Top Leaderboard, Site wide
Left Masthead
October 20, 2016
Truthdig: Drilling Beneath the Headlines
Sign up for Truthdig's Email NewsletterLike Truthdig on FacebookFollow Truthdig on TwitterSubscribe to Truthdig's RSS Feed

Truthdig Bazaar more items

Print this item

S&P Downgrades and Banks: Threats to Global Stability

Posted on Jan 19, 2012
AP / Margarethe Wichert / dapd

By Nomi Prins

(Page 2)


According to a recent Business Week article, Spanish banks hold 30 billion euros ($41 billion) of “unsellable” real estate loans. Just like in the U.S., where smaller banks got hit hardest, small and mid-size Spanish banks did too. In addition, about 308 billion euros worth of Spanish loans are “troubled.” Home prices in Spain are off 28 percent from their April 2007 peak, with land values in the outskirts of urban areas down by as much as 75 percent.

In economic desperation, voters elected conservative party leader Mariano Rajoy as prime minister at the end of 2011. He promised to lead Spain to economic recovery by invoking austerity measures in return for backing to help the biggest Spanish banks.

Meanwhile, the top six Spanish banks sit on $33 billion of foreclosed assets, having set aside $105 billion in write-downs against bad loans since 2008, with an additional $60 billion to come. The backdrop is a 23 percent unemployment rate, triple its 7.9 percent level in May 2009. Property transactions continue to decline. Foreclosures keep ramping up. The gap between what banks want to sell foreclosed or troubled property for, and what investors are wiling to pay, continues to widen, forcing more small and mid-size banks to buckle under larger than anticipated losses, which in turn squeezes liquidity out of local usage.


Square, Site wide


According to a 2010 SEC report from the National Bank of Greece (NBG), loans to businesses and households were expected to remain low [due to] “downward pressure on household disposable incomes and firms’ profitability from the austerity measures.” It wasn’t kidding. In order for the NBG (or any bank) to reduce its dependency on ECB funding, it has to reduce loans to its own economy.

The ECB agreed to accept worse collateral (with junk ratings), including bank-issued bonds with Greek government guarantees (under a May 2010 rule change for all member countries). The ECB bought Greek (and other) government bonds in the secondary markets to support their value and, thus, their value as loan collateral. As with the Fed’s quantitative easing measures, euro-style, this only perpetuates a fantasy of demand.

After four rounds of austerity measures, nationwide protests, 110 billion euros in IMF and ECB bailouts to keep bondholders (and banks) happy, escalating interest rates driving borrowing costs higher, a downgrade to junk, and a prime minister swap, Greece remains in tatters with more pain to come.

Portugal and Italy

Last summer, S&P warned that it would downgrade Portugal if it didn’t play ball with the IMF and EU over a 78 billion euro bailout. So Portugal towed the austerity line. Its economy deteriorated. S&P downgraded it to junk status.

The IMF and EU declared that Italy also needed “structural reform,” meaning public austerity and privatization. National assets went up for fire sale, as they did in Spain and Portugal, to the highest international bidder. Now, the high borrowing costs the government faces as a result of bolstering the banking system, paying bondholders and selling infrastructure has resulted in more downgrades and dim prospects.

According to the Italian Central Bank, 500 Italian cities are facing losses on derivatives contracts. JPMorgan Chase and Banca IMI are accepting Italian government bonds as collateral, rather than less-risky U.S. Treasuries or cash, certain that the ECB will step in to buy, and thus prop up, Italian bonds if needed, as it did in August 2011.

As Greece showed, using high-cost sovereign debt as collateral leads to more bailouts to ensure big lenders get their money back. JPMorgan Chase, having weathered the U.S. subprime crisis with support from the Fed, isn’t about to lose on that bet. Meanwhile, several Italian towns, the city of Milan and the Tuscany region are suing the big American, German, Swiss and French banks over derivative losses and misleading asset purchases, but those institutions will likely get bailout money anyway.

