Category Archives: Credit markets

Rob Johnson and Tom Ferguson on the Real Meaning of the S&P Downgrade and the Market Reaction

I feel as if I am too often making excuses for coming across good material on the late side, but between being distracted by the market gyrations of last week and figuring out how to write to Salon readers, I’m even more behind the eight ball than usual. But our initial reader comments confirm our instincts that this material is very relevant.

Readers have responded well in the past to Tom Ferguson’s cut-to-the-chase, curmudgeonly style, but I also wanted to call your attention to Rob Johnson’s observations. Rob, by contrast, is a very measured speaker, so on his scale of discourse, his remarks about Obama are remarkably blunt.

Matt Stoller: S&P – “Our ratings in the mortgage-backed securities area were not venal”

By Matt Stoller, a fellow at the Roosevelt Institute. He is the former Senior Policy Advisor to Rep. Alan Grayson. (on Twitter at @matthewstoller)

So S&P downgrades the US, and Treasuries rally. Then S&P affirms that France is a AAA rating, and the markets freaked out about Eurozone and Eurobank risk. France is “now in the crosshairs”. What should be clear by now is that S&P isn’t doing actual credit analysis. It is being a part of a community of financial oligarchs that for their own reasons want to see various communities and countries threatened with a downgrade.

Indeed, of all the players in the financial crisis, the ratings agencies were the single most embarrassing and obvious points of failure and corruption.

Another Real Estate Time Bomb: Unsellable Vacant Homes?

From a NYC reader via e-mail:

My good friend is a real estate broker in Westchester/Dutchess County. He said he is seeing a real problem growing with title insurance. He said a large number of the REO properties banks try to get him to sell cannot close because of title problems. He’s worried about the growing number of vacant homes which may be impossible to sell.

“August 2011: The euro crisis reaches the core”

Yves here. This article gives one of the best high level summaries of the problems besetting the Eurozone I have seen. I’m not as keen about his remedy, which is not to say that it isn’t clever and wouldn’t in theory work. But from everything I can tell, the ECB is simply not prepared to expand its balance sheet anywhere near as much as would be needed.

By Daniel Gros, Director of the Centre for European Policy Studies, Brussels. Cross posted from VoxEU

Investors are anticipating the unravelling of the 21 July 2011 “solution” and a breakdown of the interbank-market that would throw the economy into an “immediate recession” like the one experienced after the Lehman bankruptcy. This column argues that this will happen without quick and bold action. The EFSF can’t work as designed but if it were registered as a bank – which would give it access to unlimited ECB re-financing – governments could stop the generalised breakdown of confidence while leaving the management of public debt in the hand of the finance ministers.

Are Rating Agencies Now Trying to Mug Rich Municipalities?

A savvy and cynical reader sent me this story from the Boston Globe yesterday, “Rating agency downbeat on Mass. communities.” We wanted to show readers that we are not merely after Standard & Poor’s but all sorts of rating agency incompetence and socially destructive behavior. Key extracts:

Irony Alert: If This is 72 Hours of Central Bankers Trying to Save the World, What Would Abject Capitulation Look Like? (Updated)

Reader Valissa pointed to an article at Bloomberg which looks like an effort at hagiography gone flat. Titled “Central Bankers Worldwide Race to Save Growth in 72 Hours of Policymaking,” it tries to perpetuate the myth of the overlords of the money system as all powerful, concerned with the public good, and competent. But as we know, they are increasingly politicized, hostage to ideology, unduly concerned with the pet wishes of banks, and tend to deny the existence of problems until they are acute.

Look at this impressive list of actions:

Delaware Attorney General Joins in Dropping Bombs on Bank of America Settlement and Bank of New York

Last week, Delaware attorney general Beau Biden indicated he might join New York state attorney general Eric Schneiderman in objecting to the proposed $8.5 billion settlement of a sweeping range of areas of possible liability by securitization trustee the Bank of New York. Bank of New York is allegedly acting on behalf of investors. 22 very large institutions were involved in the process, but as we pointed out, some of them, as well as Bank of New York, have substantial conflicts of interest.

