Bruce's International Banking Thread

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VirgilBot TP v0.02 Started Thread Port on 12/27/2010

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BiMetalAUPT
Message #1 - 05/11/10 06:32 PM

So what do we do if things go wrong with the 1.5Trillion reduction in excess Federal Reserve Holdings .. No more QE.. there is the latest dumb Idea from BB... Sure miss Saul Warburg.. Bruce PS  I vote for smaller local Financial None Banks.. like Farmer's credit!! The First Bank of the USA had only a 20 year life span..

FDIC: Biggest banks need to submit 'living wills'2:13 pm ET 05/11/2010 - MarketWatch Databased News

WASHINGTON (MarketWatch) - About 40 of the largest U.S. banks would need to submit "living wills" to bank regulators, according to a Federal Deposit Insurance Corp. proposal responding to the financial crisis released Tuesday that mirrors requirements legislators are considering on Capitol Hill.

The proposal requires big banks, with consumer deposit divisions, to provide the FDIC plans of how they could be broken up in an economic emergency.

Banks, which have more than $10 billion in assets that are units of financial institutions with more than $100 billion in assets would need to provide their plans to the FDIC. The agency said the measure would cover banks with $8.3 trillion in assets.

Specifically, these institutions would need to submit to the FDIC analysis, information, and plans to show how their depository units could be separated from their parent company and dismantled in a way that does not cause collateral damage to the markets.

The FDIC said the plans would help agency officials assess the risk to its deposit insurance fund, which is used to make cover costs to depositors of a failed bank.

The proposal comes at the same time as lawmakers on Capitol Hill draft sweeping bank reform legislation that includes a provision to have big banks provide living wills to regulators. The legislation would also create a mechanism to dismantle a large failing bank in a way that it does not cause collateral damage to the markets.

Lawmakers are squabbling about whether big banks would pay fees in advance to cover the costs of making payouts to a failing bank's "healthy bank" counterparties so that they don't fail as well.

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txbizownr
Message #2 - 05/11/10 06:47 PM

there is the latest dumb Idea from BB... Sure miss Saul War

 

Bruce, I have no faith they are going to pull this off successfully they are not skilled enough and they are supposedly the smartest guys in the room..God help us,  as you say no QE, Guns are empty..the fall out is nearly impossible to imagine to the markets..when..they screw this up...and once again here we go talking good banks / bad banks..this is going to get messy!

 

tx

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Remath
Message #3 - 05/11/10 06:50 PM



I dont understand the question..

 

 

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Duffminster
Message #4 - 05/11/10 06:57 PM

God help us,  as you say no QE, Guns are empty..the fall out is nearly impossible to imagine to the markets..when..they screw this up...

Don't worry.  As long as the printing presses are still operational, there is no limit to how much QE can be created.   Ben wants to print but everyone is under political pressure not to.  The problem is that there is no other way out than default and default means bank runs, social chaos, global revolution, and worse monetary inflation than if QE is applied with continuous long term control because default renders the currencies null and void in a moments notice where as long term controlled burn QE enables a transition from the fiat currency to currencies during the re-entry phase of the global fiat currenc melt downs.

Maintaining orderly markets, and societies has to top the list of the policy makers in my opinion, even if they are they same pompous self important bunch that still believes that just because they have the wealth they deserve to allow everyone else to suffer at their expense.

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txbizownr
Message #5 - 05/11/10 07:02 PM

Don't worry.  As long as the printing presses are still operational

AND have button to push for LUDICROUS SPEED

 

tx

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BiMetalAUPT
Message #6 - 05/11/10 07:22 PM

I dont understand the question..

Re Math,
Great Point!!  We have tight money and M3 is under attack so the Fed wants to remove excessive Liquidity?? I do not know where you live but here small firms are at a loss to find funding for growth.  Now the Federal Reserve want to sell Banks CD's from the twelve Reserve Banks to reduce excessive monies??? Also they talked about doing reverse repo's.. There is a crash looking for when. 
The Money theory is that M3 (large CD's) lets the bank know how long they have your money to lend.. They are not lending it so M3 has been reduced by 9%.  The reduction in M3 vs the increase in 2007 is greater then the QE used to correct the Problem with bad banks.  In 2007-2008 banks stopped lending to each other so the whole system died. 

Question: How do we get banks lending instead of increasing EXCESSIVE reserves?  The Farm Credit was just one idea.  Increased food prices also mean more farm income.  With bankers getting 250 Million USD in bonuses could they not pay the farmer a living wage of say $35,000 a year?

Great Question!! thank-you
Bi Metal Au Pt

[Virgil Showlion]

Remath
Message #7 - 05/11/10 07:50 PM



So the Federal reserve banks are figuring that the only people who "banks" trust with intrest paying debt items would be the federal reserve banks? and not people or companies who would traditionally get these items? Denver, has weathered the recession pretty well. I hear nightmare stories from the mid-west, but we haven't seen carnage here yet like some other places.

 

Wouldn't this just float money in between banks and the federal reserve and nothing would reach the public?

 

Why don't they just send each other crazy credit limit credit cards with super high intrest rates. Obviously this works somewhere, I can't think of why they would keep sending me 20 pre-approved credit cards a week in the mail if it didn't.

 

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txbizownr
Message #8 - 05/11/10 08:04 PM

How do we get banks lending instead of increasing EXCESSIVE reserves?

Bruce,

 

we don't..the fed through there incompetence they have allowed this monetary collapse we are experiencing now to happen...the falling quantity of money is a vicious cycle...1930's stuff, no lessons taken there I guess ..they do not possess the timing (for sure) or tools to get us back on a stable track.imho 

 

Farm credit not a bad a idea, think we would need a much bigger program though, I dont see a feasible all inclusive solution.

 

tx

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Old and gray
Message #9 - 05/11/10 08:40 PM



Call me a dreamer, but I do believe we have the talent available to draw up and implement policy and programs to control the banks. All we need is one, just one! proviso. . . Keep professional bank officers, executives and Board members off the committees. That would include those University professors who are often little more than hacks for the industry.

Despite her standout performances, I don't believe Sheila Bair is a "one-and-only". It's not surprising that under her leadership, the FDIC is asking the big banks what they intend to do when faced with failure. I've had the opportunity to meet quite a few exceptionally talented people in my day who have not had what is generally considered to be the requisite training, and professional exposure, who were capable of evaluating situations, drawing up eminently workable programs, and in rare instances, when allowed the latitude to perform, have been capable of working us out of situations in which the "professionals" seemed completely at sea.

Unfortunately, too often, people with the skills but without the credentials are in the minority and are voted down and inferior programs which cater to the industry in ineffective ways, which almost guarantee disappointment, are implemented.

In banking, The Fed is the premiere case in point. The Federal Reserve Act is replete with punishments for errant bankers. Title 18 USC Chapter 11 - Bribery, Graft and Conflicts of Interest also attempts to restrict those who would abuse their positions. Unfortunately, there's a wide gap between drawing up the programs, proposing penalties and the investigation, prosecution and punishments resulting. Once in a great wide we get a Bernie Madoff sacrificial lamb. Generally, the greater evils, such as the deception in the inappropriate mortgages and the collapse in the market which, given the weakness of the documents and the management (or lack thereof) of the system, was inevitable. The obscene fees and bonuses - which is the equivalent of Bribery, Graft, or Conflict of Interest at a high level - and were completely unwarranted - should have been of prime concern. The principals involved in these cases were not prosecuted under the terms of the Fed Reserve Act dealing with "Liability for damages resulting from Violations" or the certain offenses committed by examiners, officers and directors of member banks (of the Fed system) because the Fed was permitted to make exceptions to penalties prescribed for transgressions on their own.

What good is accomplished with proscribed penalties of $1 million and 30 years imprisonment if the party responsible for prosecution acts as the protector-in-chief of the offenders?

 

So, we're going to have the helicopter effect, courtesy of the Fed, in the hope that the activity in the far corners of the earth will distract the folks at home who seek retribution. It wouldn't be bad if in supporting the global financial stress, we pledge the toxic paper the Fed accepted for collateral during the great bailout. Except the foreign banks are too smart for that. We have nothing to offer but more debt. There are no accumulating resources. As soon as banks build a little reserve, they distribute it to "retain the talented staff people". . . those who hinted at the corrupt keepers of the vault being engaged in corrective action know full well that those people do have the knowledge and talent to correct the situation. They simply do not have the integrity to do things honorably. So, if they are involved, whatever path we choose will lead to more devastation too soon.

In the US, we must start with the Fed. That "Independence" they protect so carefully is largely responsible for getting us in the mess in the first place, and if allowed to continue unchecked will lead down the same path with the same results magnified.

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Old and gray
Message #10 - 05/11/10 08:41 PM



It's not possible to continue throwing debt at debt and work yourself out of the mess. Also, despite what Bagehot espoused in the last quarter of the nineteenth century - when in deep stress, banks should continue to payout to unruly crowds until they are assured their demands will be met and they calm down. Roosevelt's administration took the opposite path, closed the banks down, and the run was stemmed. We were then able to operate again, not royally, not elegantly nor even stylishly, but we operated and survived. It's not the best of worlds when the innocent have to bear the brunt of the burden. But, until we decide to punish those who deserve it, that's the way we get out of the deep pits. 

Start with the Fed. Until we do that, it's just one means of postponing the day of reckoning.

There's no short cut to generating capital. Calluses and aching backs, that's what we had in the Depression and that's what is needed whenever the treasury and vaults have been raided. We've got to build those reserves back up. To do this, credit is an absolute necessity, or there is no  future. Banks obviously don't see a future, so they won't extend credit. Yet, here we are committing to toss credit out to the rest of the world when we aren't willing to help ourselves.

 

Somebody has to explain that logic to me. In my jumbled thinking, it just doesn't compute.

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Duffminster
Message #11 - 05/11/10 08:57 PM

Somebody has to explain that logic to me. In my jumbled thinking, it just doesn't compute.

Old and Gray, I know you are being sarcastic with that phrase but I'll take the bait none the less.

The banks have no incentive to lend.  They make money the old fashioned way, they steal it and with the help of the Fed and its legal and they don't incur any risk.  Why should they make risky loans when they can just make money from the Fed?

The Fed and the Tax payers buy up all the previous toxic loans that were bundled by the Fed's Too Big To Fail member players.   Personally, I don't believe that the current Federal Reserve and Global Central Banking systems can reverse course for a number of reasons.    The incurred sovereign debt, unfunded liabilities, and other indebting functions are beyond repayment.   The Central Banks are faced with a default or devalue scenario.  In my opinion the only way out (starting with the United States) is to create a Continental Bank of the United States for the People and By the People and to issue a new currency (preferably backed by US gold reserves, assuming we actually have any left, which is questionable) and that the new currency should be used only for domestic operations and never to fund government debt.  

A strong currency backed by more than promises of repayment is hard cash and such currencies are the stuff upon which prosperity grows.  American's are highly innovative, hard working, and honest people for the most part and given fair credit and strong currency prosperity would be a natural outgrowth, and much like the Lincoln green back did for the Union during the Civil War, such a new domestic currency could do the same thing in the United States with a bank that's primary charter was loaning money to small, startup and middle size businesses and individuals and who's charter was economic growth and which practiced sound banking practices, long abandoned by this generation.

In the meantime the Fed could run QE to infinity and get all the US sovereign Debt paid off and perhaps help Europe at the same time and eventually work towards a new global reserve currency that incorporated the Yuan, the Euro the Yen and a few others in a new SDR which would be used principally for intra-nation currency operations. 

I think an ideas as radical as this may be required because the systemic problems of the completely un-repayable debt require devaluation but for economic sustainability to take place a strong currency is required.   A nation of two currencies may be the only way to go and I'm not talking the Amero, I'm talking about a new US Central Bank and issuing Gold backed dollars from a Congressionally Mandated and Controlled bank whose primary charter is to stimulate economic growth and prosperity in the United States.

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Old and gray
Message #12 - 05/11/10 09:05 PM

Now the Federal Reserve want to sell Banks CD's from the twelve Reserve Banks to reduce excessive monies??? Also they talked about doing reverse repo's.. There is a crash looking for when. 

Also, this was predictable and was flat out predicted! Ask Duff. We discussed it more than a year ago, but it was obvious well before then.

The Fed spread money wildly in the process of fighting the wrong fight as Bernanke kept talking about deflation when he mistook devalued assets as a deflationary trend while consumer prices were leaping ahead. Add that to the currency diluting effect of the toxic paper to which everyone still has their mind closed, and the situation is as threatening as it gets, as Bruce and tx note. 

At last, in the midst of a strong inflationary trend, Bernanke can see inflation? Reaction, that's all the Fed is good for, and reaction is not a banking policy.

Is it possible that if we fill the two vacant seats on the Fed Board of Governors, we might be able to get someone with the talent to recognize facts and trends? Why are those seats still open? Have they given up hope of attracting anyone with talent?

[Virgil Showlion]

Duffminster
Message #13 - 05/11/10 09:11 PM

Old and Gray, I think you should apply for one of the two positions at the Fed.   They need someone who can think outside the current box and who actually cares.

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Old and gray
Message #14 - 05/11/10 09:11 PM



That's what I thought, Duff. (message # 11) I hate to be alone at night out on the windy plains. Thanks.

 

The single international currency basket keeps popping up on occasion from odd sources, doesn't it? We're simply not sophisticated or mature enough for it yet. We need a little more suffering, then we'll be ready. Another generation or so?

 

Also, I don't believe the US can ever again provide a currency strong enough to serve the purpose you suggest. (There's serious questioning whether they can provide for the current world and it's reduced demands.) To be functional, it's necessary to draw up alliances with about three or four other currencies in addition to the dollar. The choices can be determined on the basis of GDPs. Three others would be EU, UK, Japan. The fourth, if included would be China. Their GDP is in the range of only $4.5 to $5 trillion. People generally believe they are more prominent than that. They just act that way.

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Old and gray
Message #15 - 05/11/10 09:24 PM

I'll beg off on the Fed job. I'm walking a little slower on the way to the table nowadays.

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Old and gray
Message #16 - 05/12/10 02:55 AM



Is the real question, where do we get people to behave as ethical, conscientious bankers should? 

It is true that bankers have been behaving like spoiled brats all through the entire history of on again off again history of banking. By now, bankers should know precisely what happens when currency and accounts are manipulated. Are we doomed to repeat history, always with the idea that we know how to do it better?

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txbizownr
Message #17 - 05/12/10 03:32 AM

Are we doomed to repeat history, always with the idea that we know how to do it better?

 where do we get people to behave as ethical, conscientious bankers should?

O&G

 

Yes, I believe that is the real question to ask..and my awnser, the change we need must come from within..meaning, a corrupt teacher will teach a student to be corrupt, the pupil himself becomes corrupt in his own ways, unless he sees the utter destruction of his own corruptness on others, only realizing this is when ethics come to be...Greed is the killer of all things good, one must learn there is a small difference between profitability and greed, knowing that fine line makes him concientious.

 

Now where to find one...I believe many are being born out of this fiasco we are living right know, witnessing the harm of both corruption and greed..if they can prevail into sysem unscathed we may have a fighting chance for a more honest system. If not, then we are indeed cursed to repeat the past.  

 

 tx

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neohguy
Message #18 - 05/12/10 11:41 AM



The trend seems to be moving towards reducing deficits. The conservative party in England has vowed to reduce deficits. Will this have the same effect as withdrawing stimulus? Less money available resulting in reduced consumption?

Opinion in the US is also moving that way. State employees (and many private sector employees) are being forced to take a reduction in pay. Sentiment is changing from pity for the unemployed to scorn. Some of the comments on this board compare them to lazy addicts. Ending long term unemployment benefits will force people to compete for existing jobs at reduced pay.

The fed, IMF, etc can bail out every bank in the world but it won't make any difference if that's all the further it goes imo.

It does not matter how much money you create if it just lands up sitting in an electronic vault somewhere. 

[Virgil Showlion]

Kim Andrew Lincoln
Message #19 - 05/12/10 12:10 PM



The Fed is a Rothschild creation designed to rest control of the money system from the people of America to the private banking network.

 

There is no question about it the Fed must be outlawed.

 

The power to create money must be in the hands of the people and all money must be created debt free.

 

And if money is to function properly as medium of exchange then it should be backed by gold - as it used to be. 

 

 

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ozone7
Message #20 - 05/12/10 12:25 PM

I was wondering how long it would take for a simpleton to materialize and ruin a great discussion.

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Kim Andrew Lincoln
Message #21 - 05/12/10 02:45 PM



ozone7.

 

When you look beneath the surface, beyond the illusion of complexity that the originators of the current system have created in an attempt to mask the system's inherent injustice - you will find the simple truth about the money and banking system as I have described in essence in message 19.

 

To use an analogy the bankers have tried to build the walls of a house at angles less than upright and then created an elaborate array of support mechanisms to ensure that the walls and therefore the whole house are not brought crashing down by the forces of gravity.  

 

Had they built the walls upright in the first place then the supports would not be needed.

 

The second law of thermodynancs states that all imperfect forms will eventually be ground into dust - and so it will be with our money, banking and financial system.

 

Indeed it is already happening and no amount of tinkering with an imperfect system by the Fed will stop the house from falling. 

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Old and gray
Message #22 - 05/12/10 04:02 PM

The second law of thermodynamics states that. .  .

Despite the pre-eminence of Samuelson, if you're fascinated with thermodynamics and the math attached, fine. But, it's a small part of banking. Being ground into dust occurs several times in each generation of bankers. The bigger question is, Why should that be? We all know greed is a killer weed. We all understand the lure of power and control. Why shouldn't it become obvious to bankers that they are killing the goose that lays the golden eggs so frequently that they also hinder their chance of really hitting it big on an ethical basis?

As I've stated elsewhere, banking was (and still is, but with a change in cast in the offing) poised on the edge of the frontier of exploding international trade which would have made them bigger than they ever dreamed. .  and, all on an ethical foundation. All they had to do was service the emerging commerce in normal banking business. The US bank industry was poised to take the lead in that development, but they had to louse it up. Too impatient to wait another few years while developments unraveled. 

Now, they've essentially abdicated the position, the dollar will never have the trust it needs to be the leader in the global growth to come, and what the bankers look on as a bonanza will turn out to be a pittance in comparison with what could have been if they only had the restraint to wait it out and set the stage for what's yet to come.

This is not thermodynamics a la Samuelson, its more of a destructive, anti-social or sociopathic behavior pattern. . . which in view of the history of banking seems to be normal. Lead someone to money in transit and they will do what they can to interrupt the flow long enough to reach out and grab some. There's just enough of that type to ruin it for the rest of them. Those bankers who have the ethics to serve with integrity end up in the smaller roles. Those with the grasping hands fight for the position higher in the tree in order to grab more fruit.

As for the Fed being a Rothschild creation, I refer you to the thread beginning "Record Direct Bidder Share. . ." which Duffminster started and the recap of American banking history located therein, leading up to the foundation of the Reserve System in 1913. The man who gave the appearance of foreign participation in the formation of the system was none other than an American,  Great granduncle Benjamin Strong, who tried to live up to his family name. He was Uncle Ben I. We now enjoy the reign of Uncle Ben II.

To read more detail of that history in encapsulated form see this thread

 

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BiMetalAUPT
Message #23 - 05/12/10 04:44 PM

K.A.L.,
 I THOUGHT YOU WERE ENGLISH, HOW ABOUT THE BANK OF ENGLAND? THE FEDERAL RESERVE IS THE BANKING CLEARING HOUSE AND THAT IS THE REASON FOR RESERVES, TO CLEAR CHECK.  IT IS OWNED BY THE BANKS. WITH THAT SAID THEN..

There is no question about it the Fed must be OUTLAWED.

OUTLAWED-WITHOUTTHE CLEARING HOUSE HOW COULD YOU WRITE CHECKS AND PAY BILLS?  [PLEASE DEFEND YOUR STATEMENT.
Bi Metal Au Pt

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traelin0
Message #24 - 05/12/10 04:55 PM

OUTLAWED-WITHOUTTHE CLEARING HOUSE HOW COULD YOU WRITE CHECKS AND PAY BILLS?  [PLEASE DEFEND YOUR STATEMENT.
Bi Metal Au Pt

There IS another way.  The Menger way.  The Smith way.

news.goldseek.com/GoldSeek/1273644360.php

[Virgil Showlion]

BiMetalAUPT
Message #25 - 05/12/10 05:26 PM

Trae,
 Are we talking about wiring money and clearing checks or theory of Money IT Increase in money with lending??  I like the idea of some form of gold system, FLOW5 and Greenspan does not.. Would be hard to re-start. that is on Duff Post!! What this is about you posted the increase in money via lending and deposits of the lent money..

IE


The Hungarian Connection

 

The Austrian School of Economics dates its beginnings back to the publication in 1871 of a slender volume: The Principles of Economics (Grundsätze der Volkwirtschaftslehre) by Carl Menger. The adjective “Austrian” was meant to be derogatory, introduced by economists of German school of historicism to ridicule Menger’s idea of basing economic science on axiomatic foundations, on the pattern of logic and mathematics. The root of the word “Austrian” is “East”, so the connotation of  “Austrian economics” is “oriental economics” — a kind of voodoo economics.

 

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traelin0
Message #26 - 05/12/10 05:36 PM

Are we talking about wiring money and clearing checks or theory of Money IT Increase in money with lending??  I like the idea of some form of gold system, FLOW5 and Greenspan does not.. Would be hard to re-start. that is on Duff Post!! What this is about you posted the increase in money via lending and deposits of the lent money..

Read that whole article, I *believe* it's the one where the necessity of banks (in terms of modern-day banks) is questioned if one has a gold standard with an international bill market.  It thus follows that if banks aren't a necessity in their current instantiation, wiring money and a clearing system is not a problem.  The theory of money includes all of the above concepts.

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Duffminster
Message #27 - 05/12/10 05:38 PM

The trend seems to be moving towards reducing deficits. The conservative party in England has vowed to reduce deficits. Will this have the same effect as withdrawing stimulus? Less money available resulting in reduced consumption?

The problem is that we have a system that will Spend Any Amount of Tax Payer Money, Bend Any Rule, Make However Many exemptions are Necessary to Bail Out the Biggest Financial Companies (Sometimes Still Called Banks), but when the Chips are Down and Its Time to Make the Hard Choices, all the Hardship Goes onto the Backs of the Poor.   The Funny thing about the British Government is that the Three Major Parties All Believe the Same Thing and will do the same thing.

1. Spend, Do Whatever It Takes to Keep the Irresponsible Banks Afloat
2. Balance that Whatever It Takes on the Backs of the Social Programs by Balancing the Budget on the Backs of the Poor.
3. Stay in the War in Afghanistan as Long as America Says So.

The entire system is designed to steal from the poor to give to the rich.   I think you can count on this being what is intended in places like California where they are running a $20 Billion budget deficit and it requires 2/3 vote to pass any new taxes (which seldom happens in California) and the Governor has said he will veto any legislation with any new taxes in it.   The Terminator is big on cutting social programs.

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Kim Andrew Lincoln
Message #28 - 05/12/10 07:54 PM



BiMetalAUPT

 

Yes you are right, I am English.

 

The Bank of England was nationalised in 1947 and is therefore under the control of the UK government.  Having said that the actions of the BoE in its previous guise are responsible for the problems we are facing today as it was the English/European bankers who effectively devised the current fractional reserve banking system that was later exported to the USA.

 

The Fed, on the other hand. is wholly owned by a collection of private banks.

 

My overidding point is that I believe the banking system should be under the control of the people and that the power to create money should rest soley with the people and be administered via a Peoples Bank that is owned by the people.

 

As Old & Grey has said the private banks cannot be trusted to work in the people's best interests.

 

Furthermore, I believe that fractional reserve banking is the root cause of all our financial problems today. I also think that usury should be made illegal again.

 

Usury causes debt because money is created as debt by the banks who create 97% of the money in circulation. 

 

All the above will be possible to introduce when the current imperfect system collapses under the weight of debt it has created. 

 

However, I think that another crash in derivatives trading will bring the Tower down before that happens.  

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HappyDaysareHere
Message #29 - 05/12/10 08:01 PM

The trend seems to be moving towards reducing deficits.

neohguy;

That may explain short term outlook. Long term, I'd venture that the trend is toward something more severe - default on debt.

