Fed, global central banks move to boost financial system

[Franz316]

Great, they just create more money out of thin air and hope it sticks. The whole global economy just one big convoluted, manipulated mess.

 

[momeNt]

Central banking has taken over the markets. Everything is moving towards a beta of 1 and that beta lives and dies by the words of the central bankers around the world.

 

[bfdd]

I don't think the issue is central banking momeNt, I think it's the current perverse system that has problems. I believe central banking can be done appropriately, it just isn't currently. For instance move the FRB under Federal Governmental control, institute amendments limiting the printing of currency so we can't just vote for more money and that's already a start down a better path.

 

[Jaskalas]

Inflation also tends to never have wages keep up, resulting in a net loss for workers. That net loss leads to less buying power supplanted my more debt. I don't know how much more they can push that cycle before it all capsizes, of course assuming that hasn't already happened.

True, it'll make the economy / market take a dive, but not before the looters pillage their share from the stock exchange. They'll build up the DOW and then ask for a check.

 

[soulcougher73]

What a dumb f*cking exercise in futility.

This. We never learn. We just did this shit a few years ago and nothing changed.

 

[senseamp]

Is this a definitive fix or just buying time?

 

[mshan]

"Is this a definitive fix or just buying time?"

I believe it relieves immediate stress on markets (worry that some big bank* or insurance company will melt down and trigger a cascade of other failing institutions and putting global economy into recession in the process), specifically, concerns about lack of wholesale funding of European banks till year end (European banks, which are almost 400% of EU GDP, rely on wholesale commercial funding - other banks and things like U. S. (high yield?) money markets, whereas U. S. banks depend more upon retail depositor base, plus I think someone said have 3x capitalization of comparable European counterpart because of differences in regulation).

It give them some more time to at least propose a substantive plan that markets really believe will ultimately resolve European sovereign debt problem, over time...

I saw some commentary on CNBC Asia last night about how this is different than Lehman 2008, in that the scope and scale of the problem (except for maybe murky derivatives interconnectedness), plus solution, are readily obvious, it is just the political will to do what is necessary is not there, yet.




* e. g. there were vague references by Cramer this morning to Societe Generale (apparently ground zero for derivatives all around the wolrd) or BNP Paribas, a French bank, or some other large institution with too much interconnectedness with other systemically important institutions might have been teetering on the edge.

 

[Ausm]

I believe it relieves immediate stress on markets (worry that some big bank or insurance company will melt down and trigger a cascade of other failing institutions and putting global economy into recession in the process), specifically concerns about wholesale funding of European banks till year end (e. g. U. S. money markets - high yield?,and other banks normally provide this short term financing, but have pulled back because they are scared they won't get their money back).

It give them some more time to at least propose a substantive plan that markets really believe will ultimately resolve European sovereign debt problem, over time...

I saw some commentary on CNBC Asia last night about how this is different than Lehman 2008, in that the scope and scale of the problem (except for maybe murky derivatives interconnectedness), plus solution, are readily obvious, it is just the political will to do what is necessary is not there yet.

Hence the Stock market is on fire which means this is a good move to stabilize the European debt problem and like you said give them time to work out the most viable solution to fix the problem.

 

[Jhhnn]

Within the system as it exists, increased liquidity is the only thing that'll be useful at all.

Stocks went up? Really? So much for the theory of rational markets, huh?

I suppose it is rational, short term, at least for the big guys. Ride the wave, keep your finger poised over the electronic sell button, put the bone to smaller investors' go long strategy with some profit taking at the top, then short the piss out of 'em on the way down, add insult to injury. Institutional investors like pensions & mutuals don't play the short game very well.

 

[Jhhnn]

(except for maybe murky derivatives interconnectedness)

Heh. What makes you think that isn't what's driving the current situation, anyway?

 

[mshan]

"Heh. What makes you think that isn't what's driving the current situation, anyway?"

I wouldn't argue with that, particularly from an U. S. based investor perspective (unknown exposure of U. S. banks to these European institutions): http://video.cnbc.com/gallery/?video=3000058583

Regarding my Euro centric comments above, I was assuming we avoid an uncontrolled meltdown of some European institution triggering a cascade of other failures and tanking global economy in process. It was assuming a more muddle through, eventually fix the underlying sovereign debt problem scenario. At least from that perspective, scale and scope of the problem is fairly well defined, as is solution; it is just that political will to do what is necessary is just not there,yet. Europeans haven't yet reached that Clinton-esque moment yet, as Sean Egan stated recently on CNBC: http://video.cnbc.com/gallery/?video=3000056089

 

[bfdd]

Within the system as it exists, increased liquidity is the only thing that'll be useful at all.