Bailout Economics Doesn’t Work

ECB bailout money didn’t (and won’t) go toward helping any European country’s local economy, any more than it went to aiding the mainstream U.S. economy. The ECB and IMF, at the Fed, U.S. Treasury and U.S. administration’s urging, camouflaged the insolvency of European banks, perpetuating losses with bailouts and forcing cowardly governments to support them, while turning a blind eye to boosting core economies.

Meanwhile, banks with access to the ECB’s “window” are taking the money and immediately putting it back into the ECB as reserves. Overnight deposits at the ECB continue to break records, currently hovering at about 500 billion euros ($640 billion). As in the U.S., European banks are not using that liquidity to help fix local economies, but hoarding it to preserve themselves. The total amount on reserve is 98 percent of the amount made available in emergency three-year loans in late December at 1 percent interest; banks get 0.25 percent, so are paying 0.75 percent interest for the loans, far less than the market would charge.

There’s an ugly pattern here. Central entities such as the Fed, ECB and IMF perpetuate strategies that further undermine economies through emergency loan facilities and bond and derivatives bailouts, with a chorus of rating agency downgrades to spur them on. Governments get stuck trying to raise money at harsher terms plus repay the bailouts that caused those terms to be higher. Banks run more scared and hoard cheap money that doesn’t go into helping populations, exacerbating the damaging economic effects. It doesn’t take a genius to see where this is going: more bailouts, more fears of bank losses, assuaging pushy bondholders, more downgrades, more austerity. Rinse, repeat.

New and Improved Comments

If you have trouble leaving a comment, review this help page. Still having problems? Let us know. If you find yourself moderated, take a moment to review our comment policy.

Join the conversation

Load Comments

By Wait A Minute, January 27, 2012 at 5:51 pm Link to this comment
(Unregistered commenter)

So, it seems that the ratings agencies and the banks all win while the PEOPLE get
hungry, sick, and uneducated.

Are we, seriously, once again going to let just a few very nasty fat cats win everything, or
are we going to stop them?  Why can’t the countries just say, “No! The banks cheated us
and they should not come out the winners. They should be locked up in prison for life.

What are we, sheeple??

Report this

By Synonymos, January 22, 2012 at 10:35 am Link to this comment

“Germany’s AAA rating stayed the same.”

Germany has many publicly owned banks. That’s why their S & P ratings are set at a more stable AAA.

Read Ellen Browns article: Asia Times Online, “Germany’s Pillars of Growth,” Ellen Brown, October 20, 2011> . And also in the Asian Times > “In May 2010, The Economist noted that the strong and stable publicly owned banks of India, China and Brazil helped those countries weather the banking crisis. And Germany, with one of the healthiest economies in Europe, has a large number of public banks, (see also The Public Option in Banking: Another Look at the German Model) accounting for about 40% of the country’s banking assets.”

Understand Public banks vs Private banks. Read “The Web of Debt” by Ellen Brown.

The Federal Reserve Act should never have been enacted as our Central banking system. The Central bank should be a public utility.

The privately owned Central Banks are ruining the world economy to enrich a few dictators. That is OUR/THE problem. The same too big to jail names keep popping up demanding austerity agreements. These austerity measures in the loan agreements insure private banksters such as the mafia owned banks of Rockefeller, Warbugs, JP Morgan, The Rothschild bankers along with others who attend yearly private meetings @ Jekyll and Cayman islands to discuss strategies. They are the major Swiss bank account holders, who run the American Legislative Exchange Council (ALEC), a private club of banking wizards and dictators with orders for their lobbied puppet politicians. They get rock bottom prices when they attend garage sales of human labor in countries applying austerity measures. They get government owned real estate and foundations @ pennies on a dollar in these countries who borrowed their money -  places like Greece, Portugal, Spain and Ireland when the go bust and can’t pay. The entire world population is at their disposal because they monopolize counterfeiting which is privately owned fiat money on demand by complicit world leaders of their hungry stupid population because they - these banksters - are seen as the all knowing banking authorities. ‘The Bank of International Settlements’ is their tool.