When we arrive at the point where some zeroes need to be erased from all currencies globally thereby "reducing" debt, you all understand that is no less than de facto default. In addition to making billions or millions sound less burdensome than trillions, it will make sovereign debt seem more manageable. But, by the same swift strike of the erasure, all assets will lose zeroes. Retiring debt will still be an uphill battle. 

In summary, by that action, the keepers of the vaults are plunging you into poverty through default mechanism. That will bring us back to the glorious experiences of the Dark Ages and peonage. Add to this, the delicious thought that banks have already managed to redefine bankruptcy to the point where most indebtedness to banks are carried on, regardless of developments.

Do you suppose that would mean the zeroes would not be erased from the documents of indebtedness banks hold? 

NO! It couldn't get the bad.

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HappyDaysareHere
Message #30 - 05/12/10 08:17 PM

PS  I vote for smaller local Financial None Banks.. like Farmer's credit!!

Of course, Bruce, you are full aware that Dodd's Bill version 2 carried his first bill's suggestion in re doing away with the Thrift Department and transferring the responsibility over to the new Agency was changed to do away completely with the creation of any new S&Ls and opening the avenue for conversion of S&Ls to full bank status. Apparently the competition from thrifts was too great for the megalithic banks and they instructed their Washington branch to shut them down. So, Dodd v. 2.0 did precisely that.

That being the case, they would never allow newly created non-banks to take business away from them.

[Virgil Showlion]

Duffminster
Message #31 - 05/12/10 08:20 PM

In summary, by that action, the keepers of the vaults are plunging you into poverty through default mechanism. That will bring us back to the glorious experiences of the Dark Ages and peonage. Add to this, the delicious thought that banks have already managed to redefine bankruptcy to the point where most indebtedness to banks are carried on, regardless of developments.

Do you suppose that would mean the zeroes would not be erased from the documents of indebtedness banks hold? 

NO! It couldn't get the bad.

Happy Days,

Sounds to me like a good reason to have physical silver and gold put away here and abroad possibly?

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BiMetalAUPT
Message #32 - 05/12/10 08:50 PM

KAL,
 I DID MY MBA WITH CLASSES IN LONDON, BOSTON,NEW YORK,AUSTIN,TX ;LUBBOCK,TX AND STEPHENVILLE,TX.  I did my Thesis on Risk and risk management. I HAVE TO BE SURE ABOUT WHAT JUNKYARD OF FINANCIAL FANTASY WE ARE TALKING ABOUT.  AFTER TRYING TO WORK FOR GS FOR YEARS I HAD AN OPENING WITH A FRIEND IN THE TRADE TOWERS.   HE DID NOT MAKE IT OUT ALIVE AND MY FLIGHT WAS CANSLED FROM DFW.  I WILL HOLD TO THE SAYING "BONDS ARE THE HOUSE YOU LIVE IN".  MOST OF THE MEMBERS OF MY GROUP HOLD MORE BONDS THEN CD'S AS THEY ARE SAFER.  ALL BANKS HAVE SOME PROBLEM AND ARE NOW BUYING BONDS RATHER THEN LENDING.

SEVERAL STATES ARE TRYING TO START STATE OWNED BANKS TO LEND MONEY TO FIRMS.  TEXAS HAS A LAND BANK FOR FARMERS OR RANCHERS AS WELL AS THE  FARM CREDIT SO WE DO HAVE A FORM OF SOVEREIGN BANKING THAT SELLS TAX EXEMPT BONDS VS CD'S. THESE BANKS HAVE A HISTORY OF HELPING THE SMALL FARMER GROW. THIS IS THE PART OF BANKING YOU DO NOT SEE IN ENGLAND( AS I RECALL)

SORRY FOR THE CAPITALS, BUT MY EYES ARE OLD,
Just a thought,

Bruce(Bi Metal Au Pt)

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neohguy
Message #33 - 05/12/10 08:59 PM

Sounds to me like a good reason to have physical silver and gold put away here and abroad possibly?

Respectfully, imo, it would only get confiscated, here or anywhere else. It's happened before so it can happen again. 95% of the population does not have any so they would not care. If you managed to hide it then you still would not be able to use it out of fear of being arrested.

When the interstate system was built through Cleveland, you would occasionally hear about stashes of gold that were discovered when they were demolishing the homes. I wonder if it was people that hid gold during the 1930's and died before it became legal to own again.

---

BiMetalAUPT
Message #34 - 05/12/10 09:05 PM

Happy,
I am not sure where the industry will find the funding to reach BIS required Tier1 Capital ratio.  German banks are very under-capitalized and Merkel does not want to increase M3!!  Hypo Bank had a ration of 100:1!!(total assets/tier1 capital). We have a few new banks in West Texas with no real loan losses.  They also are not lending money.  It is all about risk!!We are at risk of a "W" recovery because no banking system in the world is functioning as normal. We saw this in the 1930's starting in the Central part of Europe.  Sweden and Norway were the strong hands in banking and shipping at the time.

Just a thought,
Bi Metal Au Pt

---

txbizownr
Message #35 - 05/12/10 09:50 PM



Bruce,

 

Do you a have a timeline envisioned (guestimate) for the "w" to occur since the banks are not refraining from thier no lend /abnormal operating policies? Do you believe we see a faster or steady decline in M3 over the next qtrs?

 

tx

---

Duffminster
Message #36 - 05/12/10 10:30 PM

Bruce, when you said:

"SEVERAL STATES ARE TRYING TO START STATE OWNED BANKS TO LEND MONEY TO FIRMS. "

it stimulated me to reiterate what I've been saying for some time.  We need a parallel Congressionally mandated and controlled National Central Bank whose sole concern is to lend to job creating businesses in this nation and to really help jump start small business, new technology business and get the R&D investment capital that is needed to create long term changes in the technology and manufacturing culture which can result in long term sustainable growth and job creation. 

The Federal Reserve can finish the job of QE to infinity to get the outstanding sovereign debt paid down and the new Congressional Bank will issue a new gold and silver backed domestic currency that is used only in the States.

[Virgil Showlion]

BiMetalAUPT
Message #37 - 05/13/10 01:17 AM

TX,
 It is like catching a knife..M3 is in a dive now at 9% decline and banks do not want to be cut short with long term assets at fix income with increase in cost!! Bruce
from the NYFRB
  [www.newyorkfed.org/index.html] Home > [www.newyorkfed.org/research/index.html] Research > [www.newyorkfed.org/research/publication_annuals/index.html] Research Publications Staff Reports Repo Runs April 2010  Number 444 JEL classification: E44, E58, G24  

Authors: [www.newyorkfed.org/research/economists/martin/index.html] Antoine Martin, [www.newyorkfed.org/research/economists/skeie/index.html] David Skeie,
and Ernst-Ludwig von Thadden

This paper develops a model of financial institutions that borrow short-term and invest in long-term marketable assets. Because these financial intermediaries perform maturity transformation, they may be vulnerable to runs. We endogenize the profits of an intermediary and derive distinct liquidity and solvency conditions that determine whether a run can be prevented. We first characterize these conditions for an isolated intermediary and then generalize them to cases in which the intermediary can sell assets to prevent runs. The sale of assets can eliminate runs if the intermediary is solvent but illiquid. However, because of cash-in-the-market pricing, this possibility becomes less likely as more intermediaries face problems. In the limit, if a general market run occurs, no intermediary can sell assets to forestall a run, and our original solvency and liquidity constraints are again relevant for the stability of financial institutions.   [www.newyorkfed.org/research/staff_reports/sr444.pdf] Available only in PDF35 pages / 196 kb

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BiMetalAUPT
Message #38 - 05/13/10 01:26 AM

Duff,
 The treasury is only thing that can issure money or coins...Notes are printed and rented to the Federal Reserve.  The mints do make gold and silver coins.. Going to a gold standard would me no more silver coins. 

just a thought,
Bi Metal Au Pt

---

frank the impaler
Message #39 - 05/13/10 01:31 AM



9 Conclusion

 

In this paper we study a model of short-term collateralized borrowing and

the conditions under which runs can occur. Our framework resembles the

dynamic model of banks studied in Qi (1994), but expands that model in

a number of directions. We derive a dynamic participation constraint that

must hold for dealers to agree to purchase securities on behalf of investors.

Under this constraint, dealers will make profits that can be mobilized to

forestall runs.

 

A key difference between traditional banks and modern financial interme-

diaries is that the former mainly hold opaque assets while the latter's assets

are much more liquid and marketable. We study the role of market able as-

sets in preventing bank runs. Without asset sales, runs can be forestalled by

mobilizing current and future assets. This gives rise to two constraints that

can be interpreted as a solvency and a liquidity constraint. The solvency

constraint assures that there are enough current and future pro ts to repay

all investors who do not renew their loans. The liquidity constraint guaran-

tees that the necessary resources are available at the date the run occurs. A

run can be prevented if neither constraints are violated.

 

Next we consider the case where dealers can sell their assets. We show

that because of cash-in-the-market pricing, the price of assets will depend on

the number of dealers trying to sell assets and the opportunity cost of funds

for dealers willing to buy assets. As more dealers try to sell their assets, the

price of the assets they sell will decline.

Asset sales can help a solvent but illiquid dealer stave of a run, as they

provide an alternative way of mobilizing future pro ts. However, we show

that the price of the assets cannot be so high that the solvency constraint is

relaxed. If the liquidity constraint binds, but the solvency constraint is slack,

dealers can relax the liquidity constraint even if the price of assets is low. In

the limit, however, as all dealers are affected by a run, no dealer is available

to purchase assets. In this extreme case, asset sales cannot help dealers.

 

Our framework can be used to consider interesting policy questions related to the fragility of the tri-party repo funding mechanism. For example,

Lehman's demise highlighted an important problem: There is no framework

to unwind the positions of any large bank that deals in repo should it fail.

Lehman required large loans from the Federal Reserve Bank of New York to

settle its repo transactions (WSJ 2009). Our framework can be used to study

a liquidation agent, as suggested in the Task Force on Tri-Party Repo Infras-

tructure (2009), that could be used to unwind the positions of a defaulting

dealer.

 

I couldn't resist

 

---

stonerdr
Message #40 - 05/13/10 01:47 AM

Haven't seen a thread like this before! It's playing tricks with my imagination. Don't know where to start.
BiMet, if you think this post disregards your initial request and/or strays too far from the intent of this thread, please say so. I'll delete it and  take another tack. We get led astray at times, not really intending to deviate.

Kim:

    Usury causes debt because money is created as debt by the banks who create 97% of the money in circulation.

Could you explain your use of the word usury in a way it would agree with its Latin origin? I have an old etymological dictionary (a kind of book which may no longer enjoy general usage) which describes usury as "illegal interest".

Its base is also the base of the word "use" which the English derived from Old French law terminology, where it meant benefit, profit; and can be traced back to the Latin word - opus - translated to mean need or advantage.

As for the first - the "illegal interest" definition, I learned that during the years following the failure of the Italian banks (sometime around the fifteenth century) the function of banks were taken up by the church since it was the only institution outside of the royal families with any sizable store of money. At that time, of course, the whole of Europe was Roman Catholic. Martin Luther and the Reformations were still to be heard from. Henry the VIII had yet to develop marital problems, so there was no need for another major religion. Ostensibly, there was only one church in Europe. But, prior to the church taking up the role of banker and lender, they declared any interest charging to be usury, and usury was not only illegal, it was sinful. Then, when money changers were effectively stifled, the church took up the duty of lending. . . how else? . . . with interest attached!

That's one way to create and  hold a monopoly on a market. (Banks must have learned something from that. Witness the "invisible" derivatives.) That's also the beginning of animosity toward the Jewish money lenders. Not being of the Roman Catholic faith, they felt no more obligation to look on interest charging as a sin than they felt toward observing the religious tenets of the Catholics.

Along with you, I believe that usury should remain illegal.

Here's where my confusion enters. If you mean to say that our Congress should make all interest illegal, you'd have one heck of fight on your hands. There's not an economist since Richard Cantillon (1680-1734), who's opposed the concept of interest paid for use of "money", currency, or capital. That's over 400 years of economic history! I also doubt that our Congress has the strength to adopt such a law. They may have the power, but, given the fact they are under the control of the banks, if they ever did have the inclination, it's been effectively undermined with the near unlimited campaign contributions which key politicians have received to date from those who would find the concept of "illegal interest" distasteful.

Somewhere among these threads someone posted a chart indicating Senator Dodd, for example, had received something in the order of $9 million contributions to his personal campaign chest. Powerfully persuasive, wouldn't you think?

But back to that quotation above, from message # 28 - could you clarify, perhaps rephrase it for better understanding, please?

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stonerdr
Message #41 - 05/13/10 02:00 AM

BiMet

I am not sure where the industry will find the funding to reach BIS required Tier1 Capital ratio.

Neither is the industry. Considering that BaselII was still not implemented before the crisis descended on us, and BIS turned attention to Basel III, which is not yet framed out, those events might go a way to explain some of the current reticence of banks toward lending. Hold onto whatever they can store in the vaults in preparation for stricter reserve requirements.

If BaselI was 4%, BaselII 8% (and not yet implemented!), what might we expect of BaselIII? 12%?  That would put a strangle hold on lending.

---

stonerdr
Message #42 - 05/13/10 02:17 AM

no more silver coins.

"Silver coins" is no more than a figure of speech these days.

Your handle might come back into vogue.

If it does come to be, back to the gold standard, gold will skyrocket in the free market, as Duff has been preparing for, and there would be nothing to prevent us from going into a bimetallic mode. Gold itself will be too expensive to use in smaller transactions. Therefore, we'd need a supplement. Once in gold, would people have any confidence in paper?

I doubt that the government would allow gold to circulate. neohguy may be onto something there. If we returned to gold, it would likely be as an un-circulating standard, nothing more. But, then without circulating, what purpose does gold serve. Stability? Trade between nations? We'll be back to 1971 post haste! Nations will be arguing over collecting in new coins and paying in old, worn coins.

Sorry, maybe there's too much bad experience residing in historic literature for the reversion to take place.

[Virgil Showlion]

txbizownr
Message #43 - 05/13/10 03:27 AM



Repo Runs

 

Great Read Bruce Thanks!

 

tx

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txbizownr
Message #44 - 05/13/10 03:28 AM



Although Frank ruined the ending!!!!

 

tx

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BiMetalAUPT
Message #45 - 05/13/10 04:23 AM

Stone r:
 Well we do have silver and gold coins.. so we are not on an gold-standard.. Only thing is the silver is worth a lot more then the face one dollar!!!  OK they are collectors items but they are sold faster then the Mint can get blanks.  They are also real money so it is only a sight over-site on my part. I have collected coins all my life.  Bruce
U.S. Mint gold, silver coin sales 'temporarily suspended' - again

Sales and suspension of gold and silver coin or bullion coin sales by the U.S. Mint are becoming a regular part of doing business as overloaded refiners and mint facilities struggle to meet continuing high demand. Author: Dorothy Kosich
Posted:  Tuesday , 14 Jul 2009


RENO, NV - 

Unprecedented demand, a shortage of blanks, and restrictive policies and regulations continue to exacerbate what is almost becoming a chronic shortage of gold and silver coins authorized by the U.S. Mint.

The U.S. Mint has again "temporarily" suspended sales of almost all of its gold uncirculated and proof coins, along with nearly all of silver uncirculated coins because of the limited availability of blanks.

The mint no longer offers for sale the American Buffalo Gold Proof fractional coins and four coin sets are no longer available. Meanwhile the mint will no longer offer American Buffalo Gold Uncirculated Coins.

The 2009 American Buffalo One-ounce Gold Proof Coin is scheduled to go on sale in the second half of the 2009 calendar year after an acceptable inventory of 24-karat gold blanks can be acquired.

The U.S. Mint Online Product Catalog says production of the American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended due to the "unprecedented demand" for American Eagle Bullion Coins for which all available 22-K gold blanks are being allocated.

In the catalog, the government says it will resume the American Eagle Gold Proof and Uncirculated Coin Programs "once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products."

Congressionally authorized American Eagle Bullion coins are aimed at providing investors an effective way to invest in precious metals. Prices may change on a daily basis as the platinum, gold and silver markets may fluctuate. The mint does not sell the bullion coins directly to the public, but distributes them in bulk through a network of official distributors, who meet government financial and professional criteria, which must be attested to by an internationally accepted accounting firm.

So far this year, the mint has sold 700,000 ounces or 700,000 gold bullion coins, compared to last year's total sales of 860,500 ounces of gold or 1,172,000 bullion coins.

Federal laws and regulations say the gold must be newly mined in the United States. Only a handful of refineries meet the standards and regulations to produce the blanks for the coins.

Meanwhile, silver producers have found themselves equally frustrated by the inability of the U.S. Mint to meet the demand for silver coins. Production of the American Eagle Silver Proof and Uncirculated Coins has also been temporarily suspended because of unprecedented demand for the American Eagle Silver Bullion Coins.

The product catalog states, "Currently, all available silver bullion blanks are being allocated to the American Eagle Silver Bullion Coin Program, as the United States Mint is required by Public Law 99-61 to produce these coins ‘in quantities sufficient to meet public demand.'"

Thus far this year, silver bullion coin sales total 14,899,500 compared to last year's total sales of 19,583,500.

While gold and silver producers have repeatedly gone to government officials to get them to authorize an increase in the number of refineries which can produce the blanks and the facilities that can mint the coins, industry sources say they feel they have been stonewalled by mint officials who refuse to budge.

---

Kim Andrew Lincoln
Message #46 - 05/13/10 08:40 AM



BiMetalAUPT

 

THESE BANKS HAVE A HISTORY OF HELPING THE SMALL FARMER GROW. THIS IS THE PART OF BANKING YOU DO NOT SEE IN ENGLAND( AS I RECALL)

Bruce you are correct.

 

How a customer friendly banking system that is owned by the people is set up is a matter for debate.

 

Clearly there are differences between the UK, which is one fifth of the size of Texas, and the USA with its Federal and State system of government. 

 

In my view what is important is that usury is abolished and that the amount of money in circulation is controlled so that it is never more or less than the value of goods and services produced so that inflation/deflation are purged from the system.   

 

 

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stonerdr
Message #47 - 05/13/10 05:38 PM



The IMF issued its latest Global Financial Stability Report April, 2010. The Executive Summary opens with an assessment of the banking system, five paragraphs which should have relevance to this theme and are presented below. The entire report, in .pdf format, is found at this link. (Takes a couple of minutes to download the report.)

 

                                  www.imf.org/external/pubs/ft/gfsr/2010/01/pdf/text.pdf

 


GLOBAL FINANCIAL STABILITY REPORT
International Monetary Fund | April 2010

 

EXECUTIVE SUMMARY

 

With the global economy improving (see the April 2010 World Economic Outlook), risks to financial stability have subsided. Nonetheless, the deterioration of fiscal balances and the rapid accumulation of public debt have altered the global risk profile. Vulnerabilities now increasingly emanate from concerns over the sustainability of governments’ balance sheets. In some cases, the longer-run solvency concerns could translate into short-term strains in funding markets as investors require higher yields to compensate for potential future risks. Such strains can intensify the short term funding challenges facing advanced country banks and may have negative implications for a recovery of private credit. These interactions are covered in Chapter 1 of this report.

 

Banking system health is generally improving alongside the economic recovery, continued deleveraging, and normalizing markets. Our estimates of bank writedowns since the start of the crisis through 2010 have been reduced to $2.3 trillion from $2.8 trillion in the October 2009 Global Financial Stability Report. As a result, bank capital needs have declined substantially, although segments of banking systems in some countries remain capital deficient, mainly as a result of losses related to commercial real estate. Even though capital needs have fallen, banks still face considerable challenges: a large amount of short-term funding will need to be refinanced this year and next; more and higher-quality capital will likely be needed to satisfy investors in anticipation of upcoming more stringent regulation; and not all losses have been written down to date. In addition to these challenges, new regulations will also require banks to rethink their business strategies. All of these factors are likely to put downward pressure on profitability.

 

In such an environment, the recovery of private sector credit is likely to be subdued as credit demand is weak and supply is constrained. Households and corporates need to reduce their debt levels and restore their balance sheets. Even with low demand, the ballooning sovereign financing needs may bump up against limited credit supply, which could contribute to upward pressure on interest rates (see Section D of Chapter 1) and increase funding pressures for banks. Small and medium-sized enterprises are feeling the brunt of the reduction in credit. Thus, policy measures to address supply constraints may still be needed in some economies.

In contrast, some emerging market economies have experienced a resurgence of capital flows. Strong recoveries, expectations of appreciating currencies, as well as ample liquidity and low interest rates in the major advanced countries form the backdrop for portfolio capital inflows to Asia (excluding Japan) and Latin America (see Section E of Chapter 1, and Chapter 4). While the resumption of capital flows is welcome, in some cases this has led to concerns about the potential for inflationary pressures and asset price bubbles, which could compromise monetary and financial stability. However, with the exception of some local property markets, there is only limited evidence of this actually happening so far.

 

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stonerdr
Message #48 - 05/13/10 05:40 PM



 

Nonetheless, current conditions warrant close scrutiny and early policy action so as not to compromise financial stability. Chapter 4 notes that there are strong links between global liquidity expansion and asset prices in “liquidity-receiving” economies. The work shows that capital inflows in the receiving economies are less problematic if exchange rates are flexible and capital outflows are liberalized. Moreover, policymakers in these economies are encouraged to use a wide range of policy options in response to the surge in flows—namely macroeconomic policies and prudential regulations. If these policy measures are insufficient and the capital flows are likely to be temporary, judicious use of capital controls could be considered.

 

(I supplied the bold for my own emphasis.)

 

The full report expands on this framework. Internal operations, including risks, fiscal consolidation, regulations and bank health is addressed.

Beyond that, systemic risks, altering the structure of regulatory bodies, and attaching surcharges to operations and levies on the institutions is proposed (in the event of resolution proceedings). Strong indication of anticipated future failures. "Right sizing" of institutions and/or operations is mentioned. The treatment of OTC derivatives and their exchange through CCPs (Central Clearing Parties) is also addressed in the summary as well as the body.

 

In all, if you want a wider view of what global banking faces in the near and long term future and what remedies they've considered as provided by the economists and staff at the IMF, it's in this 230-some page document.

[Virgil Showlion]

Remath
Message #49 - 05/13/10 06:03 PM



Kim,

 

if they out law ursury, then they outlaw taxes too correct?

 

Ursury $1 = $1.10

Tax     $1 = $1.10

 

Or is there a difference? don't both events have similar effects on currency.

---

midwesterner123
Message #50 - 05/13/10 07:54 PM



Remath, I would have to say I disagree with some of that. I do agree it's backed by us, and the lack of knowledge average person has in finances, but governments always destroy a currency they can manipulate.

 

As far as not returning to gold standard, I disagree. I think we can go back to one having our money backed back gold, silver, copper and nickel. Inflation would only occur when new metals are found and would not be as drastic. Unless we find brand new ways to mine, or able to mine the moon or mars someday, it would not send a rush of money into the system. Only time in history I'm aware of that inflation was a big concern with gold was when the spanish founded colonies in Americas and brought back so much gold it increased the price of everything.

 

There are ways to world around this gold standard, as having many different rare metals used or backed by a value.

---

BiMetalAUPT
Message #51 - 05/14/10 04:41 PM

Effort to rescue Chicago bank11:17 am ET 05/14/2010 - Reuters

* Goldman agrees to commit $20 million to rescue

* Working with Citi, JPMorgan, Bank of America

* ShoreBank needs to raise $125 mln or risk seizure (Recasts with new story source; adds comments from Brandt, ShoreBank spokesman, detail on JPMorgan investment,background)

By Karey Wutkowski and Steve Eder

WASHINGTON/NEW YORK, May 14 (Reuters) - Goldman Sachs Group Inc <GS.N> Chief Executive Lloyd Blankfein and a consortium of other top banks are part of an effort to save ShoreBank Corp, a Chicago bank with Washington ties, a Democratic activist close to the institution said on Friday.

Goldman, Citigroup <C.N>, JPMorgan <JPM.N> and Bank of America <BAC.N> are helping raise the $125 million the community development lender needs to avoid a government takeover, said Bill Brandt, chairman of the Illinois Finance Authority.

"My understanding is that Goldman Sachs has made a significant commitment and will act on this commitment today," Brandt said. "Whether this deal gets finally cooked is a Herculean task."

Brandt said Goldman agreed to contribute more than $20 million to help rescue the bank.