Stocks went up? Really? So much for the theory of rational markets, huh?

I suppose it is rational, short term, at least for the big guys. Ride the wave, keep your finger poised over the electronic sell button, put the bone to smaller investors' go long strategy with some profit taking at the top, then short the piss out of 'em on the way down, add insult to injury. Institutional investors like pensions & mutuals don't play the short game very well.

no, removing the current system would be far more useful. do not cheerlead this nonsense simply because it pushes the fail date back a bit. it isn't helping anyone except those who have failed and crashed everything. by refusing to let them suffer out of your own fear of your own suffering you're going to prevent from ever actually getting out from under it. that's what we call "pussy whipped" and you must like it.

 

[Nemesis 1]

Within the system as it exists, increased liquidity is the only thing that'll be useful at all.

Stocks went up? Really? So much for the theory of rational markets, huh?

I suppose it is rational, short term, at least for the big guys. Ride the wave, keep your finger poised over the electronic sell button, put the bone to smaller investors' go long strategy with some profit taking at the top, then short the piss out of 'em on the way down, add insult to injury. Institutional investors like pensions & mutuals don't play the short game very well.

Well there are good points if your old enough . I hope the market goes nuts for awhile so we can cash out our 401 ks . I live in reality . This band-aid is just that a band-aid and its covering an already infected wound. so its useless . But what the hay we can take advantage of it . problem still remains we can't get it all without going into another higher bracket . I would rather lose it than give it to gooberment.

 

[Jhhnn]

Well there are good points if your old enough . I hope the market goes nuts for awhile so we can cash out our 401 ks . I live in reality . This band-aid is just that a band-aid and its covering an already infected wound. so its useless . But what the hay we can take advantage of it . problem still remains we can't get it all without going into another higher bracket . I would rather lose it than give it to gooberment.

Stuck on stupid, huh?

 

[Jhhnn]

no, removing the current system would be far more useful. do not cheerlead this nonsense simply because it pushes the fail date back a bit. it isn't helping anyone except those who have failed and crashed everything. by refusing to let them suffer out of your own fear of your own suffering you're going to prevent from ever actually getting out from under it. that's what we call "pussy whipped" and you must like it.

It's not about me personally. About the only thing that would seriously damage our frugal lifestyle would be economic collapse, looting, rioting & revolution, and even then I'm in a better position than most because we have zero debt & positive net worth.

That's the only thing that'll cause any suffering at the top of the pile, too, unless paying higher taxes & enjoying fewer looting opportunities can be defined as suffering. They got theirs, and spread it & hid it all around the globe. Can't touch 'em.

Those are the things that can be done to promote greater equality & more broad based prosperity, limit the power of wealth & enhance the power of little people via responsive govt. It's the only chance we have, because those at the top won't give up anything unless forced to do so. It's wealth that corrupts govt, not vice versa, so the less they have to work with, the less corruption they can create. Concentration of wealth & power isn't self limiting, at all, but rather self reinforcing, so limits must be imposed from the outside if the rest of us are to not be devoured by it. It's the essence & the purpose of egalitarian democracy.

 

[Fern]

Central banking has taken over the markets. Everything is moving towards a beta of 1 and that beta lives and dies by the words of the central bankers around the world.

A tech question - isn't the beta the correlation between a stock's movement and GDP?

(It's been a while since I studies finance.)

TIA

Fern

 

[mshan]

I think beta is price fluctuation of a particular stock relative to the market as a whole.

 

[Fern]

I don't understand how this coordinated banking move solves or alleviates the real problems:

1. of defaults on Greek and/ or Italian bonds

2. of high interest on (Euro) govt bonds causing them budget problems vis-a-vis higher debt service payments

3. of the fundamental continuing annual deficit problems of numerous Euro countries.

So, the banks have more liquidity? I don't get it. Looks to me like they just gave banks cheaper money meaning we're (those countries involved) are back-dooring more profit to them at the taxpayers' expense.

Since the banks money is still debt on the books, I don't see how it affects lending ratio's or ability etc. Just looks like cheaper interest costs to me.

Fern

 

[Attic]

First question you gotta ask here is, "How are they going to fuck me?". Don't quit till you figure it out.

 

[DucatiMonster696]

I don't understand how this coordinated banking move solves or alleviates the real problems:

1. of defaults on Greek and/ or Italian bonds

2. of high interest on (Euro) govt bonds causing them budget problems vis-a-vis higher debt service payments

3. of the fundamental continuing annual deficit problems of numerous Euro countries.

