Playing at politics will not sort this out. Pushing technocrats onto the stage will not sort this out. Only the young will come up with the necessary innovation. Audio –
experiment, I have not watched the presentation sorry dearie http://www.youtube.com/watch?v=MlOK4A_gulw its a liberty I know sorry garry
Do your bit for the flagging economy Garry…!!!
Spend some Pound Sterling….!!! :) :) LOL….
2011 model, sleeker, lighter….. Be the envy of your neighbours, the Jones’s…..!! And it’s Orange…!!! :)
Go on, you know you want too…. Every gardeners wet dream..!!! :)
that orange thing is an abomination in the eyes of a true cheapskate gardener.
Good evening Nick/ OTP….
Playing with the map on link 12, shows just how intertwined it all is…
The Italians owe the French, the French owe the UK, we owe the Americans….!!
Without going too MMT, we can say that it’s a good job we in the UK aren’t in the Euro… But…
That doesn’t stop the UK banks getting a hammering from Europe though..!!
Nice find Nick.
It caused me some anguish that last chart. Interactive as you have seen…..I clicked on the ‘for breakdown of debt type by countries` and got to – http://graphics.thomsonreuters.com/11/07/EZ_BNKEXP0711_SB.html but I did not understand it (at the time….I think I do now). and there is the `package of graphics` button which takes you to Reuters interactive graphics wonderland – http://graphics.thomsonreuters.com/F/09/EUROZONE_REPORT2.html
Wow, look how much Euro debt needs to be rolled over in less than a year… Scary..!!!
I take it private-non bank debt is personal loans to people..???
( Merci beaucoup )..!!
I am still a bit eyebrow scrunchy about it, but I guess so (mortgages and loans to the building sector etc.) I don’t understand how they work that out though. Take Ireland as an example of a big orange sector (which would fit brackets above)…….It is headed `bank exposure to Ireland by type of debt`. It makes the headline a bit off. The headline should surely read something like `what Irish banks did with the money it borrowed` (or can you see where I am getting myself confuse (because confused I am))~?
(It hasn’t affected my morning greatly, so don’t worry your pretty head about it)
I am assuming it just means UK banks have lent Irish banks the total amount ( total length of bar ), and the orange section represents how much money went to that particular sector…??
( as you said, what they spent the cash on )…
Or, it could mean UK banks have lent direct to the Irish, private- non bank sector…???
Either way, the UK banks have a large amount of exposure to the Irish personal debt story….!!
Aye, indeed all round. My two favourite Brits on the crisis – http://www.guardian.co.uk/commentisfree/2011/nov/11/the-conversation-eurozone-crisis
Interesting question asked in that link Nick,
“Do you think the debt will be repaid”?…. “No”….
Personally, I don’t think the debt was ever going to be repaid ( in the overall sense )…. Again, without going MMT, it was just going to get rolled over again and again….
Individual investors would have been paid back, of course, but on the old Macro scale, probably not…
Now the momentum has been lost, suddenly the realisation of the debt holders is here….. That the music may stop while they hold the parcel, and there is no present inside..!!!
This bank leverage thing. They borrow money, right~!? Who from~? Other banks~! So, what do they do with the money~? Lend it to people for mortgages, yes; but where does the bulk of it go~? It is lent to governments, who spend it.
Reverse engineer that baby.
I wouldn’t have thought the banks do anything much with the money they borrow, beside sit on it or invest in Gov’t Bonds… They only borrow to get their reserves up….
I was under the impression they only borrow, IF their reserves are low after making the loans/ mortgages etc…
So, they make the loans out first, and if their leverage is a bit high, they borrow from other banks to re balance….
the other banks should, in theory have more reserves than needed, as the Gov’t is spending in extra cash, thus making the lending rates between banks low ( as they are trying to lend out their extra cash )….
I am aware that I learnt this all from you, so am acutely aware that I missed your point..!!!
( sorry :) )
No, there is some confusion going down here. Forget reserves, they are just so last year. Capital requirements are the thing….That is….equity ratio. Nothing else. Borrowing from other banks over-night (reserves/not important), Is not to be confused with leveraging up the balance sheet by borrowing for longer (sometimes not much longer) term. This is short money, lent long (bonds) to make the spread between the two. Lending to sovereigns (buying bonds) is 100% safe says Basel, so no extra capital (equity) is needed…so, borrow, borrow, borrow, buy, buy, buy dem bonds. Nothing can possibly go wrong~!
Who ever thought banking would be fashionable…!!!?? :)
So, what happens when the haircuts kick in, within the Eurozone…???
And, I assume these banks then, are ramping up their Bond purchases, to hold as capitol, thus balancing out losses in the housing-mortgage sector..??
