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Gene Ellis

Treat debt with caution: SARB - Times LIVE - 0 views

www.timeslive.co.za/...treat-debt-with-caution-sarb

shared by Gene Ellis on 05 Nov 12 - No Cached
  • "Be extremely cautious that you don't take more than you can service. Try to issue liabilities that involve an element of risk sharing between the creditor and the debtor," he said.
  • "As for international contracts, be very careful that you treat the business cycle symmetrically. If you stimulate and borrow when the economy goes down then you must tighten... when the economy grows."
  • He said governments of developing nations needed to be innovative in borrowing contracts they devised to grow their infrastructure.
  • ...3 more annotations...
  • "Give, for instance, a 50 percent equity stake in some infrastructure project so that you share the risks as well as the returns. There you don't have the bankruptcy threats and the default threats which come with debt contracts."
  • Buiter urged South Africans and the rest of the continent to "wear helmets for the rest of the decade". "The world is going to be a very dangerous place for the next 10 years, with advanced economies still needing about a decade, if you count the US and Japan, to get out of the debt problem that they got into," he said.
  • "So there is going to be a fallout for developing economies like South Africa."
Gene Ellis

Five lessons from the Spanish cajas debacle for a new euro-wide supervisor | vox - 0 views

www.voxeu.org/...bacle-new-euro-wide-supervisor

lessons spanish debacle supervisor vox

shared by Gene Ellis on 23 Oct 12 - No Cached
  • just the three most problematic Spanish cajas (Bankia, CatalunyaCaixa and Novagalicia) have had capital deficits (to be covered partly or fully by the taxpayer) of €54 billion – over 5% of Spanish GDP, a larger amount than what Spain will have to request from the European rescue funds.
  • governance played a critical role in the development of the Spanish crisis. In the Spanish case, the supervisor, confronted with powerful and well connected ex-politicians decided to look the other way in the face of obvious building trouble.
  • There is no intimation by anyone of outright corruption in the Banco de España supervisory role, and given the professionalism of the institution it is unlikely that there was any.
  • ...13 more annotations...
  • not surprisingly, Banco de España supervisors had little interest in discovering that Spain’s vaunted regulator had in fact missed the largest financial crisis in the history of the country
  • Unfortunately, often supervisors in charge of the failing entity in the years of the debt run up were the ones charged with uncovering the problems.
  • Spain was the leader in the introduction of a dynamic provision – a provisioning tool that forces banks to increase provisions without reference to any specific loan. The intention of this tool was twofold: to mitigate the bad times, and to cool the booms in the good times (Holmstrom and Tirole 1997). Dynamic provisions were endorsed as part of the Basel III standards in December 2010, in part on the strength of Spain’s experience. And indeed the existing evidence (Jiménez et al. 2012) shows that the tool worked as intended, dampening the credit boom and softening somewhat the credit crunch. However, it is clear by now that their level was not nearly enough, as their size – 3% of GDP at their highest point (2004) – was simply not of a magnitude commensurate with the credit losses.
  • Without the provisions, the reality of the cajas' accounts would have become much faster a concern, and would have imposed itself on the regulator
  • Had the Banco de España ordered an audit of the system after uncovering numerous irregularities in CCM, it would have not been able to deal with the capital shortfalls uncovered as there was no appropriate resolution regime in Spain at the time
  • Already the first entity that was intervened (CCM) as far back as March 2009, showed that the real NPL levels post intervention (17.6%) were more than twice as large as the reported ones. This should have been the point for the Banco de España to get ahead of the curve by ordering an audit of the whole sector
  • More systematic evidence of the role played by these governance issues is provided in a 2009 paper (Cuñat and Garicano 2009b) where we showed that cajas with chief executives who had no previous banking experience (!), no graduate education, and were politically connected did substantially worse in the run up to the crisis (granting more real estate developer loan, up to half of the entire loan book in some instances) and during the crisis (with higher NPLs).
  • Even more important was the role of these political connections in diluting the role of the supervisor after the crisis started, in what was meant to be the crisis resolution stage but which was in fact a crisis cover up stage.
  • What are the takeaways
  • I would suggest five.
  • Second, career concerns of supervisors are crucial.
  • Third, dynamic provisioning is a good idea, but the supervisor must be mindful it may delay decision making in problem cases
  • Fifth, supervision and an appropriately tough resolution regime must go hand in hand.
Gene Ellis