JPMorgan is considering a financing package of about $15 million that would include converting existing debt to equity as well as a cash investment, a person familiar with the bank's plan said. The second-largest U.S. bank is already an investor in Shore Bank.

---

BiMetalAUPT
Message #52 - 05/14/10 07:49 PM

WITH BANKS BUYING MORE AND MORE T-NOTES VS LENDING MONEY BONDS ARE IN QUESTION.. CDS FOR EXXON ARE NOT BETER THEN THE UST T-NOTES!! MEANS LESS RISK IN EXXON.  BEN b. HAS A LOT OF T-NOTES TO UNLOAD FOR HIS RETURN TO NORMAL HOLDINGS.. NOT SURE HOW , WHEN AND IF HE WILL REDUCE QE..Bruce

NEW YORK (MarketWatch) -- For generations, holders of bonds issued by Uncle Sam have banked on the bedrock principle of the government's "full faith and credit," which had no peer among other nations.

Today, with a financial maelstrom saddling the United States and rival industrial powers with unprecedented debt obligations, even the monolithic dominance of Treasurys is in doubt.

"U.S. Treasurys are perhaps not the risk-free assets they once were," said Michael Hasenstab, who manages the Templeton Global Bond Fund. Countries that didn't have the massive amounts of leverage and indebtedness before the recession "are coming out of this a lot quicker and without the overhang and inhibitors the U.S. is experiencing."

Hasenstab and other bond investors have begun to question whether the U.S. Treasury bond market can still be called the safest investment in the world, as attention to Washington's growing deficit spending has come into sharper focus with the debt problems that are engulfing Greece, Portugal and Spain.

From Australia to Brazil, an emerging crop of nations that are in comparatively better fiscal shape are increasingly seen as a surer return on the investment.

"Commodity-producing and exporting countries have benefited from an influx of capital," based on those fundamentals, said John Brady, senior vice president of global interest-rate products at MF Global. "Canada and Australia have led the way."

While there are relatively few mutual-fund options for investors seeking out alternatives in government debt, a handful of currency exchange-traded funds are gaining a presence in the market.

---

BiMetalAUPT
Message #53 - 05/14/10 10:37 PM

IT WAS THE BANKS THAT CAUSED THE PROBLEMS!!FRBNY ON INTERNATIONAL BANKING CRASHING THE TRADE BY FREEZING $$
Abstract
Global banks played a significant role in transmitting the 2007-09 financial crisis to

emerging-market economies. We examine adverse liquidity shocks on main developedcountry

banking systems and their relationships to emerging markets across Europe,

Asia, and Latin America, isolating loan supply from loan demand effects. Loan supply
in emerging markets across Europe, Asia, and Latin America was affected significantly
through three separate channels: 1) a contraction in direct, cross-border lending by foreign
banks; 2) a contraction in local lending by foreign banks’ affiliates in emerging markets;
and 3) a contraction in loan supply by domestic banks, resulting from the funding shock
to their balance sheets induced by the decline in interbank, cross-border lending. Policy
interventions, such as the Vienna Initiative introduced in Europe, influenced the lendingchannel
effects on emerging markets of shocks to head-office balance sheets.
Key words: bank, global, liquidity, transmission, capital markets, cross-border lending,
emerging market
Cetorelli: Federal Reserve Bank of New York (e-mail: [e-mail]). Goldberg:
Federal Reserve Bank of New York (e-mail: [e-mail]). The authors
acknowledge valuable comments from anonymous reviewers, as well as Romain Ranciere and
participants in the IMF-Banque de France-Paris School of Economics Conference on Economic
Linkages, Spillovers, and the Financial Crisis (January 2010). The authors thank Patrick McGuire
and Goetz von Peter for their thoughtful insights on banking sectors’ cross-country vulnerabilities
to dollar market conditions. They also thank Craig Kennedy for research support. The views
expressed in this paper are those of the authors and do not necessarily reflect the position of the
Federal Reserve Bank of New York or the Federal Reserve System.
1
I. Introduction
Global banks expanded their international activities over their past decade, with this expansion
interrupted by the Great Recession. The consequences of this increased internationalization of
banking have been debated. One dimension of the debate focuses on the advantages and
disadvantages of banks from more developed financial systems having expanded and sometimes
dominant positions in emerging market economies. Banking globalization can lead to
institutional and regulatory or supervisory improvements, which promote “strong property rights
and a financial system that directs capital to its most productive uses [which] are crucial to
achieving high economic growth and the eradication of poverty” (Mishkin 2009). 1 When shocks
originate within the emerging markets, foreign bank entry into local banking systems is a
stabilizing force. It also results in more efficient allocation of productive resources in globalized
economies [see survey by Goldberg (2009)].
Yet, international banking linkages are viewed as having spread the profound difficulties
from the financial crisis that began in industrialized countries in 2007. The dramatic changes in
capital flows to emerging markets are cited as evidence for such concerns (Chart 1). After a
period of strong growth through 2007, capital inflows contracted across Emerging Asia, Latin
America, and Emerging Europe. The initial boom was across multiple forms of private
international capital flows (Chart 2), covering foreign direct investment, bank loans, portfolio
equity, and net debt securities. While the subsequent reversal was in all broad categories of
inflows, by far the sharpest decline in activity was in international bank loans. After rising to
over $500 billion in 2007, international bank loans dropped to slightly above $100 billion in
2008. Such observations prompted the International Monetary Fund’s April 2009 World
Economic Outlook (WEO) to argue that global bank linkages “fuel the fire” of the current crisis
to emerging markets (page 149).
In this paper we provide a conceptual and econometric examination of the international
transmission of the balance sheet shocks th

---

neohguy
Message #54 - 05/15/10 07:03 PM



Companies that should have increased market share due to favorable exchange rates have decided to increase margin instead. I am experiencing this with many items that I purchase for my company. Manufacturers and suppliers that would normally compete are just raising prices because much of the smaller competition has been wiped out the past three years. Freight rates are increasing because many independent truck drivers and smaller fleets are no more.

www.telegraph.co.uk/finance/economics/7721166/UK-trade-deficit-widens-sharply.html UK trade deficit widens sharply Britain's trade deficit widened more sharply than expected in March, fuelling fears the economy may not be in store for the export-led recovery that has been widely hoped for

....

"The report highlights again that although the weakness of the pound improves competitiveness, unless this is accompanied by an expansion in overseas demand, then there will be little if any improvement in the performance of exports. With the eurozone the UK's main trading partner, still sluggish exports are unlikely to surge any time soon," said Alan Clarke, economist at BNP Paribas.

Ernst & Young ITEM Club said another explanation could be that exporters are using the sterling's weakness to increase their margins rather than capture market share.

bold by me

edit: Imo, corporations are not convinced that a recovery has started. They will seek to increase margins instead of expanding (competing).

[Virgil Showlion]

txbizownr
Message #55 - 05/15/10 07:22 PM



Fear=run for saftey=less liquidity=less lending=more fear=run for saftey=less liquidity=more fear

 

it's a death sprial we are in, need a huge force to keep us from being sucked in

 

tx

---

neohguy
Message #56 - 05/15/10 07:42 PM

it's a death sprial we are in, need a huge force to keep us from being sucked in

I agree tx. I work for a company that reps some of the premier boiler lines that are sold in the US. We are seeing 20%- 35% increases for new equipment vs 2006. Most of that 35% has occurred in the past 9 months. We thought that we would lose market share to competitors but then we found out they did the same. The entire industry is selling fewer boilers/yr vs 2006 but prices are rising even though manufacturing costs are about the same or less. The manufacturers justify it by saying they are selling value even though the equipment is the same as it was.

I wonder if the Texas wine that Bruce talks about might also experience increases. If French wine costs $30.00 and equal or better quality Texas wine costs $10.00, do you invest in all sorts of equipment to capture more market share or do you save your money and charge $20.00?

---

txbizownr
Message #57 - 05/15/10 08:37 PM



Most people are charging the 20.( for decent) because they cant get loans right now..imo..and yes texas red is going up..buy the same bottle  Red "independence" (dry) from windy winery(hill country) good stuff  it's up to  25 a bottle.

 

tx

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BiMetalAUPT
Message #58 - 05/15/10 10:45 PM

NEOH GUY,
I REREAD THE ITEM ABOUT INTERNATIONAL BANKS AND THE EFFECT OF THE CRASH ON DEVELOPMENT ; MOST OF WHAT YOU TALK ABOUT HAS AN EFFECT ON OR FROM REDUCTION IN CREDIT FOR SMALL FIRMS.  SELLING VALUE!! THAT IS WHAT MADE IBM.  YOU COULD DEPEND ON THE IBM 360 AND IBM TO STAND BEHIND EVERY SALE.. SOFTWARE CAME WITH THE PACKAGE!! THEY WOULD BUY THE OLD COMPUTER BACK AS THEY SOLD IT AGAIN AS "GOOD AS NEW" TO SOMEONE WHO NEEDED A SMALL SYSTEM.

IN A NORMAL FIRM; YOU CAN CASH FLOW OUT SALES WITHOUT GROWTH BUT NEED TO BORROW MONEY TO GROW.  ( THIS IS VERY VERY VERY MUCH OVERSIMPLIFIED- I KNOW THAT).. SO IF WE ARE GO GROW, THERE MUST BE MONEY AT RISK FROM BANKS AND THEY NEED CAPITAL.BIS HAS AN ACCORD TO DOUBLE THE TIER1 CAPITAL REQUIREMENT FROM 4% TO 8 % (ALSO POSTED ON PAGE ONE BY).  I DO NOT KNOW ALL THE DETAILS ABOUT BOILER DESIGN BUT IT LOOKS TO ME LIKE THE NEW SYSTEMS USE A LOT LESS NG TO MAKE THE SAME AMOUNT OF STEAM AS THE OLDER SYSTEMS. WHEN THE HOSPITAL I WORKED IN REPLACED A 50 YEAR OLD SYSTEM WITH THE NEXT GENERATION BOILER THE GAS BILL WENT DOWN MORE THEN THE COST OF THE UNIT ( ESP FOR COOLING). I HAVE READ THAT SOME OF THE OLDER NUCLEAR POWER UNITS ARE REPLACING THE CONDENSERS AND BOILER AND GETTING GREAT IMPROVEMENT IN POWER PRODUCTION (BECHTEL). 

GE YEARS AGO USED TO SELL POWER PLANTS TO ELECTRIC FIRMS FOR LESS THEN COST, FINANCE IT AT A PROFIT AND MAKE A KILLING ON THE TURBINE BLADES THEY REPLACED.  THEY EAT THE ENGINEERING COST BUT GOT IT BACK IN THE LONG RUN. iT ALL GET BACK TO YOUR POINT ABOUT MONEY AND BANKING AND WHY WINE PRODUCTION WAS A TOPIC.  IF YOU ARE GOING TO MAKE WINE YOU NEED TO BUY GRAPES.  THE LONGER YOU HOLD THE WINE THE MORE THE VALUE ON THE INVESTMENT GROWS.  THERE IS A SHORTAGE OF GRAPES IN TEXAS  BECAUSE FARMERS HAVE NOT KEEP PLANTING UP WITH WINE DEMAND.  THE 40 YEAR OLD MERLOT I PLANTED  IN 1972 ( TWO YEAR OLD VINES) GRAPES ARE SELLING FOR TWO TIME THE PRICE FOR NEW VINE GRAPES. NOW YOU ADD THE COST OF INTEREST TO THE WINE, YOU SEE IT IS CHEAPER TO HOLD AND SELL IT AT THE WINERY THEN SELL IT TO WAL-MART.  MONEY AND BANKING THEORY SAD BUT TRUE IS NO LENDING = LESS MONEY=SMALLER WORLD FOR ALL.. SO IF I HAVE A CAST FULL OF CAB FRANC THAT IS FOUR YEARS OLD IT IS CHEAPER TO KEEP IT IN THE CAST AS CASH AND BOTTLE IT NEXT YEAR.

IT IS ALL ABOUT MONEY AND BANKING: AS LONG AS BANKS DO NOT LEND, M3 WILL DECLINE.  BANKS NEED TIER1 CAPITAL SO THEY HAVE REDUCED CAPITAL NEEDS BUYING TIME WILL LESS LOANS AND RAISING THE COST OF BORROWING BY REQUIRING MORE CAPITAL.. PER LOCAL SMALL FIRMS STUDY AND ONE ON ONE TALKS AT THE VC GROUP ( LAST THURSDAY).
 TX,
 YES, I TALKED TO DR BECKER LAST WEEKEND.. COST OF GRAPES TO REPLACE WINE WENT UP SO HE RAISED HIS PRICES ESP ON HIS GREAT MERLOT ( SOLD ONLY IN TEXAS).. 750ML = $17.98 FOR 2008.. GREAT WINE!!THERE IS NO WAY YOU CAN CONVERT DREAMS TO WINE WITHOUT A LOT OF MONEY.  BANKS ARE NOT LENDING AS IT IS TOO MUCH RISK.

THANK-YOU FOR ALL THE GREAT POST BY ALL.. THIS HAS BEEN A GREAT MARKET TALK ABOUT THE BANKING SYSTEM RELATION TO THE WORLD GDP.  BIS #II IS INTERESTING ESP WHEN YOU THINK HOW THE USA WANTED TO KILL THE BANK IN 1945!!IT IS NOW ONLY OWNED BY CENTRAL BANKS BUT AT ONE TIME BANKING FAMILIES ALSO HAD AND INTEREST IN IT..

Bruce

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BiMetalAUPT
Message #59 - 05/15/10 10:53 PM

Stoner Dr,

 If BaselI was 4%, BaselII 8% (and not yet implemented!), what might we expect of BaselIII? 12%?  That would put a strangle hold on lending.

Great point.. There is a real problem with the way the USG took conseriership (sp?()of FNM and Freddie Mac.. The Federal Reserve system had "talked up" ownership of their Preferred Stock to small local banks as a safe investment.  Most of the failed banks I know of had this investment on the books as good.  Midwest to a 58 million USD writeoff in 2008 for the investment.  This had nothing to do with general operation and the state of many local economies have been hurt by this action!!

Just a thought,
Bruce

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txbizownr
Message #60 - 05/15/10 10:58 PM



Bruce

 

as I say buy local..we are spoiled!! to have the good stuff local!!!

 

as you say the big getting bigger and the small are being crushed (by inflation/costs)..all in the master plan (i guess)

 

tx

[Virgil Showlion]

BiMetalAUPT
Message #61 - 05/16/10 01:33 AM

Tx,
 And we have funny laws in Wine.. Texas owns the name and calls wine a Texas Produce.  This means you can sell Texas Wine in a "Dry" county.. but only Texas Only wine!! A farm Product!!!

 Have you tried Texas La Noir.. Esp Sweet 20% Dessert Wine..Worth the $30.00/ 750 ml ...IMHO!!The thing bankers like about the wine industry is you do not lose money when you hold wine off the market for six to 12 months.. The price increases as it ages is esp true for the great years like 2005!!!It is my understanding that land values are still good and the credit worthiness of farming is stronger now then in 2008 because of the increase in farm produce prices.  Both Texas Farm Credit and Land Bank are doing very well!!!Texas then Governer George W. Bush was very much in the driver seat when Texas started supporting the wine industry.  I also know of four universities in the state that have active vineyard programs including Tarleton University program on the economic development of Wine and MONEY.  Just like Money and Banking they support each other!!

Just a thought,
Bruce

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txbizownr
Message #62 - 05/16/10 06:40 AM

Sweet 20% Dessert Wine

I haven't but I will now.I love a good refferal..it's what business is built on!!!''

 

I have had the merlot(delicious!) and the "independence" (divine!!) If you have the means everyone buy a case I highly recommend it!! Everything IS better in Texas!!

 

tx

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dr puma
Message #63 - 05/16/10 07:05 AM



Why, no. Those two seats on the Federal Reserve are open because the banks see no future...haha.

 

 

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BiMetalAUPT
Message #64 - 05/16/10 12:56 PM

KAL,
 For your info: about Texas Farm Credit Bank.. They borrow on the open bond market long term and finance .. they are owned by the user so return excessive interest to the user as dividends and are one of the few none-bank bank that has an AAA credit rating..


The Farm Credit Bank of Texas has been a leading source of credit and financial services for rural Americans for more than 90 years. Our long and successful history of financing agriculture and rural America is rooted in our [www.farmcreditbank.com/what-is-a-co-op.aspx] cooperative structure and in other distinct business advantages:

• We are owned by our customers; therefore, we operate in their best interests and share our earnings with them in the form of patronage. In 2008, we returned more than half of our net income to our customers.

  
  

• We don't take deposits. Rather, we access the nation's money markets through the sale of AAA-rated Farm Credit bonds, which provides a reliable source of funding for rural Americans.

  
  

• Our policies are set by our board members, who are Farm Credit customers elected by their fellow customers. This form of governance offers transparency to our owners and investors.

.

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BiMetalAUPT
Message #65 - 05/16/10 11:12 PM

KAL and O&G,
 I have been working on the "THESIS" That the BIS's II would be in place by now except for the 2007 Lehman lead interbank credit crunch with Toxic assets.  The family I know of that had anything to do with BIS was the Von Rothschild (German )who had planed to used this International bank to transfer money from Germany to France to pay off the war cost to France.  The USA wanted to liquidate the bank in early 1945 but Truman changed this to support in 1947-1948.  The BIS has been studying the derivative effect on banking  question for years with little solid capital requirement as most of this is written in places like Island of Mann or other countries that do not have centered banks that are members of BIS.  The problem many state and local governmental bodies( autonimus) has been the cost to borrow has increased 75 to 100% without being able to offer CDS for the bonds as a unit. 

The question is this: We have saved France and Sweden over and over without any payment..If the USA has a problem like the EU can and will they help the USA?  Note the CIA list the EU as the largest Economy in the world not the USA.  It looks like Luxinberg wojuld be the place to find work with an average income of about $125,000 .. mostly in banking and insurance like CDS. ( yes, Sweden was smart enough to reject joining the EU and his it own money and Central Bank).

Thank-you in advance,
Bi Metal Au Pt

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neohguy
Message #66 - 05/17/10 01:02 PM



Israel has weathered the financial crisis better than most. They were one of the first countries to raise interest rates. Exports account for almost half the Israeli economy and a slowdown of an important European economy will affect them.

www.businessweek.com/news/2010-05-16/israel-gdp-slowed-to-3-3-in-first-quarter-on-exports-update2-.html Israel GDP Slowed to 3.3% in First Quarter on Exports (Update2)

May 16, 2010, 8:27 AM EDT

 

www.globes.co.il/serveen/globes/docview.asp?did=1000559839&fid=942

Goldman Sachs urges Bank of Israel caution The investment bank says that with the global economy still volatile, the central bank will leave interest rates unchanged. Adi Ben Israel16 May 10 10:12 Despite the nasty surprise sprung by the Consumer Price Index (CPI) for April, and a possible rise in inflation expectations, Goldman Sachs believes that the [www.bankisrael.gov.il/firsteng.htm] Bank of Israel will keep the June interest rate unchanged due to concern that the debt crisis in Europe could worsen, affecting the global economic recovery.

Goldman Sachs says that the shekel interest rates are very sensitive to inflation and Friday's higher-than-expected CPI reading may result in a mild deterioration in inflation expectations in the near term. "However, the global backdrop remains volatile, providing the Bank of Israel with more reason for caution. We expect the bank to leave rates unchanged in this month's monetary policy council meeting but modify the language of the monetary policy council statement to put a stronger emphasis on inflation expectations." Goldman Sachs predicts that the interest rate will gradually tighten to 2.5% by the end 2010 and to 4.5% by the end of 2011.   

[Virgil Showlion]

Old and gray
Message #67 - 05/17/10 02:18 PM

the BIS's II would be in place by now

Results of a BIS poll was posted on  the tsunami thread last year. Many nations had not yet implemented Basel II requirements, delaying for a variety of reasons which were not easily catalogued. Projections had a majority of those nations completing the implementation by some year in the future - off the top of my head, I'd place it around 2015. And, at that time they had two major issues, one being the 8% reserve requirement, which the slow adopters approached with the intent to implement one and not the other. Given the conditions since 2007. it's easy to understand why for the reluctance on increasing reserve requirements. My opinion mentioned at the time: BIS would abandon any hope of implementing Basel II and go immediately to a newly drawn up Basel III which would take into consideration updated development and response. . .  which they did soon after. It was the obvious course of action. However, the  full Basel III package, though the more stringent requirements were framed out, was not fully drawn up as of my last search.

 

I'll have to take another peek to see how it's coming along. But, putting the package in place is an extremely slow operation. Always, the more stringent the requirements, the longer it takes. Using voiced target dates for those who would have subscribed to the Basel II requirements (a small percentage had no intention of complying for one reason or another) I had calculated it would have taken 15 years, start to finish to get that in place. Using the same time-table and last year as a starting point, projection would put Basel III in operation by 2024!! Not much help or hindrance to the current crisis if that proves to be the case.

I also mentioned watching Volcker shrug his shoulders at a Congressional Committee meeting last year and responding, "Who knows when that will be in place" in response to a question about Basel II.

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Old and gray
Message #68 - 05/17/10 02:40 PM

Goldman Sachs predicts that the interest rate will gradually tighten to 2.5% by the end 2010 and to 4.5% by the end of 2011. 

 

neohguy

Israel is following Japan's program just as we are, or they're skipping past Japan's and are following the US program which is the same thing. Big mistake!

Sweden held rates at a moderately higher level (around 3.5%) through its early/mid 1990s problem years, reorganized their banking system and beat the serious case of hiccups in three years. Japan established the model of dropping rates to zero (as Bernanke did) and ended up with 18 years of vacillating between uncertainty and weakness. New government regulating agencies and requirements have not fully resuscitated their system to date.

Israel should have left their interest rate at the level they had. Two benefits accrue: exogenous funds are attracted and contribute to stabilizing their commerce, and the reinstatement of higher rates does not face as severe a response, which tends to be inflationary.

In our case, Bernanke is rubbing his head wondering how he's going to raise rates. It matters not when he does so, it'll be as painful and upsetting regardless. Zero rates helps no one. If the attempt is to give banks a more open, freer feeling about the cost of money to promote lending, where's the action? They're frozen up in anticipation of the mismatch forthcoming. The system is now doing nothing, in that anticipation, among other things. That doesn't help the attitude of the consumer or businesses in search of help to restart their engines.

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txbizownr
Message #69 - 05/17/10 02:50 PM

That doesn't help the attitude of the consumer or businesses in search of help to restart their engines.

 

tx

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BiMetalAUPT
Message #70 - 05/18/10 06:19 AM

Not all banks are over-leveraged.. This is one of the best in the World.. Wealth management firm  Tier 1 ratio of 21% This is a very well run bank Bruce

Julius Baer Group Ltd.: Interim Management Statement for the first four months of 2010

Assets under management CHF 175 billion, up 14% since year-end 2009 – Continued positive net inflows – Gross margin improving – ING Bank integration close to completion

ZURICH, Switzerland--([www.businesswire.com/] BUSINESS WIRE)--Regulatory News:

Julius Baer Group’s assets under management (AuM) rose to CHF 175 billion per end of April 2010. This represents an increase of 14% vs. year-end 2009, or 5% vs. the year-end 2009 AuM of CHF 167 billion pro forma for the inclusion of ING Bank (Switzerland) Ltd (‘ING Bank’). Total client assets increased to CHF 266 billion.

The AuM increase was supported by a positive market performance, whilst the Swiss franc currency translation impact was neutral, with the effect of the increase in the value of the US dollar balancing the impact from the weakening euro. Net new money inflows showed a positive trend compared to the second half of 2009, albeit at an annualised pace still slightly below the Group’s medium-term target. The continued solid contribution from growth markets was partially offset by the impact from the changing regulatory environment in the core European countries and by the exit from the US client business, which is now in its final phase. Based on the solid client pipeline in growth markets in particular, the Group still expects to attract net new money this year at a pace in line with its medium-term net new money target.

The gross margin started improving from the level achieved in the second half of 2009. The further tightening of interest rate spreads had a limited impact, whilst client activity recovered somewhat, although overall remaining at relatively subdued levels. Due to selective incremental investments related to business initiatives, the cost/income ratio (excluding ING Bank restructuring and integration costs) for the first four months of 2010 was somewhat higher than for full year 2009. The integration of ING Bank is expected to be completed by the end of May 2010.

