The Greek Tragedy - Another Day Another Downgrade

Another day dawns on the slow motion car crash of Greece's inevitable debt default and yet another downgrade has been made on Greece's debt (B to CCC), this time by Standard and Poor's.

S&P are of the view that Greece's credit outlook was "negative". Hardly surprising, if the ratings agencies keep downgrading the debt.

Do people pay these agencies for this?

Greece's sovereign debt is now the lowest rated in the world. This is what happens when politicians commit major fraud (on a national scale), in order to join the "exclusive" Euro club.

However, do not forget that some organisations and individuals make a very good living out of fluctuations in rates, yields, and prices etc. These fluctuations are driven by sentiment (fuelled by eg ratings) as much as hard "facts".

Barclays To Settle All PPI Claims

Barclays has confirmed that all PPI customers who made a complaint before April 20 will be reimbursed the total value of all their premiums, plus 8% interest.

This is a hefty kick in the teeth to the "financial ambulance chasing" claims firms, who offer to help PPI victims reclaim their premiums (this is in fact a simple and free task) in exchange for a hefty percentage of the reimbursement secured.

Needless to say these "financial ambulance chasers" will doubtless find another mis-selling trough to stick their snouts into, as the UK's financial services industry is bereft of scruples and the UK public bereft of financial commonsense.

Chinese Whispers II

AFP report that the Chinese ratings agency (Dagong Global Credit Rating Co. Ltd.) has stated that, because the USA had allowed the Dollar to weaken, the USA is in effect defaulting on its debts.

In November last year Dagong reduced its rating on the US to A+ from AA, citing a deteriorating intent and ability to repay debt.

The Chinese are far from happy with the weakening of the Dollar, as they hold over $1Trillion in Dollar denominated debt.

This issue will cause considerable friction between the US and China.

What's The Similarity Between Mortgage Providers and Ratings Agencies?

The Telegraph reports that Ray Boulger of mortgage broker John Charcol thinks that house price indices, provided by mortgage providers, are a farce.

"The way providers of house price indices seasonally adjust their figures is a farce (or, seasonally adjusted, a comedy).

In many months the seasonal adjustment skews the real figures so much the result is that the comment generated is often misleading."

The issue runs much deeper than seasonal adjustments.

Mortgage providers' statistics are to the housing market, what ratings agencies' ratings are to sovereign debt. Both parties use their "ratings/stats" to manipulate the market to make money out of it.

Of course the statistics are unreliable!

Moody's Threatens To Downgrade UK

Moody's, having had a "pop" at the USA, has now also had a go at the UK.

The FT reports that Moody's has warned that the UK could lose its AAA credit rating, if growth continued to slow and if the British government decided to slow down its fiscal consolidation plans.

Needless to say the market took fright, and Sterling fell to a one-month low against the euro and fell against the dollar and the yen.

As ever, with currency movements such as this, there are organisations that manage to make a nice living out of them; even if the movements are based on "what ifs" warnings issued by ratings agencies that were once giving AAA ratings to toxic financial products.

People, quite correctly, ask why do markets "listen" to the now discredited ratings agencies?

Sadly the answer is simple, the markets and ratings agencies need each other and feed off each other. Money can be made by neither, without the other.

Monetarism Rules!

The IMF has given guarded support for the government's plans for reducing the budget deficit (currently £4.8 Trillion).

The IMF's crystal ball gazers are of the view that the economy remains on track for a "moderate" recovery, if interest rates remain low and inflation eases.

However, the IMF also stated that if the high risks of an ongoing slump continue; then the economy should be stimulated with a combination of more quantitative easing and temporary tax cuts.

In other words, the economy may well need a monetarist stimulation rather than a Keynesian one.

The Greek Tragedy - Bailout Stillborn

Those in the EU/IMF who think that the second bailout offered to Greece has solved all of the problems facing both Greece and the Euro, may care to take their noses out of their ledgers and look at what is happening on the streets of Greece.

