Credit Matters
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Learning from mistakes is easier said than done, says Gary Jenkins, who nevertheless suggests that market players should do as he says, not as he does. On the lookout for an interesting but cheap present for his wife this week, EuroWeek’s doting credit analyst stumbled across a rich vein of historical analysis that warrants a fresh look today.
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If the authorities have got the response to this crisis wrong, Europe could be heading for disaster. Gary Jenkins doesn’t find any of the ironies of the EFSF very funny.
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Who would be a credit analyst? Just when you get used to sovereigns being economical with the truth, a string of companies pop up to remind you to adjust your forecasts for extreme tail risks. Hanging out with supermodels can hardly compensate Gary Jenkins.
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Perennial underachievers Spain won’t have much chance in the World Cup if past form is any guide. Neither will the country have much chance of hanging on to its Aaa/AA/AA+ ratings. Gary Jenkins previews the month ahead, on and off the pitch.
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Will Greece have to restructure its debt? If democracy provides any guide, the answer is a foregone conclusion.
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“Even when liars tell the truth, they are never believed.” Aesop’s Fables — one of Greece’s more successful exports — have lessons for the European Central Bank’s conduct of monetary policy, writes Gary Jenkins.
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The European Central Bank has few tricks left up its sleeve, except for outright purchases of government bonds. But fortunately for the European Union, Gary Jenkins has offered his services.
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Being stranded in Rome for a few days, thanks to volcanic ash, allowed Gary Jenkins the chance to dream up plans for a career change but he, like Greece, had to wake up and face reality eventually.
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Given a blank sheet of paper, how would you design a new financial system? Gary Jenkins would insist on ring-fenced, utility retail and commercial banks, partnership- or shareholder-owned advisory and underwriting firms, and strict leverage limits on investment outfits. Oh, and everyone would have to listen to REM, too.
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The basics of why credit trades where it does have not really altered over the years. Gary Jenkins should know – he’s been around for most of them. But, as he points out, what will be fascinating to watch over the next decade is whether or not the key influences on the asset class will diminish and pure default expectations will become more important.
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When it comes to theories, an older and wiser Gary Jenkins nowadays leans more towards the cock-up than the conspiracy. So are credit default swaps the root of all evil? There were defaults and volatility long before the CDS market.