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Posts tagged ‘Moody's’

Standard & Poor’s downgraded the U.S.’s AAA credit rating

Standard & Poor’s downgraded the U.S.’s AAA credit rating for the first time, slamming the nation’s political process and criticizing lawmakers for failing to cut spending enough to reduce record budget deficits.

S&P lowered the U.S. one level to AA+ while keeping the outlook at “negative” as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday.

Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred. Even with the specter of a downgrade, demand for Treasuries surged as investors saw few alternatives amid concern global growth is slowing and Europe’s sovereign debt crisis is spreading.

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement late yesterday after markets closed.

U.S. Response

The U.S. immediately lashed out at S&P, with a Treasury Department spokesman saying the firm’s analysis contains a $2 trillion error. The spokesman, who asked not to be identified by name, didn’t elaborate, saying the mistake speaks for itself.

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obamasigned a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moody’s and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.

“This move should not be much of a surprise to markets, though the timing is at a point where market sentiment is fragile after the drop in stocks this week,” said Ajay Rajadhyaksha, a managing director at Barclays Capital in New York. “What really matters is whether the markets are willing to ‘downgrade’ the U.S. bond market. As this week’s move showed, U.S. Treasuries remain the flight-to-quality asset of choice.”

Asian Investors

Asian investors are likely to retain their Treasuries holdings for now, with options limited by the region’s foreign-exchange rate policies. Japan, the second-largest international investor in American government debt, sees no problem with trust in the securities, a Japanese government official said on condition of anonymity.

Policy makers from China to Japan to Southeast Asia are lured to Treasuries as a result of efforts to stem gains in their currencies against the dollar, which would impair export competitiveness. China has accumulated $1.16 trillion in the securities and the nation’s official Xinhua News Agency said in a commentary that the U.S. must cure its “addiction” to borrowing.

“They won’t be happy about it, but Asian central banks will just have to hold on and stick it out,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney.“There is pressure on them to hold on to liquid assets and there is nothing more liquid than the Treasury market. At least Treasuries have been doing well and they aren’t holding on to distressed assets.”

U.S. Economy

S&P’s action may hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year. The U.S. spent $414 billion on interest expense in fiscal 2010, or 2.7 percent of gross domestic product, according to Treasury Department data.

“It’s a reflection of the fact that we haven’t done enough to get our fiscal house in the order,” Anthony Valeri, market strategist in San Diego at LPL Financial, which oversees $340 billion, said in an interview before the cut. “Sovereign credit quality is going to remain under pressure for years to come.”

The agreement between Republicans and Democrats raised the nation’s debt ceiling until 2013 and threatens automatic spending cuts to enforce the $2.4 trillion in spending reductions over the next 10 years.

Even with the accord, S&P said the U.S.’s debt may rise to 74 percent of gross domestic product by year-end, to 79 percent in 2015 and 85 percent by 2021.

S&P also changed its assumption that the 2001 and 2003 tax cuts enacted under President George W. Bush would expire by the end of 2012 “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”

American Policymaking

“More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating,” S&P said.

S&P put the U.S. government on notice on April 18 that it risked losing the AAA rating it had since 1941 unless lawmakers agreed on a plan by 2013 to reduce budget deficits and the national debt. It indicated last month that anything less than $4 trillion in cuts would jeopardize the rating.

“There was still a very narrow cross section of common ground between the parties and we don’t think that this agreement really changes that equation,” David Beers, a managing director of sovereign credit ratings at S&P said in a Bloomberg Television interview.

Capital Weightings

The treatment of Treasuries and other securities backed by the U.S. in terms of risk-based capital weightings for banks, savings associations, credit unions and bank and savings and loan companies won’t change, the Federal Reserve and bank regulators said in a statement following the downgrade.

Obama has said a rating cut may hurt the broader economy by increasing consumer borrowing costs tied to Treasury rates. An increase in Treasury yields of 50 basis points would reduce U.S. economic growth by about 0.4 percentage points, JPMorgan said in a report, citing Fed research and data.

“The minute you start downgrading away from AAA, you take small steps toward credit risk and that is something any country would like to avoid,” Mohamed El-Erian, chief executive and co-chief investment officer at Pacific Investment Management Co., said in a Bloomberg Television interview before the announcement.

