Thursday, June 30, 2011

A Foretaste

Those who have been focusing on the ongoing Greek tragedy may care to remember that the portents of doom, concerning a Greek financial meltdown, are but a foretaste of the catastrophe that will be unleashed if the US doesn't get its debt laden house in order soon.

The IMF has issued a warning that the US needs to sort out its debt problems, and ensure that Congress passes legislation that allows its debt ceiling to rise. Failure to do so will lead to default on US debt, which will cause financial shock waves around the world.

The irony of course being that using debt to pay debt is in itself the road to ruin.

Wednesday, June 29, 2011

Greece Goes For Austerity

The Greek parliament has approved the five year austerity package.

Now all it has to do is implement it!

Christine Lagarde Appointed Head of IMF

Christine Lagarde, the French Finance Minister, has been named as the new head of the International Monetary Fund.

Rather bizarrely, and certainly pathetically, French President Nicolas Sarkozy's office declared it a "victory for France".

Does Sarkozy not get the point that the IMF is an international organisation, it is not there to work for France or Sarkozy.

I suspect that Ms Lagarde has sufficient intelligence and ethics to understand that point, it is a pity that Sarkozy has taken the shine off her appointment by making such a partisan and crass comment.

She starts work on 5th of July, her first task being to sort out the Greek tragedy.

Good luck on that then!

Tuesday, June 28, 2011

The Greek Tragedy - Sarkozy's False Dawn

French president Nicolas Sarkozy believes that he has found the solution to the Greek crisis, by striking a deal with France's banks in which they have agreed to restructure their Greek debts.

However, before he pops his champagne cork he would do well to remember that the deal involves using Brussels funds to reduce potential losses of private bondholders. This is not something that the Germans want, indeed it should also be noted the the Greeks have not yet accepted the deal.

The Greek parliament votes on the austerity measures tomorrow. In the event that the measures are approved, no one seriously believes that the measures will be faithfully and fully implemented in the coming years.

Am I too cynical?

Consider this, the country is already in political turmoil, any further cuts will push it over the edge to anarchy. It should also be remembered that is it guilty of committing fraud on a national level in order to join the Euro in the first place.

This is a false dawn, Greece will default and be pushed out of the Euro.

Monday, June 27, 2011

Chickens Coming Home

In April 2010 I wrote that Greece would be eventually forced out of the Euro.

Now, some 14 months later, it appears that the EU is finally waking up to the reality of Greece defaulting on its debt and being forced out of the Euro.

The UK Treasury for its part is attempting to "do a Canute", and "persuade" banks to "take a haircut" on their £2.5BN visible Greek debt. Even if the "ever generous" banks were to be persuaded to "go to the barbers", and take a hit, that would be but the tip of the iceberg.

Banks have a far greater (unseen) exposure to Greece than the on balance sheet debt of £2.5BN. The banks failed to learn the lessons from the American toxic debt crisis, that almost crippled the world's banking system, and have repeated the mistakes of the past by creating and selling complex financial instruments based on toxic Greek debt.

Needless to say, the complexity of these instruments means that no one is exactly sure as to how badly the banks are exposed.

It is ironic that the banks have failed to learn the lessons of the last financial crisis, and even more ironic that they chose to play the same "Ponzi game" of selling each other toxic products in a country that committed major fraud on a national scale in order to join the Euro.

Chickens are coming home to roost!

Friday, June 17, 2011

IMF U Turn

The IMF has had a change of heart wrt bailing out Greece for a second time, it has now said that it stands "ready to continue its support".

The EU and the IMF are expected to release a Euro12BN loan in early July, in order to keep Greece solvent.

Politics, rather than economics, are at play in this U turn by the IMF.

Wednesday, June 15, 2011

Fiddling While Athens Burns

George Soros has criticised international authorities for "not providing a solution" to the worsening Greek financial crisis, but merely "buying time" as they continue to avoid addressing the fundamental issue of the Greek tragedy.

This will only end in tears!

Tuesday, June 14, 2011

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".

Monday, June 13, 2011

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.

Friday, June 10, 2011

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.

Thursday, June 09, 2011

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!

Wednesday, June 08, 2011

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.

Tuesday, June 07, 2011

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.

Monday, June 06, 2011

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.

Friday, June 03, 2011

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!

Thursday, June 02, 2011

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.

Wednesday, June 01, 2011

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?