FTSE 100
Dow Jones

Monday, 31 October 2011

Mandelslime's friend on corruption charges

The Serious Fraud Office have arrested and charged businessman Victor Dahdaleh with corruption offences relating to the supply of aluminium to Bahrain. Dahdaleh, who has British and Canadian nationality, is alleged to "have made payments of bribes" between 2001 and 2005 to officials of Aluminium Bahrain, a mainly state-owned smelting company in the Gulf state. The charge follows a two-year investigation by the SFO in collaboration with the US DOJ and the Swiss authorities.

Dahdaleh, 68, who lives in Belgravia, central London, has donated money to Labour causes. He funded Labour-supporting thinktanks, including the Institute for Public Policy Research and the Policy Network, a group founded by former prime minister Tony Blair and chaired by Mandelson.

Dahdaleh paid for a pamphlet authored by Mandelson, while both Mandelson and Blair appeared at events sponsored by the businessman. Mandelson called him "Victor, my friend" and said he was "a business dynamo, a public-spirited figure and a big-hearted personality".

Dahdaleh has been released on bail and is due to appear at City of Westminster magistrates court next Monday.

Given that we now know Mandelslime has been backed by someone charged with corruption, when will we know about the funding for his £8 million house.

Schauble: (verb) To open ones mouth without engaging brain

Fresh from his announcement of an immediate inquiry to discover why German accountants didn't offset assets and liabilities as they should (prediction: because they didn't realise they could be offset), German Finance Minister Schauble says the EU should take the lead in setting up a Robin Hood tax to curb speculation, and if the UK won't join in, then the EU should go it alone.

This is just so wrong he should count himself lucky if he still has a job tonight.  First off, there is no such thing as a Robin Hood tax.  Robin Hood never paid a penny to the Sherriff of Nottingham.  It is just a tax. 

More seriously, the EU has never had the power to impose any taxes, nor to collect them.  If the UK wants such a tax then it can impose it.  The EU and other nations would like the tax because it would be imposed mostly on businesses operating in the UK and employing mostly UK nationals. The EU of course have suggested that this tax should be paid into their coffers.

But realistically, it won't work.  If I want to speculate on an asset I dont have to buy it any more than I have to buy a race horse if I want to back it in the 3:30 at Kempton Park.  I can get a payoff without buying the underlying, and the trouble is I can manufacture whatever payoff I want through derivatives,  If I want the same payoff as an interest rate swap on £100m notional, I can write a swap for 100,000,000 times the fixed and floating interest rates on £1m notional and the tax becomes disappearingly small. The only way to reliably capture the value of a any speculation is to tax the profiut.  We already do that.

But most importantly, the easiest way to avoid any tax is to do the trade offshore, or if necessary move the trading entire business offshore.  There will always be offshore banking centres willing to take on any business that the EU wants to tax.  All we have to do is throw it away.

Sunday, 30 October 2011

Germany no better off after error at ‘bad bank’

Unlike most trade presses, the financial press are largely ignorant of the subjects about which they write. Other media outlets are no better. As Exhibit #1, I bring to your attention the BBC's continual outpourings on Big Bang in 1986 and their implication that this led to today's financial crises, although the media and in particular the BBC have failed to explain how the abolition of fixed commissions and the distinction between jobbers and brokers had anything to do with the liquidity of Bradford & Bingley, RBS' overpayment for ABN Amro, AIG's build up of a massive unsupervised derivatives book in its London office and the failure of Lehman Brothers.

 The funny thing is that if you go to another pink paper and cut and paste text from their articles you get the following text:

 High quality global journalism requires investment.  See our T&Cs and Copyright Policy for more detail.

 .. and it is hard to disagree with that. Except that most financial journalism is not high quality. 75% of the "news" in the financial pages is simply a rehashing of corporate press releases. Once the journalists step away from those to what they think are real financial stories, they start to flounder.

Exhibit #2 is the story in today's pink paper with the headline that says the German government is €55.5 billion better off than previously thought because of an accounting error at FMS Wertmanagement, the bad bank for Hypo Real Estate.

True enough, there was an accounting error in the company which involved the failure by the banks accountants to set off collateral against a port folio of derivative products, which resulted in larger amounts than necessary being reported on both sides of the balance sheet.

