Tuesday, May 31, 2011

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.

Friday, May 27, 2011

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.

Thursday, May 26, 2011

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- Assess whether the unpublished FSA report is "a fair and balanced summary" of the evidence gathered by the regulator and PricewaterhouseCoopers during their investigations into RBS.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

Wednesday, May 25, 2011

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!

Tuesday, May 24, 2011

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.

Monday, May 23, 2011

The Greek Tragedy - No Surrender

The Telegraph reports that the Greek Prime Minister, George Papandreou, has ruled out debt restructuring in favour of more domestic austerity in order to "resolve" the Greek financial crisis.

Needless to say the ECB fully support this approach.

All very well, in theory maybe. However, the reality is that if the austerity package is passed by the government the people of Greece will be asked to endure more financial pain not to save their economy but to save the Euro experiment.

This is something that they are not prepared to endure, and is not a cause that any citizen of Europe should be asked to suffer for.

Like it or not Greece will be forced to default/restructure the debt, or simply leave the Euro.

Friday, May 20, 2011


It seems that successful men are driven by many demons, that would appear to be the conclusion to be drawn from the public downfalls of Sir Fred "the Shred" Goodwin (ex head of RBS) and Dominique Strausss-Kahn (ex head of the IMF).

Sir Fred had in place, until yesterday, a "super injunction" that forbade the mention of him even being a banker. However, following disclosures made in the House of Lords yesterday about his affair with a senior colleague, the terms of the injunction were varied. Mr Justice Tugendhat, sitting at the High Court, varied the injunction to allow reporting of Sir Fred's name, but not details of the alleged relationship or the name of the colleague said to be involved.

As to why the affair is so important rests not with the affair itself per se, but the fact that RBS has a code of conduct that would have required Sir Fred to tell the board of the affair, lest there be a conflict of interest.

It is not yet clear as to whether he told the board, or whether the affair itself may have distracted him during a critical time in the bank's operations.

The FSA has been asked to investigate. However, given the mess that they have made so far wrt their last investigation (yet to be reported) into the collapse of RBS, any FSA investigation is likely to produce nothing of any value.

In other news, quite by coincidence, the IMF has published its code of conduct (which cover "personal relationships").

Human beings, no matter how successful, all share one common characteristic; we are all very flawed.

Thursday, May 19, 2011

Ma Demission

Dominique Strauss-Kahn has tendered his resignation (in French) to the IMF.

John Lipsky, formerly Strauss-Kahn's deputy, is acting managing director.

A permanent successor will be chosen by the executive board later this year.

Let us trust that his replacement will not be Gordon Brown!

Wednesday, May 18, 2011

EU Blinks First

In the game of poker being played between indebted Greece and the EU hegemony, over Greece's worsening financial situation, it seems that the EU has blinked first.

The Telegraph reports that European officials have finally conceded that Greece may have to restructure its debt, as part of a second bailout on top of the Euro110BN original bailout.

The second bailout will result in Euro60BN being thrown into the bottomless pit of Greek finances, in order to ensure it can roll over Euro25BN-Euro30BN of debt that matures next year.

I assume that the extra Euro30-35BN is some form of contingency fund, lest there be further "horrors" waiting in Greece's accounts.

The EU, trying to save face and to look strong in the face of capitulation, have stated that Greece would have to implement further welfare and labour reforms, plus more privatisations.

This of course will not happen in reality, as the Greek people have had more privations than they can take from the EU.

Needless to say, borrowing more money from the EU only staves off Greece's day of reckoning.

The EU may well refer to this as a bailout, it is in reality a default.

Tuesday, May 17, 2011

Good Money After Bad

Despite the arrest of the CEO of the IMF, Dominique Strauss-Kahn, the IMF and EU have managed to come up with the eurozone's third bailout package.

This time Portugal is holding out the begging bowl, and will receive Euro78BN. Europe will provide Euro52BN at 5.5%, and the IMF will provide Euro26BN at 3.25%.

Needless to say this bailout is merely putting off the day of financial reckoning. No one seriously expects Portugal to be able to pay off this debt.

As for Mr Strauss-Kahn, it is rumoured that he/IMF may seek diplomatic immunity.

