"... Come back to reality! The present international financial systems can not be rescued! It is now too late for an attempt to rescue those markets themselves; they are far, far gone, and could not be brought back to life in their present form. Our only sane alternative, is to effect the continuity of day-to-day, physical-economic life of the planet, through a process of reorganization in bankruptcy: a reorganization which brings forth a global fixed-exchange-rate credit-system, freed from the carcass of a ruined, lunatic, floating-exchange-rate monetary-system..." Why The Economists Failed: Economy & Creativity | LaRouchePAC
Will someone please explain to me...with credit lines like the governments are offering, why would any of the banks want to or need to borrow from each other? Lending to each other carries too much risk, and now it makes no sense to borrow from each other, either. Am I missing something here?
unirealist, I think the poster above who wants us to go read Lyndon Larouche's ideas just woke up from the 60's, too. It's been that long, at least, since Larouche has been relevant.
A power grab by governments of the world to give power over to themselves by continuing to shape things so the banks rely further and further upon their good graces?
I wish I had unlimited liquidity for all the assets that I own. I have boxes of Tier 3 assets in my garage. I could serve as the banker to the world if you'd let me.
It would warm my heart to read a Fed press release demanding transparency, discussing solvency and resolving to never allow the banking system to fail us again.
Unfortunately, until they admit the problem is solvency and not liquidity
--Comrade Beach
They can't admit that. To admit the problem is the first step to dealing with it. And if they deal with it, the entire heirarchy of The-Powers-That-Be will topple.
If one of the main concerns is confidence, isn't this a good idea? Not that is solves everything and we can all go watch baseball, but liquidity was pumping anyway, so the costs might be the same with a better psychological effect.
"In many depictions golems are inherently perfectly obedient. However, in its earliest known modern form the story has Rabbi Eliyahu of Chełm creating a golem that became enormous and uncooperative. In one version of this the rabbi had to resort to trickery to deactivate it, whereupon it crumbled upon its creator and crushed him."
They can't admit that. To admit the problem is the first step to dealing with it. And if they deal with it, the entire heirarchy of The-Powers-That-Be will topple.
The thought is inconceivable.
unirealist | 10.13.08 - 2:39 am | #
Good point. That, and deflation vs inflation would bankrupt the U.S. Ben will inflate away our debt. Question is, when does hyperinflation kick in, before or after he's relieved of his job?
"Comrade Beach writes:
Liquidity.
...
We need money."
I would put it a different way: we need value.
Banks and governments can do a lot of things to create money, debts, etc. But they are powerless to create value. Only production can do that.
The best a government can do is provide the environment in which creating value can efficiently occur. (Good means of transactions, infrastructure, low crime, low corruption, etc.) But it takes time. And, IMHO, an economy based on consumption is not one that can efficiently create value.
"Hank's Mom - did you read Conjure's memo? He makes that point."
I didn't see Conjure's memo, but I have seen that very same point made in several places. To my untrained treasury-secretary's-mom-like mind, it makes sense. If you make it too easy and attractive to borrow short term from your government, then you will find it difficult and painful to ever ween them off. It kind of makes sense, in a simple, capitalistic, supply-and-demand sort of way, doesn't it?
"Britain was on Sunday preparing to pump about £39bn into three of the countrys largest banks in a broad-based recapitalisation that could see the UK government end up with controlling stakes in Royal Bank of Scotland and HBOS."
Under the plans being discussed, RBS is likely to raise as much as £20bn in fresh capital. Of this, £15bn would come in the form of a placing of ordinary shares with the government, with the remainder in the form of preferred shares. Existing RBS shareholders will given an opportunity to buy the shares, but if they do not the government is expected to be left with a controlling stake in the bank.
Sir Fred Goodwin, RBSs embattled chief executive, is expected to step down, to be replaced by Stephen Hester, the former banker who is currently chief executive of British Land. Sir Fred will become by far British bankings biggest casualty of the credit crisis.
HBOS is expected to raise around £12bn, of which £9bn would be in the form of ordinary shares while Lloyds TSB - with which it is due to merge - is expected to raise a total of around £7bn. The capital increase and the prospect of a large government shareholding may also prompt Lloyds to rethink the terms of its planned takeover of HBOS, announced last month.
Barclays executives were also last night locked in negotiations with the government over its capital needs. The bank is maintaining it will raise around £7bn in new capital but is asking for the time to find the money without calling on the government.
Last night, executives and officials were debating how many board seats the government would demand if it ends up with a large shareholding in the banks.