The Julius Baer Group continued to manage its balance sheet, including its bond portfolio, conservatively and maintains a solid capital base. The BIS tier 1 ratio of the Julius Baer Group stood at approximately 21%.

The detailed financial results for the first half of 2010 will be published on 21 July 2010.

About Julius Baer

The Julius Baer Group is the leading Swiss private banking group, with an exclusive focus on servicing and advising private clients. Julius Baer’s total client assets amounted to CHF 266 billion at the end of April 2010, with assets under management accounting for CHF 175 billion. Bank Julius Baer & Co. Ltd., the renowned Swiss private bank with origins dating bank to 1890, is the principal operating company of Julius Baer Group Ltd., whose shares are listed on the SIX Swiss Exchange (ticker symbol: BAER) and form part of the Swiss Market Index (SMI) of the 20 largest and most liquid Swiss stocks.

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BiMetalAUPT
Message #71 - 05/18/10 10:59 PM

Julius Baer (BAER1.VX) OUTPERFORM [V] Industry Weighting: OVERWEIGHT T. Kalbermatten
CP: SFr 37.14 TP: SFr 48 CAP: SFr 7.7b
Forecasts revised; Poised for strong growth
? Action/Event: We are reiterating our positive view on Julius Baer with an Outperform rating and a TP of SFr 48 (potential
upside of c25%). We continue to believe investors are still overlooking the fact that Julius Baer is now a pure play wealth
manager which should in our view trade on a clear premium to its historical valuation (historically Baer was trading on P/E
of 12-22). Baer now has a much stabler and therefore more predictable income stream. Compared with the recent past
(2000-2005) after its expansion in new growth markets (for example, Asia and the Middle East), Baer has regained good
growth momentum and good NNM growth. Therefore we think revenue weakness in 2008 and partially also in 2009 was
more of a cyclical nature than structural. China has recently released some very strong economic figures (Baer is targetting
Asia to become its second home market). With many economies recovering as well and the new wealth created, Baer
should also benefit.
? Investment Case: We think Baer is much better positioned (pure play private bank) and following its expansion into new
markets, has better growth prospects than before. The bank continues to have a strong balance sheet. This leaves the
bank with an excess cash surplus to look at strategic inorganic growth opportunities. Organically, Julius Baer continues to
build on its relationship manager (RM) headcount, adding 48 in 2009 to reach 667 and we expect it to continue with
selective RM hiring in 2010. The bank's cost control measures seem to be having an impact, with the cost income ratio at
63.1%, down from 65.3% in 2008.
? Catalyst: Julius will publish its Interim Management Statement 11 May. We should get (although on a more qualitative
basis) an indication of business performance measures including net new money inflows.

? Valuation: The current valuation (P/E 2011E of c12.7x) is below the historical average and we think this is not justified given

that Baer is now a pure private bank with a less volatile income stream and more resilient client assets and better growth

prospects. We maintain our Outperform stance on the stock with a DCF-derived target price of SFr 48.

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Old and gray
Message #72 - 05/19/10 02:24 AM



Quoting myself in message # 67

 

However, the  full Basel III package, though the more stringent requirements were framed out, was not fully drawn up as of my last search.

Well, I conducted a search for evidence of Basel III on the BIS site. I could find nothing. I believe they're "gaslighting" me. I recall specifically visiting the site to see what they intended to do about raising the bar for reserve requirements and there was a movement underway to collect opinions through the industry on how to build Basel III. They do that, seeking world-wide industry responses to issues as important as Basel requirements. There was an accumulation.

However, in the past couple of days I could find no reference to Basel III. I did find (2) publications calling for more stringent requirements for Basel II. They may have concluded that since Basel II was not yet implemented, they might as well tighten it up and reissue it. I've downloaded the pubs and will give them a look through.

 

In RE Julius Baer. It's so stolid and stable, it can't do a thing wrong. A banker's bank, to be sure. There's a lot to be learned there. However, not of the size (as of now) to take over a global leadership position in international trade except through example.

[Virgil Showlion]

BiMetalAUPT
Message #73 - 05/19/10 09:42 PM

OLD AND GRAY,
 THANK-YOU FOR YOUR GREAT POST.. As I read this it looks like the system has two problems.  Reduction in capital from loses and need to raise capital to meet then new BISII 8% system for Tier1 capital.  With this said it looks like it will be a long time before banks will supply needed cash for Small businesses.. The large firms can sell bonds on the open market.. This was also true during the 1930's.  History is repeating itself.

It looks like the only capital  debt markets that are growing  is the bond market.  Do you have any thoughts on this.  I posted the increase in bonds about one year ago.

Just a thought,
Bruce

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flow5
Message #74 - 05/20/10 01:02 AM



Bruce, any thoughts on the interest expense on the Federal Debt?

 

If yields rise, security values will fall.  So the banks could take another hit to bank capital adequacy ratios.   The average maturity in governments is 4 years.   Just think, the interest rate payment (.25%) on excess reserves ($1,009,469T), exceeds all 4-week bills, 3-month bills, & 6-month bills.  The yield curve is steep.  

2008 Sept. rates on 3-month bills was c. 1.7% before the downswing in Aug, now (.16%) [10x],  4-week bills 1.5% then (.15%) now [10x], 6-month (.23%) now, 1.9% then. [8.3x] 

So these short-term yields are going to explode, multiplying by perhaps 5-6x if yields returned to "historical averages".  

1 year constant maturity now (.36%)  2.3% then [6.4x], 2 year constant maturity now (.80), 2.5% then [3x].  3 year constant maturity now (1.5%)  2.9% then [1.9x], 5 year constant maturity (2.3%) now, 3.4% then [1.5x].

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Old and gray
Message #75 - 05/20/10 01:48 AM

It looks like the only capital  debt markets that are growing  is the bond market.  Do you have any thoughts on this.

I remember seeing your post of a year ago. May have had some comment on it at the time, not sure. But it's even worse now than it was a year ago! The squeeze is coming, that's one of the costs of growing national debt.

 

Do have some thoughts on the current trend. . . not yet complete except for the fact that the bond market will continue to grow; and, if the euro and other foreign currencies continue to lose ground to the USD, that money will naturally home in on the US in search of more bonds, which will force our interest rates up, deflation, inflation or anything in between or beyond notwithstanding. In which case we completely lose control of our monetary policy. Bond prices, of course, will drop. Will that stimulate another round of bearishness toward the stock market before this happens? They see it coming, but they can't act at this time for fear of a panic. The situation is that dire in Europe and China.

 

We know what is inevitable in normal times - interest up, stocks down; what happens in these times is another story. Am now in the process of reading the two latest IMF pubs, dated April, 2010: World Economic Outlook and Global Financial Stability Report. I can tell you this much at this point: they claim we're working our way out of the crisis, but every time they mention a good point, they counter with the danger that could confront us before the improvement arrives. The ice is getting thinner with each step. In the Global Financial Stability pub, the promise is "downward pressure on bank profitability", continued deleveraging and normalizing markets. Any hope for recovery in the private sector credit is "subdued","weak" and "supply is constrained".

We can conclude this: if the credit is not available in the open market, the sovereign debt is also going to force interest rates up as demand increases. And, of course, households and small businesses will need to compete with that in order to get credit. So, that will keep the damper on mortgages and small business expansion (perhaps even operation) for an unpredictable future term, which - since the US Government has taken over Fanny, Freddie and Ginnie (90% of all mortgages are now held by the Government) will dampen the construction business and produce more pressure for personal (which includes charge cards) and business loans!

 

The story goes on and on; each new revelation finds us in a tighter bind, steering us toward the government and their bonds as the ultimate bailout. That's the result of dropping those rates to zero after allowing the banks to play in somebody else's backyard unattended. The IMF calls for beefing up the infrastructure underlying the financial markets. How do we do that with the inevitabilities of just those few developments mentioned above?

 

Bringing everything into the picture makes the effort seem that much less likely to succeed.

 

The IMF has some good suggestions in the two pubs, but opportunity is by-passing us and those we depend on do nothing but posture and blow air. Every time we delay, another weak spot pops up and adds more confusion. These are not serious people handling our well-being, princes of procrastination serving too few to be worth support.

 

Have you noticed the LIBOR inching up? Doesn't that indicate the banks themselves don't believe zero rates are justified? Or, does it indicate that the Fed is so tied up with useless paper for assets that they can't generate enough cash to help banks until they some of that paper and start with a cleaner slate, putting more pressure on bank to bank transactions?

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flow5
Message #76 - 05/20/10 02:59 AM



One author said that libor wasn't out of it's historical range.  The FED can work with swaps if there is a squeeze.

 

The best technical forecaster since 2000 is Joeseph Granville.  He says this is the mother of all tops.  Granville has actually called all turns on the exact day they turned.  He's 83 & very good.  He used to move the markets with his calls.

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BiMetalAUPT
Message #77 - 05/20/10 07:50 AM

FLOW5,  Great Question.. Thank-you!!
 Interesting question on interest and risk free assets vs assets at risk.  Cash and T-Notes both under BISII are risk free. You do not discount for change in value as these are not marked to market.  You also do not post a profit when interest rates decline. 
What I have been taught is the 30 year interest rates is a refection of future inflation fears.  This is also a reflection of lower cost of capital as expressed in the CAPM system for equity valuation.

Bruce, any thoughts on the interest expense on the Federal Debt?

I will change the question a bit as expense on the bonds is also income to the holder like the SS system or My A++ 50/50 re-balancer system.  Now under BISII money invested in other banks has a risk factor of 0.2. Their is no examption for a bank owned by other banks , so the excessive reserves or CD's owned by the bank in one of the twelve FR banks would have a 0.2 risk factor( as I read the paper) as Federal Reserve is not a true Central Bank as Bank of England is now.  Thisd would make it more costly for the banks to deposit money in the Reserve vs buying  T-bonds/T-notes.

The SS system is now taping the interest earned to pay part of my SS check.  I think the current rate of the 30 year T-Bond indicates about a 3% inflation vs some 10% during the 1980 run up in interest.  Anyway you look at it T-Bond  cost is a lot lower then the economic cost of the lower M3. The last est for QE was that for every $1.00 in printed money the Federal Reserve say only $0.81 in economic activity.  I am not sure what happened to the other $0.19. 

Just a quick thought at this late time in the day.. Long meeting on strategic investing Thank-you again
Bruce

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BiMetalAUPT
Message #78 - 05/20/10 08:25 AM

Old and Gray,
 Yes..But bonds cost less for a firm to sell then stock as interest is an exemption to earning.  So firm can sell bonds, buy back stock then the profits will increase on the reduced number of shares.. It will be more profitable to buy back stock then invest in next generation tools unless they will produce more good that can be sold at an increased profit.. For now many firms are increasing price and offering better service to improve value rather then lowering price to buy market share.  Try finding funding to build a new factory.  My main point is banks are lowering their market share to bonds as a way to meet Tier1 BISII requirements. There was a lot of talk about a new type of bond that could be converted to stock under the banking needs for capital.  I did not find this of any interest. 

 

Do have some thoughts on the current trend. . . not yet complete except for the fact that the bond market will continue to grow; and, if the euro and other foreign currencies continue to lose ground to the USD, that money will naturally home in on the US in search of more bonds, which will force our interest rates up, deflation, inflation or anything in between or beyond notwithstanding. In which case we completely lose control of our monetary policy. Bond prices, of course, will drop. Will that stimulate another round of bearishness toward the stock market before this happens? They see it coming, but they can't act at this time for fear of a panic. The situation is that dire in Europe and China.

Yes, things are far worst in China.  German banks are not the great capital stonghold they were many years ago... It looks like Sweden will be gaining world finance business in the near term.

Just a quick thought,
 More later on both of your fantastic post. Thank-you sorry about the lag time,
Bruce

[Virgil Showlion]

BiMetalAUPT
Message #79 - 05/20/10 08:53 AM

A bank's capital, also known as equity, is the margin by which creditors are covered if the bank's assets were liquidated.  A measure of a bank's financial health is its capital/asset ratio, which is required to be above a prescribed minimum.

Assets and Liabilities

When a bank creates a deposit to fund a loan, its assets and liabilities increase equally, with no increase in equity.  That causes its capital ratio to drop.  Thus the capital requirement limits the total amount of credit that a bank may issue.

It is important to note that the capital requirement applies to assets while the reserve requirement applies to liabilities.  The reserve requirement imposes a lower limit on the amount of reserves a bank must own relative to the demand deposits of its customers.

Capital Requirements

In 1989 the U.S. adopted the capital requirements established by the Bank for International Settlements (BIS) in Basel, Switzerland.  The minimum capital is specified as a percentage of the risk-weighted assets of the bank.  The following table shows the weight assigned to each type of asset.

  Asset Risk Weight Cash and equivalents 0 Government securities 0 Interbank loans 0.2 Mortgage loans 0.5 Ordinary loans 1.0 Standby letters of credit 1.0

The BIS rules set requirements on two categories of capital, Tier 1 capital and Total capital:

Tier 1 capital is the book value of its stock plus retained earnings.  Tier 2 capital is loan-loss reserves plus subordinated debt.**  Total capital is the sum of Tier 1 and Tier 2 capital.

Tier 1 capital must be at least 4% of total risk-weighted assets.  Total capital must be at least 8% of total risk-weighted assets.

**Subordinated debt is long term debt that, in case of insolvency, is paid off only after depositors and other creditors have been paid.  Thus it can be used like equity to provide those creditors some protection against insolvency.

An Example

Assume a bank has the following assets:
  Asset Amount Cash and equivalents $40m Government securities $80m Interbank loans $100m Mortgage loans $200m Ordinary loans $300m Standby letters of credit $80m

The total risk-weighted assets is 0 x $40

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neohguy
Message #80 - 05/20/10 04:31 PM



Some recent comments by my federal reserve president.

www.huffingtonpost.com/2010/05/18/top-fed-official-offers-d_n_580963.html [www.huffingtonpost.com/2010/05/18/top-fed-official-offers-d_n_580963.html] Top Fed Official Offers Dire Forecast, Says Economy Will Suffer For Years

A top Federal Reserve official warned Tuesday that one consequence of the Great Recession will be a "new normal" in which Americans have lower expectations for a better life.

In a [www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2010/Pianalto_20100518.cfm] speech, Federal Reserve Bank of Cleveland President and CEO [clevelandfed.org/About_Us/officers_and_boards/pianalto/index.cfm] Sandra Pianalto said that she expects "our journey out of this deep recession [to] be a slow one" because of the loss of skills jobless Americans have experienced as a result of prolonged unemployment, and the "heightened sense of caution" consumers and businesses are operating under as they navigate the worst economic downturn since the Great Depression.

Citing the fact that the average unemployed worker is out of a job for more than 30 weeks -- a new record -- Pianalto told the Economic Club of Pittsburgh that "the longer someone is out of work, the harder it is to find a job." About half of those currently unemployed have been out of work for at least six months.

"Research...tells us that workers lose valuable skills during long spells of unemployment, and that some jobs simply don't return," she said in her prepared remarks. "So workers who are lucky enough to find jobs may be going to jobs that aren't familiar to them, which means they and the companies they join may suffer some loss of productivity.

"Multiply this effect millions of times over, and it has the potential to dampen overall economic productivity for years," she warned.

The second effect of the Great Recession is "deep uncertainty about where the 'new normal' or baseline might be."

"A whole generation of Americans who began their working careers in the mid-1980s had experienced only long periods of prosperity punctuated by just two very brief downturns," said Pianalto, a voting member of the Fed's main policy-making body, the [www.federalreserve.gov/monetarypolicy/fomc.htm] Federal Open Market Committee. "Those experiences encouraged an expectation for relatively smooth growth.

This "new normal" has forced consumers to delay major purchases, she said. Consumer spending accounts for about 70 percent of the economy. A slowdown in consumer spending stunts economic growth.

Businesses also are cautious, Pianalto said. "Most business leaders say that they're not planning on significant hiring until there's more clarity about how the recovery is going to progress," she said, adding that uncertainty over policies debated in Washington, like on health care and taxes, also is playing a role.

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neohguy
Message #81 - 05/20/10 04:31 PM



continued

Businesses also are cautious, Pianalto said. "Most business leaders say that they're not planning on significant hiring until there's more clarity about how the recovery is going to progress," she said, adding that uncertainty over policies debated in Washington, like on health care and taxes, also is playing a role.

"This caution translates into fewer job opportunities, fewer equipment purchases, fewer building projects -- and on and on," said Pianalto, an economist who's led the Cleveland Fed since 2003.

Switching to monetary policy, Pianalto, who as a voting member of the Federal Open Market Committee helps set interest rates, said that her researchers at the Cleveland Fed have noticed a drop in prices over the past three months for about half of the consumer goods they track.

That's led to companies "really holding the line on prices to boost sales" -- something they can do profitably "in part because labor costs are so restrained."

Referencing the high growth in productivity that's occurred during the recent downturn -- the effect of employers squeezing more out of their remaining employees despite the loss of millions of workers -- Pianalto said that "[h]igher rates of productivity growth reduce the amount of labor needed to produce a given amount of goods and services. In today's labor market, wages are likely to be restrained by the unemployment situation -- labor supply far exceeds labor demand.

"Combining rising productivity with restrained wages causes the cost of producing goods and services to fall," she said. Labor costs have fallen by nearly five percent since the fourth quarter of 2008, she added. In other words, workers aren't getting paid like they used to.

And it's not likely to get any better for the nation's workers.

"[M]any of my business contacts continue to talk about wage and price reductions, not increases," Pianalto said.

bold by me

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HappyDaysareHere
Message #82 - 05/20/10 05:05 PM



neohguy

 

Some recent comments by my federal reserve president.

Good post! I always feel more comfortable when I hear some realistic assessments from an active official. At least they are not jousting with ghosts and mental fabrications.

 

. .  But, then, based on what I've heard of those folks, I may be prejudiced in favor of the people in neoh.

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Old and gray
Message #83 - 05/20/10 05:28 PM



Dow down over 300!

 

Slow day for me today. I delayed this morning. After breakfast, I consulted the World Index charts and saw twice as much blood red as yesterday and in about three seconds concluded this was going to be a bad day. Turned on TV and watched the indices drop steadily for a while, returned and saw it in deeper trouble. . . until this 300+ decline.

 

It's not encouraging to listen to today's interviewees, one after the other talking about bailing out. Sell, sell, sell! But, despite this, nobody wants to direct a word of criticism toward the people at the controls! Why? I would think that since this is their livelihood, they'd be first in line to offer some assessment of the flaws in the programs and policies. Have they no backbone? Do they understand nothing of policy or programs and only deal in market transactions as though they were operating independently of the rest of the financial world?

Some of the readers on these threads might note that it's true, I don't believe the stock market is the reflection of the real world, either cause and effect relation or weight of occurrences, but, those "pros" seem to be on a complete disconnect. Is it too taxing for their minds to deal in realities. I believe a minimum of 50 % of those posting here can do as well or better than these supposed "professionals".

You all know, that despite the trend of the market, there are buys out there. In this unsettled market, IN.HOUSTON has managed to perform over +20%! Maybe I don't understand. Is he a professional? If so, you folks had all better sign up as his clients and forget the blowhards on TV.

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BiMetalAUPT
Message #84 - 05/20/10 06:01 PM

OLD AND GRAY,
 WELL SAID ABOUT THE STOCK MARKET BUT DID YOU SEE WHAT THE BOND MARKET IS DONG.. REFECTION OF LOW INFLATION EXPECTATION AS STATED WITH M3 DOWN 8.7%.. WHEN M3 IS DOWN BONDS HAVE A STRONG TENDENCY TO IMPROVE.

BACK TO THE 50/50 RE-BALANCER SYSTEM.. INCREASE IN RETURN IS TRUE WHEN STOCK PRICES DECLINE. OUR MMX-M2 CORRECT PROGRAM SHOWS OUR FUTURE RETURN ON STOCKS HAS INCREASED TO 8.678%.. CORRECT FOR 3RD AND 4TH DERIVATIVE OF POSITION.  WE ARE AT 50.9674% IN THE AT RISK (STOCK) SO THIS HAS BEEN A GOOD DAY TO RE-BALANCE. 

COFFEE TIME!!!  I WILL BET THE HAS BEEN BUYING TODAY.. LOVE THOSE DIVIDENDS ALSO HOUSTON!!!
JUST A THOUGHT.. IF YOU DO NOT FALLOW THE EXPERTS AND SELL WHEN OTHERS ARE BUYING AND BUY WHEN THERE IS BLOOD ON THE STREETS, YOU ARE WITH THE ODDS!!  IS IT TIME TO TAKE SOME MONEY OFF THE BOND MARKET.. KASH IS KING

Bruce

[Virgil Showlion]

neohguy
Message #85 - 05/20/10 06:07 PM



Hi Old and gray, I started following Pianalto when Bruce told me about her on the Fedwatch board. I went to the bank on a field trip in grade school. The teacher told us that they stored money and cleared checks there. I thought it was one heck of an impressive structure for such boring work. The original building was completed in 1923, the year my father was born. The city was different back then.

 

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BiMetalAUPT
Message #86 - 05/20/10 06:27 PM

In a [www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2010/Pianalto_20100518.cfm] speech, Federal Reserve Bank of Cleveland President and CEO [clevelandfed.org/About_Us/officers_and_boards/pianalto/index.cfm] Sandra Pianalto said that she expects "our journey out of this deep recession [to] be a slow one" because of the loss of skills jobless Americans have experienced as a result of prolonged unemployment, and the "heightened sense of caution" consumers and businesses are operating under as they navigate the worst economic downturn since the Great Depression.

Neoh GUY,  GREAT POST!! esp on Education for the retraining..
 I have to reflect on the Education systems and the new Paradigm in education.  LEARN TO EARN!!   I was talking to two very nice ladies at the wine bar last Friday about the new Pharmacy School in Abilene,Tx.. Texas Tech now has Pharmacy and Nursing schools in several location in West Texas.  Many of the students are working on being recycle careerist.   Learning is a lifetime adventure as my son will tell you about his adventures in Programing.  He has just finished a program in a new language that is only just starting for  huge EPIC computers like Big Iron.  The way it works with math models is great and production vast.  Texas Work Force paid 100% of the cost.  It is all about Learn to EARN..  Abilene High Tech High School is also an example of the push to Learn to Earn.. Like Sty on the education high tech front.. after you finish you have something you can earn your way with as you take classes..

Just my thought,
Bruce

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BiMetalAUPT
Message #87 - 05/26/10 05:18 PM

IT LOOKS LIKE BANKING WILL GET A LITTLE MONEY FROM THE CDS THEY PAID FOR!! HUGE DISCOUNT!!COUNTER-PARTY RISK TOO HIGH AS SOME IS IN THE FORM OF DEBT!!
Ambac closer to paying billions to banks12:56 pm ET 05/26/2010 - MarketWatch Databased News

SAN FRANCISCO (MarketWatch) -- Ambac Financial Group's troubled bond insurance unit is closer to paying a group of the world's largest banks billions of dollars after a court approved a rehabilitation plan proposed by its main regulator.

A Wisconsin state-court judge, William Johnston, affirmed the plan Wednesday, rejecting objections by some hedge funds and brokerage firms, according to a statement by Wisconsin Insurance Commissioner Sean Dilweg.

Ambac Assurance is based in Wisconsin, so Dilweg oversees it. Earlier this year, he split off and took control of a big part of the unit, which had suffered huge losses from guarantees it sold on mortgage-related securities during the housing boom. [www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-B346C9185D3F47109A0AF91BA6FB4491] Read about Ambac 'amputation.'

The seizure aimed to protect policyholders of Ambac's more stable municipal bond insurance business. However, the plan has been criticized for treating one set of policyholders differently than others.

The plan involves a settlement between Ambac Assurance Corporation, the main bond insurance subsidiary of Ambac , and 14 banks including Citibank, part of Citigroup, Royal Bank of Scotland , Barclays, Deutsche Bank and Spain's Banco Bilbao Vizcaya Argentaria .

"The steps we're taking are aimed at avoiding billions of dollars in losses, and will provide the best way toward a durable solution for all policyholders," Dilweg said in a statement. "There are very real and dramatic risks, if the orderly process we are pursuing is not preserved."

The group of 14 banks bought guarantees from Ambac on securities with an original value of $16.5 billion. An updated estimate put the value at between $8.7 billion and $12.9 billion, according to court documents filed earlier this month.

Ambac is proposing to pay $2.6 billion in cash and $2 billion notes to settle the claims of the bank group, according to the court filings.