It is essential that all people the world over should know what a publicly owned Central Bank could mean to them. We, in the USA, should Nationalize the Federal Reserve Banks. It could happen.

Occupy Wall Street’s first demand was to nationalize the feds. It still is as far as I know.

Read “The Web of Debt” by Ellen Brown. For more info go to!


Report this
blogdog's avatar

By blogdog, January 22, 2012 at 2:59 am Link to this comment

nothing more pleasing to see than a bear raid on S&P - the treasury of any major industrial nation in
the world could do it over night - China or Russia could do it in an instant - short
sell them into perdition - after trashing Standard and Poors, Moodies, Equifax,
Expirian and Trans Union go next - take ‘em all down

Report this
Blueokie's avatar

By Blueokie, January 20, 2012 at 12:46 pm Link to this comment

John a swimmer -

Ten times is an extremely conservative leverage position, most were 30 to 100
times capital, and most of that was for phantom products designed solely for the
profits of the issuer. 

The question I have is how are the Ratings Agencies still being taken seriously by
anyone?  Time and again they have proven themselves to be absolutely
incompetent and essentially marketing devices willing to state as fact whatever
they are paid to promote.  They are PR firms informing governments of the
policies the financial powers want pursued.  If they were able to exert the same
control for, say, the meat packing cartel, the Government would have us all eating
horns and hooves as the only realistic option for nutrition.

Report this
David J. Cyr's avatar

By David J. Cyr, January 20, 2012 at 7:28 am Link to this comment

QUOTE, Nomi Prins:

“Nowadays, when any sovereign gets downgraded by a rating agency, it’s not just because its debt repayment ability is questionable (the publicized logic of rating agencies), but because it incurred more expensive debt to float its banking system.”

For economic terminology to reflect actual conditions, when referring to America, Inc. and other nations that have been absorbed into the rising neoliberal global market-state, their debts should be more accurately referred to as “formerly sovereign” — not “sovereign” debts.

A nation is only sovereign when it is self-governing. It is not sovereign when international banks and other alien corporate entities determine who will be seated to govern it; what legislation will become law, and which will not; what policies will be pursued, and which will not… with the health and welfare of all the natural person citizens being completely subordinate to the narrowly focused profit interests of the alien corporate person entities.

America, Inc. (the Corporate States of America) is not a sovereign state. It is a non-soverign wholly owned subsidiary of the global market-state. Corporate entities decide which Republicans and Democrats will be installed by the market-state’s corporate party, to manage the control of the compliant consumers… the conquered subjects who were formerly We The People.

Jill Stein for President:

Voter Consent Wastes Dissent:

Report this

By John a swimmer, January 20, 2012 at 2:28 am Link to this comment
(Unregistered commenter)

Awards of “The Secret of Oz”

Beloit International Film Festival 2010   Best documentary
Yosemite Film Festival 2010               Silver Sierra Award for Excellence in Filmmaking
Accolade Competition 2010             Award of Merit La Jolla, California
Nevada Film Festival 2010               Silver Screen Award
Nathan’s Economic Edge, 2009         Excellent review at a world top economics blog.
British premier, Oct. 1, 2010             Prestigious Bromsgrove conference

Those in “The Secret of Oz”:

Peter Schiff, President of Euro-Pacific Capital, the leading “bear” on Wall Street, author.
Prof. Quentin Taylor, professor of political science at Rogers State University
Byron Dale, author and monetary reform expert, author of many books.
James Robertson, former official in a variety of slots in the UK government, and head of the
    Inter-Bank Research Organization, author of many books
Prof. Nick Tideman, VA Tech University School of Economics
Prof. Michael Hudson, President of The Institute for the Study of Long-Term Economic Trends
    (ISLET), a Wall Street Financial Analyst, Distinguished
Research Professor of Economics at the University of Missouri, Kansas City and author of
    Super-Imperialism: The Economic Strategy of American Empire (1972 and 2003)


Report this

By John a swimmer, January 20, 2012 at 2:20 am Link to this comment
(Unregistered commenter)

More useless solutions for the financial crises or solutions from hundreds of years of history that worked and will work again.

