tag:blogger.com,1999:blog-5882645467378797266.post4475757479744166085..comments2023-07-17T11:55:51.363+02:00Comments on ObservingGreece: David Stockman on European bankskleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-5882645467378797266.post-65566177377553592622013-04-04T17:59:27.147+02:002013-04-04T17:59:27.147+02:00I usually consider most modern economists to be de... I usually consider most modern economists to be dealing, at best, in irrelevancies and to be political stooges at worst. I have made my opinions clear in this blog in the past. However in this case I have to agree with them. Mr Stockman is either nostalgic of the good old days or a gold-standard nut. My suspicion is that these tirades are lamenting lost class power:suddenly being a rich capitalist is far less politically important. This is because you may decide to take your money elsewhere but this may have limited results, as the central bank can simply print some more. Not to mention that the social safety net makes the poor uppity and they don't obey their betters.<br /> It is true that central bankers have become very powerful. They decide if a bank or other financial institution will survive its managerial buffoonery and how (with all the political pain this entails) They can even topple governments: if Mr Draghi comes out and says that Deutsche bank (in the news for colossal fraud) as I write this) is dodgy and a depositor bail in might be in sight I can see Ch. Merkei loosing the election during a minor panic. <br /> The only way governments can do something about it is to make sure that the source of the bankers' power is clearly delineated and protected from bankruptcy of the other sections of the bank:adequately protect the PAYMENT SYSTEM in a bank. If there is generous small depositor protection as well the banks will lose lots of their political power and central banks can concentrate on their main role: protecting against systemic collapse during a major panic and running monetary policy (already too much power). <br /> Finally I must point out that behaviour like the one mentioned above is pretty common in large swaths of the OTC markets.I suspect SIV's are considered parts of the more wild parts of the investment markets where such practices are fairly common: getting the bonus justifies abhorrent behaviour. as I have mentioned before the way to stop this is to turn OTc into regulated markets with ease of entry (like the Stock Exchange)theAthensdognoreply@blogger.comtag:blogger.com,1999:blog-5882645467378797266.post-15950448793643361382013-04-04T11:13:28.934+02:002013-04-04T11:13:28.934+02:00I think one has to bear in mind that, since the cr...I think one has to bear in mind that, since the crisis of 2008, American banks have undergone much more stabilization (triggered by the government) than European banks. In fact, I can't think of any one thing which has changed with European banks. So that would be my explanation as to why American banks look better than European banks today.<br /><br />"The problems in today's economy stem from the moment that the US banks refused to honour their pledges to other banks and institutions. That these had been rated AAA meant nothing to the Americans" - I know of no case where an American bank refused to honor any pledge (other than Lehman). If they had, they would have been declared bankrupt. Deutsche, instead, refused pledges with legal tricks. They had issued big-time standby-L/Cs backing up the commercial paper issued by SIVs holding sup-prime paper. The idea of such standby-L/Cs is that the SIV has a fallback to bank credit should it one day no longer be able to sell its commercial paper. When that happens, the SIV calls on the standby-L/Cs. That happend to Deutsche. One of the prime cases was a Canadian SIV. They called on the standby-L/C and Deutsche found some legalese which allowed them not to honor it. I wish I knew how that case was eventually settled but I am sure that there were several other, similar ones.<br /><br />kleinguthttps://www.blogger.com/profile/12491174042954678023noreply@blogger.comtag:blogger.com,1999:blog-5882645467378797266.post-32799442882410348262013-04-04T09:04:31.310+02:002013-04-04T09:04:31.310+02:00Am I right in reading that the French banks are in...Am I right in reading that the French banks are in more trouble than the American ones? <br /><br />I find this a little hard to believe, but then with off-the-books banking, it's hard to believe the figures that the American banks have run up. <br /><br />So let's start with some facts. The problems in today's economy stem from the moment that the US banks refused to honour their pledges to other banks and institutions. That these had been rated AAA meant nothing to the Americans. Their money was worth more than any trust we might put in their integrity.<br /><br />The sum in question was around $6trillion. Withdrawn all of a sudden from the world's economy. It pulled the rug from honest hard working folk such as myself - and I do not regard that as fair dealing from institutions whose daily bread is integrity and trust. I dealt in that and built a business - their understanding of it destroyed many more than just mine.<br /><br />So what have we here? <br /><br />http://www.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html<br /><br />An American bank puts some of its toxic derivatives onto the taxpayer. Now this isn't BNP Paribas' $2,5trillion (a total?) this was PART of BOA's derivative mountain - the bit that went bad. <br /><br />***** It was a modest $76trillion. *****<br /><br />That is to say 30x as much as the French bank - and transferred to the taxpayer in broad daylight and with the sort of disdain for the regulators that one now expects from US banking institutions whose integrity cannot be challenged.<br /><br />$76 trillion, by the way, is around 3x the US GDP.<br /><br />Oh! They all cry, but derivatives all have counterparties! Okay: so why then didn't BOA deal with them themselves? <br /><br />Because there were simply too many to handle. The pile is simply too big to deal with they would need the entire of human history to untangle that nasty lot - and they'd have to pay good money to experts in the mean time. Bye-bye profits! Nope: easier to dump it on the government. <br /><br />It's what you expect from an institution that has pride in its integrity. Gemmahttps://www.blogger.com/profile/01544898113676166032noreply@blogger.com