ECB lends almost a half a trillion Euros to ease EU bank lending

December 21, 2011 by · Leave a Comment
Filed under: Credit News 

First off, Happy Holidays.  It has been quite busy for me this time of year.   I heard about this story in the morning and thought it was a bridge to no-where because these “loans” are repurchase agreements or REPOs.  Again they are trying to solve a debt crisis by issuing more debt.  On top of that, they are basically giving away free money to creditors that made bad decisions in the hope they will be able to ride the “float” (interest) all the way to a solid balance-sheet.

Its the worst form of social welfare you can have.  When sophisticated people invest capital, there has to be real risk of loss or they will not be prudent with their money.  Now this is not just a rant against another bad program.

I was watching Bloomberg TV on the Pimm Fox show today and maybe it was my more conspiratorial side but they had an expert on the show, explaining this deal and talking about its merits.    Near the end of the segment, they were talking about senior creditors and the guest mentioned the fact that they had to pledge assets to secure these loans and how these loans were structured, the ECB was now in fact the most senior creditor and this was a little talked about fact.  At that time, the sound cut out while he was finishing his point.  Maybe it was just a technical glitch but it was very timely and I really wanted to hear what he finished with.   Maybe it is just me, but I wonder if the other creditors to these 500+ banks understand that has just happened if this is the fact in the matter?

New York Times – After more than a year of frustrating and mostly fruitless summit meetings of European political leaders, the European Central Bank appears to have found a more promising way to ease the euro zone crisis: give money to banks at bargain-basement rates.

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ECB must buy ‘hundred of billions’ of bonds to tame Europe’s debt crisis

June 21, 2010 by · Leave a Comment
Filed under: Global News 

This situation in the EU is starting to get pretty dire with interest rates on more Euro Zone country bonds rising much higher than the flagship German economy.  In the article the European Central Bank said that this purchase operations would be a sterilized program.  This means that these operations should not impact the money supply by increasing it.

If you look at how they are going to implement the program, this is flat out not true.  They plan on purchasing the bonds outright from investors and governments alike.  When you purchase these bonds, they are giving cash or equivalent  in exchange.  This money can be spent at that point on any number of endeavors.  That does not meet the criteria of sterilized.  Even if they just create the credits now to purchase those bonds, in the future you are creating inflation when those bonds come due and you either need to pay them off or create even more bonds (debt obligations) and roll over the debt.  There is only 3 options with any debt, pay off, default or refinance.  All these programs created always fall under one of three of these.

I am very eager to see the EU’s plan to prevent a double-dip recession in July.

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Libor Show Doubts on EU Trillion Dollar Bailout Package

May 12, 2010 by · Leave a Comment
Filed under: Global News 

It has been really surprising with the size of the Euro support package that is reported at being $1 trillion dollars is not calming the markets and sovereign debt investors.  All the experts do not think this will be enough to cure the debt issue.

Most experts still think that countries like Greece, Portugal and Spain will need to restructure their debt and that means that a haircut will be taken on some of these bond issues.  If a trillion dollars does not help, then we are at a point that we might actually be on the last legs on a bear market rally and we are in for some serious declines to create a real support.  The only other option is that we are in for some serious inflation.

The LIBOR (London Inter-bank Lending Rate) is edging up with all this uncertainty.  It will be important to watch over the next 2-4 weeks if the rate rises and gets closer to the rates we saw last March.

Bloomberg – Money markets and the cost of protecting bank bonds from losses show investors are concerned Europe’s almost $1 trillion rescue plan may not be enough to contain the region’s sovereign debt crisis.

The Markit iTraxx Financial Index of credit-default swaps on European banks and insurers rose to 38 basis points more than the Markit iTraxx Europe Index tied to investment-grade companies from 31 yesterday. While the gap narrowed from 58 basis points before European leaders agreed to the rescue plan, the bank index on average has traded 10 basis points less the past three years. A measure of banks’ reluctance to lend also rose to more than three times the level from March.

The loan package for debt-laden nations including Greece is part of an attempt to stop a decline in the euro and stave off a sovereign default that would threaten recovery from the worst global recession since the 1930s. European financial companies, which hold more than 134 billion euros ($170 billion) in Greek, Portuguese and Spanish sovereign debt, are under scrutiny by investors concerned that they’re owed too much by Europe’s most- indebted countries.

“Sovereign risk hasn’t gone away in the slightest,” said Jim Reid, head of fundamental strategy in London for Deutsche Bank AG, Germany’s biggest bank. “What this package has done is massively reduce the tail risk in European markets without necessarily changing the medium- to long-term dynamics of financial markets.”

Source

Britain at risk of worse deficit crisis than Greece in the EU

February 19, 2010 by · Leave a Comment
Filed under: Currency News 

The Euro has been taking a beating after the news of Greece did not seem to calm investors and now these numbers from the UK showing there deficit is going to be even larger than projected this year.  With this waning confidence in all other currencies and strength in the U.S. dollar, it is looking more and more likely that we are not seeing a recovery and instead this bear market rally is over and now it might be time to retest lows set in March last year.  Very interesting times.

In surprise news which sent the pound sliding on Thursday, official figures showed that the Government borrowed £4.3 billion last month.

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Jobless Rate Climbs to 9.2% in European Union (EU)

June 2, 2009 by · Leave a Comment
Filed under: Global News 

The common theme I hear is the “less bad is good” theme.  It figures that because the economic statistics are not as bad as they were, that must mean good times are ahead.  I am not so sure about that, we could either be in a lull or maybe we will be here for quite some time while this global recession lags on making the recovery more protracted.  

In this article it is reported that Spain is at 18% unemployment, that is the formula for mass civil unrest.   The longer people do not have a job the more desperate they become or it forces the government to continue to provide for these people which also has side effects like running large deficits.  I am not sure where this is going but I do think the worst may still be ahead of us before we actually do get better.

News (NY Times):

The unemployment rate in the European Union pushed higher in April, the E.U. statistics office said Tuesday, indicating that nascent signs of economic recovery had yet to be felt in the Continent’s labor market.

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