S&P downgrades Spain. Obama is said to be concerned about the European situation and the media are trumpeting how ‘we’ have already made a profit on our bail out of the banks.
These things are related.
Spain is downgraded. Why? Spain has less debt than Greece and more earning power than Portugal. But it has large borrowing needs of about €150 Billion this year alone. It also has a very deep property collapse and its bank are suspected of accounting for them in, shall we say, a parsimonious way? Their non-performing loans are a little bit of a mystery. I think BBVA and Santander are both in trouble.
Obama is concerned. What, as a ‘concerned neighbour? I think he is concerned, not just because of a general and well founded concern for what a rout in Europe would do to US stocks but more specifically because of – please give a big hand to our old friend and villain AIG!
Yesterday, when anxieties that there might be no bail out were rife, AIG shares buckled and were down 12% at one point. Today, as the IMF said it was confident, and the ECB said talks were constructive and they both had Merkel trapped in a small room, guess what shares got up off their knees and tried to stop wobbling.
The reason is AIG’s long rumoured CDS exposure to Greek debt. Did AIG write lots of CDS against Greek default? I think they did. I think they wrote it recently. I think they saw some quick profit. And when it looked like it might go wrong for them, Obama would have thought – Oh great, another chapter in the endless AIG bail-out. Hence his concern.
What do you think, if there is no agreement tomorrow, will AIG shares go back down? Shorts must be eyeing this one. Only the brave will try it though.
And then there is the ‘we’re already making a profit’ stories. First its a paper profit. We have what you had in your house two years ago. Equity. Nothing more. As long as the price stays up we have equity. But if lets say there were to be ‘worries’ about losses on say,.. GB exposure to Spanish debt.. and the share prices on those banks were to go down?
What else could shake their share price? Perhaps if investors thought for one second that those shit filled banks no longer had the implicit government guarantee that comes with the government owning a large chunk of you. I think that might just matter to the share price. We can’t sell those shares without the price taking a dive.
Then there is the bit of the those stories that grinds my gonads. The Jesuitical hair splitting between government bail out and ‘our investment’ in those banks. We have NOT made a profit in the ordinary sense of having ALL our money back and then some. We put £45 Billion into RBS! A puny increase in the share price does not wipe that out.
We lent money, gave money, invested money and put up money to insure our insolvent banks. We will not get this back for far longer than ‘experts’ predicted.
Let me put it this way. If I asked you for a tidy sum. Shall we say £1000. I’m a mate. you’d like to help. £1000 is a lot to you but manageable. I ask for a loan. You might take a deep breath and say yes of course. Then I say – I can let you have it back in 5 or 10 years. How do you feel now?
Loans aren’t just about how much. They are about how long before you see your cash again and get to use it for things YOU might really need it for.
It’s all very well for politicians, their banker paymasters and assorted financial apologists to say, its just a loan we’ll get it back.
Yes, BUT WHEN? Before I have to cut every social service back to Edwardian days or after? If its after then getting it back is another Jesuitical nicety isn’t it?