Treasury Yields

Ten-year Treasury yields fell to as low as 2.33 percent inNew York yesterday, the least since October. Yields for the nine sovereign borrowers that have lost their AAA ratings since 1998 rose an average of two basis points in the following week, according to JPMorgan.

Treasury yields average about 0.70 percentage point less than the rest of the world’s sovereign debt markets, Bank of America Merrill Lynch indexes show. The difference has expanded from 0.15 percentage point in January.

Investors from China to the U.K. are lending money to the U.S. government for a decade at the lowest rates of the year. For many of them, there are few alternatives outside the U.S., no matter what its credit rating.

“Yields are low in the face of a downgrade because there is nowhere else for people to go if they don’t buy Treasuries because they want to be in safe dollar assets,” Carl Lantz, head of interest-rate strategy at Credit Suisse Group AG, one of 20 primary dealers that trade directly with the Fed, said before the announcement.

Bond Dealers

The committee of bond dealers and investors that advises the U.S. Treasury said the dollar’s status as the world’s reserve currency “appears to be slipping” in quarterly feedback presented to the government on Aug. 3.

The U.S. currency’s portion of global currency reserves dropped to 60.7 percent in the period ended March 31, from a peak of 72.7 percent in 2001, data from the International Monetary Fund in Washington show.

“The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’,”page 35 of the presentation made by one member of the Treasury Borrowing Advisory Committee, which includes representatives from firms ranging from Goldman Sachs Group Inc. to Pimco. “The fact that there are not currently viable alternatives to theU.S. dollar is a hollow victory and perhaps portends a deteriorating fate.”

Members of the TBAC, as the committee is known, which met Aug. 2 in Washington, also discussed the implications of a downgrade of the U.S. sovereign credit rating. “None of the members thought that a downgrade was imminent,” according tominutes of the meeting released by the Treasury.

Remaining AAAs

S&P gives 18 sovereign entities its top ranking, includingAustralia, Hong Kong and the Isle of Man, according to a July report. The U.K. which is estimated to have debt to GDP this year of 80 percent, 6 percentage points higher than the U.S., also has the top credit grade. In contrast with the U.S., its net public debt is forecast to decline either before or by 2015, S&P said in the statement yesterday.

New Zealand is the only country other than the U.S. that has a AA+ rating from S&P and an Aaa grade from Moody’s. Belgium has an equivalent AA+ grade from S&P, Moody’s and Fitch.

A U.S. credit-rating cut would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 basis points to 70 basis points over the “medium term,” JPMorgan’s Terry Belton said on a July 26 conference call hosted by the Securities Industry and Financial Markets Association.

“That impact on Treasury rates is significant,” Belton, global head of fixed-income strategy at JPMorgan, said during the call. “That $100 billion a year is money being used for higher interest rates and that’s money being taken away from other goods and services.”

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


This move is a surprise to me as I did not believe the S&P would have the balls to do so .

This is bad for the markets, expect to see wild gyrations in the Dow .This is the kind of move that could cause the Dow to take a further nosedive down to about 9400ish a 2000 point drop .It’s time to get out or get some more insurance! The new rating of AA+ is not justified with all of the printing going full blast the Americans are already broke many times over and should really have a rating of Junk status . But if this happened we could see global  war.

New Fine Gael and labour government policy = perpetual debt


Moody’s downgrades Ireland to junk

Just over the wire Moody’s downgrades Ireland to junk (Ba1)
Same as Portugal

So what does this tell us .It tells us that the markets do
not believe Ireland can pay its debts at no matter how low the interest rate is
we just do not have the earnings ability!

Time for the government to declare we are going to default!

What’s the betting now for a 5 billion cut in spending in
the next budget expect Mr. Noonan to use this as an excuse to slash spending in
the public services in the next few months?

Moody’s Report Blasts China Solvency

Economy of the People's Republic of China

Image via Wikipedia

Wednesday, July 06, 2011 –
 by Staff Report

Here comes Moody’s with a blockbuster which may put China’s “White Knight” status, at least as far as Europe is concerned, in grave danger. In a report just released, the rating agency not only warns that China’s debt problem is “bigger than stated” (i.e., China is hiding a ton of ugly stuff off the books), but goes ahead to quantify it: “Of the RMB 10.7 trillion (about $1.6 trillion) of local government debt examined by the Chinese audit agency, RMB 8.5 trillion ($1.3 trillion) was funded by banks. However, Moody’s has identified another potential RMB 3.5 trillion ($540 billion) of such loans that the Chinese auditors did not discuss in their report….we find that the Chinese audit agency could be understating banks’ exposures to local governments by as much as RMB 3.5 trillion.” – ZeroHedge

Dominant Social Theme: China has done a splendid job of turning a communist system into a free-market one. Its prosperity is a result. Just look at the numbers.

