Ur Rolf Englund, Den Stora bankkraschen, Timbro, 1983, sidan 15
Seven Dumb Things Bankers Say
Critics of the big banks -- including the editors of Bloomberg View -- argue that the main advantage of being a JPMorgan-size giant is the ability to extract a subsidy from taxpayers. The larger and more systemically threatening banks are, the more confident they and their creditors can be that the government will bail them out in an emergency. This too-big-to-fail status allows such banks to borrow at lower rates than they otherwise would -- a perverse incentive that undermines market discipline, artificially bloats the financial sector and promotes the kind of credit binges that end in crises.
Michel Barnier, EU:s kommissionär för den inre marknaden, väntas inom kort lägga fram ett förslag om bankuppdelning baserat på idéer från Erkki Liikanen
What does a guarantee mean?
Banks have a powerful incentive to get big and unwieldy.
The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail.
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers -- Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz -- put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.
Small as it might sound, 0.8 percentage point makes a big difference.
Värdet av de så kallade implicita statsgarantierna för bankerna
En rapport som även kollegan Carolina Neurath skrivit om nyligen.
Titeln är: ”Lämplig kapitalnivå i svenska storbanker – en samhällsekonomisk analys” och publicerades i debember 2011.
I rapporten konstateras att svenska bankers kapitalnivå i förhållande till de totala tillgångarna sjunkit stadigt, från cirka 17 procent på 20-talet till bara 4 procent för storbankerna idag.
Värdet av de så kallade implicita statsgarantierna för bankerna,
Garantin har inneburit att bankerna lånat i genomsnitt 0,86 procentenheter billigare. Det motsvarar 30 miljarder om året,
Enligt vårpropositionen är riskerna i det svenska banksystemet i vissa avseenden större än i andra länder.
Sedan mitten av 1990-talet har hushållens skulder som andel av årlig disponibel inkomst, den så kallade skuldkvoten, ökat från 100 procent till 170 procent.
OECD, Internationella Valutafonden och senast Europeiska kommissionen har alla påpekat riskerna med den höga belåningsgraden.
"minst nio år med lågt resursutnyttjande"
De fyra svenska storbankerna Swedbank, SEB, Handelsbanken och Nordea visar på samlade
De totala skulderna är därmed 11 935 miljarder kronor.
Som jämförelse kan nämnas att Sveriges BNP 2011 var cirka 3 500 miljarder.
Inom EU är bankernas totala tillgångar 47 000 miljarder euro, vilket motsvarar 366 procent av BNP.
(Det motsvarar över 400 000 miljarder kronor, svårt att förstå men sant).
Krockkudden för denna utlåning, eller kapitalandelen, är i genomsnitt strax under 5 procent, enligt Bank of International Settlements.
På 1800-talet var det inte ovanligt att bankerna hade så mycket som 50 procent i eget kapital. På den tiden bar nämligen ägarna fullt ansvar för alla förluster,
Finansministern har rätt, som när han i gårdagens DN-intervju pekade på
Faktum är att den så kallade krispolitiken från dag ett har handlat om en enda sak: att skydda och rädda bankerna.
Om du lånar en miljon är det ditt problem. Lånar du en miljard kan det snabbt bli bankens huvudvärk.
Hundra eller tusen miljarder? Det får någon annan ta hand om, läs så kallat vanligt folk. Ganska få företagsägare kan tjäna enorma pengar på att trycka gaspedalen i botten och samtidigt surra fast ett lager av kvinnor, barn och pensionärer vid motorhuven som en skyddande krockkudde om det skulle inträffa tråkigheter längs vägen.
Detta är ingen slump. Tidningen Fokus beskrev nyligen i ett reportage hur den internationella banklobbyn lyckades övertyga europeiska politiker om nödvändigheten av att ”rädda” skuldtyngda länder som Grekland genom att i praktiken hålla banker och finansbolag skadelösa.
En manöver som ekonomiprofessorn Mats Persson kallar en av de största förmögenhetsöverföringarna någonsin från skattebetalare till bankägare.
It comes to something when one of the world’s major banks admits to fraud, but that’s what UBS did On Wednesday in agreeing to pay USD 1.5 bn (SEK 9.825 miljarder) in fines for rigging inter-bank interest rates.
For the 12 or so banks involved in Libor manipulation, regulatory sanction is actually the least of their worries. No, it’s in the potential for compensation that the real threat to the banking system lies.
At any one time, the value of products based on Libor runs to hundreds of trillions of dollars. Potential losses from mis-stating Libor could therefore run to hundreds of billions of dollars.
Utdelningsfest för bankerna
De fyra storbankerna Swedbank, SEB, Nordea och Handelsbanken väntas tillsammans dela ut närmare 29 miljarder kronor på vårens årsstämmor.
Strax innan jul beslutade Riksbanken att förstärka den svenska valutareserven med 100 miljarder kronor.
– Hur jag än rådbråkar min hjärna har jag svårt att se ett scenario där vi inte kan låna i dollar, det är en överdriven rädsla, säger Bo Lundgren.
- Vi ska följa den plan vi har lagt fast - stärka kraven på bankernas kapitaltäckning, öka riskvikterna och sedan se vad vi kan göra för att bankerna ska bli mindre beroende av växelkursberoende finansiering, säger Anders Borg.
- Sedan får vi se hur hushållen reagerar. Vi vill inte åstadkomma en kraftig sättning på bostadsmarknaden.
Finansministern har rätt, som när han i gårdagens DN-intervju pekade på
Bankerna har sedan slutet av 1990-talet gjort sig mycket mer beroende av lån i utländska pengar, främst dollar.
– Poängen med en avgift eller kassakrav är att /bankerna/ ska gå ur en del av
Finansminister Anders Borg (M) anser att bankerna ska vara med och betala för en ökad valutareserv, genom avgifter eller ökade kassakrav.
– Eftersom bankerna skapar en risk för den finansiella stabiliteten är det bra och klokt om de får ta ett ekonomiskt ansvar för det, sade Borg till journalister efter en debatt i riksdagen.
– Jag tror att vi långsiktigt behöver gå mot en större valutareserv. Vi har ett så pass stort banksystem och systemet har en så pass tung finansiering via valutamarknaderna att det är en risk för den finansiella stabiliteten.
