Puerto Rico credit rating downgraded to 'speculative'
Standard & Poor's Ratings Services has lowered its rating on Puerto Rico's general obligation (GO) debt to 'BB+' (non-investment grade/speculative) from 'BBB-'.
At the same time, S&P downgraded Commonwealth appropriation secured debt and Employee Retirement System (ERS) debt to 'BB'. All of S&P ratings remain on CreditWatch with negative implications.
S&P issued the following statement on Tuesday:
The downgrades follow our evaluation of liquidity for the Commonwealth, including what we believe is a reduced capacity to access liquidity from the Government Development Bank (GDB) of Puerto Rico. In a related action, we downgraded the GDB to 'BB', and the rating remains on CreditWatch with negative implications. We also believe that the Commonwealth's access to liquidity either through GDB or other means will remain constrained in the medium term, even in the event of a potential issuance of debt planned next month. We believe that these liquidity constraints do not warrant an investment-grade rating. The negative CreditWatch reflects uncertainties relating to the Commonwealth's constrained access to the market, as well as our assessment of the size and timing of potential additional contingent liquidity needs
Can't be any worse than the Washington DC we have now. . . Under Article V of the Constitution, if two-thirds of state legislatures -- or 34 states -- call for it, Congress shall convene a national convention, to which the legislatures will send delegates. The convention may propose constitutional amendments, which will then need to be approved by three fourths of the states -- 38 in all -- through votes either in the legislature or at a state convention.
In recent years, state legislatures have passed measures supporting the idea of a constitutional amendment requiring the federal government to balance its budget, and Kasich in Ohio has actively backed such a move. But the effort mentioned by Coburn is organized not around a specific amendment, but rather a specific subject: "limiting the power and jurisdiction of the federal government."
It is an idea proposed recently by conservative radio talk show host Mark Levin and since picked up by former Fox News personality Glenn Beck. Around 100 state lawmakers from a reported 32 states met last November to discuss the idea.
Coburn's decision to make this a cause of his own is a symbolic shift. He has long railed against the institutional corruption of Washington, arguing that careerism in Congress and self-protection by lawmakers of both parties make the nation's capital immune to pursuing real reform and to making the tough choices and difficult compromises necessary to get results.
His decision to leave Congress now and to focus his energies on the national convention idea is a loud statement that he doesn't believe Washington can be changed from the inside.
"Washington isn't going to fix itself," Coburn said. "We need a balanced budget amendment, we need term limits, we need the oversight capability to limit the bureaucracy in terms of its impact on the private sector. ... We need to have that discussion. And I want to tell you, the country's tuned for it."
Last week I had over $1,000,000 in a checking account at Bank of America. Next week, I will have $10,000.
Why am I getting in line to take my money out of Bank of America? Because of Ben Bernanke and Janet Yellen, who officially begins her term as chairwoman on Feb. 1.
Before I explain, let me disclose that I have been a stopped clock of criticism of the Federal Reserve for half a decade. That’s because I believe that when the Fed intervenes in markets, it has two effects — both negative. First, it decreases overall wealth by distorting markets and causing bad investment decisions. Second, the members of the Fed become reverse Robin Hoods as they take from the poor (and unsophisticated) investors and give to the rich (and politically connected).
Why do I risk starting a run on Bank of America by withdrawing my money and presuming that many fellow depositors will read this and rush to withdraw too? Because they pay me zero interest. Thus, even an infinitesimal chance Bank of America will not repay me in full, whenever I ask, switches the cost-benefit conclusion from stay to flee.
Let me explain: Currently, I receive zero dollars in interest on my $1,000,000. The reason I had the money in Bank of America was to keep it safe. However, the potential cost to keeping my money in Bank of America is that the bank may be unwilling or unable to return my money. They will not be able to return my money if:
Many other depositors like you get in line before me. Banks today promise everyone that they can have their money back instantaneously, but the bank does not actually have enough money to pay everyone at once because they have lent most of it out to other people — 90 percent or more. Thus, banks are always at risk for runs where the depositors at the front of the line get their money back, but the depositors at the back of the line do not. Consider this image from a fully insured U.S. bank, IndyMac in California, just five years ago.