Euro crisis based on 'design flaws' in monetary union, conference told - 0 views

www.thescore.ie/r-banking-union-634618-Oct2012

euro crisis based design union conference

shared by Gene Ellis on 14 Oct 12 - No Cached
  • Euro crisis based on ‘design flaws’ in monetary union, conference told
  • The European Central Bank’s current status, where it does not act as a ‘lender of last resort’ in a similar method to other central banks, was particularly criticised.
  • He said the current version of the treaty establishing the ESM, the new permanent bailout fund for the eurozone, would also not function as such a lender – and said it was “incapable of ending the crisis”.
  • ...2 more annotations...
  • “What I am proposing is a guaranteed yet conditional [lender of last resort] which can reconcile moral hazard concerns with the need to protect sovereign borrowers from the kind of solvency issues we have witnessed since the onset of the economic crisis,” he said
  • McDonnell also called for a full banking union within the eurozone, saying a deposit insurance corporation should be established to fill this gap.
Gene Ellis

Greek Euro Exit Unavoidable if IMF, Euro Zone Can't Agree- IMF Stream - WSJ.com - 0 views

online.wsj.com/...4799904578053992740095654.html

greek euro imf zone

shared by Gene Ellis on 14 Oct 12 - No Cached
  • principle
  • So the need for an agreement between the euro zone and the IMF is paramount. The IMF as a senior creditor can't accept losses of its own in the Greek program and it has to convince unhappy members from the emerging world that lent it money to continue financing Greece that the country's debt is sustainable. For this to happen, about 50 billion euros ($65 billion) must be forgiven from Greece's giant debt and the decision for such action including the political backlash is squarely in Europe's court.
  • There are ways that the Europeans can make it happen. One would involve the European Stability Mechanism, a newly activated bailout mechanism that would take over the recapitalization of Greek banks, which is set to cost €50 billion, instead of the amount being added to the country's debt.
  • ...3 more annotations...
  • In typical fashion the creditors are demanding from Athens another set of painful austerity cuts which the country can't afford and the IMF is openly saying that it won't sign off on the loan payment before a haircut takes place.
  • Another way would be the European Central Bank accepting losses to the Greek bonds it holds.
    • Gene Ellis
      Gene Ellis on 14 Oct 12
       
      Meaning:  that the IMF sees that austerity will kill Greece off, and wants to provide some breathing room...
Gene Ellis

IMF: Austerity is much worse for the economy than we thought - 0 views

www.washingtonpost.com/...or-the-economy-than-we-thought

shared by Gene Ellis on 13 Oct 12 - No Cached
  • Gene Ellis on 13 Oct 12
     
    Good article
Gene Ellis

IMF Sees European Banks Facing $4.5 Trillion Sell-Off - Businessweek - 0 views

www.businessweek.com/...ell-4-dot-5-trillion-in-assets

shared by Gene Ellis on 10 Oct 12 - No Cached
  • Gene Ellis on 10 Oct 12
     
    and
Gene Ellis

Analysis: Greek reform pledge on trial as state sales resume | Reuters - 0 views

www.reuters.com/...tisation-idUSBRE89906V20121010

shared by Gene Ellis on 10 Oct 12 - No Cached
  • Gene Ellis on 10 Oct 12
     
    Russian oil executive and former energy minister Igor Yusufov strolled into the fund's Athens office "with a buxom blonde woman on one arm and a gold watch on the other. He offered 250 million euros in cash (to buy the entire Greek gas network)", said a person who was in the room.
Gene Ellis

The Cost of Protecting Greece's Public Sector - NYTimes.com - 0 views

www.nytimes.com/...ing-greeces-public-sector.html

shared by Gene Ellis on 10 Oct 12 - No Cached
  • So today, for every seven private employees who have been laid off, only one has left the public sector.
  • Greece’s creditors — the troika comprised of the European Commission, the European Central Bank and the International Monetary Fund — have made public-sector layoffs a condition for providing the next tranche of the biggest bailout in history.
  • Public employment grew by fivefold from 1970 through 2009 — at an annual growth rate of 4 percent, according to according to a recent academic study by Zafiris Tzannatos and Iannis Monogios.. Over the same four decades, employment in the private sector increased by only 27 percent — an annual rate of less than 1 percent.
  • ...3 more annotations...
  • According to the Organization for Economic Co-operation and Development, in some government agencies overstaffing was considered to be around 50 percent. Yet so bloated were the managerial ranks that one in five departments did not have any employees apart from the department head, and less than one in 10 had over 20 employees.
  • Wages in the public sector were on average almost one and half times higher than in the private sector.
  • Public sector wages account for some 27 percent of the government’s total expenditures.
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