with choice quotes such as:

  • We had Wall Street open at that point in time,” Mr. Schuller said.
  • There was a very good reason to deny that the meeting was taking place.
  • It was, he said, “self-preservation.
  • Asked whether such deliberate misinformation would undermine the market’s confidence in future euro-zone pronouncements, Mr. Schuller, lamenting that the market had practically no confidence in pronouncements already, said “not at all.
  • When Mr. Juncker, or European Central Bank President Jean-Claude Trichet, or French Finance Minister Christine Lagarde say something to the markets, Mr. Schuller said, “nobody seems to believe it.

Source  and full article  :http://boombustblog.com/

Comment:

As always Reggie is right on the ball .I am astonished that we do not have anybody here in Ireland who does such intensive research and is streets ahead of the so called established experts .Reggie is a breath of fresh air and his gentle manner makes him more compelling .Well done Reggie I count myself to the many new followers you are now collecting in Ireland.

High-Deficit European Nations May Default, Restructure Debt, Pimco Warns

Some high-deficit euro-area nations will probably need to reorganize or default on their debt, said Andrew Bosomworth, a Munich-based fund manager at Pacific Investment Management Co.

“There’s a number of people around the table, the AAA countries, the taxpayers and all of these countries undergoing the fiscal reform, all trying to participate in the solution, but there’s one seat empty at the table and that’s the senior bondholders, the senior creditors, and ultimately they’re going to have to join the table,” he said today in an interview on Bloomberg Television’s “Countdown” withMark Barton.

Asked whether it’s likely some nations will need to default or reorganize their debt, Bosomworth replied: “I think it is.”

The fund manager said countries with top credit ratings such as Germany and France will have to contribute more to solve the problem even though that might have a negative impact on their own bonds.

“One way or another, the AAA countries will have to contribute more to make the monetary union work better,” he said. “That doesn’t necessarily mean writing a blank check. A credit contribution is going to be needed and that’s going to have a negative impact on the duration of those bonds.”

He cautioned that debt restructuring is a short-term solution and indebted countries will have to work to address their structural problems.

Defaulting in itself will solve a solvency problem, but these countries do have a competitiveness problem,” he said. “They will have to make themselves more competitive by keeping inflation low. That’s a long hard road ahead for these countries to find a way of growing out of the problem.”

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net

Ireland’s credit rating was cut five levels by Moody’s

Ireland’s credit rating was cut five levels by Moody’s Investors Service and further downgrades are possible as the government struggles to contain losses in the country’s banking system.

The rating was lowered to Baa1 from Aa2, Moody’s said in an e-mailed statement from London today. That’s three levels above non-investment grade and the same level as countries including Russia and Lithuania. The outlook on the rating is “negative,” Moody’s said.

Irish lawmakers on Dec. 15 voted to accept an 85 billion- euro ($113 billion) aid package from European governments and the International Monetary Fund to stabilize the country’s finances. Moody’s said that confidence in Irish banks “evaporated” in the run-up to the bailout.

“While a downgrade had been anticipated, the severity of the downgrade is surprising,” Glas Securities, the Dublin-based fixed-income firm, said in an e-mailed note today.

As European governments struggle to stop contagion from Greece and Ireland to other nations, Moody’s this week said it may lower Spain from Aa1. It also placed Greece’s Ba1 rating on review for a possible downgrade. European Union leaders agreed at a meeting in Brussels yesterday to amend the bloc’s treaties to create a permanent crisis-management mechanism in 2013.

Bank Costs

While Ireland’s government had said it’s fully funded through mid-2011, investors dumped the country’s bonds on concern that the cost of the bank rescue would swamp the state. Government figures on Nov. 28 showed that Ireland may spend as much as 83 billion euros, more than half of its gross domestic product, to support banks including Allied Irish Banks Plc.

The government plans to cut spending by about 20 percent and raise taxes over the next four years to narrow its deficit. The budget shortfall will be 12 percent of GDP this year, or 32 percent including a banking rescue, the government estimates.

“The austerity measures could have feedback effects on economic growth, on domestic demand, and that’s something that should be monitored,” Dietmar Hornung, an analyst at Moody’s, said in an interview. He said it is “very unlikely” that Ireland will default on its debt.

Irish borrowing costs initially rose after the bailout was agreed on Nov. 28, before declining. The extra yield investors demand to hold Ireland’s 10-year bonds rather than the German equivalent, Europe’s benchmark, widened to a euro-era record of 680 basis points on Nov. 30. It was at 533 at 9:09 a.m. in London, up from 521 yesterday.

“Ireland has managed high levels of indebtness in the past and has shown political cohesion and commitment to enacting difficult fiscal consolidation measures,” Hornung said. “The government is making considerable investments in its banking system that might ultimately generate income.”

To contact the reporter on this story: Finbarr Flynn in Dublin at fflynn3@bloomberg.net

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