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Generational Dynamics Web Log for 8-Mar-2011
8-Mar-11 News -- Moody's downgrades Greece's debt, triggering chain reaction

Web Log - March, 2011

8-Mar-11 News -- Moody's downgrades Greece's debt, triggering chain reaction

With the 'peace process' a joke, Palestinians try to reorganize

Moody's downgrades Greece's debt, triggering chain reaction

Moody's Investors Service suprised officials in Greece on Monday by slashing Greece's credit rating by three notches to "highly speculative," according to Reuters. Greece's debt is now rated lower than Egypt's debt.

Politically, Moody's move will increase pressure on eurozone leaders to ease repayment terms on Greece's bailout last May. However, as we've reported several times recently, the Germans are increasingly unwilling to spend their hard-earned and hard-saved euros on the profligate Greeks, and they'll resis any easing.

The move had a domino effect in Europe. Greece's bond yields (interest rates) rose to new highs, but so did yields on Portuguese and Irish bonds, according to Bloomberg. When investors demand high yields for a country's bonds, it means that investors are betting that the country will default.

A statement exhibiting a masterpiece of logic was issued Monday by Greece's Ministry of Finance, criticizing Moody's decision:

"The rating downgrade announced by Moody’s today is completely unjustified as it does not reflect an objective and balanced assessment of the conditions Greece is presently facing. Furthermore, its timing and the multi-notch nature of the downgrade are incomprehensible and raise a number of questions. ...
The arguments made can in no way be justified by the additional information available since Moody’s last downgrade in June 2010 and the progress achieved since. Instead, the announcement also anticipates the failure of specific policies - while a large number of reforms have already been implemented - including those relating to decisions at the European Union level that have not yet been taken and while critical discussions are ongoing before the March European Council meeting.
Specifically, the first reason that Moody’s cites to explain the downgrade is the scale of Greece’s structural reform programme and implementation risks it entails, both of which were well-known since May 2010 when the agreement with the EC/ECBIMF was signed. In the nine months since then Greece has showed its determination in both fiscal consolidation and in implementing reforms on an extraordinary scale. The reduction in the budget deficit by 6 percentage points of GDP and the primary deficit by more than 7 percentage points of GDP in 2010 are the strongest evidence that relative to last year the risk of sovereign default has not increased but rather decreased as Greece is on an bold path towards fiscal consolidation."

The logic of Greece's argument is that there's been no additional information since last May's bailout that justifies the lower rating.

The problem with that argument is that I and a number of other people pointed out last May that there wasn't a snowflake's chance in hell that Greece was going to be able to meet the terms of the bailout, and that Greece was going to default anyway.

So, Greece's Ministry of Finance is right. Moody's should not be lowering Greece's rating today. In truth, Moody's should have given Greece the low rating last May.

What Moody's did last year is that they lied to investors, as they've done so many times before. They gave Greece a higher rating than they should have, and any investors who put their faith in the ratings by Moody's Investors Services have gotten screwed.

With the 'peace process' a joke, Palestinians try to reorganize

Two weeks ago, West Bank Palestinian Authority prime minister Salam Fayyad proposed forming a unity government between West Bank's Fatah and Gaza's Hamas, accorind to AFP.

Hamas gained control of Gaza in 2006 by unexpectedly winning legislative elections, and expelled Fatah entirely from Gaza in a war in 2007.

Not surprisingly, Hamas immediately rejected the suggestion. A Hamas spokesman is quoted as saying, "These declarations lack seriousness and credibility, they make no sense in light of the continued arrests and torture (of Hamas members) in Fatah prisons in the West Bank. The only real way towards reconciliation is to stop the arrests, free the detainees and allow the movement's charities to start helping the Palestinian people again."

However, a few days later, Fatah also rejected the suggestion, according to the Jerusalem Post, accusing Fayyad of trying to take charge of both Fatah and Hamas by leading the unity government.

But that isn't the end of the story. The idea of reconciliation between Fatah and Hamas appealed to many youth in both Gaza and the West Bank, and over the weekend, a Facebook site calling for "all the Palestinian factions to unite" got 20,000 supporters, according to the Jerusalem Post.

Like many Arab countries, the Palestinian territories are planning for their own "Day of Rage" on March 15. But instead of calling for the government to step down, the demonstrators plan to demand that the government unite.

The youth movment, called "End the Division," is demanding that both Fatah and Hamas release each other's prisoners. The group is also demanding an end to "all forms of security coordination with the Zionist enemy."

My personal view is that the only thing that West Bank and Gaza Palestinians hate more than Israel is each other, and there is little chance of a meaningful unity government coming to pass.

Additional links

As I wrote last year in "22-Oct-10 News -- Foreclosure mess turns into a major crisis," the banks' use of "robo-signers" to process tens of thousands of foreclosure notices without having each set of documents reviewed by a human being is turning into a crisis. Some 62 million mortgages are entered into the national MERS system, and many of the mortgages have an inadequate paper trail showing who owns the property and who owns the mortgage. Since then, legal challenges to the MERS system have been mounting, and many homeowners who should have lost their homes are being told by judges that they can rip up their mortgages and walk away debt-free. NY Times

The same politicians, investment bankers and financial reporters who are lying about stock valuations are also desperately clinging to hopes about inflation or hyperinflation. The message is that there's no reason to worry about debt, and no reason to stop spending on everything in sight, since we can just "Inflate our way out of it." Japan's experience indicates that won't happen. Zero Hedge

(Comments: For reader comments, questions and discussion, see the 8-Mar-11 News -- Moody's downgrades Greece's debt, triggering chain reaction thread of the Generational Dynamics forum. Comments may be posted anonymously.) (8-Mar-2011) Permanent Link
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Generational Dynamics Web Log for 8-Mar-2011 8-Mar-11 News -- Moody's downgrades Greece's debt, triggering chain reaction

Moody's downgrades Greece's debt, triggering chain reaction

With the 'peace process' a joke, Palestinians try to reorganize

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Generational Dynamics Web Log for 8-Mar-2011
8-Mar-11 News -- Moody's downgrades Greece's debt, triggering chain reaction