If the hack concerned knew anything about finance he would have realised that offsetting assets and liabilities doesn't make you richer, and if he wasn't even that smart, he should realised that when the bank adjusted its balance sheet to show a lower value of assets by €24.5bn ($35bn) for 2010 and €31bn for the year to June 30 2011, then it could hardly be getting richer. Fortunately for the bank and the German government it also reduced the reported value of its liabilities by €24.5bn ($35bn) for 2010 and €31bn for the year to June 30 2011.

Go and look at the other paper now and you will find that they have backtracked, and rather than saying that they got the story wrong, they report that "Wolfgang Schäuble, German finance minister, has demanded an urgent inquiry into how an apparent accounting mistake led to an embarrassing €55.5bn overstatement of the debt burden of a “bad bank”.

Which is true, but it isn't the same as being €55.5 billion better off.

Saturday, 29 October 2011

Capitalism is alive and well and living in Guangzhou and Bangalore

I have meant to post something along these lines for some time, and it may seem unduly negative, but I hope that it strikes a chord or two. Every time a BBC or Sky reporter talks about the economy for more than 5 minutes they usually get round to the issue of whether capitalism has "failed", without explaining what they really mean by failure.

Do you want the good news or the bad news? The good news is that what we see in the financial markets is not a crisis in the sense of an abrupt event that will lead to uncertainty and a deterioration of the financial and social position of the civilised world.  The bad news is that what we are seeing is part of a continuing process that preceded the last financial crisis and will continue into the future.

But it is not capitalism that has failed. Capitalism is alive and well, but not in the West - it has gone East. The spirit of capitalism - risk-taking, saving, investing, hard work - are to be seen in China, India, Indonesia, Korea and Japan.  In the 1960's we thought that those countries would be stuck in poverty, but while the last has risen to Western standards of prosperity the other four are growing fast.

Capitalism hasn't failed. Rather, just as water flows inexorably downhill, capitalism seeks out the greatest return on investment.  That doesn't necessarily mean seeking out the lowest cost but it does mean seeking out the sources of production that give the greatest return.  In simple terms, the West will not be able to compete with the East in some industries because the cost base in the East is much lower.  Until standards of living have grown in the East (and fallen in the West), then those industries will take place in the East.

What sort of industries are we talking about?  Well, most manufacturing including high value goods such as electronics.  Show me a telephone handset that was made in Europe or the United States and it will probably have been built in the 1980s.  Any western finishing is likely just to be customisation.

Show me a large factory in this country that has been built in the last 10 years, and chances are it will be involved in food processing, recycling or a similar industry that has to function locally.

So what is the problem in the West?  On the one hand, Western banks though the economy would grow for ever and were proven wrong, hence the massive number of bad housing loans.  But the bigger problem, which now hangs over Europe is the fact that politicians who were happy to open their borders for free trade failed to spot that this inevitably meant that their countries' own standard of living would inevitably be undermined.

At first it was easy to turn a blind eye, and just think that Eastern countries were backward places that were unlikely to compete with the West.  But inevitably, with their immeasurably higher populations and their improving standards of education, the West was going to be put under pressure by the lower costs in the East.  Westerners who were complacent about their prosperity failed to understand that although they were in the richest 10% of the world population, their position was not guaranteed.

The real failure, of course, and you won't hear this on the radio or TV, is not Capitalism but Socialism. We all learnt at the time of the collapse of the Berlin Wall that Socialism was unsustainable.  Unfortunately Western politicians on the left side of the spectrum didn't listen.  They found that companies didn't invest  when they put up taxes, and in fact moved all their new investment to other parts of the world.  In order to keep their captive voters happy, they borrowed heavily to finance present government consumption, which they erroneously called "investment". Leaving aside the Italian Cosa Nostra basket case, Greece, Portugal, Ireland and Spain,  the most heavily over-borrowed of the Eurozone countries, have all had one thing in common for the last 10 years: left of centre governments.  Just like the UK, currently the most over-borrowed of the lot.

You won't hear it on the BBC, but the real problem is that Western social welfare has placed an impossible burden on states, which is why the UK has a current annual deficit of €200 billion.  On its own this is 20% of the amount of funding sought by the EFSF, but worse than that, it is a recurring shortfall for which the UK government has to find funding every year.