“The Secret of Oz”, a 110 minute video presents the pertinent history and story of money from the birth of mankind to the present day and how the corrupt control over money is one if not the main cause of the financial crises and most world crises, joblessness, poverty, homelessness, starvation, education, wars, ect.

“You can’t borrow yourself out of debt.  General Motors can’t, you and I can’t, the Federal Government can’t, nobody can borrow themselves out of debt.”

Quote by Byron Dale, author and monetary reform expert in the film “The Secret of Oz” produced by Bill Still.

For a quick synopsis, copy & paste the following link, then watch 0:02:50 to 0:08:16, 5 minutes. 

After watching, you’ll want to watch the full video.

The interest rates on home mortgages, other large private, government or business loans often result in several decades of payments.  US Government billion or trillion dollar loans from the Federal Reserve, a private corporation, may never get paid off.  Thus, the US Government’s 15 trillion dollar debt.

Presented below are my “limited” non-professional understanding of the money system, the debt and the solutions to the many “crises” with some errors by me.  Therefore, WATCH THE WHOLE VIDEO.

Control of money (bullion, printed, electronic, credit), interest rates, its flow, circulation and how it’s added to the economy determines the wealth, prosperity and health of every individual and country in the world.

In America, the Federal Reserve, a private corporation unconstitutionally controls and directly influences the majority of all aspects of money.  When the US Government doesn’t have enough tax money to pay for its expenses, it borrows from the Federal Reserve and has to pay interest.  It’s the interest on the 15 trillion debt that is bankruptcy America.

Another major cause of the financial crises is that the mortgages that private banks issue are “considered assets” and the banks are allowed to loan out ten times the amount of each mortgage and only required to retain hard? assets equal to the original mortgage. If a customer buys a house and takes out a $300,000 mortgage, the bank can loan out $3 million and collect interest on it. The $3 million that is loaned out does not exist, it’s make believe money. If there’s a run on the bank, guess what, they fail or get bailed out.

Solutions to Money Crises

1.  Nationalize the Federal Reserve getting rid of all the corrupt liars, especially executives.

2.  Federal Government to control the flow and circulation of money, print the money, sets interest rates which in many cases will be zero for education loans, etc.

3.  Federal Government adds new money(printed and electronic) through government projects including construction; state funding; education loans with no interests, etc.

4.  Private banks to be replaced with state banks and/or by strictly regulated private banks.

North Dakota has the one and only state bank in America and it’s solvent.  North Dakota is the only state that has a budget surplus.  Gosh, government operations can be efficient with proper management.

On a following post: Awards, list of experts in “The Secret of Oz” film and some references.

Hope you enjoyed the education.

Report this

By litlpeep, January 19, 2012 at 5:05 pm Link to this comment

Beautifully honest and clearly written, simply but sufficiently detailed evidence for the conclusions drawn.  Kudos to the writer and to the editors for finding her.

Now, how much more does the economy need to stagnate with the US Government protecting the world’s rottenest thugs on Wall Street before we all take the time to organize with our neighbors to replace the entire cohort of currently elected officials?  Okay, except Bernie Sanders.

For if we do not get serious with them, they will never get serious with us, except to continue extorting our children for foreign military adventurism and
our wealth on behalf of those Wall Street thugs.

Report this

By gringo45, January 19, 2012 at 4:20 pm Link to this comment

It seems like they can prop up the banks to prevent default, but there is no growth.  The economy is neither alive nor dead, and we are stuck at zero.

Report this
Right 1, Site wide - BlogAds Premium
Right 2, Site wide - Blogads
Right Skyscraper, Site Wide
Right Internal Skyscraper, Site wide
Join the Liberal Blog Advertising Network