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The Dow has given up its gains for the week, and financial stocks like Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM) Citigroup (NYSE:C), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) are all down on the downgrade of Spain’s debt by Fitch Ratings from its prior AAA rating to AA+. Spain had had a AAA rating since 2003.
This signaled to the market that the European sovereign debt crisis isn’t going to go away any time soon, and it’ll probably get worse.
At 2:00 p.m. EDT, the Dow Jones Industrial Average (DJIA) was down by 139.59 to 10,119.40, or 1.36 percent. The Standard & Poor’s 500 Index stood at about 1,085 near the same time, a drop of 17.92, or 1.62 percent. The S&P is down 8 percent so far in May, the worst since February 2009.
According to David Kovacs, head of quantitative strategies at Turner Investment Partners, “The credit issues are not going away in Europe — it’s a simple fact that everyone has to accept. Credit markets are seizing up because investors are concerned. So when they see further downgrades by the credit agencies it reminds them that these issues are not going away and on a Friday before a long weekend you can expect selling off of equities.”
Spain is one of the more important countries in the European Union in the debt crisis, when measured against Portugal, Ireland, Italy and Greece (PIGS). If Spain were to default, most watching the situation don’t believe the EU could save them. If they had to offer close to $1 trillion in response to the Greece crisis, it would be extraordinary what they would have to offer to shore up Spain along with them. And if Spain were to default, the others would assuredly follow.
The approximate $1 trillion would be targeted at all of the EU, with $146 billion for Greece, but it’s unlikely that amount would come close to handling the situation if the crisis continues, and growing opposition to the socialist/welfare countries living beyond their means is growing.
People are getting tired of being productive and having to bail out those who take their wealth and redistribute it to those who are unproductive and lazy.
Limited government is the answer to this, as people would be forced to work harder and create something useful when the misguided props are removed and they have to work for what they want and the lifestyle they want to live.
This isn’t limited to the so-called PIIGS though, as other nations, even Britain are in debt far beyond the guidelines implemented by the EU, and even though these nations are farther above them than others, like Greece with its 13.6 deficit and Spain with its 11.2 deficit, as measured against its GDP.
No country in the EU is adhering to the guidelines, making them all risks going forward.
Unless Europe is willing to follow their own rules, there isn’t a real Europe operationally, and that will remain the same until it is followed.
The EU may need to cut back to the more economically healthy countries until they’re able and willing to adhere to and enforce the debt guidelines in place.
This article (Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM) Citigroup (NYSE:C), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) Slammed After Spain’s Debt Dowgraded) was originally developed by and is property of American Banking News. Checkout American Banking News for up-to-date banking news and peer to peer lending news.
Credit swaps for Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS) rose in May, with swaps for Goldman increasing 3.9 basis points to 170.8 basis points, and Citigroup swaps grew 2.7 basis points to 173.4 basis points.
Buyers of credit swaps are paid the face value of the instrument if a borrower doesn’t pay what they owe, minus the value of the debt they default on. Annually, a basis point is valued at $1,000 on a contract which covers $10 million of debt.
The overall corporate credit risk surged in May too, rising to its highest levels in 15 months.
The Markit CDX North America Investment Grade Index Series 14, used by traders to determine the creditworthiness of a company or to hedge against potential losses on corporate debt, rose 25.3 basis points in May, to 117.4 basis points at a little after noon EDT.
Most of this is in relationship to fears over how deep and long the European sovereign debt crisis may be and last, and what type of effect that will have on their ability to refinance. Concerns over the impact on global and regional economies is another major factor in the mix.
The behavior of the index is it will normally fall when investor confidence rises and rise when confidence falls, as it is now. The rise in the index this month is the most since February 2009.
Consequently, corporate bond sales have plunged to their lowest level in a decade, as the possibility entire nations may default on their debt weighs on the markets.
This article (Citigroup (NYSE:C), Goldman Sachs (NYSE:GS) Swaps Rise as U.S. Corporate Credit Risk Surges) was originally developed by and is property of American Banking News. Checkout American Banking News for up-to-date banking news and peer to peer lending news.
Analyst Says Goldman Sachs (NYSE:GS) Could Pay $621 Million to Settle SEC Fraud Suit
Posted by: | CommentsSanford C. Bernstein & Co. analyst Brad Hintz said in a note to clients today that Goldman Sachs (NYSE:GS) could pay $621 million to make the SEC fraud charges against them go away.
Hintz said the fine would be $250 million, and the other $371 million would be to reimburse investors in the trades.
Personally, I’ve never like these particular charges, as they’re bogus to me, and the SEC probably knows that. Warren Buffett addressed the issue not too long ago, saying the idea that Goldman should have revealed their positions which could have been the opposite of those they were collateralized debt obligation for was ludicrous, as no one could possibly no or have the right to know what the person across from them was going to do.
As Hintz said, “While this would be painful to Goldman, we believe it would allow both Goldman Sachs and the SEC to walk away declaring ‘victory.’ Certainly Goldman wants this case settled. Its management has stated that it wants a ’normal’ relationship with its regulators.”
The SEC assertion that Goldman Sachs concealed that hedge fund Paulson & Co. had taken a position against the collateralized debt obligation is dubious at best. Again, they had no reason whatsoever to conceal Paulson’s position at all, as that’s the way that particular type of business is done.
To say they concealed it would be similar to someone saying while they were investing in a particular stock, I in turn was shorting it. To reveal that information wouldn’t come to my mind or even be part of a conversation I would have with them.
That’s similar to what the SEC is saying Goldman did, and they’re calling it fraud.
Unfortunately the SEC is taking advantage of negative public sentiment against Goldman to extort capital from them and keep them on the defensive.
While Goldman hasn’t been innocent in everything that has went on in the banking industry, and they’ve made some dumb comments, in this case this is just wrong, and they shouldn’t be punished and vilified for what is simply the way this particular part of the financial industry business is conducted.
Because the majority of people don’t understand what this is all about, the SEC is getting away with it, knowing Goldman Sachs can’t afford to continue having their reputations tarnished in the public eye.
This article (Analyst Says Goldman Sachs (NYSE:GS) Could Pay $621 Million to Settle SEC Fraud Suit) was originally developed by and is property of American Banking News. Checkout American Banking News for up-to-date banking news and peer to peer lending news.