How has this arisen?  Quite simply because in order to maintain the myth of never ending growth, Western governments have lavished stupendous salaries on their public sector workers and munificent largesse on welfare recipients, at the same time that private sector workers have seen their pay restricted largely by the pay levels of workers in the East.  Western workers naturally want to be paid more to maintain their living standards, but if they want to be paid more than their equivalent in Asia, their jobs probably aren't going to be around for long.

This was never a consideration for public sector workers who have long expected ever improving pay for the same productivity and performance, and have been largely insulated from and ignorant of the long term connection between private sector profitability and their own incomes.  Now that there is downward pressure on their pay because governments have really run out of cash public sector workers threaten strikes and riot.

Doctors expect to be paid hundreds of thousands of pounds to provide cradle-to-grave healthcare for many who have never and will never pay much into the state coffers, while civil servants expect six figure salaries, generous pensions and early retirement, all paid for by a private sector that is constantly undercut by overseas competition. In the long run, none of them should have any reason to expect to be paid much more than their Chinese or Indian equivalent as the economies of the East align themselves closer to those of the West. 

If the governments of Greece, Italy, Spain, Ireland, Portugal or the UK were companies, their respective cash shortfalls would have pushed them into insolvency years ago.  Their problems will continue until their spending is cut to realistic levels.

Friday, 28 October 2011

A few changes to the layout

I apologise to readers who may be experiencing disruption in visual quality, but I am experimenting with a new template.  I don't do CSS or anything webby for a living, so please bear with me for a few days as I tinker.

We have principles; if you don't like them we have others

According to press reports, China may contribute to the eurozone’s bail-out fund but the scope of its involvement will depend on European leaders satisfying some key conditions, according two senior advisers to the Chinese government. Any Chinese support would depend on contributions from other countries and Beijing must be given strong guarantees on the safety of its investment, according to Li Daokui, an academic member of China’s central bank monetary policy committee, and Yu Yongding, a former member of that committee. He added that Beijing might also ask European leaders to refrain from criticising China’s currency policy, a frequent source of tension with trade partners.

So there you have it. To bail out the cradle of democracy, Western leaders are being asked to turn a blind eye to human rights abuses.  The ancient Greeks had a word for that: eironeia.

Thursday, 27 October 2011

The great Euro bailout that never was

A few years back when the UK last hosted the G20 boondoggle, the mentally deranged prime minister who chaired the meeting reported that the members of the G20 had agreed $5 trillion of stimulus measures.  That is a very big number.  Perhaps it was €5 trillion or £5 trillion, but in reality it didn't matter because the number was just a figure plucked out of thin air to satisfy the journalists and voters.  Most of the measures were not additional stimuli at all but programmes that were already in place such as export credit guaranty schemes or multilateral development banks.  The numerically largest measure involved the creation of SDRs, which didn't actually create any credit or stimulus at all, but was in effect like a bank printing lots of travellers cheques and putting them in a drawer until a customer used some cash to buy them.

I mention this because we are about to witness a similar exercise with the bailout of the euro.  Truly, none of the central political players have a clue, and the EU is putting out more desperate propaganda (e.g. "We are getting closer to an agreement" 2 days after the agreement was supposed to have been reached).

The reality is that there is never going to be a successful outcome until the governments change their attitude. Governments overborrowed, and they took that money from the banks.  Now the governments can't repay their loans, so the governments say they will have to write down their loans.  That would leave the banks very short of capital. 

"No problem", say the governments, "you will have to raise some more capital".  But where is a bank going to raise capital when it has 50% of the government backed assets on its books?  If private investors put up the money, they are likely to see their investment wiped out when the government default on the other half.

So who is going to put up the equity?  In the last resort, governments.  And where are they going to get the cash to do so?  From the banks.  You can see where this is going..

OK not the banks.  Let's try Mr Wen Jiabao's fast and easy loan consolidation shop. Cash within the hour and bad credit is no problem.  I don't think so.  And neither probably does Mr Jiabao, who can probably see that he probably wins if he lets the opportunity pass, but he almost certainly loses if he stumps up another penny to support European countries with a bad dose of fiscal diarrhoea.

