Thursday, April 15, 2010

1000 similar municipals in debt in france….

Saint-Etienne Swaps Explode as Financial Weapons Ambush Europe

The worst global financial crisis in 70 years arrived in Saint-Etienne this month, as embedded financial obligations began to blow up.

Posted by mark @ 10:33 AM (1371 views)
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10 thoughts on “1000 similar municipals in debt in france….

  • Theemperorhasnoclothes says:

    ” Take Saint-Etienne’s two snowball swaps with Royal Bank of Scotland. In one of the contracts, the town pays a fixed rate of 3.92 percent until May 2011 on an underlying debt of 7.2 million euros while RBS pays 9.69 percent, less 10 times the difference between 10-year and 2-year interest rates, capped at 12 percent and with a floor at zero.

    The contract with RBS was a counter-agreement for a swap that Saint-Etienne had signed with Paris-based Natixis SA. The swaps are based on an underlying loan by Dexia at 4.94 percent that runs until 2026.

    Under the other contract, Saint-Etienne is paying 3.77 percent until June 2011 on 8.3 million euros while RBS picks up the payment of 9.71 percent less the same formula in the previous swap. The underlying loan from Dexia is also at 4.94 percent and lasts until 2026.”

    Why the hell would a city be getting into a complex deal like this? I don’t understand a word of it, it sounds like a scam to me. Why didn’t the city opt for the simple solution of just being more frugal and paying off the debt sooner?

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  • The concept of a branch of a local government going fully bankrupt, leaving its creditors with a 100% haircut; is not one that seems to be discussed, but with tales such as these on the increase, it seems only a matter of time before somewhere like St Etienne attempts something along those lines..

    ..in the UK, local councils are heavily restricted when it comes to borrowing cash as such, but there are still ways of playing silly games.

    Local to me, a Libdem run council was finally kicked out by the electorate when they ran out of money. The incoming Tory council found, amongst other things, long term contracts for the supply of public toilets that involved incrementing charges – modest in the first instance, but increasing way beyond the rate of inflation, so that the eventual cost will dwarf the expense of buying them outright in the first instance..

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  • This is grim reading. What is the status of the relationship between local authorities and the populace in the UK? Are councils like limited liability companies, or are we all members a la Lloyds? Some homeowners have liabilities for [url=”http://en.wikipedia.org/wiki/Chancel_repair_liability”] upkeep of the parish church [/url] that are esentially unbounded. Could it be the same for local councils?

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  • Why did they go for these complicated swaps when they could have followed UK councils and gone for the high interest rates offered by Landsbanki?

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  • This is the reality of a sales & bonus culture – find the fools with big balance sheets and rip their heads off. It’s reported over and over – especially state-side where schools, hospitals and charities have been hit in the same way.

    Mind you…
    1) I’m sure we wouldn’t hear anything of it if the position went in favour of the public bodies and the sales person does not really care which way the bet is as they just get their commission on the sale itself.
    2) Who are these fools in charge of public finances who make the decision to enter such deals – it’s happened over and over and it still happens.

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  • could this put france into greeces position?

    get ready to buy cheap french gites..lol

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  • They gambled and they lost, would they be bleating if they had been quids in (well Euros) ? No. I have no sympathy

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  • “Why the hell would a city be getting into a complex deal like this? I don’t understand a word of it,”

    Lol, exactly. When did everyone become derivatives traders? Can’t wait for DIY nuclear power, that’ll be a blast.

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  • It won’t happen here. Hammersmith & Fulham got caught out with interest rate swaps a few years ago but regulations prohibit it now. Sensible regulation? Amazing.

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  • It’s even worse in America. But then they have plenty of precedents – back in 1992, Orange County CA lost a fortune on dodgy swaps. Default is a natural risk for cities and local authorities around the world. Just because it hasn’t happened for a decade or two doesn’t mean it can’t ever happen again. Indeed, the last “NICE” decade has lulled us all into a false sense of security: the ideas that debtors are always honest and that contracts are inviolable. In practice both borrowers and lenders lie; and contracts can change. Investing is risky; long-term investments especially so.

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