Riksbanken lyfte nyligen på nytt bankernas stora beroende av utländsk finansiering som en risk för den finansiella stabiliteten.
Affärsbankernas lånestock i utländsk valuta är nästan lika stor som den är i svenska kronor.
Tittar man noga i bankernas balansräkningar kan man se att det är skillnad på å ena sidan ”inlåning” - insättarnas pengar – och å andra sidan ”upplåning” - pengar man lånat på marknaden bankerna emellan.
Banker kan komma i betalningssvårigheter om insättarna kommer och ställer sig i kö för att ta ut sina pengar – vilket är ovanligt och väl i Sverige senast drabbade HSB.
Banker kan också komma i betalningssvårigheter om de får bekymmer med sin ”upplåning”, dvs om andra banker, på goda eller dåliga grunder tror att banken har för mycket dåliga lån, inte vill rulla runt sina krediter.
Det var detta som gjorde den svenska finanskrisen i början på 90-talet akut.
Utländska banker misstrodde de svenska storbankerna med Handelsbanken och S-E-banken i spetsen. Mest misstrodde de Nordbanken och Götabanken.
- Enligt vår uppfattning stod det finansiella systemet i Sverige inför en kollaps den 24 september 1992. Det skrev Göran Lind och den nuvarande riksbankschefen Stefan Ingves i Ekonomisk Debatt nr 1/1998
Rolf Englund blog 15 augusti 2007
British banks will have to raise £20bn-£50bn of new capital or dramatically restructure their businesses
The BoE’s new Financial Policy Committee yesterday said banks must report capital ratios which reflect a “proper valuation” of their assets and a “realistic assessment” of the cost of recent scandals, such as the manipulation of Libor and mis-selling of insurance products.
The demand comes shortly after the International Monetary Fund called on European lenders to shore up balance sheets and adds to growing concerns that risk-weighted capital ratios are exaggerating the health of the global banking system.
The Faustian Bargain between States and Banks
What's happening in Greece right now provides a dramatic example of how a state can make itself dependent on banks. The country is de facto insolvent and can no longer secure any loans on the financial markets. Nevertheless, it continues to be able to secure fresh funds by issuing short-term bonds, primarily to Greek banks, as it has recently to make up for a lack of liquidity as euro-zone member states continue to delay the release of the next tranche of emergency aid. Greek banks, for their part, finance their ailing country not only because the bonds have high yields, but also because they can deposit the bonds as collateral at Greece's central bank in return for fresh cash infusions of their own.
The books of many Spanish and Italian banks are also brimming with sovereign bonds issued by their home countries. They have taken out huge amounts of cheap loans at the ECB and reinvested most of the money in sovereign bonds.
The business logic behind this strategy is clear: While the ECB only charges 1 percent interest on its loans, the sovereign bonds have yields of up to 6 percent.
Beware the Faustian bargains of central banks
In Goethe’s 1831 drama Faust, the devil persuades a bankrupt emperor to print and spend vast quantities of paper money as a short-term fix for his country’s fiscal problems. As a consequence, the empire ultimately unravels and descends into chaos.
Today, governments that have relied on quantitative easing instead of undertaking necessary structural reforms have arguably entered into the grandest Faustian bargain in financial history.
In the US, bank assets were close to 80 per cent of gross domestic product.
Despite the enormity of Spain’s problem, this crisis is a refreshing change
It doesn’t involve wholesale deposits, collateralised debt obligations, or structured investment vehicles – or even an investment bank
It is the kind of fiasco that always brings down banks
Over-leverage, a commercial property bubble, poor supervision and hubris
John Gapper, Financial Times 30 May 2012
Bank profits are up tremendously;
so where are all these increased profits coming from?
Click to find the answer
Banks will always blow themselves up, regulator warns
Jackson Hole Paper 2
Banks, computer models and Risk
Han har givit namn åt Brady Bonds, dollar-denominated bonds, issued mostly by Latin American countries in the late 1980s, a novel debt-reduction agreement for developing countries. Wikipedia
LDC Debt Crisis, Argentina, Brazil, Mexico etc, remember?
Jag skrev en bok om det, Den Stora bankkraschen, Timbro, 1983
Det vore synd, skrev jag, om västvärlden skulle drabbas av en djup ekonomisk kris just när Sovjetväldet håller på att vittra sönder ekonomiskt, politiskt och moraliskt.
The days when a large multinational bank could borrow money from depositors – backed by a government insurance guarantee – and then lend it out to customers at a reasonable spread are gone, at least as their main source of revenues. With net margins squeezed, banks have had to reach for profits in increasingly esoteric areas, such as derivatives trading, which rely on complicated computer models and mathematical algorithms few people understand.
Most of these activities boost profits by cranking up leverage, which the banks feel comfortable using because of confidence in their computer models.
This computer modelling is impressive stuff. However, while these models create the appearance of mathematical certainty about the relationships between markets and the way world events will affect prices, it is essential to recognise that, at their root, these models rely on man-made assumptions about human behaviour – not iron-bound laws of nature.
In addition, the behaviour of derivative markets can be episodic and illiquid at precisely the times we most need greater liquidity and confidence. No matter how sophisticated the maths or how large the data base supporting a model, no one can predict behaviour – human or market – with certainty. Inevitably, this means the formulas break down at the most critical times.
Banks may have to disclose profits from carry trades derived from 1 trillion euros in ECB loans
Bankerna saknade 4.300 miljarder
Varje gång ett viktigt förfallodatum inträffat, ända sedan euroländerna gav det första nödlånet i maj 2010,
En del av Greklands statsskuld förfaller till betalning den 20 mars. Då ska femton miljarder euro betalas tillbaks till långivarna, och Grekland självt klarar inte detta. Men om euroländernas skattebetalare ställer upp med ett nödlån kan dessa pengar användas – inte till att hjälpa grekerna, men till att lösa de obligationer som förfaller den 20 mars. Det betyder att lånen i praktiken lyfts över från privata placerare (banker, försäkringsbolag, hedgefonder) till Europas skattebetalare.
