Central Banking 101: the EONIA heartbeat | 178 comments (178 topical, editorial, 0 hidden)

Re: Other views: Trichet (4.00 / 3)

if the ECB hasn't put an end to the "emergency" liquidity regime, it's because something untoward might happen if it did

It's a good sign that after 3 years of crisis the Commission and the ECB understand this is not a liquidity crisis but a solvency crisis. However, it's the national governments that have to do the restructurings.

Spain is forcing a recapitalization of the Cajas. Maybe the estimates of the amount of capital needed are optimistic, but they have restructured two Cajas, forced greater transparency in reporting from the banking sector, ensured at least on paper the system is already sufficiently capitalised for Basel III, and taken the political bull by the horns and told the political parties and the regional governments that the days of political control over the Cajas are over.

Germany is in denial, opposes transparency of stress tests, snipes at the Basel committee and is arguing for a resolution of the wrong crisis.

So, in what may be my last act of "advising", I'll advise you to cut the jargon. -- My old PhD advisor, to me, 26/2/11

by Carrie (migeru at eurotrib dot com) on Tue Mar 1st, 2011 at 04:51:51 AM EST
[ Parent ]

Re: Other views: Trichet (4.00 / 3)

Migeru:

It's a good sign that after 3 years of crisis the Commission and the ECB understand this is not a liquidity crisis but a solvency crisis

It is good that they finally admit it.

I think it is safe to assume that central bankers have known this for some time, considering this cable:

US embassy cables: Mervyn King says in March 2008 bailout fund needed | Business | guardian.co.uk

Since last summer, the nature of the crisis in financial markets has changed. The problem is now not liquidity in the system but rather a question of systemic solvency, Bank of England (BOE) Governor Mervyn King said at a lunch meeting with Treasury Deputy Secretary Robert Kimmitt and Ambassador Tuttle. King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there's a coordinated effort to possibly recapitalize the global banking system.

Note the priority of a letting banks avoid the stigma of the consequences of their actions. Part of avoiding that stigma may very well be not to admit the systemic insolvency while working to make sure others (greeks, irelanders) carry most of the burden.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Mar 1st, 2011 at 06:37:50 AM EST
[ Parent ]

Re: Other views: Trichet (4.00 / 2)

This one never gets old.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Mar 1st, 2011 at 08:35:41 AM EST
[ Parent ]

Re: Other views: Trichet (none / 1)

A swedish kind of death:

King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there's a coordinated effort to possibly recapitalize the global banking system.

Three years later, here we are. No progress on either count.

So, in what may be my last act of "advising", I'll advise you to cut the jargon. -- My old PhD advisor, to me, 26/2/11

by Carrie (migeru at eurotrib dot com) on Tue Mar 1st, 2011 at 08:49:32 AM EST
[ Parent ]

Re: Other views: Trichet (none / 1)

The only way banks have found of disposing of unwanted paper is to sell it to the taxpayers via corrupt and/or incompetent politicians and regulators, as in Ireland, the USA, etc. Writing down any significant portion of the toxic debt would show them to be insolvent. In the Euro-zone, a bank that wrote down bad debt would have to be "resolved" by the state. That would likely lead to sovereign default as the individual European states are not in good shape either. So, as in the USA, there is endless de facto regulatory forbearance, complete with sham "stress tests."

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 2nd, 2011 at 09:03:54 PM EST
[ Parent ]

Re: Other views: Trichet (none / 0)

See here: (from December 1st, 2010)

Commissioner Almunia:
"Our key message is that banks have to prepare for a return to normal market mechanisms without State support.

So, in what may be my last act of "advising", I'll advise you to cut the jargon. -- My old PhD advisor, to me, 26/2/11

by Carrie (migeru at eurotrib dot com) on Tue Mar 1st, 2011 at 08:58:24 AM EST
[ Parent ]

Central Banking 101: the EONIA heartbeat | 178 comments (178 topical, 0 editorial, 0 hidden)

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