But, back to the politicians, because the biggest pile of hype has yet to be fully disclosed.  The EU thinks that the banks should takje a 50% haircut on their Greek government bonds.  Fair enough because the current bonds are currently trading at a discount (i.e. for the innumerate at a higher yield than at issue).  A big discount, but hard to measure.  So what does the EU propose?  To swap the current bonds for bonds with a lower face value but a higher coupon. Some of the bonds will be backed by AAA rated collateral (yeah, until the rating on those European governments that haven't been downgraded gets fingered), but rather than taking a hit, it is likely that the position of the banks is unchanged. 

They get a hit in theory but they don't have to pony up any cash, and the yield on the new bonds will likely give the same value as the lower yield bonds they replace.  So what is the point? Beats me, but I guess Hermann Van Rompuy, and all the European leaders are none the wiser too.

Saturday, 22 October 2011

One bum missing from the sofas

As we watch the post-Gaddhafi chat on early morning TV it strikes me that one perma-tan coloured smiley face is missing from our screens, an expert on all things Libyan with plenty of potential reminiscences about his dealings with the great man.

Unless he is prepared to give us some straight answers on Gaddhafi (and any dodgy money that flowed from Libya) why should we be interested in his views on other matters. It would be nice to think that we have seen the last of Blair, at least for a while, but that is probably too much to hope for from the BBC.

Do your homework

I have nothing against a good demo.  People need to let off steam from time to time, and I am quite prepared to see people do just that, with placards and the works, even if I don't agree with them.  A good demo shows that we still have free speech. Bad behaviour should not be tolerated, but if you have something to say, I am quite happy to listen.

Which is where the Occupy London Stock Exchange has got it so wrong, but ever-patient I am here to explain. So hear me out. You might learn something

  • The London Stock Exchange has very little to do with the current financial crisis.  OK, I am sure you could come up with some claim about corporate greed, but that doesn't really ring true.  The current economic problems have been caused by a combination of (i) lending to poor credits and the securitisation of such assets, (ii) western governments holding down interest rates to fuel borrowing and consumption over many years, (ii) large and growing deficits.  Those at least, in no particular order are the biggest three.  There may be others, but none of them seem to related to the brokers at the London Stock Exchange.
  • The London Stock Exchange is located at 10 Paternoster Square, but there is no exchange there.  The old Stock Exchange building was round the back of the Bank of England, but the trading moved out of there many years ago and switched to screen based trading way back.  So by all means, if you think it helps your cause, go ahead and upset the chief executive of the LSE, various compliance bods and the IT department, but you can bet your bottom dollar (if you actually have one), that trading would carry on seamlessly under some backup system if necessary.  They probably have systems on hot standby in Lewisham, Uxbridge or Enfeld waiting for just such an eventuality and they might welcome a test.
  • The Church of England, and in particular St Paul's Cathedral has had remarkably little to do with the financial crisis.  I am sure you can try to drag them into the issue as "members of the establishment" or similar twaddle, but the rest of us don't see them as anything other than some of the lowest paid workers in the City of London.
  • Don't put up pointless placards like "It's wrong to privatize the profits and socialise the losses", because that isn't what happened.  Private sector investors lost their shirts in 2008 when the banks went tits up.  Where governments stepped in they got shares for their cash.  They didn't just throw the cash away.  In theory the governments held the upper hand in negotiating bailouts because as well as being the equity provider of last resort, they were also the regulators determining how much equity the banks needed.  Private sector investors were unable to fix a fair price because they never knew from day to day whether their holdings would be forcibly diluted.
  • And don't put up placards like some Americans saying "We want our money back from the banks".  First it wasn't your money, it was the tax payers'.  Second, it was paid back. In 2009, at a $4billion profit to the government and an annualised return of 15%. Asking for more is just plain greedy.

Thursday, 20 October 2011

More on amateurism

I don't know whether it is the truth or the end result of a meme started by my last posting, but Paul Waugh of the Evening Standard has blogged today that Cameron appointed Chloe Smith to a Treasury ministerial post under the misapprehension that her 4 years at Deloitte entailed qualification as a Chartered Accountant.

According to Waugh, she disabused him of this idea .. before accepting the post, trusering a considerably higher ministerial salary than she could have ever expected as a spreadsheet jockey at Deloittes.

Still, with Cameron's "real world" experience limited to PR, we can hardly expect him to understand.

Saturday, 15 October 2011

Amateurish isn't the word

Politics is often called show business for the ugly, and in one sense it is easy to understand why. Show business people are quick to grab a TV spot to tell us not just about their latest show, but also how they feel about things (as though we should care), or even going so far as to harangue us about feeding the poor whilst they avoid tax.

