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Op-Ed Columnist - Bubbles and the Banks - NYTimes.com - 0 views

www.nytimes.com/...08krugman.html Krugman banks
shared by Gene Ellis on 24 Apr 13 - Cached
  • Bear in mind that the implosion of the 1990s stock bubble, while nasty — households took a $5 trillion hit — didn’t provoke a financial crisis. So what was different about the housing bubble that followed?
  • The short answer is that while the stock bubble created a lot of risk, that risk was fairly widely diffused across the economy. By contrast, the risks created by the housing bubble were strongly concentrated in the financial sector. As a result, the collapse of the housing bubble threatened to bring down the nation’s banks. And banks play a special role in the economy. If they can’t function, the wheels of commerce as a whole grind to a halt.
  • Why did the bankers take on so much risk? Because it was in their self-interest to do so.
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  • Of course, that conflict of interest is the reason we have bank regulation. But in the years before the crisis, the rules were relaxed — and, even more important, regulators failed to expand the rules to cover the growing “shadow” banking system, consisting of institutions like Lehman Brothers that performed banklike functions even though they didn’t offer conventional bank deposits.
  • And here’s the thing: Since that aid came with few strings — in particular, no major banks were nationalized even though some clearly wouldn’t have survived without government help — there’s every incentive for bankers to engage in a repeat performance.
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ECB Resisting Calls to Cheapen Euro as Currency War Rages - SPIEGEL ONLINE - 0 views

www.spiegel.de/...rrency-war-rages-a-882462.html
shared by Gene Ellis on 21 Feb 13 - No Cached
  • The central bank chief is coming under increasing pressure because he can't quite bring himself to embrace the concept of quantitative easing, the latest fashion in the world of finance. It involves central bankers engaging in the large-scale purchase of bonds issued by their governments and other securities, thereby injecting huge sums of money into the financial system. In this way, they hope to stimulate the domestic economy and keep their own currencies cheap, thereby strengthening exports.
  • The US central bank, the Federal Reserve Bank, has also been printing money to a previously unimaginable extent since the financial crisis. Calling its efforts QE 1 and QE 2, the Fed has pumped more than a trillion dollars into the US economy.
  • The country is in the process of "boldly rebuilding" monetary policy, Prime Minister Shinzo Abe declared. Indeed, the Japanese yen has lost 12 percent of its value against the dollar in the last two months.
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  • For years, China has defended its currency by pegging the exchange rate to the dollar, and the Swiss National Bank now only permits appreciation of the franc up to a certain limit, because investors have viewed the Swiss currency as one of the last safe currencies since the outbreak of the sovereign debt crisis in Europe.
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Merkel's good politics and bad economics - FT.com - 0 views

www.ft.com/...ed-11e1-a6c2-00144feabdc0.html
shared by Gene Ellis on 06 Sep 12 - No Cached
  • the ECB gears up to go full throttle into a business that, according to its statutes, is verboten: buying the debt of member states.
  • Of course, Mr Draghi mumbles about conditionality: cheap cash only in exchange for deficit-slashing and market reforms. Sure. And when Mr Monti and Mariano Rajoy, Spanish prime minister, instead bend to the wishes of their electorates, what then? Will Mr Draghi stop buying and let their bonds go through the floor? Of course not. You do not have to be a central banker to predict the obvious: no market pressure, no reform.
  • The ECB is about to turn into a money machine, into a lender of last resort, and damn the treaties that mandate an inflation-fighting commitment to “price stability”. The magic phrase now is “capping bond yields”, meaning the ECB buys up the debt of Italy and others in order to depress their borrowing costs.
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  • Look beyond the debt crisis and take the longer view. European growth has been slowing for 40 years. During this period its share of global gross domestic product has shrunk by 10 percentage points; that of the US has held steady.
  • Otmar Issing, the ECB’s former chief economist, recalls how, before 1981, “the Italian Treasury set yields for government debt. All the bonds that couldn’t be sold at that price had to be bought up by the Banca d’Italia.” Hence easy money, exploding debt, double-digit inflation – and no change in the country’s frozen politics. Why reform when you can always devalue?
  • After the fall of the Berlin Wall, chancellor Helmut Kohl offered the D-Mark to President François Mitterrand in exchange for French acceptance of German reunification. This noble gesture of self-containment was not, of course, an entirely selfless act. As part of a hard-headed bargain in return for giving up the symbol of German economic primacy, Europe’s monetary and fiscal policy would be “Germanised”.
  • Mr Weidmann is right to fear the moral hazard contemplated by the ECB and its lackadaisical allies from Madrid to Berlin.
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ECB Raises Pressure on Greece - WSJ.com - 0 views