I’ll reply as a new comment. It is getting a bit skinny down here.
I come to overthepeak.com because I need to know what to think about the news. You didn’t tell me what to think about the tampon story.
Your point is well taken…but as a side point. I have a friend who looked at tampons as something essential in Afganistan….when you lost a leg you needed to get packed fast to stop yourself from bleeding out. Yes the tampoon was life or death … little to do with the original design !
Exactly, and I’ve seen people soak their tampons in much more than just alcohol. It’s more condusive to survival than injecting, injesting or insufliating under certain situations. This is a really nasty topic though.
Sned, First – If there was growth, maybe they could have hung on, but that positive hope is turning into a negative reality. (There is the Swedish model), but, the way out of these problems around the world in the past has always been the `wait and hope` model. (When the IMF was involved it also included `austerity` and `currency depreciation`). For Greece, Ireland and Portugal they have been trying the normal way (but without the currency depreciation). Two main things make this model hopeless (the lack of currency depreciation and lack of growth prospects (prospects are important)). The GIP problem has focused minds on other sovereigns and they are not looking good, because prospects do not look good. In an arse-covering industry, if you can get out of the bonds….you get out. The politicians have know about the `prospects`, because that is the sort of thing they are tuned into…..So, they have tried to manipulate the prospects, but all the while, the realities have been deteriorating.
We are now in a self-reinforcing cycle downwards of prospects and realities. Note: This affects the Euro area first and foremost because of its inability to depreciate the currency and the ECB’s reluctance to do unsterilized bond buying………..Whereas the UK has done both (this is arse-covering for the bond buyers as they bonds will not `officially` default and their books will seem `look` alright)
Where were we~? Ah yes, in a self-reinforcing cycle downwards. Why would anyone want to own Italian, Spanish (and soon French bonds), if they are perceived to be `not arse-covering`~? Well, as they are doing now……they sell them (though I know not to whom). The lose money on the sale and it hits the books but arses are covered………..but this obviously becomes self-reinforcing (prices down / interest rates up) and the later ones out get a bigger hit than the first ones out. Result – Scramble for the exits. To get it all back under control, `prospects` must be changed. Either the sovereigns themselves have to change the prospects, or an outside force has to do it. In the US and UK that outside force is the central bank (which buys up lots of the bonds in a way that keeps `excess` from driving down prices)…………But, the ECB will not do this in sufficient quantities~!
Back to the banks. They had borrowed big on making the small spread between borrowing and bond yield. (and when I say big, I mean Big). Some were content with huge leverage and small spread (German bonds), but many went for huge leverage and a slightly large spread on the PIIGS bonds. They were making very little multiplied by lots, but when the bonds went the wrong way….they were losing lots multiplied by lots. Add that to the same thing they did with dodgy shit out of Wall St. and you have a very ugly picture on the European banks’ books.
How ugly~? I am guessing that the losses are / will be (over the next five years) let’s say…….2 trillion Euro~! That number becomes irrelevant over a certain number (probably about 200 billion), because the banks fall well before the big number is reached. Where do they fall to~? They fall onto the sovereigns~! You dig~? What we end up with is a dynamic that is so messy that it may as well sort itself out by being a `mass default`. What’s one of them when it is at home~? All the money that pensioners thought they had…….they no longer have. All money that people thought they had, they no longer have. Etc. Rattle rattle bing bam, until everyone just starts again. Some states will keep law and order together (along with contracts)…….some won’t.
They simply cannot let the spiral accelerate downwards. The ECB must print the money to fill the holes. Even that may not work, but it has to be tried. It will be tried (whether the Germans like it or not~!)
Well, if I could “like” a comment twice, I would….
Well structured, easy steps to follow through….
So, going back to your post about capitol reserves, I assume the selling off of Bonds is causing the price to go down, thus making the banks books look even more over leveraged, which means they have to sell them really..???
Two questions spring to mind:
Which Euro denominated asset is safe now??? ( Even German Bonds would go down with the ship )
And who are buying these Hot Potato PIIGS Bonds…??? ( Smaller investors chasing high % rates maybe ? )
Don’t forget that, for the moment, reality does not matter…….only arse-covering appearance. Arse-covering theory (ACT) states that as long as you do what the herd is doing, nothing more can be asked of you. German bonds are ACT safe. UK and US bonds are ACT safe. French bonds are moving out of the ACT safe zone into the grey zone (maybe into the black sheep zone). Who is buying~? We can assume that it is Martians, or earth humans that do not function under ACT. Central banks do function under ACT (but have different parameters to the external market). Hedge funds also have their own ACT dynamic, but it is not so strong. It has to be one (or both) of these two (or some other group with some radical ACT).