"The recent ruling against those who will be short-changed by Ambac helps the corpus's credit quality," Egan-Jones Ratings, a credit rating agency that's paid by investors rather than issuers, wrote in a note to clients Wednesday. "Because Ambac is in miserable shape, it is able to settle obligations at severe discounts."

Ambac shares rose 4.2% to 94 cents during midday action on Wednesday.

Hedge fund firms Aurelius Capital Management, Fir Tree, King Street Capital, Monarch Alternative Capital and Stonehill Capital Management, which own residential mortgage-backed securities and other debt guaranteed by Ambac Assurance, challenged the rehab plan, according to court filings. Other banks in the group that's due to get payments from Ambac Assurance are Banco Santander , BNP Paribas , Canadian Imperial Bank of Commerce, COMMERZBANK AG, Credit Agricole , Natixis , Rabobank , Societe Generale and UBS AG, court filings sh

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BiMetalAUPT
Message #88 - 05/28/10 11:26 PM



It took a priest in southern Spain to remind the world that the European [www.theglobeandmail.com/report-on-business/spains-troubled-savings-banks-may-spur-new-financial-crisis/article1584513/#] banking industry might be on the verge of another disaster.

The Rev. Santiago Gomez Sierra, the chairman of CajaSur, a regional savings bank in Cordoba, began his last board meeting last week with a prayer. Several directors performed the sign of the cross. No miracle happened. Within hours CajaSur, controlled by the Roman Catholic Church, was seized by the Bank of Spain.

When the markets reopened on Monday, something close to investor panic set it. Bond and equity markets sank. Bank shares plunged, and the euro took another beating. By the end of the week, the markets had stabilized, but the message was clear: All was not well in the Spanish banking industry and the pain in Spain, the euro zone’s fourth largest economy, could delay, even wreck, Europe’s recovery.

While CajaSur itself is small, representing just 0.6 per cent of Spain’s banking assets, it is part of the wider system of 45 savings banks that together control half of the country’s banking assets.

The country’s cajas – a group of 45 regional savings banks – matter to Spain, the euro zone (the 16 European Union countries that share the euro) and the wider international markets because credit growth is closely linked to economic growth. Without the credit provided by the ailing cajas, Spain’s recession-stricken economy might not improve, or may improve only slowly. If that happens, the quality of Spanish assets could deteriorate even more.

Fitch Ratings on Friday cut Spain’s credit ratings to double-A-plus from triple-A, saying its economic recovery would be more muted than the government forecast due to strict austerity measures passed this week. The downgrade follows a cut last month by another agency, Standard & Poor’s, and heaps more pressure on the government, battling to reassure markets that its fiscal, political and social woes will not end up in a Greek-style debt crisis.

The cajas lent freely during Spain’s boom years, but are now weighed down by excessive exposure to the country’s busted [www.theglobeandmail.com/report-on-business/spains-troubled-savings-banks-may-spur-new-financial-crisis/article1584513/#] real estate and construction market.

The banks are finally being restructured, a full two years after it was apparent to any investor or economist paying attention that Spain’s property market, once Europe’s hottest, was ruined. Two cajas, including CajaSur, have been seized by the Bank of Spain. A third of the 45 cajas are merging. A few will probably get bought by the big banks. A government fund called Frob, worth up to €99-billion ($128-billion), will help them fund the merger costs and reinforce their equity.

The delayed response could cost Spain, and the rest of Europe.

“If the current restructuring process is slow, or the problems within the financial institutions are not addressed, we run the risk of having a sizable chunk of the Spanish banking system acting as a zombie for the next three to five years,” said Jose Manuel Amor Alameda, a partner in Madrid with AFI, a financial and economics consulting firm. “This would have enormous repercussions for the macro picture in Spain and in the euro zone.”

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BiMetalAUPT
Message #89 - 05/28/10 11:29 PM



Mohamed El-Eiran, chief executive officer of Pimco, one of the world’s biggest bond funds, has a similar view. “A small bank in a small country has indicated to the rest of the world that the whole European banking system is under pressure,” he told the Financial Times.

Spain’s go-go years, which ended even before the Lehman Bros. collapse in September, 2008, were funded in the capital markets by the sale of almost €1-trillion of securities, some of them mortgage-backed bonds issued by the banks. Forty per cent or more of these securities are owned by European banks, pension funds and other institutional investors. “That is why Spain is so important to the euro zone,” Mr. Amor said. “Even though there is no political or fiscal union, the links between the financial systems and economies are so deep.”

By European banking standards, the cajas are odd little beasts. Their roots go back to 16th-century Italy, where Franciscan monks set up Mounts of Piety – not-for-profit pawnshops – where advances were made against collateral such as jewellery. They were replicated throughout Europe and eventually evolved into savings banks, where the focus was on giving inexpensive loans to the masses and helping community development. In Britain in later years, they would become known as building societies; in France they were the caisses d’epargne; and cajas de ahorro in Spain.

The modern cajas are supervised and run like commercial banks but have no private owners and do not issue public shares. Instead, they are mutually owned by stakeholders such as regional and city governments (CajaSur was the only Church-controlled caja) and distribute some of their profits to charities and community projects.

According to a report by three Spanish economists – Antonio Cabrales, Juan Dolado and Jose Garcia-Montalvo – the cajas were instrumental in stoking the property bonanza that ultimately got them into trouble. Traditionally, home ownership was not part of the family asset mix in Spain. The cajas helped to change that by using ultracheap mortgages to compete with the big banks, such as Santander and BBVA, and extend their reach into communities. At times they offered house loans at a mere half a percentage point above Libor – the London interbank offered rate. The theory, said the economists, was to get customers for life: “The nearly zero gains made on mortgages could be compensated via commission on other financial products.”

The construction boom bankrolled by the cajas made Spain Europe’s job creation engine in the first six or seven years of the last decade. Research by Morgan Stanley said Spain added 2.8 million houses over five years. Then came the bust, leaving 1.5 million unsold. In the suburbs of the big cities, fully built housing estates remain abandoned. Spain’s official unemployment rate, at 20 per cent and rising, up from 11 per cent in late 2008, is a direct result of the housing collapse.

The cajas are feeling the pain. As a whole, they are thought to be solvent, but there is no doubt the dud housing collateral is hurting them. The Bank of Spain says banks overall held doubtful assets worth €97.5-billion or 5.3 per cent of total credit. The figure doesn’t seem outrageous, but may mask the true extent of the problems at the cajas, which are heavily exposed to real estate. Total loans by all banks to real estate companies is €454-billion, or almost half of Spain’s gross domestic product. Of those loans, the non-performing loan ratio is about 10 per cent.

Opinions vary about Spain’s ability to skirt a banking crisis, one that could cripple the Spanish economy. Some say the cajas will muddle through. Others think the cajas’ problems will deepen as real estate values keep sinking, potentially resulting in their inability to fund themselves. That scenario could trigger Europe’s second banking crisis on a continent already reeling from the Greek debt horror.

With files from Reuters

______

Cajas in a bind

45

Number of Spanish savings banks (cajas)

135,000

Total number of caja employees

50%

Portion of total Spanish banking assets controlled by cajas

€2-tr

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neohguy
Message #90 - 06/10/10 01:54 PM



The Cleveland Federal Reserve is hosting a summit concerning the housing crisis. The NPR interview that I listened to said some of the topics that will be covered:

Demolition of housing that are considered blighted

Funding for renovation of properties

Assistance to home buyers that meet acceptable credit standards

What to do about speculators that are buying abandoned properties but not improving them (they don't want people buying and not building. Something to think about).

Recovering back property taxes.

 

Audio link

www.wksu.org/news/story/25623

 

[Virgil Showlion]

BiMetalAUPT
Message #91 - 07/02/10 11:14 PM

Fewer homeowners choosing to default on mortgage5:12 pm ET 07/02/2010 - MarketWatch Databased News

Don't miss these top stories:

[www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-0ED24C5F7701453FBE6F005767285EC7] Record-low mortgage rates - who cares?

[www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-1723ADA089694F349AFAA27B599ADC0D] U.S. home prices rise 0.8% in April

[www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-C3CFAA39528949E7A2361E1E30EE176D] Reverse mortgages now a less-costly lifeline

Nineteen percent of mortgage delinquencies were "strategic defaults" in the second quarter of 2009, according to findings released this week from Experian and Oliver Wyman. But there's some evidence that the strategic default phenomenon may have peaked, according to a news release from the two firms.

The research defines "strategic defaulters" as homeowners who have remained delinquent for six months after the initial date of delinquency; they have chosen to stop making mortgage payments, even though they can still afford them.

The report shows that strategic default is more prevalent in areas where home prices have suffered the steepest declines. Discouraged borrowers stop paying their mortgage payments, believing it will take too long for them to achieve positive equity.

According to the report, the absolute number of strategic defaults for the first half of 2009 was 355,000. These defaults, as well as first-time mortgage delinquencies, declined in successive quarters in 2009 and may have peaked in the fourth quarter of 2008, according to the release.

"Both delinquency and strategic default -- as we define these terms -- continue at high levels, but in Q2 2009 we see the first evidence of a break in the upward trend," said Peter Carroll, partner at Oliver Wyman, in the release.

"After a seasonal reduction in both measures from Q4 2008 to Q1 2009, the Q2 numbers then declined further, breaking the historical trend of quarter-over-quarter increases; however, we will need to analyze the data from Q3 and Q4 to validate this."

At the same time, the incidence of "cash-flow managers" rose from 20% in 2008 to 26% in the first half of 2009. These are borrowers who make occasional payments on their mortgage -- and are possibly trying to get out of delinquency.

"Cash-flow managers would be better candidates for loan modification programs than strategic defaulters," said Charles Chung, Experian's general manager of decision sciences, in the release. "They are likely to be in temporary distress and may also have financial resources which allow them to continue to pay their non-mortgage obligations. This clearly demonstrates a willingness to pay, and a loan modification that makes their mortgage payments more affordable is likely to be very effective."

Read more real-estate news in this week's pages, including why reverse mortgages have gotten less expensive lately and the latest on the home-buyer tax credit. reserve

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BiMetalAUPT
Message #92 - 07/06/10 08:27 PM

DID NOT GET THE PRICE THEY THOUGHT THEY WOULD.. CAPITAL FOR BANKS IS GOING TO COST MAJOR RETURN AND LOWER PRICE THEN THE MODEL SUGGEST!!!!JUST LOOK AT THE NUMBER OF BANKS THAT NEED MAJOR TIER1 CAPITAL INFUSIONS TO MEET BIS III ACCORD!!!!! JUST A THOUGHT, Bi Metal Au Pt
China's AgBank raises $19.23 billion in IPO4:10 pm ET 07/06/2010 - Associated Press Online

NEW YORK _ The Agricultural Bank of China's initial public offering has raised more than $19 billion in what could turn out to be the largest IPO ever.

The last of China's big four state-owned banks to go public, AgBank is selling 25.41 billion shares in Hong Kong and 22.24 billion shares in Shanghai. Based on Tuesday's pricing, the rural lender would raise about $19.23 billion, according to a person familiar with the deal.

The person requested anonymity because details of the IPO have not yet been released.

If underwriters buy up extra shares, the deal could raise $22.12 billion _ the most funds ever for an IPO.

Original forecasts put AgBank's proceeds at a whopping $30 billion. But investors appeared unprepared to pay that much for shares in a bank whose profitability is viewed as weaker than its urban-focused competitors.

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BiMetalAUPT
Message #93 - 07/09/10 11:04 PM

William Poole IS AT IT AGAIN.... RAISE THE OVERNIGHT INTERBANK RATE OR TED OR LIBOR  !!

The Bank for International Settlements issued a stern warning to central banks — keeping rates low for too long, and other actions like buying government bonds, creates risks to financial stability and opens central banks up to political pressure.

The warning, contained in BIS’s annual report, comes as Europe’s debt crisis has pushed rate-increase forecasts for major central banks including the Federal Reserve, Bank of England and European Central Bank off until well into 2011.

BIS concedes that slashing rates to record lows “was necessary to prevent the complete collapse of the financial system,” and isn’t recommending imminent hikes. Rather, the Basel, Switzerland-based organization, known as the central bank for central banks, worries that the latest crisis in Europe may delay for too long a “necessary” return to normal monetary policy.

“Keeping interest rates very low comes at a cost — a cost that is growing with time,” BIS said. “Experience teaches us that prolonged periods of unusually low rates cloud assessments of financial risks, induce a search for yield and delay balance sheet adjustments,” BIS said.

Central banks aren’t bound by BIS recommendations. But they’re significant nonetheless. The annual report was issued to central bankers from around the world gathered for BIS’s two-day annual meeting.

BIS took a veiled swipe at the Fed’s commitment, reiterated at last week’s FOMC meeting, to keep rates “exceptionally low… for an extended period.” Fed watchers equate that will holding rates near zero — where they’ve already been since the end of 2008 — for many more months.

By keeping short-term rates low, central banks give financial institutions the opportunity to generate income by borrowing at low rates and buying higher-yielding long-term assets. That, in turn, “may diminish the sense of urgency for reducing leverage and selling or writing down bad assets,” BIS said.

“Central banks’ commitment to keep policy rates low for extended periods, while useful in stabilizing market expectations, may contribute to such complacency,” BIS said.

BIS officials also worry about the effect soaring government debt levels will have on monetary policy and, ultimately, inflation. If investors are unwilling to buy a country’s sovereign debt, then the central bank may have to step in and purchase government bonds, which is what the ECB has done for Greece, Portugal and others to the tune of over 50 billion euros so far. The problem, BIS says, occurs when a central bank eventually has to stem inflationary pressures by pushing up short-term interest rates, thus raising borrowing costs for already cash-strapped governments.

“The rise in interest rates would be rapidly translated into higher interest payments and hence higher debt, thereby bringing forward the likely time for monetization,” BIS wrote.

BIS doesn’t see this type of inflationary scenario happening anytime soon. In fact, the opposite has occurred in traditional safe-havens like the U.S., where Treasury yields have fallen despite a double-digit deficit as a share of GDP. Many economists are worried about deflation, not inflation. But BIS warns “any increase in the probability attached to (high-inflation scenarios related to government debt) could quickly have adverse effects.”

Asset purchases “have exposed central banks to considerable credit risk,” BIS said, “which together with the changed balance sheet composition may expose them to political pressures.”

BIS isn’t just worried about central banks. Commercial bank profits “may prove unsustainable,” BIS said, noting that profits have been driven by fixed-income and currency trading — which can be volatile — and a steep yield curve, a flattening of which would raise funding costs. “It is not clear whether all crisis-related losses have been recognized,” BIS said.

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BiMetalAUPT
Message #94 - 07/13/10 07:01 PM

Credit Default Swap trends

The fear that governments will default on their debts got a whole lot more intense in the second quarter, and it wasn’t just among the usual suspects, Greece and other members of the PIGS club. Default worries also increased markedly on bonds issued by Belgium and France, among others.

Market data provider CMA tracks credit default swap prices on government debt, and in its report on second-quarter trends said that 93 per cent of the countries it follows had rising costs to protect their securities against going bust.

“CDSs are extremely sensitive to perceptions of risk within the market. The credit markets move very quickly in reflecting investor sentiment around certain entities,” commented CMA spokesman Simon Mott.

Credit default swaps are over-the-counter insurance contracts that pay out to those who buy them if a borrower is unable to meet its debt obligations. They’re purchased by investors who want to hedge their portfolios against losses, as well as by speculators hoping to make money if borrowers get into financial difficulties.

For those countries experiencing higher prices, insurance costs increased an average of 30 per cent, an indication that investor sentiment was dismal as market players mulled over the impacts of deficits and the state of the global economy.

Greece, as the epicentre of the sovereign debt crisis, had the worst percentage increase, and the cost of its swaps soared by 190 per cent, followed by Belgium, up 169 per cent and Spain by 129 per cent. Insurance costs for French debt jumped by 112 per cent, although it’s worth noting that the dramatic percentage increases for Belgium and France came off relatively low bases. One worrisome sign for the future is that credit default swap prices were on an increasing trend during the quarter, even though Europe and the IMF launched a massive rescue for Greece.

The world’s riskiest sovereign credit, based on default insurance costs, remains Venezuela. Iceland and Egypt exited the list of the top 10 countries most likely to default, replaced by Romania and Bulgaria.

Norway led the list of countries deemed least likely to default, with Finland and the U.S. in the No. 2 and No. 3 positions respectively. The U.S. had the 10th-best credit at the end of the first quarter, but moved up the ranking as investors fled the euro zone in favour of U.S. Treasuries during the Greek crisis. Canada’s risk of walking away from its debts isn’t ranked because it doesn’t have actively trade swaps.

The Railroad Chart

Nearly everyone is worried that the pace of economic growth in North America has been weakening, raising the odds of a double-dip recession, but don’t tell that to the railroads.

The Association of American Railroads, an industry trade group, tracks the number of railcars that trains move every week in Canada, the U.S. and Mexico. Railways give a good insight into the economy because they carry everything from iron ore and new cars to inter-modal containers, those rectangular boxes scrammed with consumer goods sent here by the shipload from Asian manufacturers.

Rail traffic has been moving up steadily this year. In the latest reporting week, rail movements exceeded both their depressed levels from 2009, but also more noteworthy, the relatively more buoyant traffic levels recorded in 2008, before the worst of the recession. Container volume was the highest in more than two years.

The action on the railroads seems to suggest that fears the North American economy is slipping backwards are overblown, at least for the moment.

“A lot of people look at freight rail as a kind of concurrent indicator of what’s happening right now,” says Holly Arthur, a spokesperson for the association. “We’re a derived demand industry. In other words, if people aren’t building or buying, we aren’t moving.”

Canaccord Genuity has been following freight movements for the clues they give on the health of the economy. Its analysts recently wrote in their Energy Daily newsletter that the traffic numbers indicate “North America’s economy is still on the path to recovery,” although t

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BiMetalAUPT
Message #95 - 07/15/10 06:11 PM

Money is backed to a small degree with gold.. Russia is buying!! price is above Money value!! is correct per MMX.. Super-Iron will soon replace the Iron Cloud...Bet on winning the gold bet!!!

Tables 7/15/10 profit/loss Wt Ave Forecast 1085.18 ?$122.92103 best corr 1123.76 ?$84.33888 HARM MEANS 1082.70 ?$125.39880 GEO MEANS 1082.95 ?$125.15106 current price 1208.1 ?$114.45244

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frank the impaler
Message #96 - 07/15/10 06:16 PM

[Virgil Showlion]

BiMetalAUPT
Message #97 - 07/16/10 06:35 PM

ACCORDING TO Citibank's CFO and BOA CEO.. Banking is in trouble.. GE financial Arm is also not helping.. It is all about the lack of M3!! and the main Driver of GDP and Stock prices.. also relates to inflation.. We have lost 1.5 Trillion USD in M3 over the last 18 months...this is hurting the GDP.. They say  "TOO" slow growth..   With the lack of lending it is hard to see any in the small business area.. The largest firms are HORDING the USD and EURO and not adding production esp are not add to the head count.. Cost of Insurance is also one think I keep hearing. 

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BiMetalAUPT
Message #98 - 07/16/10 06:37 PM

cont from above!!!
U.S. stocks drop sharply on B.of.A., sentiment2:03 pm ET 07/16/2010 - MarketWatch Databased News

NEW YORK (MarketWatch) - Financials led U.S. stocks sharply lower Friday after a double dose of discouraging reports on the corporate sector and the economy, sending the Dow Jones Industrial Average down more than 200 points.

Bank of America Corp.'s 8% drop led the blue-chips lower, erasing the index's weekly gains amid lingering concerns that the economy is growing too slow to spur corporate growth. Adding to the jitters was a morning report that showed consumer sentiment dropped to its worst level since March 2009, the latest in a string of downbeat data that slammed Wall Street.

On the corporate front, investors turned pessimistic about growth prospects for major U.S. companies as Bank of America, Citigroup, Inc. and General Electric Co. posted lackluster results. There was also growing concern about how financial regulatory overhaul will hurt earnings for the banking sector, which was the biggest decliner on the Standard & Poor's 500 index on Friday. [www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-1D9DB814EBB24FE4B05FC6370ED02CD2] Read about GE's results.

"The earnings reports we've had so far have been pretty decent, but Bank of America and Citigroup were more of a mixed bag," said Randy Frederick, director of trading and derivatives at Charles Schwab. [www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-D9100F3840AF4F6C89424ADFAE5EA8CF] Read more about Bank of America's earnings report.

He noted those reports added to investors' concerns about the broader economy following disappointing economic news in recent weeks, underscored by Friday's weaker-than-expected reading on consumer sentiment. [www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-A15A73AFB6F742E88E692BDCFC9CAA75] Read about consumer sentiment.

"For the past several months the majority of the economic reports have been positive enough to say we're still in a long-tem growth trend, but within the past couple weeks the trend is becoming less positive," Frederick said. "It's almost like we're flattening out."

The Dow, which snapped its seven-day winning streak on Thursday, is now down 0.3% for the week, while the S&P 500 has dropped 0.5%. The Dow was recently down 215 points, or 2.1%, to 10144 and the S&P 500 declined 2.3% to 1072.

The Nasdaq Composite declined 2.4% to 2195, weighed by the 5.5% drop in Google, Inc. , which posted disappointing second-quarter results as its search business continued to show signs of slowing growth. [www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-82510252F4EE45A0B190151B024015C1] Read more about Google's earnings report.Apple Inc. shares briefly turned higher, rising about 1% before returning to a slight loss after CEO Steve Jobs CEO Steve Jobs said the company will give away free bumpers as a remedy for the iP

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Scared_Shirtless
Message #99 - 07/17/10 01:02 PM



Gee

 

With equities topping / slipping, they must not be making as much at the casino these days.  They'll REALLY have to cook those numbers now - to keep the obscene bonuses coming!  They'll actually have to work a bit - but not where it helps US.  Hmm..  Any trimming of loss reserves going on maybe?

 

We need old style community banking to reinvent itself throughout the economy.

 

I look around me at the people I know.  A resilient bunch.  We don't see things any better - we just get squeezed - constantly - in a thousand different ways.  Things are NOT getting better around here.  But we're hanging in.

 

I wonder how many of those "detached workers" who don't count in unemployment statistics are actually working at various odd things - all under the table - cash basis.  Do we have growth in our underground economy?  And if so - what are the consequences?

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BiMetalAUPT
Message #100 - 07/18/10 08:31 PM

We are in a classical  
Phase delay Time function Laplace transform

Starting with the Laplace transform,

we find the inverse by first rearranging terms in the fraction:


We are now able to take the inverse Laplace transform of our terms:


To simplify this answer, we must recall the [en.wikipedia.org/wiki/Trigonometric_identity] trigonometric identity that

and apply it to our value for x(t):


We can apply similar logic to find that

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BiMetalAUPT
Message #101 - 07/19/10 03:59 PM

BANKS MAY BE UNABLE TO LEND MONEY BUT BOY O'BOY THEY ARE SELLING BONDS...

Charles Schwab selling debt11:46 am ET 07/19/2010

NEW YORK (MarketWatch) -- Charles Schwab Corp. plans to sell $500 million in 10-year debt during Monday's session, according to CRT Capital Group. In a regulatory filing, the online brokerage giant said the proceeds would be used for general corporate purposes. This month is already the second busiest July on record for the corporate bond market, with $47.7 billion in bonds sold, according to Informa Global Markets.

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neohguy
Message #102 - 07/19/10 04:33 PM

I've recently started to exit my corporate bond funds. Still holding short and long term US paper. Not interested in equities, dividend yielding or not, at this time.

[Virgil Showlion]

BiMetalAUPT
Message #103 - 07/19/10 04:45 PM

Neohguy,
 My turn to ask WHY?   Many firms are doing well and have a lot of cash for things like Share Buy Backs..This low cost bond sales are the base for future profit growth.. It looks like spending will be more on increased production without new hands.  I have held my to the 50/50 re-balancer system . You buy stocks at the bottom and sell bonds at the top.  It does take a large dose of BRAVE!!!
Using CAPM it looks like the average BLUE chip (beta < 1) have a risk return total of about 9.5% for the 30 year VS the  return required return of about 9.12%: So their is some money on the table to be made.. Not a lot but it is more then the risk for long term holding.
Thank-you in advance!!  Best of LUCK!!
Bi Metal Au Pt

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frank the impaler
Message #104 - 07/19/10 04:54 PM

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neohguy
Message #105 - 07/19/10 05:02 PM

My turn to ask WHY?   Many firms are doing well and have a lot of cash for things like Share Buy Backs..This low cost bond sales are the base for future profit growth..