Om nedskrivningen skjuts upp till efter den 20 mars slipper de privata långivarna undan, och förlusten drabbar skattebetalarna i stället. Därför använder sig de privata placerarna av alla tänkbara medel för att övertyga de politiska beslutsfattarna om att nedskrivningen måste ske ”i ordnade former” – vilket betyder ”inte nu, senare”. Men sedan är det dags för ett nytt förfall av grekiska obligationer i sommar, och kan man skjuta upp nedskrivningen då också – ja, då kan de privata placerarna lasta över ytterligare en del av sina innehav på skattebetalarna.
Detta har pågått i snart två år, ända sedan euroländerna gav det första nödlånet i maj 2010. Varje gång ett viktigt förfallodatum inträffat har de privata placerarna lastat av en del av sina innehav på skattebetalarna. Och fortfarande får vi efter varje toppmöte höra att nedskrivningen ska äga rum – men inte nu, utan senare, ”i ordnade former”.
I dag har nästan hälften av Greklands statsskuld lyfts över på euroländernas skattebetalare, genom EU:s stödfonder EFSF och EFSM, och genom Europeiska centralbanken ECB. En del har också lyfts över på den övriga världens skattebetalare (däribland Sverige) genom Internationella Valutafonden IMF.
Frågan är hur länge detta ska fortsätta.
Vad finns det egentligen för ekonomiska argument för att EU eller EMU ska låna ut pengar till de medlemsländer som inte har ordning på sina statsfinanser? Vad skulle hända om vi inte ställde upp, utan i värsta fall lät exempelvis Grekland göra en ensidig nedskrivning av sina skulder med kanske tjugo eller trettio procent?
Det är bankerna man räddar, inte det grekiska folket
- Den stora risken var att Grekland skulle utlösa en kris i italienska, franska och tyska banker.
The Violent, Scandalous Origins of JPMorgan Chase
Americans like to imagine that the Founding Fathers were virtuous and civic-minded giants bestriding the continent. But many of them kept a sharp eye on the main chance, alert to opportunities for personal profit.
The birth of the mega-bank JPMorgan Chase & Co. (JPM) may be traced to two such figures: Aaron Burr, the dark star of America’s early years, and his longtime nemesis, Alexander Hamilton, the first secretary of the Treasury
An enormous mismatch of assets and liabilities has lain
Retail and private bank deposits in the US, UK, Germany, Switzerland and France have been used to support the expansion by banks such as UBS, Barclays, Société Générale, Deutsche Bank and JPMorgan into global markets.
The euro was emblematic – a cross-border project supported by the political elite and by businesses about which many ordinary Europeans had doubts because they could not see what use it was to them.
But they tolerated it as long as it appeared to work, just as the growth of global investment banking was regarded as irrelevant to most people’s day-to-day lives.
In the cold light of day, it is not clear which is the more depressing:
Bankernas stora problem: Ytan = Basen x Höjden
All this is supposedly being done to save the euro. Nonsense. It's not actually about the euro.
Ännu letar Europa i korrekt samtalston efter en lösning. Grälar politikerna så sker det fortfarande bakom lyckta dörrar.
Denna politiska korrekthet är ett slags sista livboj. Men den har samtidigt en baksida av just förljugenhet.
The 21 July agreement gives the €440bn European rescue fund discretion to use the money for bank bailouts
European banks are “grossly under-capitalized”
“In 2008, governments could intervene to sort out the problems of banks,” Brown said at the World Economic Forum in the Chinese port city of Dalian today. “In 2011, banks have problems, but so too do governments.”
“The euro cannot survive in its present form, it’s going to have to be reformed dramatically. We are I think at an hour to midnight in the way that we look at this issue.”
Regulators should stick to their commitments to implement bank capital rules agreed by the Basel Committee on Banking Supervision irrespective of opposition from lenders, Trichet saidBasel Top of page
Société Générale, France’s third-biggest bank, has been stirring financial markets once again on concerns about its big holdings of the debt of shaky European neighbors like Greece.
Although its shares closed slightly up on Friday, Société Générale’s stock has fallen more than 40 percent since mid
Svenska bankers riskabla dollarlån uppgår till 450 miljarder kronor
Till skillnad mot sina europeiska konkurrenter har de svenska bankernas kunder inte särskilt mycket pengar på sina inlåningskonton. Det innebär att de svenska bankerna måste låna betydligt mer själva för att kunna låna ut pengar till kunderna. I och med bolånefesten har bankernas sårbarhet kraftigt ökat.
De svenska bankerna har lånat cirka 1500 miljarder kronor med hjälp av så kallade bostadsobligationer. Mer än en tredjedel av obligationerna har sålts utomlands. Under finanskrisen tvingades svenska banker att köpa tillbaka sina egna bostadsobligationer som blev allt svårare och dyrare att omfinansiera.
Utländska långivare sålde nämligen ganska snabbt svenska obligationer för 120 miljarder kronor. Det tvingade Riksbanken att agera pantbank för bankernas bostadsobligationer. Sedan krisen har bankerna lånat ytterligare 400 miljarder kronor, en siffra som fortsätter att öka.
Jag vet inte varför majoriteten i Riksbankens direktion vill
Svenska banker har skulder i utländsk valuta motsvarande på 1,5 gånger Sveriges BNP
Den som vill förstå hur det hänger ihop kan läsa en rapport från Riksgälden. Där konstateras att staten inte kan låta en bank gå i konkurs.
Om en bank inte kan betala sina fordringsägare hamnar räkningen hos Anders Borg.
De fyra storbankerna SEB, Swedbank, Nordea och Handelsbankens samlade balansomslutning (skulder och tillgångar) var vid utgången av förra året 11284 miljarder. Det kan jämföras med Sveriges BNP på 3260 miljarder. Det räcker med att en av dessa banker hamnar i stora svårigheter för att Sverige kan pensionera pratet om tigerekonomi.
I Europa är det bara Schweiz, Storbritannien och Nederländerna som har en större banksektor i förhållande till ekonomins storlek än Sverige, där siffran är drygt 400 procent av BNP.
Kommentar av Rolf Englund:
- Krisen i banksystemet /1992/ utlöstes inte av en klassisk "bank run", utan av ett internationellt misstroende och finansieringssvårigheter på den internationella marknaden,
Se även "Sverige i skuldfällan"
There are a couple of things to say about Britain’s banks
Den danska banken Amagerbanken har begärt sig själva i konkurs.
