With precisely one month left until the early bound of the debt ceiling crunch and a possible US government shut down and/or technical default, and with M.A.D. warnings from the president and treasury secretary doing nothing to precipitate a sense of urgency (which will not arrive until there is a 20% market drop, so far consistently delayed but which will eventually happen), here comes the most toothless of rating agencies, French Fitch which somehow kept its mouth shut over the past 18 months, when US debt rose by over $2.1 trillion and debt to GDP hit 103%, shaking a little stick furiously, no doubt under guidance by its corporate HoldCo owners: French Fimilac SA.
One-by-one, the highest quality collateral in the world (according to ratings that is) is disappearing. To wit, Fitch warns that a downgrade of the UK’s AAA rating is increasingly likely: “weaker than expected growth and fiscal outturns in 2012 have increased pressure on the UK’s ‘AAA’ rating, which has been on Negative Outlook since March 2012.” The Negative Outlook on the UK rating reflects the very limited fiscal space, at the ‘AAA’ level, to absorb further adverse economic shocks in light of the UK’s elevated debt levels and uncertain growth outlook. Global economic headwinds, including those emanating from the on-going eurozone crisis, have compounded the drag on UK growth from private sector deleveraging and fiscal consolidation as well as from depressed business and consumer confidence, weak investment, and constrained credit growth. But no mention of unlimited QE? Continue reading »
Spain’s borrowing costs soared to their highest levels since the introduction of the single currency in 1999 today, as any confidence investors might have taken from Madrid’s weekend pledge to seek a bailout for its toxic banking sector drained away.
Yields on the country’s 10 year bonds shot up to 6.8 per cent this afternoon as investors frantically dumped their holdings of Spanish debt, before falling back to 6.72 per cent.
The credit rating agency Fitch added fuel to the flames of alarm by downgrading 18 Spanish banks, following its downgrade of Madrid’s sovereign debt to BBB last month. Among the Spanish lenders cut were Bankia, CaixaBank, and Banco Popular Espanol, with Fitch blaming the weakening Spanish economy, which is forecast to contract by 1.7 per cent this year and to remain in recession well into next year.
Greece’s credit rating was downgraded one level by Fitch Ratings on concerns the country won’t be able to muster the political support needed to sustain its membership in the euro area as leaders began campaigning ahead of the second national vote in six weeks.
NEW YORK (CNNMoney) — The closing bell brought no relief for JPMorgan Chase on Friday, as a major credit rating agency moved to downgrade its debt almost exactly 24 hours after the bank revealed a $2 billion trading loss.
Fitch Ratings downgraded both JPMorgan’s short-term and long-term debt, with the latter falling to A+ from AA-. The bank, the country’s largest by assets, was also placed on ratings watch negative.
Fitch said it views the $2 billion loss as “manageable” but added that “the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity.”
Update: now S&P is also one month behind Egan Jones: JPMorgan Chase & Co. Outlook to Negative From Stable by S&P. Only NRSRO in pristinely good standing is Moodys, and then the $2.1 billion margin call will be complete.
So it begins, even as it explains why the Dimon announcement was on Thursday – why to give the rating agencies the benefit of the Friday 5 o’clock bomb of course:
JPMorgan Cut by Fitch to A+/F1; L-T IDR on Watch Negative
What was the one notch collateral call again? And when is the Morgan Stanley 3 notch cut coming? Ah yes:
So… another $2.1 billion just got Corzined? Little by little, these are adding up.
Oh and guess who it was that downgraded JPM exactly a month ago. Who else but SEC public enemy number one: Egan-Jones:
Synopsis: Reliance on prop trading and inv bkg income remain. LLR declines (down $1.7B QoQ and $3.87B YoY) offset DVA losses in the investment bank. Wholesale loans were up 23% YoY and 2% QoQ. Middle Mkt, Cmml Term, Corp Client and Cmml Real Estate lending increased by 9%, 2%, 16% and 19% YoY. Middle Mkt and Corp lending was up 2% and 3% QoQ respectively, while Cmml Term, and Cmml Real Estate lending were down 2%, and 9% respectively. Card and consumer loans were down 2% and 5% YoY respectively (down 5% and 1% QoQ respectively). Non accruals are up 14% QoQ due to weakness in JPM’s student loan portfolio. Reserve coverage is good and capital is adequate. We believe JPM will experience further weakness in its retail portfolio due to a softening economy. We are downgrading.
