Currency Wars

[Umfriend]

Perhaps a stupid question, but how can a country get out of the "default" state? Almost nobody will lend it money... but it needs money to invest to get out of the default state... or what am I missing?

Actually a good question. One gets into a default state by not making a payment when due. You get out of it by:
1. Catching up and have an outlook of not missing payments again with some probability; or,
2. Settle with your creditors and get to a new situation where it is more likely that you'll be making payments when due as of then.

[Umfriend]

Maybe more short-selling on the quasi-certainty of hydrocarbons being exploitable.

Had not even noticed earlier. For someone who usually consistently condemns unsubstantiated allegations and speculation you are rather fortcoming with yer own now.

I say it is time for some evidence. I trust I'll see some tomorrow morning.

G'night all.

[VJ]

But how can you convince candidate creditors that you will pay them back? You did not manage in the past (maybe lied about it), so why would they believe you now?

[Umfriend]

Interesting question. I don't know exactly but it happens. See Russia, Argentine and I suspect a shitload of other south-american countries.

[VJ]

But they had natural resources... I don't think Greece for instance has that many natural resources...

[Evildead666]

Greek and Cretan Olive oil is the shiznit

Nothing like the crap we have here.

[Umfriend]

Argentine had natural resources? In any case, it is a moot point. Only if a sovereign can appropriate the value of the resources AND they use them efficiently and in time would they change the picture. IIRC, Russias latest default was at a time that oil was extrmely cheap and natural gas not yet exploited.

[Evildead666]

Speaking of Russia, it probably won't be long before they switch off the gas taps again, seeing as winter approaches.

[VJ]

Argentine had natural resources?

https://www.cia.gov/library/publications/the-world-factbook/fields/2111.html

Argentina: fertile plains of the pampas, lead, zinc, tin, copper, iron ore, manganese, petroleum, uranium

But yes, it could be a moot point...

[Brian Ellis]

Had not even noticed earlier. For someone who usually consistently condemns unsubstantiated allegations and speculation you are rather fortcoming with yer own now.

I say it is time for some evidence. I trust I'll see some tomorrow morning.

G'night all.

More than speculation.

Drilling has been going on for a couple of months or so and gas has been discovered already. The quantity of gas and oil won't be known with a better degree of exactitude until about 4 weeks from now when drilling has been finished, but the presence is known. The site of the drilling is in the E. Med. basin and effectively the Cyprus field is an extension of the Israeli Leviathan field which is already established. The quantity of NG has been estimated at between 3 and 8 tcf from known data with a 60% chance that it lies between these limits, the other 40% does not rule out lesser or greater quantities. I agree that the presence of oil, as opposed to gas, is speculative until the drilling reaches the bottom and is supposed on the grounds of extrapolation from Leviathan.

[Umfriend]

Not speculation re. carbon hydrocarbons, dummy! ;-)

It's about (your accusation of) market manipulation and short-selling (by [employees of] rating agencies).

[Brian Ellis]

The point I was making is that Moody's took into account all the negative factors and ignored the positive ones, so that they could downgrade everything (on the evening before days when the markets are closed!) so that the initiated can sell short with the maximum profit. What is more, they appear to do it on a whim. The whole affair is amoral, if not immoral.

[Umfriend]

You don't know that. In any case, you imply they wanted to downgrade for one reason or another and sought the justification for that in selecting facts. That is not how they work. It may take years for the positive effects to work out and as a creditor you always worry whether that'd be in time. Do we know how much the government of Cyprus would benefit from the resources and when? Rather uncertain. It's not like Moody's stated that Cyprus would default, rather that in their opinion the probability of default has increased somewhat. Moreover, their ratings are close to those of S&P and Fitch.

Who are the "initiated" and how can they short when the markets are closed?

How is there an apprearance of whim? Is there a schedule that they deviate from? It takes time to process information and when they're done they go out (typically with an advance notice and draft of the report to issuers, like they did with Cyprus). It's how they have always operated and the only complaints I here are when people do not like the news.

I see no immorality. Amoral? Perhaps, it's a private enterprise at the end of the day and rightful.

I do see ignorance though.

[Brian Ellis]

To start with, just look at

http://www.theglobalobservatory.com/2010/04/the-immoral-power-of-credit-rating-agencies/

then at the following. accusing the agencies of being a "mafia of speculators":

http://www.theparliament.com/latest-news/article/newsarticle/eu-parliament-hits-out-at-immoral-credit-ratings-agencies/

"They failed in the crises of the 1990s, they failed again in the Enron case, they provided incorrect assessments of financial products based on US mortgages in 2007 and they kept on giving Lehman Brothers high ratings, although the investment bank was already teetering," said Klute.