Every intervention so far has pretended that the crisis is one of liquidity, which can be solved by making loans to the troubled banks and governments in question.
Even after Friday’s rebound, the FTSE-Eurofirst 300 banks index is 20 per cent below its February peak
France’s banks have stayed flat, trading at 0.64 times. While they are so cheap, it is tempting to treat them as options on a positive outcome to the Greek crisis.
German banks have become the most exposed financial institutions in terms of government bonds from the crisis ridden euro periphery, according to news reports in Frankfurter Allgemeine Zeitung and Financial Times Deutschland on the latest statistics from the Bank of International Settlement (BIS).
With holdings in the magnitude of $62bn (BIS statistics are in dollars) the German banks bypassed the French financial institutions which $58bn worth of government bonds from Greece, Ireland, Portugal and Spain.
The German lead is particularly pronounced in Greece with German banks holding bonds over almost $23bn. This does not even take into account the €7.4bn held by FMS Wertmanagement which took over all the bad loans that were previously in the books of Hypo Real Estate (HRE).
The irony of all this is that Germany would take the biggest hit if there was the private sector participation that Angela Merkel and Wolfgang Schäuble are always asking for.
German banks are among the biggest holders of eurozone sovereign debt
German president and SPD chief attack bankers
“The causes of the crisis have not been dealt with and we cannot say today that we have realized and effectively dealt with the dangers. Thanks to the numerous state sponsored bail-outs many of the bankers seem “to return to old habits”, Wulff went on. Whoever enjoys benefits must also be prepared to take losses, he said. Tax payers are not prepared to shoulder another multi billion bailout, he warned.
SPD chief Sigmar Gabriel was even more blunt. He said the bankers were the beneficiaries of a form of “loss socialism: Whenever something fails the taxpayer jumps in”.
It is hard to estimate the exact amount it will cost to recapitalise the European banking sector. I have heard a credible estimate of €100bn-€200bn.
This is not a joke
No public money was lost in the Fed’s emergency lending programs, Chairman Ben S. Bernanke testified to the Senate Banking Committee in July, 2010. The loans didn’t represent permanent cash given to the dealers and had to be repaid the next day.
Citigroup, the nation's third-largest bank by assets, was on the verge of being closed by regulators the week of Nov. 24, 2008
US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.
The statement that systemic breakdowns are surprisingly rare
Inspiring words from preface of Laurence J. Kotlikoff, Jimmy Stewart is dead
The destruction of wealth - that of investors, including more-or-less anyone saving for a pension - has been savage, running to tens of billions of pounds in each case.
Between the beginning of 2008 and the end of 2009, the losses on loans made by Lloyds and HBOS combined were £39bn
The FT has news from the Bank of International Settlements,
One German bank, Depfa, an Irish-based subsidiary of HRE, accounts for much for the lending that goes on between Germany, Ireland, Italy, and Spain.
Raghuram Rajan, one of the few economists to see the financial crisis coming,
Prof Rajan was the International Monetary Fund’s chief economist when he warned the 2005 Jackson Hole conference of central bankers that the seeds of disaster were being sown in the financial sector. His presentation jarred with the self-congratulatory tone of the conference, Alan Greenspan’s last as chairman of the US Federal Reserve. Prof Rajan writes in the book that the critical reaction from other participants made him feel “like an early Christian who had wandered into a convention of half-starved lions”.
As the third anniversary of the credit crunch approaches, I have been doing some reflecting on where I went wrong as an economist.
As Raghuram Rajan of the University of Chicago Booth School of Business and former chief economist of the International Monetary Fund notes in a thought-provoking new book, the underlying “fault lines” are still with us.
Do We Still Need Commercial Banks?
Raghuram G. Rajan
Mervyn King says banking must be reinvented
Bank of England Governor Mervyn King has attacked the 'absurd' level of risk taken on by banks
The world is facing the worst financial crisis since at least the 1930s “if not ever”
In contemporary banks, leverage of 30 to one is normal.
Central banks should not rescue fools
Svenska banker tillhör tillsammans med banker baserade i Australien, Hong Kong och Singapore de bättre kapitaliserade bankerna.
Hösten 2008 var hela det finansiella systemet hotat.
"Bankerna har god motståndskraft"
”Som banker fungerar i dag är den enda verkliga tillgången förtroende.
We need to learn from those countries that evidently did it right.
Bank runs have not recurred (after Norther Rock), in spite of the eurozone’s continuing crisis.
Queues outside branches as anxious depositors at Northern Rock tried to retrieve their cash: the scenes of Friday September 14 2007 are by now firmly embedded in British banking history as one of the industry’s most shameful episodes. A run on a bank was not seemly in a modern European economy.
Whatever the reasons – sweeping government guarantees in Ireland, growing confidence that the European authorities will always be there with a safety net – archetypal bank runs have not recurred, in spite of the eurozone’s continuing crisis.
The banks’ undoing in Ireland and Spain – just as in the US earlier in the crisis and, to an extent, the UK too – stemmed from the same root cause: an overdeveloped, overheated and overpriced property market that since 2007 has collapsed in a heap.
The supply of deposits is sadly insufficient, leaving the European Central Bank as a vital liquidity supplier of last resort. The use of its emergency facility has increased sharply in the past couple of months – much to the frustration of Jean-Claude Trichet, ECB president, who wants to close that window.
Homeowners - the root of all evil?
There was a common ingredient in most /Bank/ failures:
Bear Stearns and Northern Rock, largely reliant on short-term borrowing, faced the modern version of a “run” when their counterparties refused to roll over debts. Most other banks suffered some loss of confidence, forcing them to turn to funding from the state.
In America, the euro zone and Britain, central-bank lending and public guarantees of bank bonds have reached about $2.7 trillion.
The collapse of Lehman Brothers has shown the havoc that can ensue when large, interconnected banks implode.
After the US, the country with the biggest banking problem is probably Germany.
The decision to guarantee deposits raises large questions.
If you do not understand the implications of that, you have not paid attention to what has been happening in the financial sector.
I must declare an interest: members of my immediate family had money in Northern Rock.
As an individual, therefore, I am pleased. As a hard-nosed commentator, I deplore it.
