Debt

Ethical economy: what to do about debt

30 May 2012

Debt, a little like sex, is a two-sided relationship which pleases partners and can be good for society. But for both, indiscriminate and excessive use is harmful. That’s the lesson of the financial crisis. Daring methods are required to encourage better behaviour.

France makes most of German virtues, Greek vices

25 May 2012

France is enjoying a good crisis and its funding costs are at record lows. The rally owes much to fears of a Greek exit, which are pushing German yields to surreally-low levels and make French bonds attractive. But this won’t last much if Hollande’s policies disappoint markets.

Italy’s new off balance sheet wheeze

23 May 2012

Rome is in a bind; arrears to local companies are choking the economy, but funding them upfront could push up the country’s debt and spook markets. So Italy is using banks to front some of the money. The optics are better, even if the benefit for the economy is probably worse.

Debt markets may be good compromise for Dreyfus

18 May 2012

The commodities giant needs to invest to maintain its position in a consolidating and increasingly capital-intensive industry. Tapping debt markets and listing a Brazilian unit will give extra firepower without diluting family control. But the pressure to go further won’t abate.

Ethical economy: Bad ideas spawn Lesser Depression

16 May 2012

When Lehman failed, there were good reasons to think the pain would be brief and concentrated. Almost four years on, the rich world has not fully recovered. Policymakers are following flawed expert advice. A rethink on both unemployment and debt is urgently needed.

Debt-tax hybrid could be Europe’s least-bad option

8 May 2012

Should euro zone taxpayers be compelled to buy their own government’s debt? Two leading economists are in favour. If the Keynesian analysis that countries lack demand is right, they have a point. This variety of financial repression could also help tame reckless markets.

Euro fiscal targets should depend on actual growth

1 May 2012

The rush to balance budgets as fast as possible can lead to a death spiral of austerity, or to growth-smothering tax increases. Deficit targets are needed, but struggling euro zone governments need some slack. The main goal should be to cut spending in the medium term.

Argentina case puts bite in holdout hedgies’ bark

9 Apr 2012

Elliott Associates spurned the nation’s debt swap but may still get paid, thanks to a U.S. judge’s plan for blocking payouts to other bondholders. If upheld, the ruling might muddle sovereign lending and workouts. But it should also reassure creditors that deal terms have teeth.

Greece faces new taboo: not defaulting

4 Apr 2012

Some bondholders rejected the country’s debt swap. Holdouts could drag Athens through international courts if it defaults, and stymie its recovery. But repaying them would be politically difficult, and rile creditors who took a loss. Greece can afford to play hardball for now.

UK’s post deal should have pension bosses drooling

22 Mar 2012

Britain is to assume responsibility for Royal Mail pensions. Ministers get to offset 28 bln pounds of assets against the UK’s debt and - for now - ignore liabilities that are 10 bln pounds larger. If other pension managers could follow, they’d be queuing all along Downing Street.

Euro zone first default gives few reasons to cheer

9 Mar 2012

Most Greek creditors have agreed to take a loss on their 206 bln euro holdings. The euro zone’s first restructuring should not be chaotic. But it has done away with the pretence that a sovereign’s signature is always golden. And Greece still struggles with a heavy debt load.

High debt is symptom, not cause, of sovereign woe

8 Mar 2012

Economists Carmen Reinhart and Kenneth Rogoff concluded that growth declines when sovereign debt rises above 90 pct of GDP. But new studies cast doubt on that finding. Besides, it’s mostly economic and political dysfunction that leads to excessive debt, not the other way around.

Biggest winner in $25 bln mortgage deal is Obama

9 Feb 2012

While the settlement is progress, compared to the $700 bln U.S. homeowners are under water, it’s a mathematical drop in the bucket. And banks still look vulnerable to future mortgage-related lawsuits. The president at least gets bragging rights for getting a gnarly deal done.

Current policies increase deleveraging pain

12 Jan 2012

A UBS report predicts that unwinding the developed world’s debt extravaganza will produce 10 years of slow growth. Some of that is unavoidable, but current monetary and fiscal policies make everything worse. Tighter money and more public thrift would work better in the long run.

Riposte: Financial repression is bad news

10 Jan 2012

Edward Hadas thinks it’s fine for reckless governments to force investors to buy their debt at low or negative real yields. But the practice distorts the price mechanism and zaps the economy. Just look at 1970s Britain. There’s no excuse for stealing from virtuous savers.

Financial repression is here and may be helpful

9 Jan 2012

Governments want to reduce their debt burdens but avoid default and minimise austerity. Financial repression – laws and policies which push investors into low-yielding government debt – is an attractive alternative. Some repression now could help produce sustained prosperity.

Anything but Treasuries

5 Jan 2012

Uncle Sam’s bonds were big winners in 2011. Yet safe-haven manias have squeezed just about all the juice from Treasuries. In 2012, investors would be wise to peek outside the bunker. They’ll see plenty more fruitful ways to stay safe.

Rome’s funding pain eases, but is not cured

28 Dec 2011

Italy’s funding costs halved in auctions on Dec. 28, as its bond market started to behave a bit more normally. Cheap ECB funds may have helped, as well as Rome’s new commitment to austerity. But while Italy has taken one step back from the abyss, it still faces huge hurdles.

Dubai debt still massive but not terrifying

8 Dec 2011

Sovereign and related debt have remained largely unchanged in the two years since the Dubai World crisis. Even so, the emirate hasn’t come close to exhausting its funding options. Today, Dubai holds more cards. But lenders shouldn’t bet haircuts are indefinitely off the table.

U.S. lawmakers squandering gift from markets

21 Nov 2011

Global investors have given Congress lots of rope to rein in long-term deficits before they enter crisis mode. The committee charged with the task failed to make any progress. So far, markets are enabling such inaction. Washington, and the world, won’t always be so lucky.