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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (76070)	7/6/2011 2:00:52 PM
From: elmatador	Read Replies (1) \| Respond to of 218447

Europe lashes out over downgrades. “We can’t understand the basis of this announcement,” Mr Schäuble said. “We have to break the oligopoly of the ratings agencies.” We stood those downgrades in the 80's during debt crisis and no one raise to break the oligopoly of the ratings agency... Europe lashes out over downgrades By Peter Spiegel in Brussels and David Oakley in London Senior European officials lashed out at Moody’s on Wednesday, questioning the timing of the debt rating agency’s downgrade of Portuguese bonds this week and threatening new regulatory action against all three major rating agencies. The high-profile criticism follows long-simmering European complaints about Moody’s and its two competitors, Standard & Poor’s and Fitch, centring on whether they have improperly attempted to influence policy-making in the ongoing debt crisis. The Portuguese downgrade – four notches to “junk” status – comes amidst a heated debate over how hard to push private owners of Greek debt to delay repayments from Athens. José Manuel Barroso, president of the European Commission, questioned the timing, and said Moody’s was guilty of “mistakes and exaggerations”. “I deeply regret the decision … and I regret it both in terms of its timing and its magnitude,” Mr Barroso said. “With all due respect to that specific rating agency, our institutions know Portugal a little bit better.” On Tuesday, Angela Merkel, German chancellor, and François Baroin, French finance minister, sought to downplay Moody’s decision, saying it would not effect their decision-making. But Mr Barroso’s comments, along with similar remarks Wednesday by Wolfgang Schäuble, the German finance minister, appeared a concerted change in tenor, with both men arguing that efforts to reduce the agencies’ power would gain momentum. “We can’t understand the basis of this announcement,” Mr Schäuble said. “We have to break the oligopoly of the ratings agencies.” Eurozone markets were hit hard on Wednesday following the downgrade. Portuguese bond yields, which have an inverse relationship with prices, saw one of the biggest daily surges this year and French toll road operator Autoroutes du Sud was forced to pull debt deals. More worryingly, Italian 10-year yields jumped above 5 per cent for the first time since November 2008. Contagion to Italy could threaten the entire euro project because of the size of its economy. Rating agencies defended their decisions, with a Moody’s spokesman saying the agency’s continues “providing independent, objective assessments of credit risk on debt securities”. S&P said: “We are focused on our role of providing investors with an independent and globally consistent view of creditworthiness, based on our published criteria.” Some analysts accused European officials of attempting to distract voters and financial markets from their difficulties in formulating an effective response to the crisis. “EU leaders will be well advised to stop blaming ratings agencies for their own shambolic handling of the euro area crisis,” said Sony Kapoor, head of Re-Define, an economic consultancy. The European complaints echo similar criticisms made by Washington in April, when S&P cut its outlook for US bonds in the midst of budget negotiations between the White House and congressional Republicans. At the time, senior US Treasury officials questioned the timing and accused S&P of being misinformed about the budget talks. European officials have argued that downgrades have frequently coincided with high-profile meetings of European leaders – evidence, they believe, of agency politicisation. Greek debt was downgraded by S&P a week before last month’s summit of EU heads of government, for instance, and by Moody’s four days before a special summit of eurozone leaders in March. Fitch downgraded Portuguese debt the day of another March EU summit, and Moody’s downgraded Irish debt on the day of a December summit. “The credit rating agencies are playing politics not economics,” said a senior EU official. “The timings of the downgrades are not a coincidence.” Additional reporting by Gerrit Wiesmann in Berlin and Richard Milne in London

To: TobagoJack who wrote (76070)	7/6/2011 5:06:50 PM
From: elmatador	Read Replies (2) \| Respond to of 218447

Moody’s said on Tuesday that China’s national audit office may have understated the debt load of local governments by Rmb3,500bn and that 50-75 percent of this could end up in default. The stark warning that has weighed on Chinese bank shares for two straight days. China debt: Moody’s flying guess July 6, 2011 1:30 pm by Simon Rabinovitch 3 2 The most surprising thing about this week’s Moody’s report on Chinese debt is not the number that its analysts produced, but rather the process by which they arrived at their estimate. To recap, Moody’s said on Tuesday that China’s national audit office may have understated the debt load of local governments by Rmb3,500bn and that 50-75 percent of this could end up in default. The stark warning that has weighed on Chinese bank shares for two straight days. Despite the damage to their reputations from the global financial crisis, ratings agencies are still seen as important arbiters of truth in markets. Their conclusions are respected as the sober product of rigorous, dispassionate analysis. So when Moody’s provides an estimate of the true level of Chinese local government debt, it is seen as a solid number, of a higher degree of reliability than the estimates of academics or even China’s audit office. But is the imprimatur of Moody’s really deserving of so much unquestioning respect? A closer look at its report on China reveals one key back-of-the-envelope calculation and one large leap of logic. First, the back-of-the-envelope calculation. How did Moody’s arrive at the Rmb3,500bn figure? Quite simple, really. The National Audit Office counted Rmb8,500bn of bank loans to local governments at the end of 2010. However, the China Banking Regulatory Commission was previously reported to have said that the number was Rmb9,000bn, while the People’s Bank of China, the central bank, said in a recent report that the number was as big as Rmb14,000bn. Moody’s took the midpoint of the CBRC and PBOC figures (Rmb12,000bn) and, voila, it concluded that the audit missed Rmb3,500bn in loans to local governments. As the biggest outlier of the bunch, the higher PBOC number was obviously essential to driving up Moody’s estimate of local debt levels. It is therefore worth recalling where the PBOC number came from. It was contained in an addendum to a report about local finances in June and expressed as: “at the end of 2010, loans to local government financing vehicles in every region basically accounted for no more than 30 per cent of local yuan-denominated loans”. The PBOC never gave a specific figure, but journalists worked backwards to calculate that “no more than 30 per cent” of total loans could equate to “up to Rmb14,000bn”. That number has become firmly lodged in the consciousness of China watchers as the official PBOC estimate, even though it was just derived from a broad-brush statement. Second, the leap of logic. Having concluded that the national audit office overlooked Rmb3,500bn in lending to local governments, Moody’s then ascribed a cause for this omission: These loans were presumably deemed by the audit agency as not being properly underwritten such that they could be categorized as local government obligations. Put another way, the audit must have left out the riskiest of the loans, leaving Moody’s to “prudently assume” (their words) that 50 to 75 per cent could become delinquent or require restructuring. In short, having come up with a highly debatable back-of-the-envelope calculation, Moody’s then assumed the worst each step of the way, in the name of prudence. Now, in fairness to Moody’s, it is the opacity and paucity of official Chinese data that drive otherwise respectable economists to make so many assumptions. What’s more, Moody’s conclusions may well prove to be accurate. Only time will tell and, given the huge amount of lending in China over the past few years, perhaps it is sensible to err on the side of caution.