Some of the investments of Bank of America go bust. Because Bank of America has loaned out the vast majority of depositors’ money, if even a small percentage of its loans go bust, the firm is at risk for bankruptcy. Leverage, combined with some bad investments, caused the failure of Lehman Brothers in 2008 and would have caused the failure of Bank of America, AIG, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, and many more institutions in 2008 had the government not bailed them out.
In recent days, the chances for trouble at Bank of America have become more salient because of woes in the emerging markets, particularly Argentina, Turkey, Russia and China. The emerging market fears caused the Dow Jones Industrial Average to lose more than 500 points over the last week.
If the chance that Bank of America will not return my money is, say, a mere 1 percent, then the expected cost to me is 1 percent of my million, or $10,000. That far exceeds the interest I receive, which, I hardly need remind depositors out there, is a cool $0. Even a 0.1 percent chance of loss has an expected cost to me of $1,000. Bank of America pays me the zero interest rate because the Federal Reserve has set interest rates to zero. Thus my incentive to leave at the first whiff of instability.
Emerging markets more vulnerable than ever to Fed tightening, warns BI
Emerging markets may be even more vulnerable to an interest rate shock today than they were during the East Asia crisis in 1998, the Bank for International Settlements (BIS) has warned.
The Swiss-based watchdog said there had been a “massive expansion” in borrowing on global bond markets by banks and companies in developing countries, leaving them exposed to “powerful feedback” risks as borrowing costs rise in the West.
“The deeper integration of emerging market economies into global debt markets has made emerging market bond markets much more sensitive to bond market developments in the advanced economies,” the BIS said in a working paper.
Philippine Leader Sounds Alarm on China
President Benigno S. Aquino III called on Tuesday for nations around the world to do more to support the Philippines in resisting China’s assertive claims to the seas near his country, drawing a comparison to the West’s failure to support Czechoslovakia against Hitler’s demands for Czech land in 1938.
Like Czechoslovakia, the Philippines faces demands to surrender territory piecemeal to a much stronger foreign power and needs more robust foreign support for the rule of international law if it is to resist, President Aquino said in a 90-minute interview in the wood-paneled music room of the presidential palace.
“If we say yes to something we believe is wrong now, what guarantee is there that the wrong will not be further exacerbated down the line?” he said. He later added, “At what point do you say, ‘Enough is enough’? Well, the world has to say it — remember that the Sudetenland was given in an attempt to appease Hitler to prevent World War II.”
Mr. Aquino’s remarks are among the strongest indications yet of alarm among Asian heads of state about China’s military buildup and territorial ambitions, and the second time in recent weeks that an Asian leader has volunteered a comparison to the prelude to world wars.
Switzerland turns down Greece’s wish to retroactively tax Greeks’ bank deposits
Swiss Finance Minister Eveline Widmer-Schlumpf turned down the proposal of her Greek counterpart Yiannis Stournaras to impose taxes on Greeks’ bank accounts and transfer the money to Athens.
Currently in the Greek capital, Widmer-Schlumpf told Stournaras that Switzerland does not do such deals any more, focusing instead on automatic information exchange between tax authorities, currently negotiated at international level.
The total amount of Greek deposits in Swiss banks is not clear, some scenarios speak even of 60 billion euro. It’s not a secret that the debt-ridden country would love to extend a long arm and grab a percentage even if the money has been already taxed. Even if the Greeks let the famous Lagarde-List with the names of more than 2,000 Greeks with deposits in HSBC Geneva-branch, get dusty in a locked drawer for some years.
E.U. Said to Weigh Extending Greek Loans to 50 Years
The next handout to Greece may include extending the maturity on rescue loans to 50 years and cutting the interest rate on some previous aid by 50 basis points, according to two officials with knowledge of discussions being held by European authorities.
The plan, which will be considered by policy makers by May or June, may also include a loan for a package worth between 13 billion euros ($17.6 billion) and 15 billion euros, another official said. Greece, which got 240 billion euros in two bailouts, has previously had its terms eased by the euro zone and International Monetary Fund amid a six-year recession.
“What we can do is to ease debt, which is what we have done before through offering lower interest or extending the maturity of loans,” Dutch Finance Minister Jeroen Dijsselbloem, who heads the group of euro finance chiefs, said yesterday on broadcaster RTLZ. “Those type of measures are possible but under the agreement that commitments from Greece are met.”
