Greek credit reduced to junk

SUBHEAD: Standard & Poor's downgrades Greek bonds to junk; Portugal is also cut.

By Staff at AP & Reuters on 27 April 2010 on CNBC -  
(http://www.cnbc.com/id/36802555)

 
Image above: Front of the Mad Greek Diner in Death Valley, California. From (http://foxacrossamerica.wordpress.com/2008/09/15/utah-law-abiding-mormons-or-meth-addicts-you-decide)  

Europe's debt crisis worsened ominously Tuesday when two financially troubled countries— Greece and Portugal—saw their credit ratings downgraded as markets sold off their debt. Greece was downgraded to junk status by Standard & Poor's, which lowered Portugal's rating as well. The move triggered a major selloff in in global stocks.

European shares fell at their fastest rate in more than two months on Tuesday, while the Dow Jones Industrials plunged over 200 points. US crude oil futures sank more than 2 percent and the euro fell back near a one-year low against the U.S. dollar.

"It's contagion from the Greece crisis which has spiralled out of control,'' said William Sullivan at JVB Financial Group in Florida. "It's like coconuts falling from the tree.

There's a flight from sovereign debt issuers that have suspect national finances.'' Sullivan said there was "outright panic'' among investors who feared they would lose some of their principal if Greece restructured or defaulted on its debt...

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SUBHEAD: Nouriel Roubini says private debt leverage has settled while there is a massive leveraging up of public debt.  

Greece Just Tip of Debt Iceberg

By Patrick Allen on 27 April 2010 on CNBC - 
(http://www.cnbc.com/id/36795861)

The sovereign debt crisis will get worse and bond vigilantes could move on to even bigger economies like the United States and Japan when they are done sweeping through vulnerable European nations, according to economist Nouriel Roubini.

With government debt across the world soaring, the man who predicted the credit crunch is predicting a reckoning. "The recent problems faced by Greece are only the tip of a sovereign-debt iceberg in many advanced economies,”

Roubini told readers of his RGE Monitor Web site. "Bond-market vigilantes already have taken aim at Greece, Spain, Portugal, the United Kingdom, Ireland, and Iceland, pushing government bond yields higher.” “Eventually they may take aim at other countries – even Japan and the United States -- where fiscal policy is on an unsustainable path," he wrote.

Roubini said he fears failure to learn the lessons of the credit crisis will simply mean a bigger, more dangerous crisis is just around the corner.

"There is a lot of talk about better regulation and supervision of the financial system but the financial industry is back to business as usual -- rebuilding leverage, engaging in prop trading and other risky behavior, compensating bankers and traders with indecent bonuses -- and is lobbying against better regulation and supervision,” he said.

“Governments are talking about reforms but almost no one has implemented them."

You Can See Bubbles Inflating Roubini also says he believes that those who claim it is impossible to see an asset bubble coming are misguided. Bubbles are easy to see coming and have had similar characteristics since Tulip Mania hit the Netherlands in the 17th century, he said. "An asset bubble -- often in real estate or in stock markets or in a new industry -- leads to financial euphoria, excessive risk taking, an accumulation of excessive debt and leverage,” Roubini wrote. “So the signposts of this phase -- asset boom and bubble, followed by the eventual bust and crash - are highly predictable if one looks at the economic and financial indicators that show the build-up of such excesses." Roubini warned that we are seeing more and more crises, that their impact on the economy and society is climbing and people continue to miss the signals. "The trouble is that in the bubble phase nearly everyone, the exception being a few critical analysts, is swept in a delusional bubble mania of irrational euphoria: households, financial institutions, investors, governments, spinmeisters all of whom profit from the bubble, including Ponzi-schemers who concoct their houses of cards and financial con games," he wrote. Have We Learned Anything? Huge debts run up in the build up to the credit crisis by households, corporations and the financial sector remain a huge problem and are being added to buy governments across the world, Roubini said. "While there is much talk about deleveraging as the crisis wanes, the reality is that private-sector debt ratios have stabilized at very high levels,” he wrote.

“By contrast, as a consequence of fiscal stimulus and socialization of part of the private sector’s losses, there is now a massive releveraging of the public sector. Deficits in excess of 10 percent of GDP can be found in many advanced economies, including America’s, and debt-to-GDP ratios are expected to rise sharply -- in some cases doubling in the next few years."