Tuesday, May 29, 2007

Another "Emperor" exercising desperation

Mr Ahmadinejad's [interest rate] decree forced all state-owned and private banks to slash borrowing rates to 12%. Inflation is officially 15% but is generally believed to be much higher. State banks had been offering rates of 14%, while those in the private sector ranged from 17% to 28%.
"There are groups which helped put Mr Ahmadinejad into office and in my opinion, he is paying them back. In the last two years, the value of (outstanding) debts has reached US$11bn, compared with $3.5bn in the previous 100 years. Mr Ahmadinejad ordered the banks to pay these accelerated loans to the special groups. If you cut interest rates, it means they have less to pay back. You can imagine how disastrous this is to the banking system."
Expect similar acts of desperation
elsewhere as more government bonds
head toward junk status.

The whole article.