Yet there are other and wider questions. As long as governments cannot – or will not – let ordinary depositors suffer inconvenience, moral hazard runs rife. The answer must surely include tighter regulation: more capital, perhaps an obligation to obtain long-term subordinated debt and specific liquidity requirements.
...The Global Crisis of Legitimacy
The greatest systemic risk is not an economic concept but a political one
There were those who were concerned that a united Europe would exist to benefit the elites, rather than the broader public.
George Friedman May 4, 2010 at John Mauldin
Systemic risk emerges when it appears that the economic elite used the law's allocation of risk to enrich themselves in ways that undermined the wealth of the nation. Put another way, the crisis occurs when it appears that the financial elite used the politico-legal structure to enrich themselves through systematically imprudent behavior while those engaged in prudent behavior were harmed, with the political elite apparently taking no action to protect the victims.
The crisis was rooted in the appearance that it was triggered by the behavior not of small town banks or third world countries, but of the global financial elite, who took advantage of the complexities of law to enrich themselves instead of the shareholders and clients to whom it was thought they had prior fiduciary responsibility.
We see a similar crisis in Europe. The financial institutions in Europe were fully complicit in the global financial crisis. They bought and sold derivatives whose value they knew to be other than stated, the same as Americans. Though the European financial institutions have asserted they were the hapless victims of unscrupulous American firms, the Europeans were as sophisticated as their American counterparts. Their elites knew what they were doing.
This goal always created unease in Europe. There were those who were concerned that a united Europe would exist to benefit the elites, rather than the broader public. There were also those who believed it was designed to benefit the Franco-German core of Europe rather than Europe as a whole. Overall, this reflected minority sentiment, but it was a substantial minority.
Halting the financial doomsday machine
The doomsday cycle
”Som banker fungerar i dag är den enda verkliga tillgången förtroende.
Enkelt uttryckt går det ut på att varje tia som du sätter in på ett bankkonto kan banken förvandla till 90 nya kronor som den an tingen kan låna ut eller som i fallet med HQ Bank, Lehman Brothers eller Bear Sterns satsa i diverse exotiska värdepapper.
Limited purpose banking beskrivs i Larry Kotlikoffs bok Jimmy Stewart is dead: ending the world’s ongoing financial plague.
Niall Ferguson and Laurence Kotlikoff, FT December 2 2009
Some banks are becoming dangerously addicted to the medicine the ECB has been administering. They can easily borrow from the ecb and then invest the proceeds in higher-yielding government bonds.
Banks have also reduced the maturity profile of their own borrowing, rather than paying higher rates for safer longer-term funds. When all banks make the same decision this is a form of collective madness because it makes the system vulnerable to market disruptions. Moody’s, a ratings agency, notes that the average lifespan of new bank debt has fallen to its lowest level in at least 30 years.
Trading, alltså en bank som för egen räkning köper och säljer värdepapper för att tjäna pengar
Nine European banks have balance sheets that are larger than the GDP of their country.
The Volcker rule – that deposit-taking banks would not be able to engage in proprietary trading, or to own hedge funds or private equity firms – is the first time any government has proposed a sensible structural remedy for the problems created by bailing out banks in 2008.
Bank of England provided almost 62 billion pounds (USD 102.9 billion) in emergency loans
As a result of Lehman’s bankruptcy, millions of people have needlessly lost their jobs, hundreds of thousands of homes have been needlessly repossessed and trillions of dollars, pounds and euros have been needlessly added to the debt burdens of governments around the world.
Why a Lehman deal would not have saved us
The Bank of England is examining whether Britain's biggest banks should
News that such a move is under discussion at such a high level will send fresh shudders through the UK banking sector, still reeling from the fallout of toxic debt and the credit crunch.
It seems that hedge funds have been designated for ritual sacrifice, even though they played no more than a cameo role in the genesis of this crisis.
/Bank/ Nationalisation carries risks, but
As The Economist went to press, the government was in talks with Citigroup over what would in essence be partial nationalisation: the conversion into common equity of a chunk of its preferred stock, obtained in return for pumping capital into Citi last year. This would give it a stake of up to 40%—eight times the holding of Prince Alwaleed bin Talal, the most influential existing shareholder—and voting power to match.
"As president Ronald Reagan’s secretary of the Treasury, I abhor the idea of government ownership. Unfortunately, we may have no choice.
Beginning in 1990, Japan suffered a collapse in real estate and stock market prices that pushed major banks into insolvency. Rather than follow America’s tough recommendation – and close or recapitalise these banks – Japan took an easier approach. It kept banks marginally functional through explicit or implicit guarantees and piecemeal government bail-outs.
US may be repeating Japan’s mistake by viewing our current banking crisis as one of liquidity and not solvency. Most proposals advanced thus far assume that, once confidence in financial markets is restored, banks will recover.
As president Ronald Reagan’s secretary of the Treasury, I abhor the idea of government ownership – either partial or full – even if only temporary. Unfortunately, we may have no choice. But we must be very careful.
The true balance sheet of US Investment banks
John McCain: (not Naomi Klein)
Goldman Sachs and other banks should give up their bank status if they want to avoid the ban on proprietary trading proposed by the White House,
Bankerna är ett oligopol som tjänar enorma pengar på att ge dyra lån till företagen.
– De svenska bankernas skuldsättning kommer framstå som enormt hög.
Dutch insurer Aegon said it may buy a small U.S. thrift company
We're All Banks Now
American Express to Be Bank Holding Company
The end of American capitalism as we knew it
Do We Still Need Commercial Banks?
Låneboomen förvärrades av ett beslut 2004 från den amerikanska finansinspektionen, SEC, att låta de fem investmentbankerna låna ut 40 gånger volymen av det egna kapitalet (mot tidigare 12).
Detta regleringsbeslut var katastrofalt. Tre av de fem har nu gått omkull och utlöst en total förtroendekollaps. (Inom parentes kan noteras att John McCain har varit en ledande reformförespråkare rörande såväl SEC som Fannie och Freddie, medan Barack Obama är den senator som fått störst kampanjbidrag från F&F).
Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers.
How we have learned the limits to free markets – the hard way
The truth is that absolutely free markets and high finance don't mix. Unrestricted financial markets become a machine for blowing bubbles which endanger the stability of the economic system – and threaten capitalism itself. The economics of the corner shop are not the same as the economics of complex derivatives.