Free-Market Analysis: Tyler Durden at the popular ZeroHedge website just came out with an article regarding the untrustworthiness of China’s financial numbers (see excerpt above). It’s taken from a Moody’s release that has found nearly US$1.5 trillion of Chinese loans may be under water. This corresponds to what we’ve been reporting (with increasing urgency) over the past two years. You can see our most recent article here, The Coming Chinese Depression. Below is an excerpt from what we wrote:

Of course, the success in our view has been initiated by printing fiat dollars – money from nothing. It is the same “success” that the Western central banks had prior to 2008 and look at how that ended. One cannot grow an economy year after year at nine percent per quarter and expect anything at the end of it but an inflationary depression. Chinese economic statistics are a case of “garbage in and garbage out.” And Western power elites must be quite aware of what is going to happen in China eventually. In our view it is a kind journalistic criminality that the mainstream media does not do more to alert the West about what is in store. When the Chinese economy crashes, the rest of the world will not be immune.

full article here : http://www.thedailybell.com/2621/Moodys-Report-Blasts-China-Solvency


This is a can of worms that nobody wants to even consider and I expect will disappear
from the media headlines very quickly. In any case what exactly can anybody do
about this? The Chinese authorities are not going to open up their book to any one,
least of all an American controlled ratings agency who has been bought off from
telling the truth about the American debts. They can’t deal with the hopeless
debts of the US what chance have they with china?.The Us should have a rating
of junk status and instead they have AAA!   

Rating Agency Finds “China Debt Problem Bigger Than Stated”

by Tyler Durden

The timing on the earlier pronouncement that rating agencies may have found religion could not have been better. Not even an hour later, here comes Moody’s with a blockbuster which may put China‘s “White Knight” status, at least as ar as Europe is concerned, in grave danger. In a report just released, the rating agency not only warns that China’s debt problem is “bigger than stated” (i.e., China is hiding a ton of ugly stuff off the books), but goes ahead to quantify it: “Of the RMB 10.7 trillion (about $1.6 trillion) of local government debt examined by the Chinese audit agency, RMB 8.5 trillion ($1.3 trillion) was funded by banks. However, Moody’s has identified another potential RMB 3.5 trillion ($540 billion) of such loans that the Chinese auditors did not discuss in their report….we find that the Chinese audit agency could be understating banks’ exposures to local governments by as much as RMB 3.5 trillion.” Naturally, the implication is that this is an absolutely willing “omission” (thank you central planning), which means that of China’s $5.8 trillion GDP (or whatever imaginary number the Polit Bureau is happy with throwing around for mass consumption), $540 billion is debt that is “unaccounted for”, most likely due to being, well, bad. That would be equivalent to saying that $1.4 trillion of US corporate debt is delinquent. And lest anything is lost in translation, Moody’s drives the steak through the Dragon’s heart: “Since these loans to local governments are not covered by the NAO  report, this means they are not considered by the audit agency as real  claims on local governments. This indicates that these loans are most  likely poorly documented and may pose the greatest risk of delinquency.” So let’s get this straight: a country which has 10% of its GDP in the form of bad debt, is somehow expected to be credible enough to buy not only Greek debt, but the EURUSD each and every day? Mmmmk. In the meantime, Dagong downgrades the US to junk status in 5, 4, 3…

Full Moody’s release:

Moody’s Investors Service says that the potential scale of the problem loans at Chinese banks may be closer to its stress case than its base case, according to an assessment that the rating agency conducted following the release of new data by China’s National Audit Office (NAO).

When considering the apparent absence of a clear master plan to deal with this issue, Moody’s also views the credit outlook for the Chinese banking system as potentially turning to negative.

“We assume that the majority of loans to local governments are of good quality, but based on our assessment of the loan classifications and risk characteristics, as provided by the NAO and other Chinese agencies, we conclude that the banks’ exposure to local government borrowers is greater than we anticipated,” says Yvonne Zhang, a Moody’s Vice President and one of the authors of the report.