So, the answer is – Yes, German bonds will go down with the ship (if they stay in the Euro).
I am thinking now, that Operation Twist may have had it’s origins in here somewhere….
Push the rates down, the price up, and make the bank assets worth more…??
Yes..ish, but then again no….ish. Although OT was an effort to help the banks, it was also trying to be a bit clever as well. Driving down interest rates, so people could / would continue to pay their mortgages.
I think OT has done more to harm the banks, because they are trying to get back to core banking business models and that is borrowing short and lending long and profiting on the spread. Only trouble is, gee whiz, that OT has driven down the long end and reduced their spread (and they are lending less, so they get Less A times Less B, which equals……..less (and they are rather used to `more`).
For fun – http://www.youtube.com/watch?v=aKpE0HqJtow&feature=player_embedded
I am curious….
If a bank borrows short, to lend long ( and I am not doubting this at all ), why does the bank they borrow from not just use the money to buy Bonds…??
ie, why does bank B, lend to bank A at 0.25%, for bank A to buy bonds with 3% return, when bank B could just buy the bonds themselves, and get 3% instead of 0.25%…???
Do banks actually have to have the money they lend to each other, or does bank B create the money for bank A as they do with customers wanting overdrafts and mortgages etc….??
Most of the `short money` is not from banks. It is pension money, money market mutual funds, insurance company funds etc.
So why do those pension funds not just buy bonds, to earn 3%, instead of lending at .25%…???
Weird isn’t it..???
I must be missing something….!!??
Pension funds do buy bonds, but they have `quotas`……So many long / medium / short-term bonds, so many equities etc. and so much in cash for paying out pensions. It is that cash that is lent very short-term to whoever will pay for it. Insurance companies the same…..must have lots of liquid on hand (ish). Same MMMF’s. Surprisingly, this liquid pool is very very large (multi-trillion).
A huge question is why do these outfits not just arrange themselves a little tidier and not have such huge sums to lend out short short-term (and there does not seem to be an answer to this).
Basically, it is not that the banks who want to fund themselves short short-term, but it is these outfits that want to fund them like that. (Northern Rock was a classic case….funding shit like MBS with very short-term loans; that, when the shit was exposed, could not be rolled over…….moving quickly from illiquid….to insolvent).
Ah, I follow you now I think….
They have a quota of bonds to buy, and the cash left over after this, is pushed out into the market for someone else to borrow, which then enables the new party to buy up their quota”, and make profit on the spread…??
So, now that they have a reduced profit on spreads, what are they to do…???
Start lending to Joe Public again for mortgages etc, trying to chase the profits they once had in Bonds…???… OR, just accept that they will make less on each Bond purchase, but hope Gov’s will ramp up the deficit spending, thus making up on quantity what they used to earn from quality..???
Errr no….crossed wires again I fink. Yes to `cash left over into market`. No to `buy up their quota`. AIG has bonds and cash….It puts left over cash into market for someone to borrow. That someone (bank, hedge fund) buys up something safe and makes on the spread while turning over these very short term loans………AIG just gets on with its own business.
If we are talking banks, then they always could make more on Joe Public loans (but there are a limit to how many you can make (ignoring securitization here)…..So, they went into the leveraged bond buying business. From earlier comments, we should see that now bond buying is not so hot, and neither is Joe Public loans (as the spread has been reduced by QE).
Now, comes along the regulators saying they need to up their capital ratios (not reserve requirements) and that means they have either to sell more equity in the bank (diluting existing share-holders) (and at low share price this is a no no)…….or reduce their loan book (capital ratio being the ratio between equity and the loan side of the book….(not bothering about weightings here)).
The bank will be making less and less, on less and less………and seeing they were borderline insolvent anyway……………………You get the picture…..The banks need a miracle~!
(I have jumped about between the US, UK and European banks in this, but it holds (just about) across the board)
Looks like I have plenty to ponder here..!!
no wonder you feel the big issue is with the private banks, not the sovereign debt problem..!!!
Catch 22, that part where the regulators up the capitol ratios… If the don’t, and things go bad, (which they probably will ), the fallout will be really bad… If they do up the ratios, this could actually make things go bad…!!!
Appreciate your comments today Nick… ( As always..!! )…
I was putting my toys away and had a thinks where the hole may be that is letting your questions out. Why would a bank lend to another bank~? Answer (if i have it aright), because they don’t have the money to use themselves….but, if they make a loan to bank B they magic up the money they didn’t have…….and of course bank B will reciprocate with money they didn’t have.
That did cross my mind a few comments ago, but it didn’t explain the pension funds etc….
Your reply, further down about quotas plugs a gap… :)