How U.S. banks sold home equity loans
Credit crunch a year on: The losers
Total bank exposure to the US sub-prime mortgage market, whose collapse infected wider credit markets and triggered an almost overnight liquidity drought, is still far from clear.
The Federal Reserve has put the cost to the bottom line of banks and other lenders of their sub-prime misadventures at $100bn.
Taking into account other failed mortgage loans, devalued mortgage-backed securities and general bad debts, the International Monetary Fund said potential losses could top $945bn.
It is almost exactly a year since the European Central Bank was forced to inject €95bn into the eurozone banking system
Banks with federally insured deposits, which are limited in the risks they’re allowed to take and the amount of leverage they can take on — have been pushed aside by unregulated financial players.
I Danmark tvingas nu Nationalbanken, alltså landets riksbank, att ingripa för att hindra Roskilde Bank att gå omkull.
: Nationalbanken och en bankorganisation, bildad för att just ta hand om banker i svårigheter, tar över. Det kommer att kosta omkring 5,5 miljarder kronor.
Bankernas problem har bland annat sin bakgrund i den negativa utvecklingen på den danska fastighetsmarknaden där huspriserna stadigt är på väg neråt och har varit så en längre tid. Det tillsammans med dålig kreditvärdering ger bankerna förluster.
De nordiska bankerna har tillsammans en utlåning på 450 miljarder kronor i Baltikum.
Misslyckat försök göra en pudel
Most people have noticed that when the music stopped – as Chuck Prince might have put it – some of the dance partners left the floor with their pockets stuffed with cash, while others went home to lock up the houses they no longer owned and post the keys back to the bankers.
By accepting much of the blame and proposing various measures to get its house in order, the banking industry hopes to avoid further regulation. It will not succeed. The political atmosphere has become too febrile for that: the mob is at the gates baying for justice.
Fed bailout of Bear Stearns
Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression.
Mr. Bernanke and his colleagues at the Fed are doing all they can to end that vicious circle. We can only hope that they succeed. Otherwise, the next few years will be very unpleasant — not another Great Depression, hopefully, but surely the worst slump we’ve seen in decades.
The financial system is a subsidiary of the state.
Banks are machines for taking liquidity risk.
Like a 1930s bank run
Bankers, like gangs, just get carried away
Groups routinely demonstrate behaviour that few if any members would choose to adopt as individuals. Look at teenage gangs, soccer hooligans, religious zealot
Before the mysteries of structured credit there were the mysteries of witchcraft; before investment banks used initial public offerings to turn dotcom concepts into billions of dollars alchemists claimed to turn base metals into gold.
Shared values and beliefs create a group identity. No matter that the beliefs may be absurd or the values contemptible: that Salem was not besieged by witches, the US was not threatened by communist infiltration, that greed is not good and that suicide bombers will not be greeted in paradise by 71 virgins. The very improbability of the belief, the unacceptability of the values, reinforces their social function; these factors distinguish the real members of the group from the less committed.
It is only halfway through November but I think we can already declare the winner of the 2007 Quote of the Year competition.
Människan är ett flockdjur. Det förklarar kanske vårt intresse för Paris Hilton?
The Rising Risk of a Systemic Financial Meltdown:
A fundamental question arises:
If the US suffers a recession in 2008 or 2009 it will not be due to an industrial decline or an oil price shock. It will be a recession that began in the financial system. The response of the general public is confusion, tinged with horror, at how intangible finance can impinge on their daily lives.
The rogue trader who cost SocGen €5bn - FT
Bankerna har uppträtt vårdslöst de senaste tio åren och har riskerat allas välfärd. Vem som helst kunde få vilket lån de ville så sent som för tre år sedan.
Rogue Trader (Paperback)by Nick Leeson - Amazon
Nobody wants to see a repeat of the 1930s when bank failures ushered in the Depression.
While the authorities are happy to leave banks alone when times are good, they are quick to intervene at the first hint of crisis.
The moral hazard is clear; it is not just rogue traders, such as Jérôme Kerviel at Société Générale, who are given huge incentives to take risk. Their bosses are too. One might well describe investment banks as hedge funds backed by an implicit government guarantee.
Two points shine out about the financial system over the past three decades:
The bigger point still, however, concerns macro-prudential regulation. As William White of the Bank for International Settlement has noted, banks almost always get into trouble together.
Central banks create an upward-sloping yield curve whenever banks are decapitalised, thereby offering a direct transfer to any institution able to borrow at the low rate and lend at the higher one.
A financial sector that generates vast rewards for insiders and repeated crises for hundreds of millions of innocent bystanders is, I would argue, politically unacceptable in the long run.
Förra året tjänade de fyra storbankerna drygt 91 miljarder kronor
Anders Borg kräver omedelbara reduceringar av bolåneräntorna.
European Union states have underwritten their financial sectors
SEB:s vd Annika Falkengren
Kreditförluster har också slutat att existera inom SEB och istället får banken nu tillbaka pengar som tidigare har klassats som förlorade. En del av förklaringen är att det går bättre i Baltikum för SEB.Full text
SEB:s vd Annika Falkengren avstår från sin bonus för 2008.
But bank profits are up tremendously; so where are all these increased profits coming from?
By the way, what ever happened to all those Toxic Assets that were on the banks' books? Oh, they no longer count since they do not have to mark to market anymore
Thanks to Ben Bernanke, banks can borrow as much as they want for practically nothing
Det finns jätterisker att det inte fungerar.
Tyska och brittiska banker har stora fordringar på Irland
One can interpret the intransigence of the German government and its EU allies in two ways.
Alternatively, policy makers in Germany – and in France and Britain – are scared to death over what Ireland restructuring its bank debt would do to their own banking systems. If so, the appropriate response is not to lend to Ireland – to pile yet more debt on the country’s existing debt – but to properly capitalize their own banking systems so that the latter can withstand the inevitable Irish restructuring.
The two largest creditors to Ireland are /banks in/ the UK and Germany,
The key issue in Europe now is not the merits of the single currency but the parlous state of its banking system.
För att räkna ut den verkliga avkastning som tillexempel en köpare av statsobligationer får på sina utlånade pengar brukar man tala om realränta, det vill säga räntan justerad för inflation.
