To anyone who doubted that the gloves are now fully off between France and Britain, we bring you exhibit A: Speaking in an interview with local newspaper Le Telegramme de Brest to be published later on Thursday, Bank of France head and ECB member Christian Noyer saidthat a downgrade of France’s AAA credit rating would not be justified and ratings agencies are making decisions based more on politics than economics and questioned whether the use of ratings agencies to guide investors was still valid. “In the arguments they (ratings agencies) present, there are more political arguments than economic ones,” said Noyer, the head of the Bank of France and a member of the ECB’s governing council. “The downgrade does not appear to me to be justified when considering economic fundamentals,” Noyer said. “Otherwise, they should start by downgrading Britain which has more deficits, as much debt, more inflation, less growth than us and where credit is slumping.” The bolded sentence confirms two things: i) that the Nash equilibrium in Europe is now fatally broken, because when you have the head of one central bank doing all he can to throw another central bank under the bus, that’s pretty much game (theory) over; and ii) when he said that “the agencies have become incomprehensible and irrational. They threaten even when states have taken strong and positive decisions. One could think that the use of agencies to guide investors is no longer valid.” it proves that this amateur has no more understanding of basic finance than your generic Reuters blogger, both of whom apparently fail to comprehend that there are several hundred thousand bond and loan indentures in the real world, not the world of “S&P has no credibility so ignore it”, which are loaded with covenants discussing springing liens, rating indexed interest levels and collateral thresholds, all of which are based on a sovereign and corporate rating, and all come into play in a completely unpredictable way (hint AIG – the reason why AIG imploded was because a rating agency downgrade unleashed a terminal margin call) when there is a rating downgrade. Such as that of France in a few hours to days top. (more…)
Archives of “credibility” tag
rssISDA, Which Refuses To Declare Greece In Default, Has Given The US A 3 Day Grace Period Before A CDS Trigger
ISDA is rapidly deteriorating to rating agency status when it comes to credibility. After it made it all too clear in the past few weeks that no matter what happens it would never “determine” Greece (or any other European insolvent country) to have breached a CDS trigger (as that would apparently destroy the world), the same trade association (logically enough comprised of the same firms that make up the heart of the status quo) has joined the rating agencies, and as of last night the CME, in making it all too clear that a debt ceiling plan (preferably Reid’s because it achieves absolutely nothing) has to pass, or else, after it earlier announced that the US has precisely 3 days to cure any missed debt payment before US CDS are triggered. Obviously this can not be allowed to happen, so expect this latest development to be used by the president in his nighlty scaremongering session.
From Reuters:
The United States would have at least 3 days to make up for any missed debt payments before it triggered payments on its credit default swaps, according to trade association the International Swaps and Derivatives Association. (more…)
Soros Says "Crisis Far From Over, We Have Just Entered Act 2"
The bearish case has just gotten another notable supporter in the face of George Soros, who during his remarks at a conference in Vienna, said that the “we have only just entered Act II” of the global financial crisis.
Bloomberg reports:
Billionaire investor George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen.
“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”
Concern that Europe’s sovereign-debt crisis may spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance maturing bonds and fund deficits, according to Bank of America Corp.
“When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide,” Soros said.
One wonders if Soros, who made a name for himself originally in the currency markets, is involved in the current record FX volatility. Of course, with animosity toward “speculators” at unprecedented levels, it probably would not be very prudent of anyone to disclose they are now taking on Central Banks directly.