The fog of Rumour and Denial

There were so many rumours, claims and denials this weekend you could not see the iceberg for the fog.

Greece was rumoured to be about to default because the IMF and ECB would not release the next tranche of bail out cash.  Athens denied it but hurriedly announced a new 'temporary' tax on property would plug the several billion Euro gap in its funding. Not that there was any gap or problem and what is more this 'problem', which didn't exist anyway, was not the cause of any hold up in bail-out cash being released.

Today the rumour is that Greece is about to return to the Drachma. Could there be a vision of dual currency? One for internal use and one for international?  Surely not.

Fog also blew in from Germany where rumour was thick and the denials thicker, that the government was actively at work on Plan B which was to 'ring fence' German banks against the immanent Greek default.  No one explained what 'ring fencing' actually meant. But my guess is the Bundesbank would cease stumping up cash for the ECB's purchases of Greek, Spanish and Italian bonds and use its cash and credit to buy up those countrys' bonds from German banks only.

And then came another fog bank from France. Rumour that Moody's was about to downgrade the credit rating of the big three French banks, Soc Gen, PNB Paribas and Credit Agricole. This last rumour seems to be true.

The French paper Le Monde, this morning reminded us that Moodys put the three banks on review back on 15th June.  The usual period between review and action is three months. So I expect Moodys decision will be Thursday and that it will be a downgrade.

Why? Two reasons.  First, since January of this year Soc Gen has lost 56% of its stock value, Credit Agricole 43% and BNP 37%.  Second, just this morning Soc Gen declared that on the one hand, its exposure to not only Greece but also Italy, Ireland Portugal and Spain all together was only €4.3 billion while its exposure to Greek Sovereign debt on its own was a mere €900 million, while on the other, it said it was going to accelerate selling assets and businesses as well as start firing people in an effort to make savings of about 5% of its cost base and raise about €4 billion. All of which sounds to me remarkably like Greece and the measures it is taking to raise money to solve a problem it doesn't have and raise money it doesn't need because everything is already fine.

So we are left wondering which set of proven knaves is the liar this time, Moodys or Soc Gen.?  I think Soc Gen is doing what banks always do. They are simply being morally Sub Prime. What do you bet that they have shovelled a lot of debt off balance sheet into a couple of SIV's which would still implode and for which Soc Gen would still be on the hook, but in morally Sub Prime accountancy speak is no longer on its books and therefore 'does not have'?

Soc Gen also said nothing about any exposure it has to other Greek debts such as the debts of private Greek banks or other bad private debts which the bank carries and which will all get a lot worse when Greece finally defaults.

But for a moment lets imagine that the ECB and IMF tuck in to their giant shit sandwich like good boys and girls and the Greek financial system survives to cough up blood for a few more weeks. Does that do anything about the situation in Italy or Spain? The French and German banks are in far more peril from Italy's bog of festering debt than they are to Greece's. Nothing is solved by grinding the Greek people a little deeper into the dirt.

Greece is going to default. Moodys is going to downgrade the French banks and Germany, unless they have totally taken leave of their senses, is working on a plan B.

Meanwhile in the US I think the place to watch for the tremor, which if it comes heralds the next collapse, is in tech stocks.  No one wants to say it too loud, but everyone knows that a massive tech bubble has been growing. It has been seen as the last place where those who still have some cash are willing to spend it. But the departure of Steve Jobs from Apple created this strange sense of investors holding their breath. I think tech stocks are very delicately balanced between continuing to inflate beyond what is reasonable for some time yet, and beginning to collapse. I am waiting for a tremor.