Wednesday, 9 June 2010

Markets give EU's SPV thumbs down

The business Telegraph today carries an article reiteration my yesterday's blog saying the EU's announced SPV was just a rehash of the collaterised debt obligations, CDOs, that got us into the credit crunch. The EU's proposal is exactly the same and consists of producing a non-transparent sausage mixture of bonds that will be sold to the gullible as AAA, a rating produced no doubt by the new SarkyMerkel ratings agency. Politicians talk incessantly about learning lessons but clearly this is for other people not them. The EU's SPV has the potential to wreak the same financial havoc as bank SPVs & CDOs did.

The Eurozone markets were clearly of the same view and they all fell heavily after the latest EU SPV wheeze was published.

As important was the rejection by the Swiss lower chamber of their government's agreement with the US to hand over details of the 250 largest private bank accounts held by US domiciled clients. Put this along with yesterdays announcement that the EU will press ahead alone with Bank levy proposals and Reuters report that in a joint letter published by Berlin on Wednesday, Chancellor Angela Merkel and French President Nicolas Sarkozy told European Commission President Jose Manuel Barroso the EU executive needed to accelerate the pace of financial reform.

Brussels ought to accelerate efforts to impose tougher controls for credit default swaps on sovereign bonds and short selling, and present measures in the next few weeks say Sarkozy and Merkel. Bankers seek the most favourable regulatory regime and that now increasingly looks like Switzerland. Let us hope Osborne keeps us out of these ill thought out Fourth Reich schemes.

Finally the effect of Obama's kicking of BP is starting to take effect but not in the way he intended. Norway has banned new deep water drilling in the North Sea. So what do you think Mr President will happen next? Oil supplies will fall, the oil price will rise and in Louisiana oil workers will be laid off. And the oil companies? Well when oil prices rise their profits go up. Well done Mr President I hope the US citizens sack you in 2012.

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