The fundraising talks come just a few days after the government unveiled a £400bn bailout package designed to recapitalise the banks and unfreeze the inter-bank lending markets in an effort to avert a severe recession. However, the recapitalisation envisaged in the earlier scheme would only have given the government preferred shares with no voting rights.
The speed of the latest discussions has surprised some bank executives, who believed they had been given until the end of the year to finalise their plans. However, the continued sell-off in the markets last Thursday and Friday forced ministers and regulators to speed up the discussions.
The authorities are keen to put an end to questions about the banks capital reserves in order to restore confidence in the system and ensure they continue lending through an economic downturn. The proposed recapitalisation is designed to given the banks sufficient reserves to withstand even a severe economic downturn.
Mike Trippitt, analyst at Oriel Securities, said: The wild card is the amount of further writedowns as this will alter how much banks need to raise in terms of fresh capital.
The government is expected to inject equity in the banks by creating a Bank Reconstruction Fund, which could provide at least £50bn of capital.
Wow. just checked the WSJ, FT, and bloomberg and you scooped them all with this fed announcement. My god, if you guys were around while I was the leader of all capitalism(tm), i wouldn't have made all the mistakes it turns out I made.
Hank's mom - CB posits that LIBOR is gamed, and lists the 16 institutions that form the committee. You can find his paper near the end of the thread a couple threads back. HBOS is one of the institutions, btw.
Kimberly-Clark has announced a shortage of Depends, based on an unprecedented demand from Washington, DC. A spokesperson from K-C commented, "I've never seen anything like it. Apparently, a lot of folks 'inside the beltway' have 'got religion.'"
Agreed. Sadly, we're living in a world where that demands the propagation of a badly imbalanced system. Even today, leading economists say that getting home values to rise is critical to restoring the system.
When our economy has turned effectively into mutual masturbation, how is anyone going find time to do productive work?
1) Simply applying lots of excess lubricant to the system so that the imminent crash is just a little less bad?
or 2) Getting ready to truly inflate currencies to solve the debt problems?
This is the big question, isn't it? My best guess is they're going to over-do the reaction to the financial mess, and after this period of deflation we're going to see severe inflation. Only a guess, of course.
"The wild card is the amount of further writedowns as this will alter how much banks need to raise in terms of fresh capital"
I assume that they won't assume a value of "zero" for the "toxic" securities...so there will always be a question on how much more they may ever need to write down, meaning that there will always be a degree of uncertainty, which is the problem they are trying to deal with in the first place (excessive downside uncertainty).
The trick will be to get that level of uncertainty down to a level that is acceptable to a majority of the investors and financiers. It will be interesting to see how well they gauge what the majority think "acceptable" is.
Comrade Tech Sargent Chen writes:
"Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction."
Where can one find the definition of "appropriate collateral?"
Exit | 10.13.08 - 2:45 am |
That one left me scratching my head also. Especially considering the nature of what these folks call 'assets'.
Comrade Tech Sargent Chen | 10.13.08 - 2:48 am | #
Can anyone tell me why the Bank of Canada isn't included in that list? I'm just curious as to people's thoughts as I was up until recently living abroad there and I used to associate with some economists at the BoC (who I know had a strong ideological position against helping "the bad guys"). Is it that they just can't do much anyway? Or that their banks largely avoided much of this mess?
The Fed also never mentions Credit Default Scams/Swaps. Unfortunately until they deal with that mess we will be mired in a bear market and subject to systemic meltdown. Insurance without reserves is a scam. Why arent the issuers of CDS being arrested? Not to be too naive, but do traffic laws even apply to Wall Street types?
Is it that they just can't do much anyway? Or that their banks largely avoided much of this mess?
Canada avoided quite a bit of the US subprime.
Canada is still in good financial health as it cut its deficit in the 90s and has been benefitting from the commodity boom.
Real estate is still going up in many parts of the country. It has started deflating out West but I think we are still a couple of quarters away from Cdn banks starting to see losses on their mortgages. And currency drops are just starting to hit.
Cdn still think they're immune but I think they're going to get caught with their pants down!
Straying from tactical observations for a moment....Is the western world trying to expeditiously fence off their prime financial assets via government intervention before opening up the game to SWF participation?
If a definition of "bubble" is putting too much money in one asset, doesn't infusion of printed money by government's into their own currencies constitute the new bubble?
Send Lawyers guns and money....Dad get me out of this....HUH!!
Half a Quadrillion in CDS's out there.
How much ink and paper does that take to bail out? They better start clear cutting all the forests to make the paper.
first, where is Nemo
So what does this mean exactly? Are they admitting that they will inflate the debt away?
Inflation is not far off now.
Joe Klein's conscience, it is all sterilized, so it isn't inflationary.
