Welcome back, View fans. Here are your morning links.
The island territory’s government responded to Moody’s two-notch downgrade by saying it “strongly disagrees” with the decision. It was merely “disappointed” by the single-level downgrade from Standard & Poor’s earlier in the week, as Barron’s writer Michael Aneiro noted. Then over the weekend the New York Times had an eye-opening front-page article about the exodus to the U.S. mainland of professional and middle-class Puerto Ricans. They don’t care what credit raters say. They just want better lives.
Mario Draghi didn’t exactly say the ECB would do whatever it takes to preserve the euro.
What he said back in July 2012 was that the European Central Bank would do whatever it takes “within our mandate.” And now Germany’s top court has ruled that the ECB’s rescue plan for the euro exceeds the bank’s policy mandate. Here’s Ambrose Evans-Pritchard’s take in the Telegraph: “The tough language leaves it doubtful whether the ECB’s back-stop scheme for Spanish and Italian bonds can be implemented if Europe’s debt crisis blows up again, and greatly complicates any future recourse to quantitative easing if needed to head off Japanese-style deflation.”
Here’s another take on the German court’s ruling.
This comes from University of Munich economics professor Hans-Werner Sinn. By OMT, he was referring to the ECB’s outright-monetary-transactions program: “Yes, the ECB’s market-calming gimmick of shifting default risk from clever investors to trusting taxpayers worked. The OMT scheme amounts to free insurance against a default by southern eurozone countries, thereby subsidizing the return of private capital flows to places where they were squandered before. But that is not enough to legitimize the program.” He says the court was “right to argue that purchases of troubled countries’ government bonds cannot be considered monetary policy –- and thus exceed the ECB’s mandate.”
As Mark Twain said, history doesn’t repeat itself, but it does rhyme.
James Narron and David Skeie of the Federal Reserve Bank of New York have a good post for all you crisis junkies out there about the commercial credit crisis of 1763 and today’s tri-party repo market: “During the economic boom and credit expansion that followed the Seven Years’ War (1756-63), Berlin was the equivalent of an emerging market, Amsterdam’s merchant bankers were the primary sources of credit, and the Hamburg banking houses served as intermediaries between the two. But some Amsterdam merchant bankers were leveraged far beyond their capacity. When a speculative grain deal went bad, the banks discovered that there were limits to how much risk could be effectively hedged.” The authors review how “fire sales drove systemic risk in funding markets some 250 years ago and explain why this could still happen in today’s tri-party repo market.”
Ever tried to hide a nut in a Burmese Mountain Dog’s coat?
There’s a squirrel named Wally who did. The dog, named Jax, didn’t seem to mind at all. Then the nut fell out. The Daily Mail of London has the story and pictures. The two have a history of this. One time Wally tried to hide a Cheez-It in Jax.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)
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