… but not from us: after all we are known for being biased, which in the mainstream media parlance means calling it like it is. No – instead we leave it to none other than Bloomberg’s Jonathan Weil who does as good a job of being “biased” as we ever could: “Egan-Jones, which has been in business since 1992, could have continued operating as an independent publisher of ratings and analysis, not subject to government oversight or control. Instead it chose to play within the Big Three’s system, exposing itself to regulation and the whims of the SEC in exchange for the government’s imprimatur. Now it’s paying the price.” And not only that: as the most recent example of Spain just shows, where Egan Jones downgraded Spain 9 days ago and was ignored, but well ahead of everyone else, only to be piggybacked by S&P, and the whole world flipping out, it has become clear: calling out reality, and the fools that populate it, is becoming not only a dangerous game, but increasingly more illegal. Then again – this is not the first time we have seen just this happen in broad daylight, with nobody daring to say anything about it. In fact, this phenomenon tends to be a rather traditional side-effect of every declining superpower. Such as the case is right now…
The first time I wrote about Sean Egan and his small, independent credit-research firm, Egan-Jones Ratings Co., was in December 2007 for a column about the bond insurer MBIA Inc. (MBI) And man, did he nail it.
The three big credit raters — Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings — all had AAA ratings on MBIA’s insurance unit, their highest grade. Egan said it deserved much lower. Anyone reading MBIA’s financial reports could see the company was losing money and needed billions of dollars of fresh capital.
By mid-2008, the Big Three had cut their ratings. Once again, Egan, a lonely voice of reason who saw the financial crisis coming, had shown his larger competitors to be incompetent or compromised. It was one of many great calls to come for Egan-Jones. As for MBIA, which had no revenue last quarter, it’s still struggling.
So if you had told me back then that the Securities and Exchange Commission’s enforcement division more than four years later would be accusing Egan, and his firm, of securities-law violations — but not any of the big rating companies — there’s no way I would have believed you. That’s what happened this week, though. Continue reading »
“A government big enough to give you everything you want, is strong enough to take everything you have” - Thomas Jefferson
Something odd and not quite as planned happened as America grew from its “City on a Hill” origins, on its way to becoming the world’s superpower: government grew. A lot. In fact, the government, which by definition does not create any wealth but merely reallocates it based on the whims of a select few, has transformed from a virtually invisible bystander in the economy, to the largest single employer, and a spending behemoth whose annual cash needs alone are nearly $4 trillion a year, and where tax revenues no longer cover even half the outflows. One can debate why this happened until one is blue in the face: the allures of encroaching central planning, the law of large numbers, and the corollary of corruption, inefficiency and greed, cheap credit, the transition to a welfare nanny state as America’s population grew older, sicker and lazier, you name it. The reality is that the reasons for government’s growth do not matter as much as realizing where we are, and deciding what has to be done: will America’s central planners be afforded ever more power to decide the fates of not only America’s population, but that of the world, or will the people reclaim the ideals that the founders of this once great country had when they set off on an experiment, which is now failing with every passing year?
As the following video created by New America Now, using content by Brandon Smith whose work has been featured extensively on the pages of Zero Hedge, notes, “we tend to view government as an inevitability of life, but the fact is government is not a force of nature. It is an imperfect creation of man and it can be dismantled by man just as easily as it can be established.” Unfortunately, the realization that absolute power corrupts absolutely, and absolute central planning leads to epic catastrophes without fail, seems a long way away: most seem content with their lot in life, with lies that their welfare money is safe, even as the future is plundered with greater fury and aggression every passing year, until one day the ability to transfer wealth (benefiting primarily the uber rich, to the detriment of the middle class which is pillaged on an hourly basis), from the future to the present is gone, manifesting in either a failed bond auction or hyperinflation. The timing or shape of the transition itself is irrelevant, what is certain is that America is now on collision course with certain collapse unless something changes. And one of the things that has to change for hope in the great American dream to be restored, is the role, composition and motivations of government, all of which have mutated to far beyond what anyone envisioned back in 1776. Because America is now saddled with a Government Out Of Control.
Watch the two clips below to understand just how and why we have gotten to where we are. Also watch it to, as rhetorically asked by the narrator, prompt us to question whether the government we now have is still useful to us and what kind of powers it should be allowed to wield.