Politicians too seem to become more vain and self regarding as soon as they are elected, not really appreciating that all they did was worm their way into a position that had to be filled in any event and most people would choose to not suffer the indignities and hardships that go with becoming an MP.  The consequence is that MPs tend to be singularly witless and untalented bunch. There was a time when a number of talented professionals would grace the back benches, holding down a reasonable professional practice whilst attending parliament and representing a usually compliant constituency.

In these times of economic complexity we need some talented MPs to run the economic side of government.  What do we have?  First off there is Mr Osborne, whose total economic experience was working in the private sector, folding towels at Selfridges.  Then we have Mr Danny Alexander, who did a year of E in his PPE course at Oxford, but has no experience outside politics apart from 2 years of  PR for the Cairngorms National Park Authority.

Ah but, next came Justine Greening who was an accountant!!!  But not much of one compared to the many thousands who qualify every year.  Before parliament she worked for PricewaterhouseCoopers, GlaxoSmithKline and Centrica.  At the time that she was supposedly at the last firm, I advised them n several deals including the year long negotiation of 2 UK power stations.  I dealt with the FD, Head of Legal Affairs and his offsider, the Treasurer and his team, the Head of Tax and his team, and never once heard or saw any one called Justine Greening.  Straight from bean counting grunt to #3 in the Treasury team is not a bad move, but it speaks volumes for the competence of the rest of parliament.

But Ms Greening is now off to the Department of Transport (no doubt on the basis of Centrica's ownersip of the AA), and who takes her place?  Step forward the fragrant Chloe Smith, 29 year old alumnus of Deloitte Touche Tomatsu, another accounting firm.

But Ms Smith's career doesn't seem to have amounted to much.  She didn't work on the accounting side, but on the management consulting side where her financial experience will have been next to nothing.  In her 4 years at Deloitte it appears that she reached the giddy heights of "Analyst", and her page on the Treasury website says she used to work for "a leading international firm which advises private business, government departments and public bodies."  Sure they do.  And they also advise on choo-choo trains and doctors and nurses. But in her 4 years there following her degree in English Literature Chloe Smith probably did no more than prepare the spreadsheets and Powerpoint presentations and hand round the biscuits in meetings. That is what management consulting analysts do - not that I would want a management consulting partner anywhere near the levers of power.

What is most depressing is that with the western world in a financial mess and probably terminal financial decline, the best that the UK has to offer is a bunch of third rate lightweights.

Thursday, 6 October 2011

So what are they going to say when Don Estridge dies?

Having spent all day listening to people blubbing about the newly iDead Steve Jobs, and how he "literally changed people's lives", although he "never actually met them", I despair of the tiny minded piss-poor lives that some people must lead.

I am not one of those Apple-haters, in the same way that I am not a Mercedes driver. I simply have different tastes, and my tastes in technology aren't really apple flavoured. I have never owned anything made by Apple, although I did work briefly for a Californian-based investment bank that used Macs for word processing. iPods have never produced a better sound than any other box of electronics with a $5 Digital-to-Analog converter, and the iPhone is just a phone, and probably not as good a phone as the competition - certainly not for the price.

I did have an i-thing once.  But it was an iPaq, a PDA from HP, and a useful thing it was too, doing most of the thing an iPad does now (web browsing, WIFI, reading documents, streaming video, bluetooth, MS Office applications etc) on a hand held device, only I bought this in 2003 for about £300.  Fast forward 8 years, and Apple gives me not much more on an iPad for 50% more price.  Where is Moore's law when you need it?

The truth was that since the early 1990's Apple has been less of a technology shop than a design shop with a less-is-more visual appeal.  While the rest of the world tried to cram as much technology into its boxes,. Apple's designs were nothing special tech-wise, but their look and feel gave them an edge with some buyers. Which is why, when IBM, Motorola, HP, Samsung and the rest have cupboards full of patents, Apple chooses to sue their competitors for selling rectangular boxes with rounded edges.

Still, if a man in black turtle neck jersey can cause such a stir, what are people going to say when Don Estridge goes to meet his maker?  Mr Estridge, after all, led the team that built the IBM PC.