Biden did file his petition yesterday, as was reported in Bloomberg just after midnight. The article is skeletal, and thanks to alert reader Deontos, we have the entire filing here. The meat of it is short, but don’t mistake short for unimportant.

Philip Pilkington: European Citizens are Not Being Taxed to Fund the Bailouts

By Philip Pilkington, a journalist and writer based in Dublin, Ireland

We hear it time and time again: EU taxpayers are paying for the bailouts in the European periphery. The problem with this statement? As popular as it may be in the media right now, it’s not quite true – at least, it’s not true if you take a proper macroeconomic perspective on the crisis rather than looking at it through the crass lens of nationalism.

We Speak to BNN About Europe, Economic Outlook

Wow, am I sour faced in this one!

I had gotten to the studio ahead of time (standard protocol) and was miked up earlier than usual. So I listed to probably 12 minutes of unbelievable cheerleading, which is not the sort of thing I expected on BNN, which usually does not sell the CNBC Kool-Aid. I think I was braced for a fight which never came.

Hope you enjoy it regardless.

Permanent zero is official policy

Cross-posted from Credit Writedowns Today, the Federal Reserve told us that interest rates will remain at zero percent for two more years, making official the policy I have dubbed permanent zero. In response we saw a massive rally in treasuries starting at about 225PM ET and equities starting at about 240PM ET as interest rate […]

Dylan Ratigan’s Mad as Hell Moment

Wow, this is pretty remarkable.

Did Standard and Poor’s Break SEC Regulations in Disclosing Its Downgrade to Select Parties?

The Administration and its allies have gone after Standard and Poor’s for its downgrade of the US bond rating to AA+. They have attacked S&P’s general competence, its failure to reexamine its decision in the light of a $2 trillion math error (a Wall Street Journal story does not reflect well on S&P’s haste) and the subjective and political basis for its judgment. Even if these attacks have merit, however, they come off as being less than convincing by virtue of sounding like sour grapes.

There is a much more straightforward basis for questioning S&P’s conduct, and it has nothing to do with how S&P arrived at its rating.

Asia Getting Hammered, Discouraging Report on ECB Commitment (Updated: Europe Opens Up, US Futures Rise; Second Update: Rally Fizzles)

Wellie, nothing like a lack of leadership to turn an ugly market day into an utter rout. But in another sense, the fake leadership in lieu of real leadership (as in taking a tough stand now and again and bringing the public around) is what set up conditions for a spectacular market unwind in the first place.

It’s one thing to do the equivalent of put the financial system on life support to deal with a crisis, quite another to leave the patient on life support and pretend you’ve returned to status quo ante.

The downdraft continues.

Why Are the Big Banks Getting Off Scot-Free?

We are one of several guest bloggers at Salon while Glenn Greenwald is on vacation and we have a post up that discusses why big banks are getting away with murder, um, probable fraud. It begins:

For most citizens, one of the mysteries of life after the crisis is why such a massive act of looting has gone unpunished. We’ve had hearings, investigations, and numerous journalistic and academic post mortems. We’ve also had promises to put people in jail by prosecutors like Iowa’s attorney general Tom Miller walked back virtually as soon as they were made.

Yet there is undeniable evidence of institutionalized fraud

Obama Owns This Crisis

Obama created an unnecessary financial crisis. Not that we would have escaped eventually having one, but he played like a fool into the Republican desire to use the debt ceiling to push for budget cuts, and he tried outsmarting them to get his long standing desire of entitlements cuts through. Having the S&P downgrade hit when the Eurozone crisis was in an acute phase was like rolling a car full of explosives into a burning house. “Obama victory” may come to be the modern version of “Pyrrhic victory”.

And the man touted as a silver tongued orator can’t even talk up the markets. He actually managed to talk them down. Big time.