On Planet Earth, it’s a jungle, where debtor nations wander naked
EXCLUSIVE: Slog Treasury mole confirms drastic fiscal action
“The Conservatives are fighting a class war against our teachers and schools on behalf of the estates of millionaires and billionaires,” Ed Balls told the Mirror this morning. One wonders why they might be doing such a thing, but one wonders less about why Ed would say such a thing: for in between being prosecuted for driving while tweeting, Mr Balls thinks the best way he can grasp the Crown of Thorns left by Gordon Brown is to play the tribalist – and then purge the New in New Labour. But first of all, Ed Balls needs to retain his seat.
His 1926 politics probably play well in Yorkshire, but your average credit manager-banker-currency dealer is simply going to see Balls as a dangerous relic from the past. When we have to deal with these jungle beasts later this year or early next, it would be as well to present an image of determination and organisation. That they are indeed animals is coming to light all over the place in the wake of the SEC’s charges against Goldman Sachs.
The emergency loan talks between Greece and the IMF are “going well” the Greek finance minister says, which is not surprising given that Greece needs the money and the IMF wants to lend. But more and more countries are needing more and more money: the amount already borrowed by nations from the U.S. to Germany and Japan has grown to $17.4 trillion from $13.4 trillion two years ago. Not much paying off of debt going on there.
There are three main organisations saying what all this borrowed money should cost: Moody’s Corp, Fitch Inc., a unit of Paris-based Fimalac S.A., and S&P, part of McGraw-Hill. Around the edges there is also the massive PIMCO which, while not a rating agency, is so big now that its decisions to be in or out of a lending deal more or less overrule any risk rating given by the agencies.
There are quite a few PIMCOs around; they include Goldman Sachs, JP Morgan and many other people whose moral compass is not entirely reliable. And if you think they don’t bully the supposedly objective ratings companies, then think again.
Senator Carl Levin, a Michigan Democrat who is chairman of the Senate Permanent Subcommittee on Investigations, said at a panel hearing three days ago that the raters compromised “their analysis, their independence and their reputation for reliability. And they did it for money” during the subprime crisis of two years ago. This was confirmed elsewhere by a former Asian S&P staffer Chui Ng:
“The bankers would say anything to get what they needed into their deals,” he said. Chiu told of one $2 billion deal where just as closure was about to occur, Goldmans threw in another $200 Million of credit default junk – gambling that nobody would want to pull out at that point. They were right.
The US Senate’s documents are an “incomplete record” apparently. But despite all the mentions of ‘Paulson’ having been erased, they show how banks pressured credit raters to lower standards as they created collateralised debt obligations (CDOs) during the housing boom. Basically, the security on the deals was junk property – and the banks knew this. Not only that, but they sold carpet-bagger investment packages to other clients with that very USP. Nice.
It wouldn’t be easy dealing with this kind of lowlife at the best of times – but this is the worst of times. My own debt managers pointed me at an Institute of Fiscal Studies report in February suggesting just how many kilos of flesh the Shylocks are going to want – to lend us anything at all. Since that advice, the price they’d want for any such loan to us had doubled. It bothers me more than a little that, in this real context, politicians like Nick Clegg and Vince Cable can jabber on about ‘scare-mongering’. Perhaps this is the elite’s new word for reality.
Last week, the Slog’s Treasury mole offered an animated but deadly serious account of how the ‘numbers’ were looking when it comes to cuts and taxes. This is how the source rounded off after sounding off:
“Income tax increases, VAT, levies on house sales and massive spending cut decisions are getting
easier to work out, because they’re no longer options…we’ll have to do all of them.”
This morning, the FT carries an interesting piece on the subject. I’d say it’s well-informed, because the same comparison with 1970s austerity I heard is in there – that this is going to eb far worse. The FT has a ‘simulator’ to work out the end result. I’m not big on simulations (as that’s all they are, but this one concentrates the mind.
We would all do well to study it – and then redouble our efforts to get the Minister for Tweeting turfed out of the Morley & Outwood consituency on May 6th.