Reuters report the following:

"On Sunday night people from Athens and far beyond the capital crammed into the city's Syntagma Square to show they are close to the limit of their endurance.

"Thieves - hustlers - bankers," read one banner raised above a sea of splayed hands waved at the parliament building which overlooks the square, an offensive gesture in Greek culture.

Turnout was the biggest so far in a series of 12 nightly rallies inspired originally by Spain's protest movement."

The reality facing the politicians in both Greece and the EU, is that the Greek people will not tolerate any further austerity measures. Bailout number 2 is stillborn, one or more of the following events will now occur:

1 The Greek government will fail to pass the austerity measures.

2 The austerity measures will not be implemented as rigidly as the EU/IMF claim.

3 Greece will default.

4 Greece will descend into political and economic chaos.

Whatever happens, bailout number 2 in its current form will not work. Either the EU/IMF will have to throw more money at Greece (this time without any conditions), or Greece will leave the Euro.

Moody's Displays Irony

Having downgraded Greece, Moody's (showing that they have no favourites) have also threatened to downgrade the USA if politicians in the US do not agree to raise the debt ceiling in the coming weeks.

It is of course more than a little ironic that, in order to maintain its credit rating, the USA has to borrow (and be able to borrow) more money.

Needless to say with a "booming" economy (albeit pumped up on more debt) Wall Street and companies such as Moody's (who sold toxic assets, and helped sell toxic assets, with a AAA rating pre slump) will do very well.

Now that's "irony" for you!

The Greek Tragedy - Moody's Downgrade Debt

Greece continues to endure further public humiliation as Moody's downgraded Greece's debt, by three notches to Caa1, placing it at the very bottom of its European league table.

The Telegraph reports that the downgrade happened, as if by magic, whilst German ministers were trying to reassure markets that the EU and IMF are both committed to another bailout.

Martin Kotthaus, German finance minister, said:

"It was designed jointly. It will be evaluated jointly, and I also assume that it can only be continued jointly, including when it comes to the question of payouts of future tranches."

Neither the markets, nor Moody's, believe this; as there are reports that the IMF (sans DSK) will not sanction the next tranche in the bailout.

FSA Behind The Curve Again

In a staggering display of ineptitude, the hopeless and hapless FSA have taken umbrage at banks allowing some of their struggling mortgage debtors to switch to interest only deals, extend their mortgage term, or permit payment holidays (aka debt restructuring).

Why is the FSA so worked up over this?

It seems that the FSA is worried that banks are using this restructuring to flatter their bad debt provisions.

Maybe so.

However, the FSA may care to actually engage its brain before castigating the banks.

- Mortgages are secured on property.

- The property market is fucked!

- Were banks to sit back and allow struggling debtors to default on the mortgages, the banks only resort would be to either write the debt off and/or repossess the home.

- A repossessed home in a failing market is unlikely to clear the debt, plus the family that the bank dispossess from their home would still have to find somewhere else to live. This is not good for the economy, the bank or the family.

Why does the FSA not see this?

It is a rare occasion that banks are actually seen to be doing the right thing. However, the FSA has its head up its arse and refuses to see the bigger picture.

As I have asked before, why is the FSA still in existence?

The Greek Tragedy - Update

The FT reports that the EU is considering another bailout of the embattled Greek economy, which could include outside intervention in the Greek economy (eg in tax collection and the privatisation of state assets).

Allegedly, around Euro30BN of the new bailout could be raised from privatisation and a change in repayment terms for private debtholders.

All very well, in theory. However, those putting together the rescue package all need to agree on the terms and conditions (not that likely) and the Greek people need to be prepared to submit to further austerity measures (highly unlikely).

The alternatives of default and/or leaving the Euro are not palatable, but are nonetheless very real possibilities.

The Greek Tragedy - The Return of The Drachma?