It doesn't matter one bit if Greece meets its so-called "commitments" or not, as they'll get whatever financial terms required. Besides which, the U.S. dollar probably won't exist by the time the loans reach "maturity"---and if it does, it should be next to worthless---and I'll probably have enough money in my spare change jar to pay the debt off myself
BNP Warns "The Run on Ukrainian Deposits May Have Already Started
"It is absolutely impossible to forecast" Ukraine’s exchange rate, BNP Paribas notes in an ominous report today. Considering Ukraine’s huge need to cover its current account deficit, the country is increasingly reliant on financial inflows - and these will be difficult to secure.
The Hyrvnia has collapsed this morning to 9.00 back near December 2008 lows as BNP warns "The NBU faces a difficult task: let the FX rate devalue to a 'new fair level' without triggering a run on hryvnia retail deposits, which might have already started." Relying on external support amid a forced devaluation "increases risks of disorderly adjustment," and that appears to happening.
Working U.K. families are just 11 days from the bread line
Cash-strapped families are less than two weeks’ wages away from being forced to rely on government hand outs or tap friends or family financial help, new figures reveal.
The average working family would last just 11 days after losing their usual sources of income, before having to rely on state benefits or friends and family for support.
The study of Britons aged 18-64 by financial services firm Legal & General found a third of the population does not have any money put away at all.
A second study found more than half of Britons are cutting back on heating, takeaways and shopping just to make ends meet.
Argentine Banking System Archives Destroyed By Deadly Fire
While we are sure it is a very sad coincidence, on the day when Argentina decrees limits on the FX positions banks can hold and the Argentine Central Bank's reserves accounting is questioned publicly, a massive fire - killing 9 people - has destroyed a warehouse archiving banking system documents.
As The Washington Post reports, the fire at the Iron Mountain warehouse (which purportedly had multiple protections against fire, including advanced systems that can detect and quench flames without damaging important documents) took hours to control and the sprawling building appeared to be ruined. The cause of the fire wasn’t immediately clear - though we suggest smelling Fernandez' hands
Lockhart Says Fed Guidance May Signal Rates Stay Low Longer
Federal Reserve Bank of Atlanta President Dennis Lockhart said policy makers may revise their forward guidance to signal they don’t intend to raise interest rates any time soon.
Fed officials have said since December that an increase in the main interest rate wouldn’t be on the table until “well past” the time unemployment falls below 6.5 percent. The jobless rate stood at 6.7 percent in December.
Lockhart, a consistent supporter of record stimulus who doesn’t vote on policy this year, said “the unemployment rate is not a perfect indicator of the broad health of the labor markets.” Given a decline in labor-market participation, he said, he prefers to look at a broader range of indicators, “more of a dashboard approach.”
He's just reconfirming the fact that U.S. interest rates will not be allowed to rise.
Matt Taibbi: Gangster Bankers---Too Big to Jail
The deal was announced quietly, just before the holidays, almost like the government was hoping people were too busy hanging stockings by the fireplace to notice. Flooring politicians, lawyers and investigators all over the world, the U.S. Justice Department granted a total walk to executives of the British-based bank HSBC for the largest drug-and-terrorism money-laundering case ever. Yes, they issued a fine – $1.9 billion, or about five weeks' profit – but they didn't extract so much as one dollar or one day in jail from any individual, despite a decade of stupefying abuses.
People may have outrage fatigue about Wall Street, and more stories about billionaire greedheads getting away with more stealing often cease to amaze. But the HSBC case went miles beyond the usual paper-pushing, keypad-punching sort-of crime, committed by geeks in ties, normally associated with Wall Street. In this case, the bank literally got away with murder – well, aiding and abetting it, anyway.
For at least half a decade, the storied British colonial banking power helped to wash hundreds of millions of dollars for drug mobs, including Mexico's Sinaloa drug cartel, suspected in tens of thousands of murders just in the past 10 years – people so totally evil, jokes former New York Attorney General Eliot Spitzer, that "they make the guys on Wall Street look good." The bank also moved money for organizations linked to Al Qaeda and Hezbollah, and for Russian gangsters; helped countries like Iran, the Sudan and North Korea evade sanctions; and, in between helping murderers and terrorists and rogue states, aided countless common tax cheats in hiding their cash.