Tuesday, 4 October 2011

A letter in today's Telegraph

Health Bill concerns 

SIR – As public health doctors and specialists, we are concerned about the Health and Social Care Bill. The Bill will do irreparable harm to the NHS, to individual patients and to society as a whole.

Of course, it will do no such thing. The NHS is a public organisation and can be reorganised at will. No change is irreversible, and no "harm", if any, is irreversible. 

It ushers in a degree of marketisation and commercialisation that will fragment patient care; aggravate risks to individual patient safety; erode medical ethics and trust within the health system; widen health inequalities; waste much money on attempts to regulate and manage competition; and undermine the ability of the health system to respond effectively to communicable disease outbreaks and other public health emergencies.

All of which is total nonsense. If we wanted to strip out the self interest from the NHS we would stop paying doctors salaries. Unfortunately for the rest of us, it seems that doctors are unwilling to work without financial compensation, so we have to pay them. Likewise, in order to get health organisations to provide the services we need, we have to pay them too, but in order to source those services on the most competitive terms we have to have some .... competition. 

All of which does nothing to stop the NHS responding to outbreaks of communicable diseases and other public health emergencies. If anything the process becomes more efficient.  And in case anyone thinks that is an exaggeration on my part, the response communicable diseases and similar health scares is handled by the Health Protection Agency which reports directly to the Department of Health.

While we welcome the emphasis placed on establishing a closer working relationship between public health and local government, the proposed reforms will disrupt, fragment and weaken the country’s public health capabilities.

No evidence given for this position. The reason for closer working is to give a better overlap between health and social care. It is well understood that one of the biggest future costs and also one of the current areas where productivity has to be improved is in care of the elderly, and this means getting the elderly out of hospitals and caring for them at home. 

The Government claims that the reforms have the backing of the health professions. They do not. Neither do they have the public’s support. The Health and Social Care Bill will erode the NHS’s ethical and cooperative foundations and will not deliver efficiency, quality, fairness or choice. We ask the House of Lords to reject passage of the Health and Social Care Bill

[Usual list of scores of self interested medics]

What they are really saying is that "Public Health" has long been the medical wing of the Labour Party with more interest in equality of outcomes than in maintaining the health of the nation per se, and best of all, the NHS pays them handsomely. NHS reforms would of course change a lot of that, with the abolition of the SHA's in which these Public Health types thrive.

But then we would hardly expect turkeys to vote for Christmas.

More morons from Brussels

So the EU wants to implement a Tobin tax on banks.

Algirdas Semeta, EU commissioner for taxation, customs, anti-fraud and audit, says: "Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect - a fair contribution from the financial sector." The unelected EU executive also points out that financial services are "in the majority of cases exempt from paying VAT (due to difficulties in measuring the taxable base)"

The EU forgets that the "contribution" from the financial sector was to take massive losses, costing shareholders but also losing a lot of jobs and bonuses in the process.  Many banks had equity injections from governments, but the governments got shares, and in many cases control of the banks.

The one entity that didn't actually put up any cash or take any losses was the European Union, but which now thinks it is due an extra £50 billion a year for doing absolutely nothing.  But then it has done that ever since its formation.

All hands on Dexia

Nice to hear the BBC comment on the plight of Dexia, the Belgian bank this morning, as its share price fell by 40% on rumours of a credit downgrade. This, they and their experts assured us was because Dexia was like another Northern Rock.

Well, up to a point. Dexia is a fairly recent creation formed from the merger of Crédit Communal de Belgique and Crédit Local de France.in 1996. The two predecessor banks were very similar, although they had very different histories, CCB going back to the 1860's and CLF going back to the 1980's.  What they both had in common was the fact that they were state owned and that they both specialised exclusively in lending to local authorities.

After their merger they expanded their focus to Italy and Germany and then to the United States and the rest of Europe, but all the while sticking to their knitting and sticking with credit activities for local government.  This led them to acquire FSA, a US based monoline credit insurer with a track record of wrapping municipal bond issues.  In 2008/9 they incurred large losses in FSA through their exposure to housing finance and also on their exposure to Depfa a German bank that also lent to local authorities.  This led to a bailout.

Which brings us up to the present,where we have a bank that has already been recapitalised, yetr is in deep trouble.  And its main exposure, in fact almost all of its risk assets, are European government entities that have overspent.  That is the real reason for the downgrade, not that you would ever hear that from the BBC.