online.wsj.com/...4097904577538873386439442.html
shared by Gene Ellis on 21 Jul 12 - No Cached
  • FRANKFURT—The European Central Bank said it would reject Greek government bonds as collateral for its normal lending operations beginning Wednesday,
  • Government bonds and other debt securities backed by Greece "will become for the time being ineligible for use as collateral" in the ECB's monetary policy operations, the bank said in a statement.
  • Greek banks, which are largely shut out of private markets for financing, depend critically on cheap ECB loans to meet their daily funding needs. In June, Greek banks tapped the ECB and Greece's central bank for a combined €136 billion ($166 billion) in loans through normal refinancing operations and emergency credit, an amount roughly equal to two-thirds of the country's gross domestic product.
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  • Banks can still access emergency funds through the Greek central bank, but at a higher interest rate than normal ECB loans. The credit risk stays on Greece's books and isn't spread throughout the 17-member currency bloc,
  • It is the second time the ECB declined to accept Greek bonds as collateral. The first was in February, after Athens imposed steep losses on private creditors in a debt restructuring. That suspension ended after a little more than an week, when the ECB received guarantees from euro-zone governments that Greek bonds posted to the ECB as collateral would be repaid.
  • For banks, which are already under intense pressure, it means that they will have to resort to emergency liquidity assistance which will lend them with a higher rate.It is bad news and all we can hope for is that it won't last for long," a senior Greek banker said.
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Greek Bank Withdrawals Accelerate - WSJ.com - 0 views

online.wsj.com/...3822204577464783282542366.html
shared by Gene Ellis on 14 Jun 12 - No Cached
  • "As we approach the last few days before the elections I expect deposit withdrawals to rise further," he added. "And I wouldn't be surprised if by Friday we saw outflows of €1 billion to €1.5 billion."
  • Since the start of Greece's debt crisis in late 2009, Greece's banks have lost about one-third of their deposit base as nervous savers have taken their money out of the banks and either sent it abroad, or else stashed it away for safekeeping.
  • In the past two years, deposit outflows have generally averaged between €2 billion and €3 billion a month, but have spiked during periods of political uncertainty.
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  • Faced with Greece's increasingly bleak prospects, Crédit Agricole SA is making contingency plans to abandon its troubled Greek bank in the event of Greece leaving the euro zone, according to a person with direct knowledge of the plans, in the first concrete sign of a foreign company signaling it could walk away from its Greek assets.
  • According to the senior banker, the current rate of deposit outflows--of €1 billion or less per day–remains "manageable" since the banks keep large cash buffers on hand to deal with the withdrawals.
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Worried Banks Pose Obstacle to Forming Financial Union - NYTimes.com - 0 views

www.nytimes.com/...-push-for-financial-union.html banks pose obstacle union nytimes nytimes com com
shared by Gene Ellis on 18 Jun 12 - No Cached
  • French loans to Spanish banks plunged 34 percent in the fourth quarter of 2011 compared with the previous quarter, according to the latest data from the Bank for International Settlements.
  • For Italian banks, French bankers cut their exposure by 16 percent. German banks have also been increasingly wary of their Italian and Spanish peers, reducing lending to them by about 19 percent last year
  • In the last six months, as fears about Spain and Greece have intensified, Spanish and Italian banks have been by far the biggest users of the European Central Bank’s program of cut-rate, three-year loans to banks that cannot find money elsewhere.
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  • But instead of funneling that money back into the Spanish and Greek economies as loans to cash-starved businesses and individuals, these banks have become the primary buyers of their governments’ bonds.
  • Most delicate will be whether the Spanish banks receiving the largest cash injections, like the nationalized mortgage giant Bankia, will be forced to impose losses on holders of their subordinated bonds. Those are the investors whose bonds are not backed by collateral and are thus considered more risky.
  • In Spain, though, the problem is that 62 percent of the holders of Bankia’s subordinated debt are Spanish individual investors, not overseas hedge funds and investment banks. It is not likely that Madrid will be willing to hit those citizens with a 65 percent loss — the loans are currently priced at about 35 cents on the dollar — at a time of 25 percent unemployment in the country.
  • “There are compelling reasons for the euro zone to insist on losses for subordinated and even senior bondholders, the least of which is a reduction in moral hazard,” said Adam Lerrick, an expert on banking and sovereign debt at the American Enterprise Institute. “Losses for bondholders is now euro zone policy, so Europe’s credibility is also at stake.”
  • Gene Ellis on 18 Jun 12
     
    Good article on bank behavior
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EUobserver / Former ECB chief blames governments for euro-crisis - 1 views

euobserver.com/122721
shared by Gene Ellis on 27 Jan 14 - No Cached
  • Former ECB chief blames governments for euro-crisis
  • But the 71-year-old French banker said he had warned EU governments of growing economic divergences in the euro area as far back as 2005 and that he had criticised member states, notably France and Germany, for ignoring the deficit and debt rules which underpin the common currency.
  • Trichet noted that the ECB intervened on bond markets and bought up Greek debt as early as May 2010, when he was still chief and when the first-ever EU bailout was still being drafted. It interevened again in 2011 to buy Italian and Spanish debt when investors started to bet against the larger euro-states.
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  • "If we wouldn't have bought Spanish and Italian debt - a move which was highly criticised at the time - we would be in a totally different situation now," he added.
  • Turning to Ireland, where the government first used taxpayers’ money to guarnatee all deposits in Irish banks and then had to seek a painful rescue package, Trichet said "nobody advised them to do so."
  • Back in 2010, the IMF said Greece could never repay its debt and should write off some of its private and public liabilities. But the EU, under a deal by the French and German leaders, wanted the private sector to take the hit alone in what it called “private sector involvement [PSI],” putting Trichet in a tough spot.
  • Despite his actions, PSI came back in a vengeance in Cyprus in 2013, when it was renamed a “bail-in,” and when it saw lenders snatch the savings of well-to-do private depositors on top of private bondholders.
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