Is it getting scary again?

Wookster

http://ftalphaville.ft.com/blog/2011/07/13/621361/eurozone-at-breakpoint/

We have been waiting for this – the RBS report on eurozone debt crisis, policy options and end game scenarios.

And it doesn’t disappoint.

---


http://ftalphaville.ft.com/blog/2011/07/13/620766/italy-from-a-high-yield-perspective/

The ‘Morning Flash’ from Evolution Securities’ Gary Jenkins of Evolution Securities is something of a must read at the moment.

On Monday, he drew our attention to the rise in Italian government bond yields and illustrated just how quickly things can get out of control – just before they sort of did.

---

http://ftalphaville.ft.com/blog/2011/07/13/621721/moodys-puts-the-us-on-review-for-possible-downgrade/

Well, it said it would. And it has.

After US markets closed on Wednesday, Moody’s followed S&P’s April 18 less-definitive negative outlook announcement, and put the US’s Aaa rating on review for possible downgrade.

US Treasuries are treating the news with a priced-in shrug.

It also seems that trading conditions across Europe are incredibly tough with no respite in sight.

Generali

It is definitely squeaky bum time.

I think that the most likely outcome is that there will be a resolution to the current problems. The price of failure is very high however.

michaels

Wouldn't you have said the same prior to Lehmans though?

Europe still feels like the bigger risk to me even though I wouldn't rule out the US defaulting on govt spending commitments for a period but probably not its bonds - the republicans definitely lost last time they did similar so it would seem unlikely they would do it again.

Italy is my poster child for the European problem, I see its debt having multiple equilibria - a well below about 7% at which level debt is sustainable with a lip at 7% after which the maths trends to a limit with every increase in the risk premia being charged making the debt less sustainable and thus the risk premia increase.

Pimperne1

Moved elsewhere.

1984ReturnsForReal_2

Generali wrote: »

It is definitely squeaky bum time.

I think that the most likely outcome is that there will be a resolution to the current problems. The price of failure is very high however.

Nothing that short straws can't solve. Eh Gen?

Generali

michaels wrote: »

Wouldn't you have said the same prior to Lehmans though?

Not exactly. I think that letting Lehman's go bust was the right decision and the bailouts were wrong. Why, for example, should the taxpayers of Iceland pay back money that was lent by the British middle-classes to banks that were registered in Iceland?

I wouldn't expect my neighbour to pay back my debt if I can't pay off my credit card. Why would my neighbour expect me to pay back the bank's debt to him?

michaels wrote: »

Europe still feels like the bigger risk to me even though I wouldn't rule out the US defaulting on govt spending commitments for a period but probably not its bonds - the republicans definitely lost last time they did similar so it would seem unlikely they would do it again.

Italy is my poster child for the European problem, I see its debt having multiple equilibria - a well below about 7% at which level debt is sustainable with a lip at 7% after which the maths trends to a limit with every increase in the risk premia being charged making the debt less sustainable and thus the risk premia increase.

To repeat my catchphrase, if the solvent keep bailing out the insolvent they become insolvent. Italy, Spain, the USA, the UK: it's all the same.

LydiaJ

Generali wrote: »

Not exactly. I think that letting Lehman's go bust was the right decision and the bailouts were wrong. Why, for example, should the taxpayers of Iceland pay back money that was lent by the British middle-classes to banks that were registered in Iceland?

I wouldn't expect my neighbour to pay back my debt if I can't pay off my credit card. Why would my neighbour expect me to pay back the bank's debt to him?

Well, in general if Joe lends money to Sam, and Sam can't pay it back, then that is nothing to do with Tom. The picture gets more complicated, though, if Joe had concerns about Sam, and only lent him the money because Tom signed to say he would cover Sam's debts. Suppose Sam then runs up debts that he can never repay, and that Tom can barely repay, or only with signficant hardship for himself. It's even worse if Tom has authorised some fourth party, Harry, to manage his money for him, and it is Harry who has backed Sam's debt on Tom's behalf.

Because isn't that what happened with IceSave? British and other savers (Joe) deposited money in IceSave (Sam) on the understanding that the Icelandic government (Harry) had signed up to the passport scheme to guarantee those deposits - and the Icelandic government's money comes from its taxpayers (Tom). The fundamental problem is that a tiny little country like that should never have been guaranteeing deposits worth several times its GDP, not that those who invested money on the strength of the guarantee should want the guarantee to be honoured.

JonnyBravo

LydiaJ wrote: »

Well, in general if Joe lends money to Sam, and Sam can't pay it back, then that is nothing to do with Tom. The picture gets more complicated, though, if Joe had concerns about Sam, and only lent him the money because Tom signed to say he would cover Sam's debts. Suppose Sam then runs up debts that he can never repay, and that Tom can barely repay, or only with signficant hardship for himself. It's even worse if Tom has authorised some fourth party, Harry, to manage his money for him, and it is Harry who has backed Sam's debt on Tom's behalf.

God knows what Nigel would make of it all.

Jegersmart

michaels wrote: »

Italy is my poster child for the European problem, I see its debt having multiple equilibria - a well below about 7% at which level debt is sustainable with a lip at 7% after which the maths trends to a limit with every increase in the risk premia being charged making the debt less sustainable and thus the risk premia increase.

Multiple equilibria eh? I hope it make sense to people smarter than me.

I agree that when the loans get more expensive it is harder to keep the payments up. I wouldn't like to put up definite figures as to where the tipping point is though - would you mind sharing your methodology for the 7% calculation you have made above?

abaxas

Lets face one fact here.

A insolvent bank puts out a report and we beleive them. Why are we suckered into this, they failed, why should be believe in failure.

Jegersmart

abaxas wrote: »

Lets face one fact here.

A insolvent bank puts out a report and we beleive them. Why are we suckered into this, they failed, why should be believe in failure.

That is true, but I believe in objectivity and would not discount a source like this personally. I can make up my own mind, what do I lose by reading, digesting and evaluating such a report?

I would rather have too much information than stick my head in a pile of sand and hope my !!!! is ok at the other end. Good luck with that:)