American Rink Slips on Thin Greek Ice
Dolors & Sense
by Sanford Rose
KISSIMMEE Florida—(Weekly Hubris)—7/4/11—Greece borrows money from a French-Belgian bank called Dexia.
Dexia is active in the US municipal market, serving as a remarketing agent for, and guarantor of, local securities.
That is, it arranges to borrow each week from US money-market funds in order to service longer-term securities issued by US municipal authorities—an arrangement that normally saves these authorities substantial interest expense.
The town of Everett, Washington, hired Dexia in 2007 to help finance its local ice-skating rink.
Dexia reliably borrowed and reborrowed money each week from the funds at a bargain-basement cost to Everett.
The ice rink got built.
Then Dexia’s involvement with Greece caused the rating agencies in the US to threaten the bank with a credit downgrade.
The US money-market funds are now balking at lending to Everett through Dexia because that prospective downgrade impugns Dexia’s value as a guarantor of Everett’s debt.
The money may now have to be provided by Dexia itself.
It plans to charge Everett triple the usual cost, which may not be acceptable.
A freeze in Greek financial affairs may thus result in an unwelcome thaw at a Washington State skating rink.
That’s too much interdependence.
Sanford Rose
Sanford Rose, of New Jersey and Florida, served as Associate Editor of Fortune Magazine from 1968 till 1972; Vice President of Chase Manhattan Bank in 1972; Senior Editor of Fortune between 1972 and 1979; and Associate Editor, Financial Editor and Senior Columnist of American Banker newspaper between 1979 and 1991. From 1991 till 2001, Rose worked as a consultant in the banking industry and a professional ghost writer in the field of finance. He has also taught as an adjunct professor of banking at Columbia University and an adjunct instructor of economics at New York University. He states that he left gainful employment in 2001 to concentrate on gain-less investing. (A lifelong photo-phobe, Rose also claims that the head shot accompanying his Weekly Hubris columns is not his own, but belongs, instead, to a skilled woodworker residing in South Carolina.)