Still waiting for an article on the UK recapitalizaton.
Best to all.
"... Come back to reality! The present international financial systems can not be rescued! It is now too late for an attempt to rescue those markets themselves; they are far, far gone, and could not be brought back to life in their present form. Our only sane alternative, is to effect the continuity of day-to-day, physical-economic life of the planet, through a process of reorganization in bankruptcy: a reorganization which brings forth a global fixed-exchange-rate credit-system, freed from the carcass of a ruined, lunatic, floating-exchange-rate monetary-system..."
Why The Economists Failed: Economy & Creativity | LaRouchePAC
It means I can finally go to sleep
A hundred million in quasi-money has evaporated.
They're replacing it.
But that only works if the credit bubble can be reflated. If it can't be, we get hyperinflation.
And I've got insomnia it seems.
If they could only offer unlimited solvency, everything would be as right as rain.
Make that a hundred TRILLION.
I just woke up from the Sixties, a la Austin Powers.
Unlimited job security for unlimited crooks?
Will someone please explain to me...with credit lines like the governments are offering, why would any of the banks want to or need to borrow from each other? Lending to each other carries too much risk, and now it makes no sense to borrow from each other, either. Am I missing something here?
And good luck reflating. Everybody's wise to those tricks now.
The new financial instruments are no longer "exotic."
Now they're "toxic."
"Fool me twice... won't get fooled again!" --GWB
unirealist, I think the poster above who wants us to go read Lyndon Larouche's ideas just woke up from the 60's, too. It's been that long, at least, since Larouche has been relevant.
This is just sad.
They are desperately trying to get credit to circulate again.
Unfortunately, until they admit the problem is solvency and not liquidity, they won't begin to develop programs that truly help.
OTOH, futures are looking good.
CNBC Europe saying lending to homebuyers is a condition of the recap package
An interesting thought:
A power grab by governments of the world to give power over to themselves by continuing to shape things so the banks rely further and further upon their good graces?
I want to believe we are not this blind.
RhodesianGreenbackinAZ:
That was precisely why we are in this situation...Now, they want to add fuel to the fire again.....
"Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction."
Buehler?
And at "competitive rates" translation: artificially low
Mentalic writes:
RhodesianGreenbackinAZ:
That was precisely why we are in this situation...Now, they want to add fuel to the fire again.....
Mentalic | 10.13.08 - 2:35 am | #
I wish I had unlimited liquidity for all the assets that I own. I have boxes of Tier 3 assets in my garage. I could serve as the banker to the world if you'd let me.
It would warm my heart to read a Fed press release demanding transparency, discussing solvency and resolving to never allow the banking system to fail us again.
Instead, we're rebuilding FRANKENSTEIN.
will this do?
Royal Bank of Scotland under state control - Times Online
BTW seems Gordo is blind in one eye and can barely see out the other
hmmm....
Yep, we got coons in the CM.
Hank's Mom - did you read Conjure's memo? He makes that point.
I'm trying to wrap my head around the "unlimited" part of this statement.
Oh - and it appears that CR never sleeps, either...
"UK Announcement Before 7 AM BST, Stock Exchange to Remain Open"
Well....anyone have a link? It's now 7:33am.
.
What's a few dozen trillion between friends?
.
Unfortunately, until they admit the problem is solvency and not liquidity
--Comrade Beach
They can't admit that. To admit the problem is the first step to dealing with it. And if they deal with it, the entire heirarchy of The-Powers-That-Be will topple.
The thought is inconceivable.
This is a good thing.
Don't ask me why.
I don't know.
Liquidity.
We get it.
We don't need it.
We need money.
There is a difference.
230 visitors at 11:34 pacific time. whoa.
Ever look at a digital clock upside down? 1134 reads "hell". Just sayin...
The devolution begins, the Fed just went all in.
Out of bullets, out of scams, out of time/luck whatever you wish.
I am not pleased. I am however entertained.
If one of the main concerns is confidence, isn't this a good idea? Not that is solves everything and we can all go watch baseball, but liquidity was pumping anyway, so the costs might be the same with a better psychological effect.
Hank Paulson's Mom, it apparently has been released but I can't find anything yet online.
It sounds like they are investing in RBS and will invest in Lloyds TSB abd HBOS after the merger.
Best to all.
for comrade beach:
"In many depictions golems are inherently perfectly obedient. However, in its earliest known modern form the story has Rabbi Eliyahu of Chełm creating a golem that became enormous and uncooperative. In one version of this the rabbi had to resort to trickery to deactivate it, whereupon it crumbled upon its creator and crushed him."
