The Financial Landscape: Portugal Gets Shakier; DSK Case Gets Odder


In Portugal, Shades of Greece:

Moody's (MCO) has cut its rating of Portugal's debt to junk status, "ratcheting up the pressure on euro zone governments to work out a lasting solution to their financial woes," according to The New York Times. Portugal, like Greece (which is also rated below investment grade by Moody's), already received one bailout of 78 billion euro ($113 billion) back in May. Now, there are concerns that it may need another. Discussing the downgrade, a senior analyst at Moody's told Bloomberg: "[N]ot only does it affect current investors, but it is likely to discourage new private sector lending going forward, and therefore reduce the likelihood that a country like Portugal will be able to regain access to the capital markets at a sustainable cost."

Moody's action seems to have stirred up simmering discontent with the ratings agencies. German Chancellor Angela Merkel, said Tuesday that the opinions of the IMF, the European Central Bank and the European Commission should be given more weight than those of Moody's et al., according to the Associated Press. And Politico reports that "Better Markets filed a comment letter with the SEC yesterday arguing that the performance by ratings agencies in the Greek crisis made it imperative that their impact be reduced under Dodd-Frank:"

Just as in 2008, when rating agency downgrades were a combustible accelerant to the financial and economic crisis, the current rating agency threats to downgrade their previous ratings of sovereign debt are again wreaking havoc with the financial system, threatening the financial stability not only of a single nation, but also of the entire Eurozone and potentially the world.

There's good news on this side of the Atlantic, however: "Major U.S. banks appear to be finally opening the lending spigot," according to Reuters.

Was Strauss-Kahn Paying For It?: The New York Postreported Monday that former IMF head Dominique Strauss-Kahn's accuser was in fact doing double duty at the Sofitel, as both a maid and a prostitute. (The uncharacteristically punless front-page headline: DSK Maid a Hooker.) According to the Post, "The woman was allegedly purposely assigned to the Midtown hotel by her union because it knew she would bring in big bucks."

"When you're a chambermaid at Local 6, when you first get to the U.S., you start at the motels at JFK [Airport]. You don't start at the Sofitel," the source said. "There's a whole squad of people who saw her as an earner."

The woman also had "a lot of her expenses -- hair braiding, salon expenses -- paid for by men not related to her," the source said.

In a second salacious article, the Post went on to allege that the woman "turned tricks" in a DA-provided Brooklyn hotel room. The paper's sources are obviously connected to the defense investigation, although "a senior prosecutor" was unfortunately quoted as conceding, "I can't say with 100 percent certainty that it's not true." That same afternoon, the accuser's attorney announced that she was suing the Post for libel. "We filed the suit because rape victims should not be called prostitutes," said Kenneth Thompson, counsel to the 32-year-old woman.

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Salaciousness aside, the Post's reporting matters because it's the first negative information about the accuser that potentially directly undermines her account of what occurred in Strauss-Kahn's hotel room. All previous disclosures -- of ties to people involved in criminal activity, of lies on an asylum application -- were certainly troubling from the standpoint of a lawyer looking to establish witness credibility, but had no direct bearing on the question of whether an attack took place. Of course, prostitutes too can be assaulted, and paying for sex is still a crime, as Joe Nocera notes in The New York Times. But if substantiated, the claims made in the Post would certainly sound a death knell for the DA's criminal case -- a plausible defense for Strauss-Kahn would construct itself.

As things stand, his lawyers seem to smell blood: Citing "people familiar with the situation," The Wall Street Journalreports that they "are expected to argue to prosecutors in a meeting set for Wednesday that criminal sexual assault charges against him should be dismissed." Yet the celebration in the Strauss-Kahn camp is likely to be muted: A French writer filed a complaint alleging that Strauss-Kahn assaulted her eight years ago, during an interview for a book. The woman's lawyer says her mother talked her out of filing charges at the time, "fearing that going after a high-profile political figure would harm her daughter's career," according to the Associated Press. Adding yet another element of symmetry to the story, Strauss-Kahn threatened to file a criminal complaint of slander.

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