Just my opinion, I think a lot of that cash will be used for survival as consumers and governments reduce spending. Industrial capacity is at ~ 75% so I don't think companies (most of them) feel a need to invest in any expansion for the time being. We are starting to see a softening in our steel making industry and corrugated box mills/packaging paper mills are cutting back on hours. This is recent so I can't say if it's a trend reversal or blip. Consumer metrics is reporting a definite trend in reduced seasonally adjusted consumer spending. I think that we are going to dip again and many companies that look healthy today may stroke out if that happens. I'm more conservative than most so a bird in the hand... 

  I have held my to the 50/50 re-balancer system asd you but stocks at the bottom and sell bonds at the top.  It does take a large dose of BRAVE!!!

That you are! I am watching closely and wish you luck.

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Scared_Shirtless
Message #106 - 07/19/10 10:59 PM



Well said Neoh.  I'm bonds and cash and watching bonds very closely.  Not pulling just yet but my finger is near the trigger and ready.

 

Is that lost confidence?  Or what?  A loss of belief?  There is a difference!

 

I like all your gut feelings.  I share them too.  Its hard ain't it?

 

To answer something you said in another thread once - I have bought my cars used for a very long time.  It is a major factor - I believe - in my road to debt free!  I have an unfair advantage.  I drive past a lot on the way to work that may be the best used car lot on the planet.  They currently sell 1000 used cars a month.  Most are from rental agencies or end of lease offerings.  I have never gone wrong there.  Don't see what you like?  Come back next week, there will be 250 new ones.  I don't take the "new car depreciation" hit - but I still get a very reliable, little worn car!  And - I always pay cash.

 

still scared...

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BiMetalAUPT
Message #107 - 07/20/10 12:36 AM

neoh guy,
 You talked around the answer was fishing for, bonds will in the short term outperform stocks.. or I am looking for a week Q4 after what Flow5 wrote. In 1999 the head of London School of Economics wrote that bonds will do better then stocks over the next 10 years.  Now reduce this to risk and more income!!   My bankerster Grandfather played the Bond Market all during the depression and made money.. War also..esp income only RR Bonds..Bought cheap and when the War came started paying interest.

It is a great game and watch the State bonds for real discounts and a lot of risk,,

Just a thought,
Bi Metal Au Pt

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BiMetalAUPT
Message #108 - 07/20/10 05:38 PM

THIS COULD BE REAL BAD.. MOST EU BANKS DO NOT HAVE B.I.S. 8.125% TIER1 NOW HAVE TO RAISE CAPITAL TO 11%!! FOR B.I.S.III!  IN THE LONG RUN I SEE A HUGE "PHASE DELAY" THAT COULD LAST FOR YEARS BEFORE LENDING AND CAPITAL FORMATION RETURN TO NORMAL.. WHERE WILL THE BANKS GET THE CAPITAL?  HINT..DOWNSIZING.. LESS LOANS, LESS CD'S AND LESS OVERPAID BANK LAUNDRY WORKERS WITH LESS HOT MONEY!!! TIME FOR A CUP OF !!  I WANT TO REPLACE "WHEN" FOR THE "IF" THINGS BECOME WORST!!!  tHE TEN YEAR T-NOTE DID WELL TODAY WITH INTEREST NOW AT 28.96 LOW FOR THE DAY (JUL 20,2010).  V.L. WILL LOVE THAT.. BASE FOR GROWTH??

TAKE A LOOK-Europe's bank stress tests1:19 pm ET 07/20/2010 - Reuters

The European Union is examining whether some banks need to raise capital as it looks to dispel concerns about weakness in the sector and repair an interbank lending market still closed to some lenders.

Results of so-called "stress tests", which will assess how banks would fare if economic conditions worsened, are due on 91 banks on July 23.

Here are the latest Reuters stories: WILL THEY BE STRINGENT ENOUGH? > ECB seeks to allay doubts over Europe's bank tests <ReutersLink ID='ID:nLDE66J21U' /> > Policymaker seeks to allay fears over Europe tests <ReutersLink ID='ID:nLDE66J0M8' /> > German listed banks, landesbanks to pass stress test <ReutersLink ID='ID:nLDE66J0SX' /> > Hypo Real Estate seen failing stress test -source <ReutersLink ID='ID:nLDE66I20V' /> > EU bank watchdog faces flak in its own stress test <ReutersLink ID='ID:nLDE66E0U8' /> > France's Lagarde says "confident" over stress tests <ReutersLink ID='ID:nLDE66J1WI' /> > Fitch: pressure may grow on European bank ratings <ReutersLink ID='ID:nN20249985' /> > EU agrees key criteria to test bank health <ReutersLink ID='ID:nLDE66F0XN' /> > IMF chief sees European banks safe in stress tests <ReutersLink ID='ID:nLDE66F0Z6' /> HOW WILL THEY WORK? > Q+A-How Europe will stress-test its banks? <ReutersLink ID='ID:nLDE660160' /> > CEBS outlines bank stress test publication plans <ReutersLink ID='ID:nLDE66I10X' /> > Stress tests include 23 pct Greek debt haircut - source <ReutersLink ID='ID:nLDE66C1HT' /> > EU govts should help viable banks in stress - IMF <ReutersLink ID='ID:nLDE66B1TU' /> > European bank tests put focus on capital hikes <ReutersLink ID='ID:nLDE668161' /> > Euro fund could top up battered banks <ReutersLink ID='ID:nLDE6681IO' /> > EU banking group sees big haircut in tests <ReutersLink ID='ID:nLDE6680TW' /> > UK's top regulator says EU bank tests adequate <ReutersLink ID='ID:nLDE66D0ZT' /> COMMENT AND ANALYSIS > COLUMN-RV offers best bet on bank tests: Richard Muller <ReutersLink ID='ID:nLDE66I1F7' /> > BREAKINGVIEWS-Hypo is wrong kind of failure for Europe tests <ReutersLink ID='ID:nLDE66J1MQ' /> > Spain/Bund spread eyes 140 on stress test <ReutersLink ID='ID:nLDE66I1J7' /> > Bank stress management set to bolster the euro <ReutersLink ID='ID:nLDE66811T' /> > Stress tests seen no panacea for bank funding <ReutersLink ID='ID:nLDE66E15E' /> > Europe struggles to match U.S. bank test resolve <ReutersLink ID='ID:nLDE665171' /> > Spain, Germany public banks in test focus <ReutersLink ID='ID:nLDE65T1WZ' /> > BREAKINGVIEWS-Would the ECB pass a stress test? <ReutersLink ID='ID:nLDE6660HW' /> REGULATORY LANDSCAPE > EU bank watchdog faces flak in its own stress test <ReutersLink ID='ID:nLDE66E0U8' /> > Wall St reform clears Congress, goes to Obama <ReutersLink ID='ID:nN15226910' /> > Basel Committee says agrees bank buffer strategy <ReutersLink ID='ID:nWEA9821' /> > EU to clinch supervision deal by September - Germany <ReutersLink ID='ID:nLDE66C0E0' /> TESTS IN GRAPHICS Key metrics and bond maturities for Europe's biggest banks: graphics.thomsonreuters.com/10/EZ_BNKST0710.html CDS for banks in test: graphics.thomsonreuters.com/10/GLB_USEURS0710.gif QUICK FACTS > FACTBOX-Key details of statement on Europe stress tests <ReutersLink ID='ID:nLDE6662AJ' /> > FACTBOX-Key data on Europe's banks facing stress tests <ReutersLink ID='ID:nLDE6600HB

[Virgil Showlion]

neohguy
Message #109 - 07/20/10 06:12 PM

neoh guy,
 You talked around the answer was fishing for, bonds will in the short term outperform stocks.. or I am looking for a week Q4 after what Flow5 wrote. In 1999 the head of London School of Economics wrote that bonds will do better then stocks over the next 10 years.  Now reduce this to risk and more income!! 

I might have gotten out a little early but that's not unusual for me. Flow5 scared me . Seems like everybody is interested in bonds so I got a little spooked with the corporate stuff because I don't trust ratings agencies or creative accounting. One of our ING bond funds is up +50% for the prior year. I wasn't in that one. I picked the one that was more conservative that was up ~18% for the year. I decided to sit things out for a few months and just watch. 

Is that lost confidence?  Or what?  A loss of belief?  There is a difference!

For me it's lost confidence in WS and our governments willingness to enforce rules. I'm like a lot of people. If I think I'm being gamed then I won't participate. When I'm convinced otherwise then I'll take another look. 

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BiMetalAUPT
Message #110 - 07/20/10 07:17 PM

Neoh guy,

For me it's lost confidence in WS and our governments willingness to enforce rules. I'm like a lot of people. If I think I'm being gamed then I won't participate. When I'm convinced otherwise then I'll take another look.

I have good friends in the EU that will 100%. It is like LV,NV.. If you like the game buy the house...I have a long history of going for stocks with strong assets and weak prices.  Look at some of the world food firms like CPB or HNZ.  NOT TOO EXCITING BUT BOTH ARE GOING TO PRODUCE A TOTAL RETURN OVER THE NEXT 30 YEARS ABOVE 10%...(10.9% FOR HNZ) VS CAPM REQUIRED RETURN OF 7.84% ( BETA = 0.6 AND MARKET RETURN 10.4% AND 30 RISK FREE RATE OF 4% FOR 30 YEAR T-BOND).

BANKS ARE ALSO DOING BETTER .. LOOK AT C.. BETA IS NOW DOWN TO 2.7 VS 2.8 IN Q1.. BANKS LIKE C ARE DOWNSIZING AND REDUCING RISK EXPOSURE FOR A BETTER BEST MIX OF PROFITS VS RISK.. WE SHOULD SEE BETA FOR C TO 0.7 BY 2013 IF THEY KEEP TO THEIR PLAN!!!!  IT IS ALWAYS THE DARKEST JUST BEFORE SUNRISE!!  THE STOCK I THINK IS MOST AT RISK IS GS.. THEY MAKE MONEY BY GAMING AND YOU KNOW WHAT THAT MEANS..  IF GOLD KEEP GOING UP GS IS IN   PERFECT STORM.. HAVING TO BUY GOLD AT A HUGE LOSS TO COVER SHORT PAPER!!!

Just a thought,
Bi Metal Au Pt

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BiMetalAUPT
Message #111 - 07/20/10 07:58 PM

This may be the third  "Bank/Financial SWALLOW" we have spotted this week.. Is Spring in the Banking System??  5% decrease in unpaid mortgages.. Looks like the 10% unemployment rate was understated but why are people able to pay now?? What does this mean to banks.. Less TOXIC assets?  for MGIC..One big   the whole system is based on trust and value.. With more and larger QE we could see some real growth in M3 if the banking system again has the investors "TRUST".. Well JOE six-pack may not trust Wall Street but will he trust Main Street.. His Local Credit Union or small Town Bank.. You know the one who has not idea what a CDS is.. You know what V.L. calls me..  The "Old FASSION INVESTOR" that works 80 hours a week and saves his couponds...

MGIC results buoy mortgage insurers3:25 pm ET 07/20/2010 - MarketWatch Databased News

SAN FRANCISCO (MarketWatch) - Mortgage insurers rose Tuesday after MGIC Investment Corp. reported a quarterly profit for the first time in at least a year.

Second-quarter net income came in at $24.6 million, or 13 cents a share, versus a net loss of $339.8 million, or $2.74 a share, in the same period a year earlier.

The percentage of MGIC-insured home loans that are delinquent stood at 17.59% at the end of June, down from 18.41% at the end of 2009, but up from 14.97% a year earlier, MGIC reported.

Excluding non-operating gains, MGIC reported earnings of two cents a share. That easily beat consensus analyst forecasts of a 64 cents-a-share loss, according to Bruce Harting, an analyst at Barclays Capital. He was expecting a loss of 50 cents a share.

The "significant" 5% drop in delinquent loans in the second quarter versus the first quarter let MGIC release $260 million of reserves, he noted.

Mortgage insurance helps home buyers who don't have enough money for a down-payment, which traditionally was 20% of the purchase price. As house prices slumped, rising defaults sparked a surge in claims that hit companies like MGIC, Radian Group and PMI Group hard.

However, government efforts to prevent foreclosures and an economic rebound fueled by unprecedented monetary stimulus have helped mortgage insurers in recent months.

Mortgage Insurance Companies of America, an industry group, recently said there were 60,346 primary insurance defaults in May. That was down from almost 90,000 in January.

So-called cures, which measure loan problems that have been resolved, were 65,436 in May, up from just over 61,000 in January, the industry group added.

MGIC shares climbed 6.8% to $8.35 in afternoon trading on Tuesday. Radian rose 7.6% to $8.17 and PMI climbed 3.8% to $3.32.

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BiMetalAUPT
Message #112 - 07/20/10 10:44 PM

BANKING IS WEAK BUT BONDS ARE VERY STRONG..M3 IS FLAT SO THIS IS WHAT THE MODEL FOR BONDS HAS PROJECTED.. 10 YEAR T-NOTES AT< 2% AND 30 YEAR T-BONDS = 2% OR BULL ON THE BOND AS V.L. ASKED.. THEY HAVE TO GET THE YIELD DOWN SO PEOPLE WILL AGAIN BUY LARGE CD'S TO MAKE M3 GROW.. BEN B. IS A M3 SUPPORTER VS MAY OTHERS LIKE GREENSPAN THAT THOUGHT M2 WAS GOOD ENOUGH INFORMATION.. FROM THE FLOOR OF THE FEDERAL BOND PITS AT C.F. AND J.P.MORGAN

Treasurys mostly higher ahead of Bernanke comments6:18 pm ET 07/20/2010 - Associated Press Online

Treasury prices are mostly higher as another weak report on the housing sector cast more doubt on the economic recovery.

The yield on the 10-year Treasury note was essentially flat late Tuesday at 2.96 percent, while its price edged up 3.125 cents.

The Commerce Department reported earlier that home construction plunged last month to the lowest level since October. That led to an early decline in stock prices and more interest in safe-haven investments.

Treasury prices started the day higher but gave up much of those gains as the stock market rebounded in early afternoon trading, leaving the Dow Jones industrial average with a gain of 75 points at the end of the day after having been down as many as 140.




THE AVERAGE EFFECTIVE BETA OF THE 50/50 RE-BALANCER SYSTEM IS LESS THEN THE ALPHA OR SHARPE GREATER THEN ONE!!!




IT WAS A VICTORY.. AS MANY KNOW G.S. TOLD ME MY M.B.A. HAD NO MEANING TO THEM BECAUSE IT WAS NOT FROM AN IVY LEAGUE SCHOOL..FORGET CLASSES FROM MIT, LONDON,UT AUSTIN AND TEXAS TECH..





Just a thought,

Bi Metal Au Pt

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BiMetalAUPT
Message #114 - 07/22/10 08:30 PM

FROM B.I.S.  ADDENDUM TO ACCORD II 2008...NO NUMBERS BUT GOOD GENERAL CONCEPTS..  full text in pdf  47 K hit the blue bullon at the bottom, Bruce
Principles for Sound Liquidity Risk Management and Supervision September 2008

Liquidity is the ability of a bank to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses. The fundamental role of banks in the maturity transformation of short-term deposits into long-term loans makes banks inherently vulnerable to liquidity risk, both of an institution-specific nature and that which affects markets as a whole. Virtually every financial transaction or commitment has implications for a bank's liquidity. Effective liquidity risk management helps ensure a bank's ability to meet cash flow obligations, which are uncertain as they are affected by external events and other agents' behaviour. Liquidity risk management is of paramount importance because a liquidity shortfall at a single institution can have system-wide repercussions. Financial market developments in the past decade have increased the complexity of liquidity risk and its management.

The market turmoil that began in mid-2007 re-emphasised the importance of liquidity to the functioning of financial markets and the banking sector. In advance of the turmoil, asset markets were buoyant and funding was readily available at low cost. The reversal in market conditions illustrated how quickly liquidity can evaporate and that illiquidity can last for an extended period of time. The banking system came under severe stress, which necessitated central bank action to support both the functioning of money markets and, in a few cases, individual institutions.

In February 2008 the Basel Committee on Banking Supervision published Liquidity Risk Management and Supervisory Challenges. The difficulties outlined in that paper highlighted that many banks had failed to take account of a number of basic principles of liquidity risk management when liquidity was plentiful. Many of the most exposed banks did not have an adequate framework that satisfactorily accounted for the liquidity risks posed by individual products and business lines, and therefore incentives at the business level were misaligned with the overall risk tolerance of the bank. Many banks had not considered the amount of liquidity they might need to satisfy contingent obligations, either contractual or non-contractual, as they viewed funding of these obligations to be highly unlikely. Many firms viewed severe and prolonged liquidity disruptions as implausible and did not conduct stress tests that factored in the possibility of market wide strain or the severity or duration of the disruptions. Contingency funding plans (CFPs) were not always appropriately linked to stress test results and sometimes failed to take account of the potential closure of some funding sources.

In order to account for financial market developments as well as lessons learned from the turmoil, the Basel Committee has conducted a fundamental review of its 2000 Sound Practices for Managing Liquidity in Banking Organisations. Guidance has been significantly expanded in a number of key areas. In particular, more detailed guidance is provided on:

• the importance of establishing a liquidity risk tolerance;
  
• the maintenance of an adequate level of liquidity, including through a cushion of
  liquid assets;
  
• the necessity of allocating liquidity costs, benefits and risks to all significant business
  activities;
  
• the identification and measurement of the full range of liquidity risks, including
  contingent liquidity risks;
  
• the design and use of severe stress test scenarios;
  
• the need for a robust and operational contingency funding plan;
  
• the management of intraday liquidity risk and collateral; and
  
• public disclosure in promoting market discipline

Guidance f

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BiMetalAUPT
Message #115 - 07/23/10 04:16 PM

STRESS TEST: OF THE 91 BANKS IN THE TEST 76 OF THE BANKS ARE EXPECTED TO FAIL!!.. TIER1 CAPITAL IS EXPECTED TO INCREASE AND THE CURRENT NUMBER I HEAR IS 11%.. DOWN FROM 11.5% IN FEB 2010. THE BANKS ARE IN AN RAGE OF MADNESS  OVER THE CAPITAL REQUIREMENT.. SHOULD HAVE THOUGHT OF THAT BEFORE THEY OVER-LEVERAGED TO MAX PROFIT

Stress test methodology triggers jitters11:02 am ET 07/23/2010 - MarketWatch Databased News

LONDON (MarketWatch) -- Details of the methodology behind the stress tests conducted on 91 European banks emerged Friday, erasing gains for the European single currency and putting added pressure on bank shares amid fears the scenarios envisioned by regulators may not be tough enough.

The test scenario assumes a double-dip recession, a 20% decline in equity markets and a sharp rise in interest rates, Reuters reported Friday, citing test methodology used by the London-based Committee of European Banking Supervisors, which oversaw the tests.

The euro turned lower versus the dollar and European bank shares weakened after reports said the tests would only consider losses on bonds traded rather than those held to maturity. The euro changed hands in recent action at $1.2818, down 0.6% on the day. [www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-630AD9C1FA0A4F0A997943F71AFF2444] See Currencies.

European equities rebounded from temporary losses but bank shares remained under pressure. [www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-D59CC48B45D84BFF9415E7B9CB6A9B6C] See Europe Markets.

The tests assume a haircut, or discount, of 23.1% on Greek bonds at the end of 2011, reports said. The haircut on Portuguese bonds is set at 14%; Spanish bonds, 12.3%; and German bonds, 4.7%, reports said.

"Most recent headlines point to stresses that are probably less than market participants would have wanted," said Steven Englander, currency strategist at Citigroup in New York.

The decision to include the impact of sovereign debt losses on trading books rather than bank books "may be a consequence of assuming no defaults but investors are likely to be uncomfortable with the assumption unless the size of bank books relative to trading books is small," he said. "Overall this looks disappointing relative to some of the earlier leaks."

 

[Virgil Showlion]

BiMetalAUPT
Message #116 - 07/23/10 04:44 PM

IT LOOKS LIKE THE GERMAN CENTRAL BANK WILL NOT DEMAND TIER1 LEVELS OF B.I.S.II.. THEY ARE GOING THEIR OWN WAY!!.. WELL IF THAT IS ALL YOU NEED THEN WHY DID CITIBANK NEED ADDED CAPITAL WHEN IT HAD 6.8% TIER1 WITH THE OFF BOOK CDO ADDED BACK TO THE BOOKS OR 8.5% WITH THEM OFF TH BANKS BOOKS AND ON SMITH BARNEY OR HOLDING COMPANY BOOKS???  DOUBLE STANDARDS.. 6% CAPITAL WILL NOT WORK IN THE OIL PATCH/ FARMING BANKS AROUND ABILENE!!
< [investing.schwab.com/secure/cc/nn/gw/wsod?path=/retail/research/markets/overview/index.asp] Back to Headlines[www.schwab.wallst.com/retail/research/markets/overview/story.asp?XXX102_UtupfPKfodFWFGioxRzdjc/bsZO3aidNJ0ylFsXcArqPX4Q/QXUCjija+1GbGvAy4CLNyAYGT32LfQJf7bARbBTj0r0xTWwti+SAWQ1QmT9+aw6Fg9fGKdsXz99pf3GP3CsQl6ztHSbv9TD3tAalCg==&doc=4018-CA815B3DFCFE4320A21947CD21C96B84-7CBP1V3JKUL8THB0LQJVQKFVHB&sserver=&p3=N#] Save StoryHypo Real Estate is only German bank to fail tests12:24 pm ET 07/23/2010 - MarketWatch Pulse News Bullet

FRANKFURT (MarketWatch) -- Hypo Real Estate was the only German bank to fall short of the 6% Tier 1 capital ratio in the most severe stress test scenario, the Bundesbank said Friday. German banks have proved to be "robust and resilient" following the stress tests, it said. The average Tier 1 capital ratio of the German banking system has risen by almost 2 percentage points in the last three years.

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BiMetalAUPT
Message #117 - 07/23/10 05:50 PM

TNone of the CB used B.I.S.III ACCORD TO SET THE STANDARD.. ORGINAL NUMBER WAS 12.125% NOW TALKING ABOUT 11% tIER1.  THIS IS GOING TO BE USED TO LOWER THE TIER1 ACCORD IN B.I.S. III PAPERS ETC.. OK IT IS ONLY A REQUMENDATION
INSTANT VIEW-Seven banks fail European stress tests1:24 pm ET 07/23/2010 - Reuters

LONDON, July 23 (Reuters) - Seven of 91 European banks have failed stress tests and show an overall capital shortfall of 3.5 billion euros, the organisers of the tests said on Friday.

Following are comments from policymakers and analysts on the results.

BANK OF GREECE

"The significant capital increases that took place in 2009 underlie the Greek banks' performance. This enhancement was mainly the result of the increase in supervisory own funds. The main factors that contributed to the increase in supervisory own capital were: the capital raised by several banks from the market, internal financing through retained earnings as no dividends were distributed in 2009, as well as the issuance of preference shares."

FRENCH ECONOMY MINISTER CHRISTINE LAGARDE

"In my view the test was tough, it was inclusive, it was very comprehensive. It included macroeconomic components as well as debt crisis components and as a result I would suggest that these results are very credible and should certainly raise the confidence in European banks."

"The French banks have passed the test, and they have passed it well. They are well ahead of requirements, and I have no doubt that they don't need additional capital at this time at all."

RICHARD CRANFIELD, CHAIRMAN GLOBAL CORPORATE GROUP, ALLEN & OVERY

"Arguably the failure here is not the banks concerned, but the test itself. There is little evidence that the tests have been applied consistently and there is a distinct lack of credibility, making this a wasted opportunity. One assumes those banks that have failed will be rescued or recapitalised; however the banks that have scraped through may have more of a challenge on their hands and they may be the ones the market focuses on."

JUAN PABLO LOPEZ, BANCO ESPIRITO SANTO

"Ar first glance the Spanish banking system looks healthy, with all the major banks passing.

"The total capital shortfall (for the savings banks) is much less than even the beste estimate, so at first glance this is positive, but now we'll have to look at the results in more detail."