So, the banks have more liquidity? I don't get it. Looks to me like they just gave banks cheaper money meaning we're (those countries involved) are back-dooring more profit to them at the taxpayers' expense.

Since the banks money is still debt on the books, I don't see how it affects lending ratio's or ability etc. Just looks like cheaper interest costs to me.

Fern

Broke economies lending other broke economies money they don't have. Cha-ching!

http://www.youtube.com/watch?v=NOzR3UAyXao

 

[mshan]

(I think what I write is coarsely correct, but someone with more in depth financial markets knowledge will hopefully chime in with a more complete and accurate explanation):



European banking system apparently depends upon short-term wholesale lending to run their businesses, while U. S. banks may rely more on retail deposit base.

- http://video.cnbc.com/gallery/?video=3000058679 (U. S. money market funds apparently provide some wholesale funding for European banks, but have pulled back)
- http://video.cnbc.com/gallery/?video=3000058810 (so so clip; just points out immediate crisis is lack of wholesale funding for European banks, not soveriegn debt per se)
- http://video.cnbc.com/gallery/?video=3000058830 (Euro-TARP?)


Things like other banks and U. S. money markets (think your high yield money market is really that safe?) who normally provide this funding began pulling back a while ago, and these banks are running out of money to keep their businesses open. It would probably somewhat akin to what happened to a lot of businesses post-Lehman, where they lost their line of credit with bank and were forced out of business as a result.

I think coordinated central bank action was to provide low cost dollars (Fed loans dollars for Euros to ECB at fixed currency exchange rate; there is no credit risk per unless ECB goes under http://video.cnbc.com/gallery/?video=3000059845 ) that somehow unclogs interbank lending among European institutions. Whether that is because they now have correct collateral to get funding from ECB, or just a shock and awe statement by central banks around the world that we won't let these institutions fail so it is safe to lend to them, I don't know. It was the same type of seizing up of credit markets that happened circa Lehman 2008. I think Steve Leisman also made some comment about how it increases profitability of providing loan to other banks, etc. so it more accurately reflects risk they are taking (as long as institution you are lending to doesn't go bankrupt before you get your money back).

Remember, this immediate crisis (freezing up of wholesale lending to European banks) and underlying sovereign debt crisis are inter-related, but not quite the same (sovereign debt used to be viewed as risk free and equivalent to cash, and because of way European banking regulations are written, they could use it as collateral to make leveraged speculative bets, possibly at leverage up to 40:1. Problem is 10% reduction in face value of those sovereigns makes the same bank insolvent because of such high leverage).

Previously Greek debt used to be viewed as good and safe as German debt, but that is obviously not true anymore.

Italian debt at 7%, on the other hand, may end up being a great deal for brave investor willing to step up and take that risk (U. S., through IMF, using 2% money to buy / "bail out" 7% debt?), but only time (and lack of significant "voluntary" haircuts) will tell...

 

[mshan]

Fern, this video clip should answer your questions: http://video.cnbc.com/gallery/?video=3000058830

CNBC written article: http://www.cnbc.com/id/45492184

 

[Fern]

Fern, this video clip should answer your questions: http://video.cnbc.com/gallery/?video=3000058830

Thanks for the effort, but I don't have audio. :$

Fern

 

[mshan]

If you start the video clip, once the advertisement is over and video clip starts, there should be a transcript on right you can copy and paste to read:

and let's and he gget back t discussion we were having on the euro crisis. i want to company to oliver. let's it talk about the end game. we talked about all the things that need to happen, but one of the things that worries me, even if we get t.a.r.p., that ultimately i think about what happened to the stock market after t.a.r.p. well, if you remember, actually the stock market rebounded fairly strongly. whether or not it was merited is a different issue. but we have to pratt two separate issues. one is a near term technical issue that in europe is driven by the way they constructed their debt stack. and that debt stack sits on the books of the banking system. it's an achilles' heel that gets exposed when confidence is eroaded. and that's where we are today. and so we have to solve that technical issue.ded. and that's where we are today. and so we have to solve that technical issue. much like 2008, we had to solve our issues just to be able to stay in the game. in terms of bringing that confidence back, what is the ultimate number, what is the package side? because my worry is you put a trillion or whatever number it is and the market says, you know what, that's good today and a week or two later, they say maybe that's not enough. that's the risk that the the regulators and political authorities are chasing after essentially a liquidity run that's market driven. and they always seem to be one step behind up until you get to the edge or the brink. in some country by some estimates we came within a couple hours of that ledge. what's scary about europe is you have 17 different governments having to come together to deal with an issue which in my view is ten times larger at least mathematically than the one we faced in '08. the politics are such that if you're determine angermany, you to do what you moo towyou need you know you're in position to extract what you need from your european partners to make you feel good about back stopping in essence their overspending. and that is only likely to come a at point when those partners are faced with severe consequences if they don't meet the german demands. so everything is pushing towards that tipping point as roger suggested and in my view, that tipping point will be here much sooner than most people think. byron's making some faces here at the table. i don't know what they mean. i don't think that's deliberate, is it? no, it is deliberate. i never make a pace that isn't deliberate. but i think that we have to know the dimensions of this. you said $10 trillion. do we really need that much money to solve this problem? i think he said the size -- i didn't say $10 trillion. wouldn't the european financial stability facility have enough resources about it were funded leveraged four times to deal with this problem the way t.a.r.p. did? in my view, not even close. and that's a remarkable suggestion. roger, where are on you what the ultimate number has to be to create some kind of ring fence or confidence that we're not going over the cliff? i think it's impossible to pick a precise number unless you pick a gargantuan one which they don't have the ability to come up with. but i agree with the direction of oliver's comment. i think the trillion dollars would not be adequate. it's simple to see if, for example, italy, spain, alone lost entirely their access to private markets, entirely lost it. and that's possible. so i think a trillion is not -- it's not clear that a trillion would be sufficient. oliver just suggested that 4 trillion may not be sufficient. no, i didn't mean to suggest that. the math i'm working with is very simple. in the u.s. banking sector, we had 3 trillion of wholesale funding that needed to be stabilized, got stabilized by the implementation of t.a.r.p. which saw the u.s. treasury buy $212 billion worth of preferred in the banking sector to stabilize that 3 trillion, give our banks time to work through hair problem their problem assets. in europe, that 3 trillion is 30 trillion. so if you multiply the 212 by 10, you get the 2.12 trillion. in my view, the issues on the european banks are bigger than the issues on the books of the u.s. pangs. so if you want to stabilize that 30 trillion and in my view it's not that you want to, it's that you have to, you do not have a choice, you're going to have to be at least at 2.1 and i suspect more. i think it's important to separate at least three separate aspects of the current crisis which we're touching on this morning. one is the sovereign debt element and the stability fund is fundamentally designed to address that. the second is what oliver is talking about now which is the banking system. and the obvious need for some type of euro t.a.r.p. and which we discussed before, they keep talking about how we'll recapitalize the banking system and getting nowhere. some saying needs to be done on a local basis only. but they've made no progress towards that. and the third which comes to the question about the stock market outlook is the recession question. now, it's pretty obvious that if you look at these deposit flows and you look at the overlay in it entirety, that europe is facing recession. or at least large parts of europe. and so the idea that equities, european equities, could go lower even about if there were a solution, and i don't think there will be, the way the u.s. stock market ultimately bottomed in march '09, not just post lehman, that's entirely possible, also. but we're talking about three different elements of this picture. roger, thank you. oliver, thank you. it's been a tremendous conversation. i imagine we'll be continuing it. roger, before we go, we heard jon corzine will be brought in front of a congressional hearing later. i know you worked in the final days with the company. do you have any sense of where this money is, this billion dollars that seems to have gone missing? i really don't. but as i walked over here for this interview, there's a huge crowd outside screaming at justin bieber. so i thought when i go back out, i might ask him. no, i don't know the answer. i thought i'd ask. guys, happy thanksgiving in advance. appreciate it very much this morning. byron others will be with us for the remainder of the program."

 

[DucatiMonster696]

Thanks for the effort, but I don't have audio. :$

Fern

I'll save you the trouble. This is all a big gamble that may not work because there is no real number being put on the amount of money needed to stabilize Europe and its economies. What is occurring today amounts to providing wiggle room and avoiding having to pay the piper on debt which is being pushed down the road in hopes that the situation may further stabilized enough to actually address the debt monster.

This is further complicated by sheer size and scale of the debts involved amongst so many European nations who all must agree on what the right way is to proceed. Along with deciding what meaningful consequences should be enforced for nations which fail to meet the guidelines of their bail outs and debt curbing rules. As well as how to cover banks if this scenario of one or more nations failing on their debt payments or if confidence is not restored even after a trillion dollars is poured on this blazing debt fire.

However none of this even begins to address what the unintended consequences may occur as a result of all this lending to banks and at what cost this action is imposing on economies of the world.