Were that to be true, that would produce one almighty diplomatic/political and financial bust up between Europe and the States.

Monday, May 16, 2011

US Hits Debt Ceiling Today

The US federal debt will hit its legal limit today yet, according to CNN, Congress doesn't seem to have any plans to raise it.

What is the debt ceiling?

It is a $14 Trillion cap set by Congress on the amount of debt the federal government can legally borrow. It has been raised 74 times since 1962.

When the ceiling is reached, the US Treasury has no authority to borrow more money. As such the US is in danger of defaulting on its debts, unless the US Treasury Secretary (Timothy Geithner) picks and chooses which debts to pay and which to sit on.

Even if he manages the "debt shuffling", the damage done to "Financial Brand USA" will be immense.

It is now up to Congress to sort this out, lest the USA end up defaulting before Greece does.

Sunday, May 15, 2011

IMF Thrown Into Disarray

The IMF and quite likely the world economic system, has been thrown into disarray after the arrest in New York of the CEO of the IMF Dominique Strauss-Kahn.

Today's talks between German Chancellor Angela Merkel and Strauss-Kahn, about the Euro crisis, have been cancelled.

Well run organisations should have a secession plan in place, in the event of the "incapacity" of senior executives.

The IMF will now have to dust it off and implement it, assuming that it has one.

Wednesday, May 11, 2011

The Greek Tragedy - An Inspector Calls

The ongoing Greek tragedy continues apace, with "debt inspectors" from the EU and IMF visiting Athens to take a close and hard nosed look at the finances and reform measures of the financially embattled country.

Their visit, by coincidence or design, comes during a general strike which has paralysed Greece's roads, trains and airports.

The Greeks, despite their public pronouncements, are looking for a renegotiation of the bailout terms and probably an extra lump of funding. Their trump card will be that, if they do not receive some extra help, they will leave the Euro.

Therefore the EU and IMF, despite their pronouncements that any extra help (if offered) would come with extra conditions, will be forced to stare into the abyss of a collapse in the Euro experiment.

The questions is, just as in any game of poker, who will blink first?

Tuesday, May 10, 2011

Greek Tragedy

The ongoing Greek tragedy continues to unfold before the eyes of a transfixed world.

The Telegraph reports that Standard & Poor's (S&P) warn that investors in Greek debt may have to write off 50% or more of their loans, if financial stability is to be restored to Greece.

S&P warn of the increased risk that Greece will take steps to restructure its £97BN bailout.

As if to help bring about its own prediction, S&P cut Greece's credit rating from BB- to B.

Unsurprisingly the Greek government do not regard S&P's comments, or actions, as being "helpful". They have again denied that that there will be a restructuring and, over the weekend, denied other reports that they may well leave the Eurozone.

Despite the denials, the ongoing increase in negative sentiment in the market towards Greece means that the rumours of restructuring and departure from the Euro may become self fulfilling prophecies.

The demise of Greece is something that the EU may well need to address before the meeting of finance ministers on 16 May.

Monday, May 09, 2011

Banks Cave In Over PPI - Or Do They?

The British Bankers' Association (BBA) has stated that banks will drop their legal challenge to paying compensation for mis-selling Payment Protection Insurance (PPI).

The volte face is a result of Lloyds giving up the fight last week, and announcing that it would set aside a £3.2BN compensation fund, closely followed by Barclays announcing that it has thrown in the towel.

However, before those with "£ signs" in their eyes start popping the champagne corks in anticipation of receiving a payout, customers of the banks should consider this. Banks will simply fund these claims by putting up charges on loans/credit cards and, most likely, will introduce charges for current accounts.

One way or another, it will not be the banks that end up paying the compensation.

Friday, May 06, 2011

RBS Asks For Comments

RBS are asking for comments, via its website, about its results:

"RBS made an operating profit of £1.1 billion in the first quarter of 2011 after a break-even result in the last quarter of 2010.

The figures, combined with further improvements in the bank's risk profile, show that RBS is continuing to make good progress in its recovery....

RBS recorded a Q1 attributable loss of £528 million after an Asset Protection Scheme charge of £469m and a fair value of own debt charge of £480m...