Golem - Wikipedia, the free encyclopedia
They can't admit that. To admit the problem is the first step to dealing with it. And if they deal with it, the entire heirarchy of The-Powers-That-Be will topple.
The thought is inconceivable.
unirealist | 10.13.08 - 2:39 am | #
Good point. That, and deflation vs inflation would bankrupt the U.S. Ben will inflate away our debt. Question is, when does hyperinflation kick in, before or after he's relieved of his job?
"Comrade Beach writes:
Liquidity.
...
We need money."
I would put it a different way: we need value.
Banks and governments can do a lot of things to create money, debts, etc. But they are powerless to create value. Only production can do that.
The best a government can do is provide the environment in which creating value can efficiently occur. (Good means of transactions, infrastructure, low crime, low corruption, etc.) But it takes time. And, IMHO, an economy based on consumption is not one that can efficiently create value.
"Hank's Mom - did you read Conjure's memo? He makes that point."
I didn't see Conjure's memo, but I have seen that very same point made in several places. To my untrained treasury-secretary's-mom-like mind, it makes sense. If you make it too easy and attractive to borrow short term from your government, then you will find it difficult and painful to ever ween them off. It kind of makes sense, in a simple, capitalistic, supply-and-demand sort of way, doesn't it?
CR -
"Britain was on Sunday preparing to pump about £39bn into three of the countrys largest banks in a broad-based recapitalisation that could see the UK government end up with controlling stakes in Royal Bank of Scotland and HBOS."
FT.com / In depth - UK to inject £39bn into banks
"Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction."
Where can one find the definition of "appropriate collateral?"
more from the ft -
Under the plans being discussed, RBS is likely to raise as much as £20bn in fresh capital. Of this, £15bn would come in the form of a placing of ordinary shares with the government, with the remainder in the form of preferred shares. Existing RBS shareholders will given an opportunity to buy the shares, but if they do not the government is expected to be left with a controlling stake in the bank.
Sir Fred Goodwin, RBSs embattled chief executive, is expected to step down, to be replaced by Stephen Hester, the former banker who is currently chief executive of British Land. Sir Fred will become by far British bankings biggest casualty of the credit crisis.
HBOS is expected to raise around £12bn, of which £9bn would be in the form of ordinary shares while Lloyds TSB - with which it is due to merge - is expected to raise a total of around £7bn. The capital increase and the prospect of a large government shareholding may also prompt Lloyds to rethink the terms of its planned takeover of HBOS, announced last month.
Barclays executives were also last night locked in negotiations with the government over its capital needs. The bank is maintaining it will raise around £7bn in new capital but is asking for the time to find the money without calling on the government.
Last night, executives and officials were debating how many board seats the government would demand if it ends up with a large shareholding in the banks.
The fundraising talks come just a few days after the government unveiled a £400bn bailout package designed to recapitalise the banks and unfreeze the inter-bank lending markets in an effort to avert a severe recession. However, the recapitalisation envisaged in the earlier scheme would only have given the government preferred shares with no voting rights.
The speed of the latest discussions has surprised some bank executives, who believed they had been given until the end of the year to finalise their plans. However, the continued sell-off in the markets last Thursday and Friday forced ministers and regulators to speed up the discussions.
The authorities are keen to put an end to questions about the banks capital reserves in order to restore confidence in the system and ensure they continue lending through an economic downturn. The proposed recapitalisation is designed to given the banks sufficient reserves to withstand even a severe economic downturn.
Mike Trippitt, analyst at Oriel Securities, said: The wild card is the amount of further writedowns as this will alter how much banks need to raise in terms of fresh capital.
The government is expected to inject equity in the banks by creating a Bank Reconstruction Fund, which could provide at least £50bn of capital.
Wow. just checked the WSJ, FT, and bloomberg and you scooped them all with this fed announcement. My god, if you guys were around while I was the leader of all capitalism(tm), i wouldn't have made all the mistakes it turns out I made.
Hank's mom - CB posits that LIBOR is gamed, and lists the 16 institutions that form the committee. You can find his paper near the end of the thread a couple threads back. HBOS is one of the institutions, btw.
Breaking news:
Kimberly-Clark has announced a shortage of Depends, based on an unprecedented demand from Washington, DC. A spokesperson from K-C commented, "I've never seen anything like it. Apparently, a lot of folks 'inside the beltway' have 'got religion.'"
Weather Helm:
Agreed. Sadly, we're living in a world where that demands the propagation of a badly imbalanced system. Even today, leading economists say that getting home values to rise is critical to restoring the system.
When our economy has turned effectively into mutual masturbation, how is anyone going find time to do productive work?
Where can one find the definition of "appropriate collateral?"
