A German court worries that the European Central Bank’s Outright Monetary Transactions (OMT) program may not be permitted under the bank’s charter. The Constitutional Court worries about the selectivity of bond purchases under the program, though the bank has yet to make any such purchases. The Constitutional Court has referred the matter to the European Court, which is now obliged to take up its own review of the legal questions involved.
In China, an insolvent bank-sponsored hedge fund, Credit Equals Gold No. 1, was rescued somehow. An investor, who has not been identified, bought the problem coal-mining debts that had provided the starting point for the hedge fund. The investor is thought to have been financed by the banks involved in the fund, along with government authorities wanting to save both the shadow banking system and the coal industry from collapse. The coal executive behind the loans was removed and charged with securities fraud in 2012.
First S&P, then Moody’s, downgraded Puerto Rico, so that its bonds are no longer considered investment-grade. Puerto Rico has faced public financing troubles for about eight years. Its financial situation has been compared to Detroit and Greece. Political difficulties and policy stagnation have prevented obvious partial solutions from being implemented. The heart of Puerto Rico’s problems, though, is the weak U.S. economy.