Thursday, May 05, 2011

Interest Rates Hold Steady

As predicted the MPC have not raised interest rates, they remain (as they have done for the past 27 months) at 0.5%.

The decision to freeze rates is hardly surprising given the state of the economy and level of indebtedness.

However, do not expect the ECB to be so "alive" to the economic problems of the real world. It is highly likely that the ECB will continue to tilt at windmills, and push for higher rates, in its fanatical and mistimed battle against inflation.

Wednesday, May 04, 2011

Portugal Bailout

Jose Socrates, Portugal's caretaker prime minister, has stated that Portugal has followed Ireland and Greece and agreed to a $78BN bailout from the EU and the International Monetary Fund (IMF).

However, the deal will need broad cross-party support because Mr Socrates resigned last month (as a result of not being able to pass a budget) forcing a general election on 5 June.

Additionally, the interest rate on the bailout loan will not be set until mid May.

Using debt to pay off debt, is of course merely pushing back the day of reckoning.

Tuesday, May 03, 2011

King Warns On Rate Rise

Mervyn King, Governor of the Bank of England and deputy chair of the European Systemic Risk Board (ESRB), issued a warning whilst speaking yesterday at the European Parliament that a rise in long-term interest rates would have "severe" consequences.

King's rationale being that the level of indebtedness would be increased by any rise in rates.

Given that the comments come ahead of this week's MPC rate setting meeting, it is being interpreted as a signal that UK rates will remain at 0.5% for the time being.

Whilst the MPC may well see the dangers of an increase in rates, no such "real world" understanding is apparent in the actions and attitude of the ECB who fear only inflation and ignore recession. Sadly for the people of Europe, the ECB are determined to press forward with higher rates irrespective of the damage that these increases will do the the European economy and to the citizens of Europe.

Sunday, May 01, 2011

FSA - F*cking Useless!

From today's Telegraph:

"Senior sources close to the FSA said that the report on RBS, originally promised by Lord Turner, the FSA chairman, in March, was now delayed indefinitely.

The FSA is now aware that the delay is doing it damage and wants to stave off criticism that it has not met its own deadline.

The sources said that such was the legal complexity trying to produce a report that would be cleared by RBS lawyers – fearful of possible legal action in the US – the project now needed a fundamental rethink

I stand by what I wrote on 7 March 2011:

"The publication of the long awaited whitewash report by the FSA into RBS, originally intended to be published this March, has been delayed until at least April.

Unsurprisingly no one is happy with this delay, as it clearly makes the report look like even more of a whitewash and the FSA all but complicit in that whitewash.

The Sunday Telegraph adds weight to the increasing clamour for the FSA to come clean about this whitewash, by reporting that many current and former RBS managers have not been contacted by the FSA as part of its "investigation", despite their intimate knowledge of how the bank had been run.

Why would that be?

Does the FSA not know how to conduct an investigation, or was it trying to "investigate lite"?

Even more damning is the the Sunday Telegraph's assertion that Sir Fred "The Shred" Goodwin was only interviewed once by FSA officials, and even then only on broad issues and not the specifics of the bank's failure.

It seems that the FSA did not have "proper processes", according to one former senior Treasury adviser interviewed by the Telegraph.

The beleaguered and failed regulatory body, the FSA, has managed through further ineptitude to dig itself (as if that could be possible) deeper into the mire.

Having steadfastly refused to publish its report into RBS (the report that exonerated the directors and company of any wrongdoing), it then agreed (under intense pressure) to publish a heavily redacted version of the report.

Good enough?

Not really:

1 The report will be heavily redacted.

2 It won't be published until at least April.

The FSA really doesn't get it, and is demonstrating why it has become an irrelevancy.

Impressed so far?

I'm not!

However, this litany of incompetence does not not end here. The FSA exoneration of the RBS board may in fact be nonsense, and that the investigation nothing more than an incompetent whitewash.

For why?

WikiLeaks have published a cable that summaries a meeting between Sir Philip Hampton, the new chairman of RBS, and 3 US politicians.

During the meeting Sir Philip allegedly noted that he thought that the previous RBS had failed to live up to their "fiduciary duties", and did not conduct adequate due diligence before buying part of ABN Amro in 2007.

That hardly fits in with the FSA whitewash that exonerates the previous board.

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