The unpopularity of very low interest rates leads to what is known in financial circles as “the search for yield”.
Today’s rock-bottom yields, however, have less to do with disinflation and more to do with providing fuel for an asset-based economy that promotes unsustainable wealth creation and a false confidence in perpetual capital gains.
Are zero interest rates a subsidy to banks?
In a Vox column, Axel Leijonhufvud argues that low Central Bank interest rates are an implicit subsidy for banks, which can borrow money for free and place it in on interest-earning treasuries, thus making a profit. This policy of implicit subsidy, at the expense of the taxpayer, is pursued in order to recapitalize the banks without having to take an equity stake (a politically costly move).
Paul Krugman answers that low (short-term) interest rates are not necessarily a subsidy: a bank borrowing from Fed to buy long term treasuries earns more than it pays, but immobilizes money for longer.
Both authors agree, though, that there is downside risk to this strategy: a return to normal interest rates could trigger losses, and optimistic numbers on bank earnings may not be taking sufficiently that possibility into account.Full text
The two pioneers of modern monetary economics – Irving Fisher and Knut Wicksell – were passionately concerned to find monetary arrangements that would insure against arbitrary redistributions of income and wealth. They saw such distributive effects as offenses against social justice and consequently as a threat to social and political stability.
Fisher and Wicksell thought that price level stability was a sufficient condition for avoiding distributive effects. In this they were in error. A hundred years later, the motivating concern for their work has long since disappeared from monetary economics.
But the error survives. For example:
The Fed is supplying the banks with reserves at a near-zero rate.
For the last 20 or 30 years, political independence of central banks has been a popular idea among academic economists and, of course, heartily endorsed by central bankers. Such independence has not been much in evidence in the recent crisis. But central banks would very much like to restore their independence.
The independence doctrine, however, is predicated on the distributional neutrality of their policies. Once it is realised that monetary policy can have all sorts of distributional effects, the independence doctrine becomes impossible to defend in a democratic society.
Eurozone banks have rushed to take out
The ECB said 523 banks asked for the funds, which will be lent
The scale of Wednesday's bail-out for eurozone banks by Draghi's European Central Bank (ECB) should simply confirm worst fears.
Bankernas bolånemarginaler har ökat kraftigt.
Interest rate cuts work their way through to the real economy by a number of transmission channels.
The first, second and third beneficiaries of the Federal Reserve’s pending helicopter drop of cash will be banks, not ordinary people or companies.
- En kund sa till mig, ”förr lånade jag till 14 procent, i dag lånar jag till 3-4 procent. Och jag är mer orolig i dag”.
How to solve the financial crisis?
The gap between short-term interest rates and long-term bond yields is extraordinarily high.
That allows banks, in particular, to borrow at low rates from the central banks and invest the proceeds in government debt;
In fact, banks have virtually ceased to function as financial intermediaries since 2008, preferring to use the zero cost of money provided by the Fed to finance purchases of Treasury securities instead of supplying loans to households and small businesses.
Wall Street bonuses fell to $33.2bn, the New York state comptroller said.
De fem största amerikanska investmentbankerna har betalat bonusar om totalt 39 miljarder dollar,
This huge monetary expansion perpetrated by the Federal Reserve has contributed to the biggest speculation in every conceivable asset category and has been accompanied by unprecedented hubris, greed and outright fraud.
In 2007 there was one economic event of such overwhelming significance that it dwarfed all the others - the credit crunch. - Who was to blame?, Roger Bootle
The collapse of the modern day banking system, Mike Whitney
Most estimates put the eventual tally for defaults by America’s subprime borrowers at $200 billion-300 billion, The Economist
Foreign funds lead $21bn US bank rescue
Citigroup and Merrill Lynch turned to foreign investors for an unprecedented bail-out on Tuesday, saying they would raise a total of $21.1bn in fresh capital – mainly from outside the US – to shore up balance sheets devastated by the subprime mortgage crisis.
Citigroup also unnerved investors by warning of losses to come from consumer loans as it revealed a 40 per cent dividend cut, a $9.83bn fourth-quarter loss, $18bn in subprime-related credit writedowns and remaining exposure of $37bn to subprime mortgages.
Citi, Merrill Lynch and UBS could face $10 billion in further writedowns tied to last week’s downgrade of bond insurers Ambac and MBIA,
S&P downgrades Ambac, MBIA
If September 11, 2001 was the day that we had to reassess our ideas about America's role in world politics,
Lehman bondholders could lose $110bn
Why the Fannie and Freddie bail out should not be repeated in Britain
With one bound, they were free. The pound plunged, interest rates dropped - and the roof did not fall in.
Last week, as the British Government floundered and the credit crunch ground on, the US government effectively nationalised 50pc of the mortgage market and in the process increased the US government debt by 40pc of gross domestic product. And the markets did not blink - or rather, they smiled.
Nightmare on Wall Street
Lehman Bros files for bankruptcy
What if Lehman files for bankruptcy and nothing much happens?
Street Prepares for Worst As Lehman Deal Stalls
Still others can't believe there won't be a last minute compromise. One person with knowledge of Sunday's deliberation's called it "a big game of chicken" with all sides digging in their heels.
Barclays has pulled out of talks to buy most of Lehman Brothers, the BBC has learned.
Lehman Brothers' stock, which fell another 13.5% Friday, is down 94% so far this year.
Barclays was last night considering a direct plea from Hank Paulson, the US Treasury Secretary, to assemble a cut-price rescue bid for Lehman Brothers
Paulson, the former head of Goldman Sachs, has urged Barclays and a number of other large financial institutions to intervene in the Lehman crisis, which is threatening the future of one of Wall Street's most venerated businesses.
Lehman Brothers plunged 45% - its shares ended down $6.36 to $7.79
Can Lehman raise the capital it needs?
Lehman Brothers is raising $6bn, expects a $2.8bn loss
The bank's public offering of common stock and convertible preferred stock will be aimed at mainly US investors, analysts said.
- UBS balansomslutning är nästan fem gånger så stor som Schweiz BNP
UBS tillhör den grupp banker som gjort de allra största förlusterna på bolånekrisen i USA. Och banken har tentakler i hela det globala finanssystemet, vilket gör att en kollaps skulle få stora konsekvenser överallt, även i Sverige.
