There was a great article over the weekend in Barrons with and interview with Sean Egan. Sean's firm is an independent ratings agency meaning they are paid to do research on companies and countries, contrary to S&P and moodys who are paid by the issuer themselves. Here are a couple of interesting quotes from the article. Keep in mind that this guy was miles ahead of the financial crises back in 2008. He simply tells it like it is:
"We believe that American investors are severely underestimating the scale of the European sovereign-debt crisis. They overestimate the amount of debt that Greece, Ireland and Portugal can realistically shoulder, given the sorry state of their economies."What does the ECB's balance sheet look like?
"On the asset side, in addition to €303 billion in assets, the ECB itself holds €113 billion in deposits of local banks and €150 billion in sovereign debt. The problem is that it has only €10 billion of equity, which would be eliminated by any reasonable write-down of the bank deposits or the sovereign debt. Little wonder that Jean-Claude Trichet, the ECB's head, has insisted that any bank bailout [won't] trigger charges for sovereign debt, which presumably would extend to the ECB. Reasonable investors would subscribe to the bank's needing an extra €90 billion in fresh capital. It can get that, but not quickly."
"..consider the shape that the ECB is in, with less than 3% of capital underlying its growing array of bad assets. The European Central Bank's capital levels are getting perilously thin. There's nothing backing the ECB but the guarantees of the euro countries—many hard-pressed themselves."But don't worry, Bernanke will save the day with YOUR money
"All things being equal, the most likely source of support for the ECB is the U.S. via Ben Bernanke, who during the first signs of the crisis, ginned up more than $580 billion in dollar swaps in 2008 and 2009 with central banks around the world."