Full article here at source:http://www.zerohedge.com/article/moodys-july-4-bomb-rater-finds-10-chinese-gdp-bad-debt-claims-china-debt-problem-bigger-stat

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/


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.

Portugal Warns of Political Crisis and Need for Bailout

With all eyes focused on Japan, it’s easy to miss significant events elsewhere.

For example, the sovereign debt crisis is still unfolding in Europe, and the “agreement” in Brussels last week solved nothing even though one might not know it from looking at the Euro.

Please consider Portugal yields rise, government warns of political crisis

Portugal’s government blamed higher rates paid at a debt auction on Wednesday on the opposition’s refusal to back its latest austerity plans, warning a political standoff could force it to seek a bailout.

Portugal’s plight has become yet more complicated by the fact that the main opposition Social Democrats have refused to back the government’s latest austerity plans, which are aimed to ensure the country meets its budget goals.

“Failure to approve the new measures in the budget plan would push the country to external help,” Finance Minister Fernando Teixeira dos Santos told parliament’s budget committee. “Current market conditions are unsustainable in the medium- and long-term.”

Prime Minister Jose Socrates warned on Tuesday that his minority government would be unable to continue if the country’s long-term economic strategy, which includes the latest austerity measures, was not passed in parliament.

“Yield levels in Portugal still trade above their snowball level — where the level of interest charged means their level of debt stock is going up — and that means that longer-term the situation, despite their best efforts, is getting worse not better,” said rate strategist Charles Diebel at Lloyds Bank.

The Portuguese, who are facing higher taxes, lower social benefits and a likely return to recession this year, have stepped up protests against austerity. But it was not clear they want a change of government.

Moody’s cut Portugal’s sovereign debt rating by two notches to A3 late on Tuesday and said it might have to downgrade again given the impact of high borrowing costs and the difficulty of meeting tough fiscal targets.

The yield on Portugal’s 10-year bonds was at 7.67 percent while the spread to safer German Bunds stood at 456 basis points, up from Tuesday’s 446 basis points. Risk premiums hit euro lifetime highs last week.

Portugal 10-Year Government Bond Yields

Yields are about 20 basis points below the levels reached last week, but these rates will sink Portugal in due time. Portugal will need a “bailout” whether or not the country gets it political act together.

However, it’s important to note that is it not really Portugal that will be bailed out, but rather German, French, and UK banks (just as with Ireland and Greece).

How long these countries are willing to put up with this remains to be seen

source: http://globaleconomicanalysis.blogspot.com/2011/03/portugal-warns-of-political-crisis-and.html.

The Irish public have been deceived ,they thought were voting for change but instead they got more of the same for the next two years according to the new governments 5 point plan . When these two years are up we will be utterly brook and the rats will then leave the ship when nothing else is left for them to take .Our airports will be privatized, our ports, our natural resources and our roads will be sold off along with the ESB, Board na Mona, board Gas and maybe  our forests too  .We might then stand up and make the changes our political masters won’t make!

Reggie Middleton’s take on Moody’s very late, appropriate Greek downgrade

Moody’s Very Late, But Nevertheless Quite Appropriate Greek Downgrade Inches Us Closer To the Rate Volatility Storm

For the past two years, and particularly over the last couple of months,  I have been harping on the coming interest rate volatility storm. Things are now moving in lockstep, precisely as I have forecast. In the news this morning from the mainstream media…

Moody’s Downgrades Greek Sovereign Debt by 3 Notches:

Moody’s rating agency downgraded Greece’s sovereign debt on Monday from B1 to Ba1 and assigned it a negative outlook, citing significant risks to its fiscal restructuring program.

Moody’s now has the lowest rating for Greece of all the major credit agencies and is the first to classify Greek government debt as ‘highly speculative’.

“The fiscal consolidation measures and structural reforms that are needed to stabilize the country’s debt metrics remain very ambitious and are subject to significant implementation risks,” Moody’s said in a statement. It added that it saw risks that conditions attached to continuing financial aid after 2013 will reflect solvency criteria that the country may not satisfy, and result in a restructuring of existing debt.