They'll find out as soon as they try to borrow.
"Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction."
Where can one find the definition of "appropriate collateral?"
Exit | 10.13.08 - 2:45 am |
That one left me scratching my head also. Especially considering the nature of what these folks call 'assets'.
Comrade Beach -
Wait- that's NOT productive? Da.m.n.n.n.
RE: appropriate capital
1) Can you fog a mirror?
) Can you hear thunder?
3) Can you see lightning?
(Note: two out of three needed to constitute appropriate capital)
"appropriate collateral?"
Mostly MBS.
Good night all. Have to wake up early again.
CR: Thanks once again for a thoroughly engaging week.
So I have to wonder, are the powers that be:
1) Simply applying lots of excess lubricant to the system so that the imminent crash is just a little less bad?
or 2) Getting ready to truly inflate currencies to solve the debt problems?
This is the big question, isn't it? My best guess is they're going to over-do the reaction to the financial mess, and after this period of deflation we're going to see severe inflation. Only a guess, of course.
Slightly OT from the Economist:
Premium content | Economist.com
"Hedge funds struggle to cope"
OK, some data is out and I've posted it.
Best to all.
No, no, I can't do another thread.
"The wild card is the amount of further writedowns as this will alter how much banks need to raise in terms of fresh capital"
I assume that they won't assume a value of "zero" for the "toxic" securities...so there will always be a question on how much more they may ever need to write down, meaning that there will always be a degree of uncertainty, which is the problem they are trying to deal with in the first place (excessive downside uncertainty).
The trick will be to get that level of uncertainty down to a level that is acceptable to a majority of the investors and financiers. It will be interesting to see how well they gauge what the majority think "acceptable" is.
Comrade Tech Sargent Chen writes:
"Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction."
Where can one find the definition of "appropriate collateral?"
Exit | 10.13.08 - 2:45 am |
That one left me scratching my head also. Especially considering the nature of what these folks call 'assets'.
Comrade Tech Sargent Chen | 10.13.08 - 2:48 am | #
That's easy... plenty of toxic assets out there.
Why does it seem so difficult to do bailouts and create money out of thin air when in reality it is easier then making apple pie?
Can anyone tell me why the Bank of Canada isn't included in that list? I'm just curious as to people's thoughts as I was up until recently living abroad there and I used to associate with some economists at the BoC (who I know had a strong ideological position against helping "the bad guys"). Is it that they just can't do much anyway? Or that their banks largely avoided much of this mess?
I am not pleased. I am however entertained.
Volker the Viking | 10.13.08 - 2:41 am | #
I'm pretty sure this sums up my feelings for about, oh....the last year. Well done, sir.
"Volker the Viking writes:
RE: appropriate capital
1) Can you fog a mirror?
) Can you hear thunder?
3) Can you see lightning?
(Note: two out of three needed to constitute appropriate capital)"
0 out of 3 if you bring a note from Hank's Mom.
The bubble just got bigger. Scary.
The Fed also never mentions Credit Default Scams/Swaps. Unfortunately until they deal with that mess we will be mired in a bear market and subject to systemic meltdown. Insurance without reserves is a scam. Why arent the issuers of CDS being arrested? Not to be too naive, but do traffic laws even apply to Wall Street types?
Got Gold?
Is it that they just can't do much anyway? Or that their banks largely avoided much of this mess?
Canada avoided quite a bit of the US subprime.
Canada is still in good financial health as it cut its deficit in the 90s and has been benefitting from the commodity boom.
Real estate is still going up in many parts of the country. It has started deflating out West but I think we are still a couple of quarters away from Cdn banks starting to see losses on their mortgages. And currency drops are just starting to hit.
Cdn still think they're immune but I think they're going to get caught with their pants down!
"And currency drops are just starting to hit."
I meant commodity.
Straying from tactical observations for a moment....Is the western world trying to expeditiously fence off their prime financial assets via government intervention before opening up the game to SWF participation?
So I guess that bagholder losses in the US mortgage market are now expected to be offset by gains in the US stock market. Go long.
If a definition of "bubble" is putting too much money in one asset, doesn't infusion of printed money by government's into their own currencies constitute the new bubble?
Unlimited liquidity = unlimited inflation.
Brilliant! We can fix the problems of too much credit with mroe credit AND devalue your savings and salary in the process!
Send Lawyers guns and money....Dad get me out of this....HUH!!
Half a Quadrillion in CDS's out there.
How much ink and paper does that take to bail out? They better start clear cutting all the forests to make the paper.
unlimited liquidity = lots of money printing
So, what happens when they do this and the banks still don't start lending?
And fewer want to borrow?