Weil on Finance: Debt-Ceiling Deadline
Hello, View fans. It’s another one of those days when the biggest stories about finance all have something to do with government and politics. Here’s some of what I’ve been reading this morning.
Fitch Ratings warns it may cut AAA rating of U.S.
Notice how there’s no hue and cry this time from large segments of the public over how unfair or off-the-mark it would be for the U.S. to lose its AAA rating, unlike what we saw in 2011 when Standard & Poor’s downgraded the U.S. to AA+. Fitch explained: “Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.”
Martin Wolf on the debt ceiling
The Financial Times columnist says get rid of it: “Some laws are too dangerous to be allowed to remain on the books. Take, for example, the U.S. debt ceiling. It is the legislative equivalent of a nuclear bomb aimed by the US at itself, with the rest of the world within its blast radius. What must never be used should not exist. Regardless of the outcome of the current negotiations, the law needs to be repealed. Orderly government cannot be pursued under so destructive a threat. It is quite different from a partial government shutdown. Albeit foolish and unjust, that is just about manageable. Failure to lift the debt ceiling is not.”
Why House Speaker John Boehner can’t get anything done
Jake Sherman and John Bresnahan of Politico write that it isn’t just the Tea Party Republicans who are keeping Boehner from getting a plan approved to reopen the government and lift the debt ceiling: “The Ohio Republican, battered from three years of intra-party battles, was caught between at least three different GOP factions as he tried to craft a compromise agreement: Republicans who didn’t want to slash government health care contributions for Capitol Hill aides, members who thought repealing the medical device tax was a giveaway to corporate America and conservatives, who thought Republican leaders were too soft on Obamacare. Boehner was unable to craft a deal that would satisfy all of the groups, forcing him to shelve his plan and show the world -- again -- just how hard it is for him to rule the raucous House Republican Conference.”
ECB gets the reins, now what?
The European Central Bank is on its way to overseeing Europe’s largest banks, and it’s moving forward with its much-anticipated asset-quality reviews. There is still much to be sorted out, notes International Financing Review: “The path from here to there looks more and more like a minefield as the ECB has yet to give banks guidance on how assets will be examined, whether half or full-year results will matter, and what types of loans will be examined -- all of which will be crucial in determining whether a bank passes its test or not.”
The ECB may be in a no-win situation
Here’s one example from an article by Bloomberg News: The ECB and the European Banking Authority “will need to decide how strongly to stress-test bank holdings of sovereign debt, even if current rules say they can hold those assets without any extra capital set aside for it. That decision will be key to the credibility of the whole exercise, said Martin Van Vliet, an economist at ING Bank in Amsterdam. `If they don’t include a mark down for sovereign debt in the stress tests, everyone will say they are being too nice,’ he said. `If they do include a big markdown, everyone will say that even the ECB thinks sovereign debt is unsustainable. They’re damned if they do, damned if they don’t.’”
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)