“At a time when the global economy is fragile and market sentiment is sensitive, unbalanced and unjustified rating decisions such as Moody’s today can initiate damaging self-fulfilling prophecies and certainly strengthen the arguments for tighter regulation of the rating agencies themselves,” it said.

So, the Greek officials threaten to “regulate” those who FINALLY come out with the truth. Did you guys ever see that movie called the “Adjustment Bureau”? The Greek government wants the truth “Adjusted”, and will even go so far as to do it themselves – see the Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! excerpt below.

In addition, Moody’s is soooooo late to the party. As illustrated in explicit detail nearly a year ago, this event is practically a foregone conclusion. See What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates and look as Greece’s situation before and after any restructuring after 2013 (Professional and Institutional level subscribers (click here to upgrade) may access the live spreadsheet behind the document by clicking here (scroll down after for full summary, spreadsheet and charts).


… and that is with their “pie in the sky” estimates, as clearly pointed out in Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

…try taking a look at what the govenment of Greece has done with these fairy tale forecasts, as excerpted from the blog post Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!


Think about it! With a .5% revisions, the EC was still 3 full points to the optimistic side on GDP, that puts the possibility of Greek  government forecasts, which are much more optimistic than both the EU and the slightly more stringent but still mostly erroneous IMF numbers, being anywhere near realistic somewhere between zero and no way in hell (tartarus, hades, purgatory…).

Now, if the Greek government’s macroeconomic assumptions are overstated when compared with EU estimates, and the EU estimates are overstated when compared to the IMF estimates, and the IMF estimates are overstated when compared to reality…. Just who the hell can you trust these days??? Never fear, Reggie’s here. Download our “unbiased, non-captured, empirically driven” forecast of the REAL Greek economy – (subscribers only,click here to subscribeGreece Public Finances Projections Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb.

The  Greek Restructuring and Haircut Analysis that linked to above goes into explicit detail, showing the NPV of cashflows to investors after a a wide scenario analysis of prospective default and restructuring scenarios. It ain’t pretty!

greek debt restructuring spreadsheet

We have performed similar analysis for the usual suspects: Portugal, Spain, Italy and Ireland. Portugal is currently at record high funding rates – and that’s AFTER the bailout!

This is Portugal’s path as of today.

Even if we add in EU/IMF emergency funding, the inevitability of restructuring is not altered. As a matter of fact, the scenario gets worse because the debt is piled on.

Let it be known that there are larger sovereign states that are worse off. Ireland is a prime example. If one were to look at the cumulated funding requirement of Ireland over the next 15 years as clearly illustrated in Ireland’s Bailout Is Finalized, The Indebted Gets More Debt As A Solution But The Fine Print Is Glossed Over – Caveat Emptor! Monday, November 29th, 2010

There are other states that are not in as bad a shape but are poised to do much more damage,  and then there are a plethora of states that will get dragged down through contagion. Yet, the natural manner of pricing risk in the equity markets does not transmit these facts because of the unprecedented amount of liquidity stemming from central bankers around the world doing the Bernanke/Japanse QE thing.

Keep in mind that the German’s game plan is to kick this down the road till 2013, at which point it will be unsustainable butthe mechanisms will be in place to force bondholders to take haircuts in front of the tax payers…

Sounds like a plan, doesn’t it? Except for the high probability that you will probably have a rate storm well before 2013. If rate volatility and/or levels spike for the more developed nations before then, all hell breaks loose. In the US, we’re damn near zero now. Hey, what happens to residential and commercial real estate valuations when rates spike higher? See  The Coming Interest Rate Volatility, Sovereign Contagion, Geo-political Unrest & Double-Dip Recessions: Here’s The Answer To Valuing Global Real Estate Through This Mess.

Revisiting the Topic of Haircuts

Now, let’s return to the post “The ECB Loads Up On Increasingly Devalued Portuguese Bonds, Ensuring That They Will Get Hit Hard When Portugal Defaults“. All readers should open this link in a new window, scroll down to the spreadsheet at the bottom of the post, and reference the first column with the cell labeled “Decline in present value of cash flow for creditors” under the label “Haircut in the principal amount”. Now, scroll over the to the column labeled “Restructuring by Maturity Extension & Coupon Reduction w/Haircut”, which is the second to last column in blue highlight and carefully read the figure for the “Decline in present value of cash flow for creditors”. Booyah! And that’s the unlevered losses. 5x leverage wipes you out several times over. It is rumored that the ECB is levered over 90x, just for the sake of discussion. I strongly suggest anyone interested in this space study this spreadsheet very closely. This level of analysis is probably not available anywhere else on the free Web


Bond fears put bank ratings at risk

By Emmet Oliver and Laura Noonan

Friday February 11 2011

IRISH banks are facing a damaging downgrade by a key rating agency due to recent comments by some opposition spokespeople about ‘burning’ bondholders, the Irish Independent has learned.