Jean-Claude Juncker, the chairman of European Finance Ministers, has stated that Greece may not receive further IMF funding because it is unlikely to be able to guarantee its funding over the next 12 months.

He is quoted in the Telegraph:

"The IMF can only be active when there is a refinancing guarantee for 12 months."

Needless to say, this statement caused a fall in the Euro and flight from Greek debt.

Greece realises that it is staring into a financial and political abyss. Maria Damanaki, European Commission's Greek representative, is quoted by AFP:

"We either agree with our creditors on a programme of tough sacrifices that brings results, and assume the responsibilities for our past, or we return to the drachma. The rest is secondary under today's conditions."

Either way, Greece is facing a lousy choice. This of course would not have happened had previous Greek administrations not falsified their economic statistics in order to gain entry to the Euro club.

The Ongoing Farce of The FSA Report About RBS

The ongoing farce of the FSA's report about the collapse of RBS continues.

The Treasury Select Committee has now published the terms of reference for the independent review of the FSA's report (which is still yet to be published). The review has been called for as MPs and others are heartily fed up with the FSA's handling of the matter.

Sir David Walker, a banker, and Bill Knight, a lawyer, will conduct the review which will have two aims:

- Assess whether the unpublished FSA report is "a fair and balanced summary" of the evidence gathered by the regulator and PricewaterhouseCoopers during their investigations into RBS.

- Assess whether the FSA's report does a good job of analysing its own failures in regulating RBS.

However, nothing can be done until the FSA have finalised their report.

Have they?

Of course not!

The hapless and hopeless FSA is still writing the report, which it was supposed to have finished in April, having agreed to an original deadline of March.

Citywire quote an FSA spokesman:

"It's taking longer than we'd originally hoped."

Hopeless and hapless!

Could someone please tell me why the FSA is still in existence?

Anyone But Brown

The BRICS group of the world's major emerging economies (Brazil, Russia, India, China and South Africa) are peeved that the search for a new head of the IMF, following the demise of DSK, is purely Euro focused.

BRICS claim, with some justification, that only having a European leading the fund somewhat undermines its "international" credentials and legitimacy.

I concur, if a suitable non European candidate can be found.

However, a few counterpoints need to be raised:

1 The World Bank is always headed by an American. As long as that is the case, the Europeans will insist that the IMF is headed by a European.

2 A suitable non European candidate needs to be found. A number of names have bubbled to the surface in the media, from various countries. However, in order for them to stand any realistic chance, the BRICS must first agree amongst themselves which one they will support.

3 The EU (an institution many loath) is in financial crisis, as a result of the debt problems of certain countries (eg Greece, Spain, Portugal, Ireland etc). There is no way that the EU will accept a non European, at this critical stage, to head the IMF. The EU needs a "friend at court".

Political reality is a harsh mistress.

However, there is one thing that the EU and BRICS can all agree on; no one wants Gordon Brown to head the IMF!

Chinese Whispers

It seems that it is not just Portugal, Ireland, Greece and Spain (aka "PIGS") that are under the gimlet eyes of the ratings agencies.

The UK has now also come under attack from the ratings agencies. Bloomberg reports that Dagong Global Credit Rating Co., one of China's official ratings firms, has cut its credit rating for the UK by one notch to A+.

Dagong cite the UK's deteriorating ability to repay debt, much the same reason used by other agencies when they downgraded the "PIGS".

However, we are not alone, the firm also reduced its rating on the US to A+ from AA last November citing a deteriorating intent and ability to repay debt.

Cynics might argue that ratings agencies' ratings/prophecies more often than not become self fulfilling, as the very act of downgrading a country increases that country's costs of borrowing.

Were the agencies to abuse their power, there would be opportunities for individuals, companies and countries connected with them to make a lot of money at the expense of others.

Needless to say, as with other aspects of the global financial services industry, the behaviour, quality and ethics of these agencies is beyond reproach.