Monday, August 8, 2011
Fannie and Freddie Downgraded, France Will Be Downgraded, Munis Getting Hammered ... States Will Be Next
As I noted yesterday, munis will get hammered by the credit downgrade, and France may soon lose its AAA credit.
S&P Debt Downgrade: Munis Pounded
Less than 12 hours later, munis are getting pounded by downgrades.
France In Trouble
French credit default swaps are soaring.
Here's a summary courtesy of Business Insider:
For background on the importance of credit default swaps as an economic indicator, see this.
Fannie, Freddie and Clearinghouses Hit
S&P just downgraded Fannie and Freddie.
In addition, S&P downgraded major clearinghouses including Options Clearing, National Securities Clearing and DTCC.
All 3 companies are major clearinghouses for over-the-counter derivatives, as well as other types of financial instruments.
Next Up ... States?
As I reported last month, the real danger is entire states getting downgraded.
Moody's has warned against 5 states in particular:
- Maryland
- New Mexico
- South Carolina
- Tennessee
- Virginia
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I find the "credit default swaps" thing quite funny. If something as big and important as France goes bankrupt (doubtful right now), who do the investors expect to get paid by.
ReplyDeleteI can't understand who can believe that there is even a slight chance of France (and hence EU) going bust and the Capitalist system surviving at all. It's such a delusion that I'd love to sell my French CDS if I had them right now because I am so terribly aware that they only have a speculative value.
Derivatives in general are crazy stuff, poisonous junk, but CDSs on pillar states are playing Russian roulette with all the bullets in.