Moody’s, one of the three largest global agencies, will slash the credit rating of all the banks today over worries that a new government might not protect senior bondholders like the outgoing government. This will make it even harder for Irish banks to attract funding.

It is understood Moody’s staff have held two meetings in recent days to study the comments of Labour Party and Fine Gael representatives.

The agency is expected to say today that comments during the campaign suggest senior bondholders are not as safe as was previously thought.

A number of parties have said they will either dishonour all senior debt or the portion of debt which has no government guarantee. Such comments are making the markets increasingly nervous.

It comes as the Irish banks suffer major outflows of deposits and become more reliant on emergency assistance from the Irish Central Bank. One source suggested last night that the Irish banks could be given so-called ‘junk’ status, which means they are regarded as highly-risky investments.

Meanwhile, Fine Gael yesterday threw Bank of Ireland a lifeline that will help it avoid becoming the latest bank taken into State control. The bank had been due to get €1.4bn of taxpayers’ money at the end of February — which would have put it into majority government ownership.

But Fine Gael, which looks set to lead the next Government, yesterday confirmed that it would not put any money into Bank of Ireland after the next round of banking stress tests are done.

The bank had been appealing to be allowed to go through the stress tests — which will confirm how much cash it needs for the next year — before it had to approach the private market for cash. “We couldn’t have gotten private money before the stress tests because investors would have known we might have needed more money soon. This gives us a better chance,” one source said.

Fine Gael Finance spokesman Michael Noonan yesterday said that Fine Gael wanted to re-negotiate the EUIMF bailout deal in whatever way was possible.

“We think that the bailout package is far too expensive and too onerous on Irish taxpayers,” he said.

– Emmet Oliver and Laura Noonan

Irish Independent


These banks are Bankrupt and shoveling billions more down their blackholes is madness! Hold on to whats left of our pension reserves and let the banks go for God sake!

Fine Gael still sitting on the fence and Labour are no better face reality lads we cannot repay this debt and the only out it default just look at Iceland

Ireland’s credit rating grouped with Botswana

By Donal O’Donovan and Emmet Oliver

Thursday February 03 2011

RATINGS agency Standard & Poor’s (S&P) has cut Ireland‘s credit rating again, saying it’s still not certain how much it will cost to rescue the country’s banks.

Ireland was cut one notch to A- and remains on “negative watch”, meaning further downgrades could happen. Ireland is now grouped with Botswana and Portugal, but does retain an investment-grade rating for now.

The IMF/EU programme envisages the banks getting up to €35bn in fresh capital in a worst-case scenario, but the agency said it would await the final figure in March. S&P said Ireland was at its “low point” and it should be possible for any government to make the required savings, but it said the scale of the banking problems remained unclear.

S&P also downgraded all the main banks on the back of the sovereign announcement.

The financial performance of the main banks will remain “depressed for several more years’,’ said the agency.

“This reflects both the backdrop of an even more protracted weak economic environment and expected high problematic assets,” it added.

“Several banks have large books of tracker mortgages, which in our view are currently uneconomic and cannot be repriced,” the agency noted.

The new S&P rating remains above the ratings of both Fitch and Moody’s, at BBB+ and Baa1 respectively.

S&P analyst Frank Gill said the new Ireland rating remained “solidly investment grade”, meaning the agency did not expect Ireland to default on any of its external debt.

He said the key ratings concern regarding Ireland was uncertainty.

“There is uncertainty on growth, uncertainty about the labour market and about the level of impairments on non-NAMA bank assets,” he told the Irish Independent. Mr Gill said predicting growth rates in the Irish economy was difficult but he expected GDP growth of 0.3pc in 2011.

– Donal O’Donovan and Emmet Oliver

source: http://www.independent.ie/business/irish/low-point-reached-as-agency-rates-us-alongside-botswana-2523127.html

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