Sean Egan on the European Bank Crisis

by Laura Ehrenberg-Chesler on July 18, 2011

in Banks,Credit Crisis,Foreign Markets

My blog today will be one in a series this week on the interview with Sean Egan in the July 18 edition of “Barron’s”.  Sean Egan is a co-founder and president of Egan- Jones Ratings.  His firm competes with Moody’s, S&P, and Fitch.  The big difference is that Egan-Jones is not paid by the very issuers they are rating.

Mr. Egan contends in his weekend interview, that governments have little control over the sovereign debt and banking crisis occurring in Europe, and that expectations are way too high when it comes to the level of repayment on sovereign debt.

The single best point he makes in the interview is that we “…have to start from the possible.”  In other words, what is actually within the realm of reality.  In Europe as well as the U.S., we have to acknowledge that bond holders will take a major “haircut”.  In some cases, like Greek bonds for example,  it may be somewhere on the order of 90%.

In our opinion, the sooner we acknowledge this reality, the sooner we can begin what is likely to be a slow healing process.

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