UBS will raise 6bn Swiss francs ($5.3bn) from the Swiss government.
Credit Suisse also said that the Qatar Investment Authority was among the group of global investors that had helped the bank to shore up its finances.
UBS reported a loss of $329m for the April to June period, despite hopes it might break even in the quarter.
UBS seeks $15.1B in new capital
UBS writedowns have reached a staggering $40 billion in the past nine months, the largest reported by any bank to date.
Switzerland's Federal Banking Commission (EBK) is to investigate how UBS became one of the banking sector's worst victims of the credit crunch, BBC
UBS faces rebellion over fund injection, FT
How foreigners are buying up our banks
It's not too harsh to conclude now, in fact, that bankers essentially threw away their families' life savings on reckless real-estate gambles and that with their shares down 50%-plus and their capital bases in tatters, they're now lying in the proverbial gutter begging for a hand from passers-by. Brother, can you spare a billion?
The purchases were made via convertible securities that pay stunning yields of 9% and 11%, which essentially classify UBS and Citigroup as junk-bond-level credits.
A mere 5.4% decline in the value of Citigroup's assets would make Citigroup insolvent.
This isn't just a mortgage or housing crisis.
What we are witnessing is essentially the breakdown of our modern day banking system,
Goldman Sachs, began reducing its inventory of mortgages and mortgage securities late last year.
Why Do Financial Firms Take Too Much Risk?
The Next Dominos:
Banks Gone Wild
It is only halfway through November but I think we can already declare the winner of the 2007 Quote of the Year competition. It is Chuck Prince, the former chairman and chief executive of Citigroup.
The Federal Deposit Insurance Corp. plans to file a civil suit against at least three former Washington Mutual executives,
JPMorgan Chase will acquire deposits and some branches
Under the government take-over, the value of WaMu’s common equity and preferred shares would be wiped out
Under the deal, which was shepherded by federal banking regulators, JPMorgan Chase will acquire all the banking operations of the Seattle-based WaMu, as well as its assets and financial contracts.
The Office of Thrift Supervision shut down the bank on Thursday and named the FDIC as receiver. WaMu is the 13th bank to fail so far this year.
WaMu är en S&L - en släkting till Swedbank
- What the heck's happening to our financial system?
The most sobering thought about the credit crunch so far is that it's happened without anything approaching a recession. Difficulties in the financial system could slow the economy and that in turn that would create new losses at the banks.
What we saw this summer is something we've seen before and will undoubtedly see again. The sell-off was predictable and avoidable.
A mere 5.4% decline in the value of Citigroup's assets would make Citigroup insolvent.
The US subprime lending fiasco and its repercussions on Northern Rock have brought back questions about the banking system - questions such as “What is a bank?” and “What is money?”
The US subprime lending fiasco and its repercussions on Northern Rock and international credit markets in general have brought back questions about the banking system that most macroeconomists had hoped were over and long forgotten. The confidence of what are called, rather disdainfully, “retail depositors” is not the only problem of the world monetary system, but it is still the bedrock on which everything else stands. Outside the US, deposit insurance is rarely complete and there are usually delays before reliable cheques denominated in central bank money duly arrive. In the UK it is only since October 1 this year that the Financial Services Compensation Scheme has been extended to cover eligible deposits of up to £35,000 and the new official discussion paper leaves open the possibility of raising the amount. But the implications of sweeping guarantees have not been digested. They have the dubious feature of bringing questions such as “What is a bank?” and “What is money?” into practical politics.
In fact, the fractional reserve system was severely queried by some US economists in the aftermath of the Great Depression when one-quarter of the US money stock disappeared almost overnight – a more important event than the better-known 1929 stock exchange crash.
Henry Simons, author of A Positive Program for Laissez Faire, proposed the creation of pure deposit-taking institutions holding 100 per cent reserves whose assets had to be held in currency or Federal Reserve deposits. So, barring a break-up of the US or similar disasters, a depositor could always get his or her money back and quickly. Other financial institutions, whether or not called banks, would carry on paying interest and looking for more profitable investments. But the ordinary citizen would know that he was on his own if he invested in them and learn that higher returns came with higher risk.
We urgently need a more open approach than that of the City of London figures who oppose bail-outs and government support for all other industries but condemn the Bank of England for not doing secret deals to rescue threatened financial institutions.
How do the big banks differ from Northern Rock?
Sir, I would like to thank the FT for your reports on the issues relating to the credit crunch and its potential impact on the global economy. In particular I was shocked to read about special investment vehicles (SIVs) and “SIV-lites”, off-balance-sheet vehicles used by big banks essentially to circumvent banking regulations on maintaining reserves against lendings, and sound liquidity management, such as not covering long-term commitments with short-term fundings, which everyone with a little bit of knowledge would know is risky to the survival of a bank. What is the difference between the big banks and Northern Rock?
Now a more shocking development is the talk about creating a seeming master SIV by the big banks endorsed by the US Treasury. How could the banks be allowed to perpetuate such self-destructive activities, which the SIVs and SIV-lites have proven to be?
The public sector subsidises the banks risk-taking. It does so because banks provide a utility.
Mervyn King, governor of the Bank of England,
The “Minsky moment” in financial markets – the point where credit supply starts to dry up,
The decision to guarantee deposits raises large questions.
Mervyn King, governor of the Bank of England,
For decisions on how to intervene in markets, however, Mr King bears responsibility.
The only reason for intervening, then, would be “strong grounds for believing that the absence of ex post insurance would lead to economic costs on a scale sufficient to ignore the moral hazard in future.” Since then Mr King must have decided that the threat to the financial system posed by the unwillingness of banks to lend had become too dangerous. By advancing three-month money against mortgagecollateral,the Bank has, as a result, abandoned two of its principles for acting as lender of last resort.
Consider, not least, that banks exposed themselves to the risk of illiquidity from which they expect a public rescue, at no charge.
Mr King’s “mistake” – what critics call his “inflexibility” – was the view that banks should no more enjoy a rescue than other businesses. Fortunately, the Bank’s provision of liquidity is not yet free. Let Mr King stick to his guns on the penalty. If not, still more dangerous crises will come.