"The big three rating agencies, Standard & Poor's, Moody's and Fitch, are private listed companies.

"They are granted the role of a referee when, at the same time, they are also players in the financial playing field, aiming for the highest possible returns.

http://en.wikipedia.org/wiki/Credit_rating_agency#Oligopoly_produced_by_regulation

Then Wikipedia says 'SEC Commissioner Kathleen Casey has said that these CRAs have acted much like Fannie Mae, Freddie Mac and other companies that dominate the market because of government actions. When the CRAs gave ratings that were "catastrophically misleading, the large rating agencies enjoyed their most profitable years ever during the past decade."'

If you want some bedtime reading, it would seem that the book at http://www.oup.com/us/catalog/genera...=9780199608867 may be of interest.

As for short selling, three profs at US universities have decreed at http://finance.eller.arizona.edu/doc...grade03-11.pdf

In the month preceding a credit rating downgrade, equity short interest is 40% higher than one
year prior and short selling returns to normal levels following a downgrade. Short interest is
higher for downgrades with higher negative equity announcement returns and for more severe
downgrades (e.g., to speculative grade). Short selling also facilitates price discovery in equity
markets around rating downgrades. Abnormal returns following downgrades are smaller when
short selling is higher prior to the downgrade and when the costs of short selling are smaller.
Short selling also increases before bond prices anticipate the downgrade.

http://daringopinion.com/Credit-Rating-Agencies-and-All-That-Jazz-10-2011.php

However, this is the most damning opinion on CRAs and short selling and I recommend it as a "must read" if you have any doubt that the opinions I have promoted in this thread are OTT. I emphasise that I formulated my opinions without research, just by observations. It is only just now that I started a Google search on these subjects and the above links are pretty much a random choice of nearly 3 million Google bashes at CRAs, generally supporting the same ideas.

However, the final quote I offer is:
'Nobel Laureate Paul Krugman said in a New York Times column (August 7, 2011): "These are the last people whose judgment we should trust."'

[Umfriend]

Oh, C'mon!
1. Who accuses them of being a mafia of speculators? A Greek politician. We've already established that opinion does not always go down well with politicians.
2. I have already conceded that rating agencies make mistakes and grave ones at that. So what? The "power" they have is not enforced by them. Many people value their opinion.
3. From the Wikipedia article, the most relevant statement is conveniently not included by you:

According to professor Frank Partnoy, the regulation of CRAs by the Securities and Exchange Commission (SEC) and the FED has eliminated competition between CRAs and practically forced market participants to use the services of the three big agencies, Standard and Poor's, Moody's and Fitch.[32]

This, that regulators and central banks are the sole parties who have chosen to rely on the CRA's solely, I have stated before in this thread. Moreover, their profitability was high in those years as the volume of rated issuance was high. Who'd have thought?
4. Look at the title FCOL: "Do Equity Short Sellers Anticipate Bond Rating Downgrades?" This is consistent with MY earlier statement that generally rating agencies are late.

What I really object to is that error is taken as evidence of malintent. That daringopinion piece for instance:

However, since the establishment of the Euro system in January 1999, not even the Greek government’s grave admission on November 15, 2004 that it had violated the conditions to join the Eurozone in 2001 was serious enough for the agencies to sound the alarm. Athens revealed that its deficit has never been below 3% since 1999, as EU rules demand, reported the Guardian (May 5, 2010).

Is it surprising then that as the global credit markets are taking huge hits since 2008 that high-debt issuers may face increasingly difficult refinancing requirements and that that increases the probability of default considerably?

I like Paul Krugman but I do wonder, if these are the last peoplde we should trust, then who? Greece? Right. Krugman? I am not a betting man but I'll wager a lot that he'd err far more than the rating agencies.

Or this:

What benefit might be gained from, for example, Fitch and S&P’s warning that the French plan in June 2011 for a partial rollover of maturing Greek debt would be treated as an event of default? Is the warning intended to limit EU leaders’ options to help Greece? How different is this warning from preventing the firemen from reaching the site of a fire? Might the agencies act to magnify current market turmoil by attacking Italy, Spain, and France? Are the agencies carrying out a political agenda to break-up the Euro and halt Germany’s growing economic power? Are the agencies driven to help speculators profit from short-selling Eurozone bonds?

A political agenda to break up the Euro. Right. Limiting EU leaders options to help Greece? Right. So if a creditor only has to repay 50 cent on the dollar, it is unreasonable to take the position that that is a default? That article is full with innuendo and unsubstantiated accusations.

The worst thing is that with so much (politically driven) attention at the wrong tree, the real issues will not be addressed.

I did not particularly like "Atlas Shrugged" but the statements made by many politicians sure remind me of the book very often.