DAVID MORRISON, MARKET STRATEGIST, GFT GLOBAL

"There will be more volatility and weakness on the back of this. It doesn't feel like they've drawn a line under it -- we haven't got the transparency we were looking for. There is a stark difference between the way that the U.S. did this and how it's happened in Europe."

PETER DIXON, ECONOMIST, COMMERZBANK, LONDON

"A big hurdle has been cleared. You would like to think that this will give a little bit of support and certainly should mean that some of the lingering concerns about the problems faced by European banks have been eliminated. We will probably take a more positive stance from here."

PHILIP SHAW, CHIEF ECONOMIST, INVESTEC

"The first reaction is likely to be a stronger dollar, in that currency markets could shy away from the euro on the basis the tests haven't been sufficiently rigorous and perhaps not all weaknesses in the system have been revealed."

NIAL O'CONNOR, CREDIT SUISSE, BANKING ANALYST

"The results probably tell you more about the quality of the test. Most people are going to be saying that the sovereign test is not strict enough. But on the other hand, we have all the sovereign exposure data, and we can go ahead and do our own tests.

JOE DICKERSON, BANK ANALYST AT BROKERAGE EXECUTION NOBLE, LONDON

"Initially it looks like the banks are being tested for a blue sky scenario, not a stressed scenario. It doesn't look particularly stressful."

ANDREW MELITZ, TRADER AT ICF KURSMAKLER, FRANKFURT:

"For the most part I would say its more or less what was expected. Everyone in Germany knows that Hypo Real Estate has been a problem child its basically government owned so there is no surpris

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Scared_Shirtless
Message #118 - 07/23/10 07:05 PM



Thanks Bruce!

 

Great info - concise - in one place.

 

Many Thanks.  Going to Germany in September.  Booked yesterday.  Langenfeld.  Near Dusseldorf.

 

Best wishes

 

OHHH!  I was in London a few weeks ago.  When their parliment passed thier austerity measure?  We were all gathered around the TV at lunch.  A lot of groans from my colleagues but also sensed a feeling of inevitablity and resignation amongst them.  They took it well.  Stiff upper lip kinda thing.  They're good people.

 

 

Frank - I took the afternoon off. 

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BiMetalAUPT
Message #119 - 07/24/10 09:37 AM

Euro Falls as Stress Test Results Fail to Alleviate Banking Risk Concern

The euro fell, ending its longest weekly rally in nine months versus the dollar, on concern stress tests of European Union banks failed to identify sources of weakness that would aggravate the region’s debt crisis.

The 16-nation currency depreciated against the majority of its most-actively traded counterparts, slumping the greatest amount versus growth-sensitive currencies such as the Australian and New Zealand dollars. Tests showing that only seven banks flunked the EU’s crisis scenario failed to ease concern lenders may lack sufficient capital, pushing the euro to reverse gains recorded earlier in the week.

“The euro’s definitely had its ups and downs,” said [search.bloomberg.com/search?q=Vassili%20Serebriakov,&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “Markets were questioning whether the stress tests were stressful enough, in other words, whether they were stringent enough.”

The 16-nation currency fell 0.2 percent this week to $1.2909 yesterday in New York, from $1.2930 on July 16. The yen weakened 1 percent to 87.46 per dollar from 86.57 last week. The euro slumped 3.1 percent to A$1.4414 versus Australia’s currency and 2.5 percent to NZ$1.775 against its New Zealand counterpart.

The euro gained yesterday as traders closed out bets that the currency would weaken further when equities rallied. The yen extended its decline versus the dollar as Japanese policy makers signaled for a third day that a stronger currency poses a danger to growth, spurring speculation they will take steps to counter that risk. Hungary’s forint snapped a three-day gain as Moody’s Investors Service said it may cut the nation’s credit rating.

Bank Test Results

Seven European Union banks failed the region’s stress tests with a combined capital shortfall of 3.5 billion euros ($4.5 billion), according to the Committee of European Banking Supervisors, which coordinated the initiative.

EU regulators scrutinized 91 of the bloc’s banks to assess whether they have enough capital to withstand a recession and sovereign-debt crisis, with a Tier 1 capital ratio of 6 percent as a floor. Governments are seeking to reassure investors about the health of financial institutions after the debt crisis pummeled the bonds of Greece, Spain and Portugal.

The evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding to maturity, according to CEBS. That means the tests are set to ignore the majority of banks’ holdings of sovereign debt, investors said.

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BiMetalAUPT
Message #120 - 07/24/10 09:42 AM



‘Lack of Creditability’

“There’s a lack of credibility,” said [search.bloomberg.com/search?q=Brian%20Dolan,&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “They don’t think the scenarios were stressful enough.”

Regulators tested portfolios of sovereign five-year bonds, assuming a loss of 23.1 percent on Greek debt, 12.3 percent on Spanish bonds, 14 percent on Portuguese bonds and 4.7 percent on German state debt, according to CEBS.

The European currency fell against 14 of its 16 most-traded counterparts this week, rising against the yen and franc. The shared currency has climbed 5.5 percent against the dollar in July.

[www.bloomberg.com/apps/quote?ticker=.ECLRG:IND] Futures traders decreased their bets for a third week that the euro will decline versus the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain, known as net shorts, was 24,251 on July 20, compared with net shorts of 27,050 a week earlier.

Long Road Ahead

“What investors recognize and will continue to believe is that the road for euro-zone banks and euro-zone policy makers is a long one,” said [search.bloomberg.com/search?q=Samarjit%20Shankar&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] Samarjit Shankar, a managing director for the foreign-exchange group in Boston at BNY Mellon, the world’s largest custodial bank, with more than $20 trillion in assets under administration. “It’s going to boil down to fundamentals.”

Europe’s shared currency has declined 8.1 percent this year, the biggest loss among its developed-world counterparts, according to Bloomberg Correlation-Weighted Indexes. The dollar has gained 3.1 percent, and the yen advanced 10 percent.

The 16-nation currency may retrace its 8 percent rally since trading at the four-year low of $1.1877 on June 7 as investors borrow euros and sell them to purchase assets in other nations, according to [search.bloomberg.com/search?q=Sebastien%20Galy&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] Sebastien Galy, a currency strategist at BNP Paribas SA in New York.





MMX projection is still 1 EURO= 1 USD

[Virgil Showlion]

BiMetalAUPT
Message #121 - 07/24/10 09:45 AM

for the Carry trade the decline in the EURO made a lot of USD!!!!


Funding With Euros

“The euro’s likely seen its top,” Galy said. “The question going forward is whether people are going to make a cyclical bet the euro versus the dollar as a funding currency.”

The euro carry trade investing in Brazilian reais, South African rand and Australian and New Zealand dollars earned as much as 17 percent this year through June 28 before the shared currency’s rally started eroding profits from the trade, according to data compiled by Bloomberg. A similar trade funded in yen has lost 5 percent so far this year, while a dollar-carry strategy made 2 percent.

“An abrupt drop in stock prices or an appreciation in the yen could hurt the economy” because Japan relies on overseas demand, National Strategy Minister [search.bloomberg.com/search?q=Satoshi%20Arai&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] Satoshi Arai said in Tokyo. Cabinet Office official [search.bloomberg.com/search?q=Keisuke%20Tsumura&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] Keisuke Tsumura said the yen, which has risen 9 percent since early May, has been “a bit too high.”

Japan’s authorities haven’t intervened to sell yen in the currency market since 2004, and Group of Seven members have refrained from coordinated intervention for almost a decade, since an effort in 2000 to buttress the euro.

Hungary’s forint dropped 2 percent this week against the euro to 287.86. Moody’s placed the nation’s Baa1 rating, its third-lowest investment grade, on review for possible downgrade.

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Scared_Shirtless
Message #122 - 07/24/10 11:59 AM



Hi Bruce;

 

In regards to confidence in the EU stress tests.  I read an interesting article by Chris Whalen that made a case for the EU tests not being accepted like ours were.  He had several plausible reasons.  A couple being that their's weren't as consistent as ours from country to country.  Also they don't report financially as much detail as ours do in the first place.  When our results kinda matched up to prior financial statements - well it gave them a ring of plausibility that EU can't replicate.  Interesting.  He also mentioned that the only reason for ours - and Europe's - is to manage bond holder sentiment.

 

His point was - EU stress tests?  So what?

 

Thanks Bruce!

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BiMetalAUPT
Message #123 - 07/24/10 02:46 PM

Two weeks ago I heard this was going to be a white wash..76 banks did not meet the B.I.S. II accord.. much less the B.I.S. III that was designed for the banks to be able to stand the stress the test was going to test.. Two standards = no standard at all.. Well as Old and Gray posted .. 11% would be a major problem for capital raising.. There is not that much capital left in the world outside of China or Hong Kong...  HSBS are still one of the best.. From The Times and other Papers..  As you know the Times is printed in London, UK


THE TIMES (BRITAIN)

Anyone expecting a horror show in yesterday's Europe-wide stress-testing exercise hasn't been paying attention. The aim of the process all along has been to calm market jitters, not aggravate them ... The danger, however, is that the results are so benign that they have no credibility at all ... But the exercise will do nothing to equip Europe's weaker banks to face either a sudden financial hurricane or a prolonged economic winter. Fingers crossed, for all our sakes, that they encounter neither.

NRC HANDELSBLAD (NETHERLANDS)

Does this take away all mistrust? Not completely. Contrary to the U.S. stress test in the spring of 2009 at the 19 most important systemic banks not all details were made public this year in Europe about the financial and economic adverse scenarios for the systemic banks. The most important parameters are now known. But because of the obscurity beforehand much doubt has been created in the run up to the test. The impression could now remain that some banks passed because the stress test perhaps was not severe enough.

  Germany used 6% that the B.I.S. III said is way too little.. Does not meet the older 8.25% for the older B.I.S.IIBruce edit

• IL SOLE 24 ORE (ITALY) What was at stake, rather more than the solidity of the institutions, was the credibility of the central banks. Did anyone really think that at 6.00 p.m. on Friday July 23 they would uncover an enormous shortfall in bank capital reserves in the event of a worsening in the economic situation or fears about whether public sector debt could be refinanced? The 'market' would have abandoned any confidence it had in the governors: 'where were they before?', they would have said. 'What were they telling us over all these months?' The risks would have been blown up enormously. So the outcome of this operation is modest.

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BiMetalAUPT
Message #124 - 07/24/10 02:49 PM

S.S.

In West Texas we call it a Dog and Pony show...it was a P.R. Stunt by the Central Banks.. Esp German.. did not include all that Greek Bonds that are weak and should be Marked to Market.. Keep on the books at 100..(Par)..Good point!!

In regards to confidence in the EU stress tests.  I read an interesting article by Chris Whalen that made a case for the EU tests not being accepted like ours were.  He had several plausible reasons.  A couple being that their's weren't as consistent as ours from country to country.  Also they don't report financially as much detail as ours do in the first place.  When our results kinda matched up to prior financial statements - well it gave them a ring of plausibility that EU can't replicate.  Interesting.  He also mentioned that the only reason for ours - and Europe's - is to manage bond holder sentiment.

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frank the impaler
Message #125 - 07/24/10 02:54 PM

Bruce-Germany passed by a ---- hair!

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BiMetalAUPT
Message #126 - 07/24/10 03:16 PM

Frank,
 Bet they put a value of several billions Euro's on that HARE!!!  B.I.S. III will be a major PR War with Germany on one side and Sweden and Finland on the other side.  As you recall Citibank sold stock for less then book value to raise money..By time this is over they may have been the lucky one..  The two major Credit unions in Abilene,Tx have Tier1 of 12% to 13%  and have gone to open accounts to anyone that lives in Taylor County.  Yes they are making car loans where Bank of American (I have been told) is not..Their office is full of humans making loans and opening accounts.  

It will be interesting, Thank-you for your post...!!!

Bruce

[Virgil Showlion]

frank the impaler
Message #127 - 07/24/10 04:46 PM

Bruce-what about the email?

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BiMetalAUPT
Message #129 - 07/24/10 05:44 PM

just a quick look at Citigroup for comparison to the German Banks!!
Citigroup Reports Second Quarter 2010 Net Income of $2.7 Billion; $0.09 Per Diluted Share First Half 2010 Net Income of $7.1 Billion
 
Second Quarter 2010 Revenues of $22.1 Billion and Expenses of $11.9 Billion
 
Net Credit Losses of $8.0 Billion Declined for The Fourth Consecutive Quarter
 

Tier 1 Capital Ratio of 12.0%; Tier 1 Common Ratio1 of 9.7%

 

Tier 1 Common of $99.5 Billion and Allowance for Loan Losses of

$46.2 Billion  
Citicorp Revenues of $16.5 Billion, Net Income of $3.8 Billion
 
Citi Holdings Revenues of $4.9 Billion, Net Loss of $1.2 Billion






New York – Citigroup Inc. today reported second quarter 2010 net income of $2.7 billion or $0.09 per diluted share, on revenues of $22.1 billion, marking a second consecutive profitable quarter. Citigroup earned $7.1 billion of net income in the first six months of 2010.

Revenues declined $3.4 billion and net income was down $1.7 billion from the first quarter of 2010, largely as a result of lower Securities and Banking and Special Asset Pool revenues. Other core businesses showed consistent strength, including Transaction Services with $929 million in net income and sequential revenue growth across all international regions.

Provisions for credit losses and for benefits and claims declined $2.0 billion sequentially to $6.7 billion, the lowest level since the third quarter of 2007, reflecting continued improvement in credit quality. This helped increase Regional Consumer Banking's net income by 16% sequentially to $1.2 billion.

Although Citigroup maintained expense discipline, expenses were up 3% sequentially, reflecting the impact of the U.K. bonus tax.

"I am pleased that we have produced solid operating results for the second consecutive quarter," said Vikram Pandit, Chief Executive Officer of Citi. "We continue to execute our strategy of serving clients with our unique global footprint in both the developed and emerging markets. Most importantly, Citi's quarter-million people around the world are working tirelessly for our clients and shareholders.

"While the market environment lowered revenues in Securities and Banking, credit improved for the fourth consecutive quarter. We saw growth internationally, particularly in Transaction Services and Regional Consumer Banking in Latin America and Asia. We continue to reduce the size of Citi Holdings, and it now makes up less than a quarter of Citigroup's balance sheet," added Mr. Pandit.

Citigroup has been focusing on its core businesses in Citicorp – Securities and Banking, Transaction Services and Regional Consumer Banking – while continuing to divest non-core businesses in Citi Holdings. In the second quarter of 2010, Citicorp earned $3.8 billion while Citi Holdings had a loss of $1.2 billion. Citi Holdings reduced its assets by $38 billion in the second quarter and by a total of $362 billion since the peak in the first quarter of 2008, for a 44% reduction. Citi Holdings now represents less than 25% of Citigroup's assets compared to 38% at its peak.

Citigroup continues to increase its financial strength and is one of the best capitalized banks in the world, as indicated by $122.9 billion in Tier 1 Capital and a Tier 1 Common ratio of 9.7%. In addition, it has common equity of $154.5 billion and $46.2 billion in loan loss reserves.

"Although economic conditions remain challenging and global regulatory frameworks are uncertain, we believe these results demonstrate that the difficult decisions made by our management team have put in place all the elements for sustained profitability," concluded Mr. Pandit.

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Scared_Shirtless
Message #130 - 07/25/10 12:23 PM

Quite a turnaround by Citi.  Go Citi!

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BiMetalAUPT
Message #131 - 07/25/10 05:46 PM

Market was looking for up to 100 billion Euro needed additional capital.. the stress test is looked upon by those I talked to in Europe as a sham or we would call a "White Wash"..They are saying B.I.S. II and III are a waste of time.. We will not use there guide lines.. Germany used 6% that was from B.I.S. I before the credit liquidity system in banking almost destroyed The World's Finances..


PARIS (Reuters) - EU tests of banks' ability to withstand financial shocks, criticized as too easy after only 7 out of 91 failed, face their own stress test in the markets on Monday with early signs pointing to a more positive response.

European Union policymakers and regulators voiced relief at Friday's results but some market analysts and many media commentators derided an exercise in which all listed banks passed as lacking in credibility.

"I see nothing stressful about this test. It's like sending the banks away for a weekend of R&R," said Stephen Pope, chief global equity strategist at brokers Cantor Fitzgerald.

There was skepticism about EU regulators' conclusion that banks need only a total of 3.5 billion euros ($4.5 billion) in extra capital. Market expectations had ranged from 30 to 100 billion euros, although many European banks have already raised capital during the financial crisis.(* Citibank now has total Tier1 Capital of 12%...now be honest  Why would B.I.S. III increase Capital needed to 10-12.125% if it was no needed for strong banks.. many banks are at 12% Total Capital in West Texas like First Fancial Bank of Abilene,TX.. #1 bank in the USA..Bruce)

Only five small Spanish banks, Germany's state-rescued Hypo Real Estate and Greece's Atebank failed outright. More than a dozen others scraped through with just over the required 6 percent of Tier 1 capital in the most stressful scenario and are likely to come under market scrutiny.

However, the wealth of data disclosed by banks representing 65 percent of assets, and the commitment of banks, regulators and governments to follow-up action may well outweigh doubts about the stringency of the tests.

In a first market reaction in New York late on Friday, the cost of insuring the debt of large European banks fell further and the euro rose against the dollar despite worries about the tests' credibility.

Better-than-expected economic data and business confidence surveys suggesting the euro zone will avoid a double-dip recession despite fiscal austerity measures are also helping revive investor confidence in Europe.

With the banks given more time to raise B.I.S. III most of the Governments are betting on stronger lending and growth in GDP.. Right now raising capital to 11% or so would be a kick in the lending..Old and Gray had a great point!@!@!  Message #67   also see #68 and #72..great post!!!

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BiMetalAUPT
Message #132 - 07/26/10 02:10 PM

Europe’s ‘toothless’ bank tests making matters worse RBS and other City institutions have warned that Europe’s stress tests for banks are almost useless and may further damage confidence if they fail to cover the risk of large losses on sovereign defaults by Greece and other Club Med states.  

By Ambrose Evans-Pritchard
Published: 9:55PM BST 05 Jul 2010




“I don’t think it is going to work,” said Jacques Cailloux, Europe economist at RBS. “These stress tests are not rigorous enough. Investors are already pricing in a 50pc “haircut” on some Greek bonds so this has to be included, and perhaps 30pc for Spain.”

“We have had a complete failure of communication by the eurozone over recent months with 16 countries all saying different things, and there is a very high chance of another failure this time.”   Related Articles

Mr Cailloux, who has issued a “double dip alert” for Europe, said it would be unwise for EU policy-makers to go holiday this summer. Markets are no longer willing to take on exposure to some €2 trillion of household and company debt in Spain, and this gap cannot be plugged for much longer by three-month loans from the European Central Bank.

“If by the end of the summer we have not had much more aggressive policy action, we’re back to contagion. This time it is no longer just a peripheral story. It is starting to infect the core eurozone as well, France in particular. I cannot understand why the ECB is not buying Spanish corporate bonds,” he said.

Christine Lagarde, French finance minister, said the result of tests would be published on July 23. Details will emerge over coming days on “the exact criteria we apply and of how heavily we stress the system”.

The tests will cover up to 100 banks, including many of the Spanish cajas and German savings banks at the eye of the storm. A report by CreditSights said some cajas have disguised the true scale of losses from the housing bust by propping up mortgage securities through purchases of delinquent loans from mortgage pools. The share prices of Allied Irish, Bank of Ireland, Dexia, and Credit Agricole have all fallen hard recently.

Mrs Lagarde said the tests will show that Europe’s banks are “solid and healthy”, but it is this tone of certainty that is causing markets to ask whether this is really a “stress test without stress” – as dubbed in Germany’s media.

Interbank lending in Europe has been half-paralysed since Greek debt woes escalated into a broader banking and sovereign debt crisis. The authorities hope the stress test will prove a magic cure. Last year’s tests in the US were the turning point for America’s banks, but that is because 10 of the 19 banks failed, requiring $75bn (£49.5bn) of extra capital.

Der Spiegel said the test will not include defaults by Greece or other states for fear that this would hurt the credibility of the EU’s new €440bn European Financial Stability Facility (EFSF) designed to shore up eurozone debtors.

Hans Redeker from BNP Paribas said the EU authorities are damned if they do, and damned if they don’t. “The are afraid of provoking another shockwave in the market if they even talk about debt-restructuring, but it will be a hard sell to markets if they don’t.”

There are fears that any inclusion of haircut levels of specific countries will leak out and become self-fulfilling, triggering an immediate market flight and a systemic crisis. “They are playing with fire,” said one German banker.

David Owen, of Jefferies Fixed Income, said the exercise settles nothing. “If you don’t stress-test the worst case scenario, it is not going to reassure anybody. A Greek default is clearly a risk.”

Mr Owen said there is a loose parallel with Northern Rock in the lead up to the crisis when regulators weighed the risk of a property crash, but turned a blind eye to the risk of a seizure in the wholesale funding market –

[Virgil Showlion]

BiMetalAUPT
Message #133 - 07/26/10 02:16 PM

EVANS MAIN THOUGHT IS NONE OF THE STATE BONDS ARE MARKED TO MARKET SO THE BOOKS ARE WORTHLESS AND NONE OF THE GERMAN BANKS HAVE ANY CAPITAL WITH MARK TO MARKET!!


Much of the damaged debt held by European banks is in portfolio accounts, and therefore does not have to be “marked-to-market” under accounting rules. There are serious doubts about the EFSF rescue fund itself, which has yet to secure a AAA rating or clarify whether any holdings of Club Med debt would have “senior status” that pushed private holders down the food chain – and deeper into trouble. Most banks will not touch Greek, Iberian, and Irish debt until this is clarified.

Some reports have suggested that the test might include a 3pc “haircut” on sovereign debt. It unclear what this means. Mr Owen said that if it covers all eurozone government bonds (including German) this would amount to €47bn of losses, tantamount to a Greek default or greater. But by trying to veil the problem in this way for political reasons the eurozone would merely twist itself into more knots.

The tests will be coordinated by the European Committee of Banking Supervisors (CEBS). It is understood that banks will be forced to raise extra capital if their Core Tier 1 ratios fall below 6pc under the test.

Some German banks would undoubtedly drop below this line if their reliance on risky hybrid capital is penalized in accordance with the likely Basel III rules. These banks failed to take full advantage of the rally over the last year to boost their capital base, much to the irritation of Germany’s regulator BaFin.

Julian Callow, of Barclays, said the stress test looks like a dog’s dinner. “It is badly prepared and it is not going to clear the air. These tests worked in the US because the US Treasury was there to stand behind the banks and it was credible. The great issue in Europe is the credibility of the sovereign states themselves.”

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BiMetalAUPT
Message #134 - 07/28/10 04:05 AM

ONE OF TWO IS WRONG:  B.I.SI.III OR THE GERMAN CENTRAL BANK.. 6% TIER1 WILL NOT PASS REAL WORLD STRESS PER B.I.S.III.. JUST LOOK AT THE BILLIONS OF EURO THE GERMAN FEDERAL GOVERNMENT HAD TO BACK STOCK HYPO REALESTATE!!!.. NOW 6% IS GREAT...



This post will outline the second bank stress test joke of the day with the first one detailed in “[boombustblog.com/reggie-middleton/2010/07/23/european-bank-investors-dont-look-now-youve-been-hoodwinked-bamboozled/] European Bank Investors, Don’t Look Now – You’ve Been Hoodwinked, BamBoozled…“.

According to the MSM news outlets, Germany’s PostBank, along with

practically every other German bank except clearly insolvent and near

defunct HyPo have passed the stress tests. So have French top banks,

Portuguese, Italian, Finnish and Swedish banks. What? You’re not

laughing yet? You? know how we feel about the Spanish banks, so I will
not go there right now (but will leave a trail of links at the bottom of
this post for the uninitiated). What we are going to do now is focus on
the farce that is passing Germany’s Post Bank, a clearly insolvent
(1.4x over insolvent) institution whose only potential (and that’s just a
potential) saving grace is the possibility of a forced takeover by a
larger bank.

HOT LINKS REMOVED PER MONEY TALK RULES......




JUST A THOUGHT,

Bi Metal Au Pt

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BiMetalAUPT
Message #135 - 07/28/10 01:07 PM



Euro banks rallied nicely on Monday after results of the EU's stress test indicated there are essentially no problems in the European banking system. The stress tests have been heavily criticized as a whitewash and a cynical PR maneuver, however. Nevertheless, rallies in bank stocks are continuing today on earnings reports from UBS ([seekingalpha.com/symbol/ubs] UBS), Deutsche Bank ([seekingalpha.com/symbol/db] DB), Societe Generale ([seekingalpha.com/symbol/scgly.pk] SCGLY.PK) and Credit Agricole ([seekingalpha.com/symbol/crary.pk] CRARY.PK).

Of the 91 EU banks analyzed for the stress tests, only seven failed - five in Spain, one in Germany and only one in Greece. No bank in Portugal, Ireland or Italy failed the test and was deemed to be in need of raising more capital. The seven banks that did fail were supposedly only short $4.5 billion. An alternative result produced by an analyst at JP Morgan indicated at least 54 banks should have failed the stress tests and at least $100 billion in new capital needed to be raised. Even that view may be optimistic.

Although considering the great earnings out today for UBS, Deutche Bank, Societe Generale and Credit Agircole perhaps enough money is being poured into the euro banks from the ECB that it is irrelevant what condition they are in. After all, another bailout is potentially always around the corner. The UBS earnings were the most telling in this regard. One reason stated for UBS doing so well was that "withdrawals in the private banking arm have continued to slow." Yes, losing business at a slower rate is certainly bullish. The stock was up 7% on the news.

In a separate report released today, lending to non-financial companies was down 1.9% year over year in the EU. So euro bank earnings are rising even though less lending is taking place to businesses. Interesting, to say the least. Mortgage lending in the EU is going up at a 3.4% annual rate however. So maybe some minor reinflation of the real estate bubble is taking place in Europe while the economy slows down. That certainly bodes well for the future.

The stress tests show once again that any number, no matter how outrageously manipulated or false, will be accepted by the market as gospel. We saw this last week with the UK second quarter GDP figures. The construction spending number was up by an amount indicating a major building boom was taking place even though there is no other evidence of a big pick up in construction. The fact that the reported numbers didn't match up with reality apparently didn't disturb anyone. You would think it would have since the current EU financial crisis that necessitated the stress tests was cause by Greece lying about its fiscal state. Greece's numbers were off by more than 400%, but no one in EU headquarters noticed any problem with them.

When economic or business numbers are fantasies, but are accepted anyway, a major crisis will invariably follow. Before the Greek debt crisis, there was a the subprime crisis in the U.S. Bundles of subprime loans - loans from borrowers who had no job, no assets, and no history of paying their bills - were believed to be triple A credits because some authority said they were. This allowed common sense to be thrown out the window and complete absurdity to be regarded as wisdom. This type of behavior though isn't as bad right now as it was during the subprime era - it's actually much worse.

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neohguy
Message #136 - 07/28/10 01:45 PM

When economic or business numbers are fantasies, but are accepted anyway, a major crisis will invariably follow. Before the Greek debt crisis, there was a the subprime crisis in the U.S. Bundles of subprime loans - loans from borrowers who had no job, no assets, and no history of paying their bills - were believed to be triple A credits because some authority said they were. This allowed common sense to be thrown out the window and complete absurdity to be regarded as wisdom. This type of behavior though isn't as bad right now as it was during the subprime era - it's actually much worse.

I hope it's not worse.

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frank the impaler
Message #137 - 07/28/10 02:12 PM

That is directly tied to the fact that this behavior was not delineated as detrimental to the banking system and is an excuse for making money to fix what was detrimental to the banking system...again....so here we go again!

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BiMetalAUPT
Message #138 - 07/28/10 08:57 PM

Flaws of the European Stress Test By, Simon Maierhofer Jul 27, 2010 We’ve known about the European financial crisis for several months. We also know that the European Union approved a $1 trillion aid package. Why is the stress test needed? Is the stress tests only purpose to massage the masses into a comfort zone?  

“When in doubt, issue a bailout” seems to be the strategy global leaders trust to fix economic problems. They’ve gone from bailing out corporations, to bailing out entire governments. If bailouts don’t do the trick, they resort to stress tests.

On May 10, the European Union created a $1 trillion package to save the euro. This didn’t appease investors much as the S&P dropped up to 13%, thereafter, the SPDR Euro STOXX 50 ETF (NYSEArca: [www.etfguide.com/advance_search_view.php?etfTickerSearch=fez] FEZ), Vanguard European ETF (NYSEArca: [www.etfguide.com/advance_search_view.php?etfTickerSearch=vgk] VGK) and iShares S&P European 350 (NYSEArca: [www.etfguide.com/advance_search_view.php?etfTickerSearch=iev] IEV) tumbled as much as 16%, and many predicted the extinction of the euro currency. [ad.doubleclick.net/click%3Bh%3Dv8/39e5/3/0/%2a/p%3B226525092%3B0-0%3B0%3B32990623%3B4307-300/250%3B37452952/37470829/1%3B%3B%7Eaopt%3D3/1/36/0%3B%7Esscs%3D%3fhttp://clk.atdmt.com/DEN/go/245419970/direct/01/6176545] [ad.doubleclick.net/jump/invc.etfguide/homepage;kw=;kval=homepage;tile=2;sz=300x250;ord=123456789?]


Something else was needed to shore up investor confidence in an entire continent’s financial system. “Bank stress test” became the magic phrase. Nothing calms fear like a stress test that’s labeled as rigorous.

The stress test raises a few very obvious questions:
1) Will it work?
2) Why was it needed in addition to a $1 trillion aid package?
3) Is the stress test just a gimmick to appease investors?

The stress test is conducted by the London-based Committee of European Banking Supervisors (CEBS). Ironically, the test has ignored the majority of banks’ holdings of sovereign debt.

Sovereign debt concerns by the so-called PIGS countries (Portugal, Italy, Greece, and Spain) triggered the latest wave of financial problems. Ignoring sovereign debt in the Euro stress test would be like ignoring toxic real estate assets in the U.S.

10% Good – 90% Bad

According to a Morg1an Stanley survey, European banks hold about 90% of their Greek government bonds in their banking books and 10% in their trading books. The bonds in the banking book are generally held until maturity, the bonds in the trading book are traded more frequently.

According to a document obtained by Bloomberg, the stress test assumes a loss of 23.1% on Greek debt, 14% on Portuguese bonds, 12.3% on Spanish debt, 4.7% on German debt, 10% on U.K. debt, and 5.9% on French debt.

However, the stress test only looks at the bonds held in banks’ trading books, which account for a mere 10% of Greek bond holdings. Can that be called a stress test?

Nouriel Roubini says that “the assumptions made about economic growth, about sovereign risk are not realistic enough.” The fact that only seven banks failed the test with a combined shortfall of $4.5 billion confirms the lax nature of the test.

Publicity Stunt

Have you ever heard the expression “happy wife, hap

[Virgil Showlion]

BiMetalAUPT
Message #139 - 07/28/10 11:49 PM

Annex Table 24.

Household saving rates

Per cent of disposable household income


1985 1986 1987 1988 1989

Australia 10.7 10.1 8.0 6.7 8.4
Austria 10.3 12.1 13.7 11.7 12.6
Belgium 15.9 18.5 16.9 17.0 15.3
Canada 15.8 13.4 11.9 12.3 13.0

Czech Republic -- -- -- -- --
Denmark -- -- -- 7.4 8.4
Finland 4.3 2.9 4.4 0.2 0.5
France 9.0 8.1 6.4 6.9 7.2

Germany 12.1 12.9 12.9 13.2 12.7
Italy 28.8 27.1 26.6 25.9 25.5
Japan 18.5 18.5 16.0 15.0 15.3

Korea 15.1 21.0 23.9 26.5 25.5
Netherlands 5.6 8.2 8.3 8.1 9.8
New Zealand 5.7 4.4 7.2 5.8 5.5

Norway -3.3 -6.2 -6.2 -2.8 -0.4
Portugal -- -- -- -- --
Spain 11.1 12.1 10.6 11.0 10.2
Sweden 2.8 1.6 -2.9 -4.9 -4.8

Switzerland -- -- -- -- --
United Kingdom 9.8 8.2 6.4 4.9 6.6
United States 9.2 8.2 7.3 7.8 7.5


1990 1991 1992 1993 1994

Australia 9.1 6.0 5.5 4.3 5.6
Austria 13.8 14.7 11.8 10.7 11.6
Belgium 18.0 17.9 19.0 19.4 19.3
Canada 13.0 13.3 13.0 11.9 9.5

Czech Republic -- -- -- 3.2 -0.7
Denmark 11.2 10.8 9.7 8.3 4.2
Finland 2.9 7.8 10.0 7.6 2.6
France 7.8 8.7 9.7 10.4 9.8

Germany 13.9 13.0 13.0 12.3 11.6
Italy 25.9 25.0 23.4 23.2 21.8
Japan 13.4 14.8 14.1 14.3 12.1

Korea 23.4 25.5 24.4 21.9 21.3
Netherlands 11.6 7.2 8.3 6.8 7.1
New Zealand 3.3 5.5 3.4 3.3 0.4

Norway 0.8 2.9 5.0 6.1 5.2
Portugal -- -- -- -- --
Spain 12.3 13.4 11.9 14.3 11.9
Sweden -0.3 3.1 7.7 11.5 11.3

Switzerland 8.7 9.9 10.1 10.8 9.1
United Kingdom 8.0 10.0 11.4 10.8 9.3
United States 7.8 8.3 8.7 7.1 6.1


1995 1996 1997 1998 1999

Australia 4.5 5.5 3.7 2.3 2.1
Austria 11.5 9.6 7.1 8.0 7.7
Belgium 18.8 17.0 15.7 14.5 14.1
Canada 9.2 7.0 4.9 4.9 4.1

Czech Republic 15.7 16.6 15.5 14.7 14.5
Denmark 6.9 5.6 3.6 5.0 1.7
Finland 6.0 2.0 4.4 3.1 3.8
France 11.2 10.0 11.3 10.8 10.4

Germany 11.2 10.8 10.4 10.3 9.8
Italy 20.0 21.2 18.1 15.0 13.9
Japan 11.9 10.9 10.2 11.6 10.6

Korea 18.0 16.9 16.5 23.1 17.5
Netherlands 14.9 13.6 13.4 12.9 9.6
New Zealand 0.6 0.6 -0.7 -1.5 -0.3

Norway 4.6 2.2 2.8 5.8 5.5
Portugal 12.0 11.2 9.8 8.9 8.5
Spain 14.4 14.2 13.4 12.2 10.8
Sweden 8.6 7.1 4.5 3.2 3.4

Switzerland 9.4 8.7 10.1 8.6 8.9
United Kingdom 10.0 9.1 9.5 6.0 5.1
United States 5.6 4.8 4.2 4.7 2.6

I THOUGHT IT WAS INTERESTING TO NOTE THE HIGH SAVING RATE OF

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BiMetalAUPT
Message #140 - 07/28/10 11:58 PM

MORE OF THE ITALY VS GERMANY,BELGIUM  OR NETHERLANDS.. TWO KNOW SAVERS.  MOST OF THE SAVINGS MUST BE GOING INTO BONDS AND NOT M3!!  ALSO FRANCE IS MORE OF A SAVING NATION THEY MOST REPORTS. AGAIN WE NEED TO SAVE AT THE 12% LEVEL ALL THE TIME TO IMPROVE OUR GDP AND NATIONAL WEALTH ..
Estimates and projections
2000 2001 2002 2003 2004
Estimates and projections
2000 2001 2002 2003 2004

Australia 4.0 3.5 2.5 3.0 3.3
Austria 6.7 5.5 6.2 6.1 6.4
Belgium 13.4 13.0 14.5 14.3 13.7
Canada 4.8 4.6 5.3 5.3 5.7

Czech Republic 9.2 8.7 11.6 13.1 13.7
Denmark 4.0 5.3 4.8 5.3 4.9
Finland 0.3 2.4 2.8 3.0 2.6
France 10.8 11.4 11.9 11.3 10.5

Germany 9.8 10.1 10.4 10.1 10.2
Italy 12.3 13.2 15.8 16.3 16.1
Japan 10.3 10.7 9.9 9.9 10.1

Korea 11.8 10.0 9.5 10.1 11.4
Netherlands 6.7 11.2 13.1 13.4 13.0
New Zealand -0.8 2.4 3.5 2.3 2.0

Norway 4.7 4.5 5.2 5.3 5.8
Portugal 10.1 11.0 11.2 11.4 11.3
Spain 10.0 10.3 10.6 10.7 10.6
Sweden 2.3 4.9 8.0 7.8 7.0

Switzerland 8.3 8.7 8.9 9.0 8.9
United Kingdom 4.2 6.1 5.1 5.4 6.0
United States 2.8 2.3 3.7 4.5 4.7

Australia 4.0 3.5 2.5 3.0 3.3
Austria 6.7 5.5 6.2 6.1 6.4
Belgium 13.4 13.0 14.5 14.3 13.7
Canada 4.8 4.6 5.3 5.3 5.7

Czech Republic 9.2 8.7 11.6 13.1 13.7
Denmark 4.0 5.3 4.8 5.3 4.9
Finland 0.3 2.4 2.8 3.0 2.6
France 10.8 11.4 11.9 11.3 10.5
Estimates and projections
2000 2001 2002 2003 2004

Australia 4.0 3.5 2.5 3.0 3.3
Austria 6.7 5.5 6.2 6.1 6.4
Belgium 13.4 13.0 14.5 14.3 13.7
Canada 4.8 4.6 5.3 5.3 5.7

Czech Republic 9.2 8.7 11.6 13.1 13.7
Denmark 4.0 5.3 4.8 5.3 4.9
Finland 0.3 2.4 2.8 3.0 2.6
France 10.8 11.4 11.9 11.3 10.5

Germany 9.8 10.1 10.4 10.1 10.2
Italy 12.3 13.2 15.8 16.3 16.1
Japan 10.3 10.7 9.9 9.9 10.1

Korea 11.8 10.0 9.5 10.1 11.4
Netherlands 6.7 11.2 13.1 13.4 13.0
New Zealand -0.8 2.4 3.5 2.3 2.0

Norway 4.7 4.5 5.2 5.3 5.8
Portugal 10.1 11.0 11.2 11.4 11.3
Spain 10.0 10.3 10.6 10.7 10.6
Sweden 2.3 4.9 8.0 7.8 7.0

Switzerland 8.3 8.7 8.9 9.0 8.9
United Kingdom 4.2 6.1 5.1 5.4 6.0
United States 2.8 2.3 3.7 4.5 4.7

Germany 9.8 10.1 10.4 10.1 10.2
Italy 12.3 13.2 15.8 16.3 16.1
Japan 10.3 10.7 9.9 9.9 10.1

Korea 11.8 10.0 9.5 10.1 11.4
Netherlands 6.7 11.2

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BiMetalAUPT
Message #141 - 08/04/10 07:52 PM

More from Evan-P
Stress-testing Europe's banks won't stave off a deflationary vortex

• Euroland's authorities are inflicting a triple shock of fiscal, monetary, and currency tightening on a broken economy. They are doing so in a region where industrial output is still 14pc below its peak, where growth barely scraped above zero over the winter "recovery", and where youth unemployment is at 40pc in Spain, 35pc in Slovakia, 29pc in Italy, and 26pc in Ireland

NO student of Milton Friedman is surprised by the US relapse. The Fed has allowed M3 money to contract at a 10pc pace for much of this year - the Great Depression rate. The economy has hit the wall with the usual lag. Textbook stuff. Never ignore the quantity theory of money.

The US Conference Board's indicator is not yet flashing a red alert, but that is because it gives weight to "yield curve inversion", where long rates fall below short rates. This indicator is meaningless in a Japan-style bust where policy rates are zero.

I suspect that Fed chair [www.telegraph.co.uk/finance/economics/7852945/Ben-Bernanke-needs-fresh-monetary-blitz-as-US-recovery-falters.html] Ben Bernanke knows the economy buckled around the Ides of June, but is stymied by hawks at the regional Feds. All he can do for now is to talk down credit costs through hints of more quantitative easing, or QE2. In this he has succeeded. The yield on two-year Treasuries fell to an all-time low of 0.5765pc on Friday. It's Weimar, all right: circa 1931, not 1923.

So what is the [www.telegraph.co.uk/finance/financetopics/financialcrisis/7890981/Spain-calls-on-ECB-for-record-funding.html] European Central Bank doing to prevent southern Europe asphyxiating from debt-deflation, and knowing that M3 contracted in February (-0.3pc), March (-0.1pc), April (-0.2pc) and May (-0.2pc)? It is tightening, as it did in mid-2008 when the eurozone was already tanking.

Far from taking steps to offset Club Med austerity, it is winding down its €60bn (£50bn) purchase of government bonds - "sterilized" in any case to prevent net stimulus. It is draining liquidity fast. The ECB's loans to credit institutions fell from €870bn to €635bn in the two weeks to July 9.

"This is the equivalent in central banking of the Charge of the Light Brigade," said Tim Congdon from International Monetary Research. Cash reserves in the interbank market have fallen by a third in days. No wonder three-month Euribor (the stress gauge) has risen to an 11-month high of 0.86pc. The funding squeeze has turbo-charged the euro rally, pushing the currency to 8.67 Chinese yuan. German exporters can take the pain. It is the strappado for Spain and Latin Europe. They are smiling in Guangdong.

Perhaps the [www.telegraph.co.uk/finance/comment/liamhalligan/7896509/Bank-stress-tests-will-fall-flat-if-they-fail-to-cheer-Asian-investors.html] stress tests for Europe's banks will clear the air and unblock the credit system. But such tests worked in the US only because that was a banking crisis. Few questioned whether the US Treasury could stand behind the system, or whether the US would hold together as a political entity. In Europe, sovereign states are themselves the risk, and a dysfunctional EMU is the Achilles heel.

A memo from Germany's regulator BaFin earlier this year said the worry is contagion from "collective difficulties" in Club O'Med, not an isolated default. Once under way, the crisis might turn into a conflagration. Investors know this. It is why the simulation test by RBS adjusts for €400bn of losses in Spain and €1.3 trillion for the eurozone, and called for "overwhelming policy intervention" by the ECB to stop this happening. Will the EU carry out such tests? Of course not.

All now hangs on the credibility of the EU's €440bn rescue fund or Stability Facility (EFSF), itself subject to challenges in Germany's constitutional court. Will the EU stress test the "non-negligible" risk that the court will block it? No.

The EFSF is a bluff that Italy could provide its rescue share for Portugal, Spain, and Ireland, on top of Greece, in the context of a serious crisis without suffering its own debt run. Is this credible? Should any rating agency give this body a AAA grade given that 10 of the 16 states are rated lower, and knowing that Germany has refused

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BiMetalAUPT
Message #142 - 08/04/10 08:14 PM

SPAIN DID IT RIGHT..GERMANY DID NOT!!! PER EVANS-P
Spain shines on stress test, Germany flunks Europe's stress tests for banks have greatly reduced pressure on Spanish lenders but have so far done little to ease broader strains in the interbank credit marketS.


Three-month Euribor rates have crept up to a one-year high of 0.889pc. The "Libor-OIS spread", watched as a key gauge of stress in the system, also nudged up to 26 basis points.

The refusal of some Landesbanken and German lenders to reveal exposure to EMU sovereign debt has raised suspicions that they have something to hide. Credit default swaps measuring bond risk jumped from 140 to 150 points for HSH Nordbank, with smaller rises for West LB (127), Norddeutssche LB (125) and Deutsche Postbank (121).

If the original purpose of the tests was to unlock interbank lending and head off an incipient credit crunch, the jury is still out. A report last week by the International Monetary Fund said eurozone lending had "nosedived" during the global crisis and "has yet to recover". The IMF said this was asphyxiating small business, which generates most job growth.

As analysts sift through the wealth of new detail from the tests, they are baffled by the chaotic criteria.

"We have a ludicrous worst-case scenario that Greek house prices fall by 2pc in 2011: when you first read it you think their must be a typo," said David Owen from Jefferies Fixed Income.

Austria's worst-case is a 2.7pc rise in house prices, or zero for Poland, and -2pc for Italy. Mr Owen said these assumptions would be demolished by a serious recession. Yet the tests assume that all eurozone states would contract at the same rate in a downturn. In reality, Club Med states and Ireland would almost certainly fare worse since they are already coping with the triple effects of debt-deleveraging, lost competitiveness, and fiscal tightening.

If the original purpose of the tests was to unlock interbank lending and head off an incipient credit crunch, the jury is still out. A report last week by the International Monetary Fund said eurozone lending had "nosedived" during the global crisis and "has yet to recover". The IMF said this was asphyxiating small business, which generates most job growth.

As analysts sift through the wealth of new detail from the tests, they are baffled by the chaotic criteria.

"We have a ludicrous worst-case scenario that Greek house prices fall by 2pc in 2011: when you first read it you think their must be a typo," said David Owen from Jefferies Fixed Income.

Austria's worst-case is a 2.7pc rise in house prices, or zero for Poland, and -2pc for Italy. Mr Owen said these assumptions would be demolished by a serious recession. Yet the tests assume that all eurozone states would contract at the same rate in a downturn. In reality, Club Med states and Ireland would almost certainly fare worse since they are already coping with the triple effects of debt-deleveraging, lost competitiveness, and fiscal tightening.

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BiMetalAUPT
Message #143 - 08/04/10 08:24 PM

Evans-P on PIGGS cont..


Yields on 10-year Spanish bonds dropped 11 basis points to 4.24pc on Monday, outperforming the eurozone. The cost of bond insurance fell for Spanish Cajas. These savings banks are already being restructured. The US buy-out firm JC Flowers has agreed to inject €450m (£377m) into Banca Civica.

Bank of America said in its half-year global outlook that the stress tests had cleared the air. "Today is the beginning of a return to normality," it said.

"Greece is staging an impressive fiscal turn-around. Spain has come through its July peak funding with flying colours. Europe can and will get its problems under control," said Holger Schmieding, chief Europe economist.

Dr Schmieding said a slowdown over coming months will be a breathing spell in an entrenched upswing as Europe enjoys the benefits of a competitive euro – and from "pro-growth" fiscal discipline based on spending cuts. "The eurozone is poised to enjoy a major cyclical rebound," he said.

Yet views remain polarized. Alastair Whitfield from RBC said a large number of lenders would have failed if the Tier 1 capital ratio had been raised from 6 to a more credible 7, including Deutsche Post Bank, Monte dei Paschi, Espirito Santo, Piraeus, and Allied Irish.

Credit Suisse said the entire Greek banking system and a string other lenders would have failed if "core" Tier 1 had been used, disallowing hybrid capital.

At least the results provide analysts with a wealth of data on Europe's banks, which is a key step to restoring trust. "We can all conduct our own stress tests now," said Mr Owen.

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frank the impaler
Message #144 - 08/04/10 08:26 PM

No more preferred trusts for inclusion as Tier 1 capital

[Virgil Showlion]

BiMetalAUPT
Message #145 - 08/06/10 04:45 PM



NEW YORK (MarketWatch) -- Growing capital levels throughout U.S. regional banks has been a defensive play in anticipation of stricter regulatory requirements and further loan write-offs, but as the sector moves into the clear, extra capital may soon be king.

Amid the earnings season, improving asset quality seemed to headline regional banking results. Yet investors were stingy in their applause, looking beyond the credit picture to ask where top-line growth would come from when banks run down their reserves.

In an ideal world, banks would make money by lending again. But with borrowing still subdued, analysts say a solid mound of capital will help weather uncertainties and offer flexibility down the line.

"Banks with the most capital -- those that have done the hard work ahead of time -- will be able to deploy the capital they've raised up in ways [they see fit]," said Bob Ramsey, vice president in equity research at FBR Capital Markets, who pointed to reinvestments, special dividends, stock buybacks, and acquisitions as potential routes.

Hoarding the capital

Since the financial crisis, banks have largely retained whatever they earned, in addition to tapping public markets and reaching out to private investors to bulk up their capital base.

The tier 1 ratio, a measure of a bank's buffer against potential losses, has crawled up steadily since the crisis. Components in the Dow Jones U.S. Regional Banks Index held an average tier 1 ratio of 13.9% as of June 30, up from 12.1% at the same point last year.

Analysts at Deutsche Bank anticipate regulators will require most banks to maintain the ratio at 8% to 9%. Last Tuesday, an update from the Basel Committee on Banking Supervision hinted at softer requirements than most had expected. [www.schwab.wallst.com/schwab/retail/research/markets/MarketWatchNewsStoryPopup.asp?doc=4018-4E892D535FD04DF79F7657721A43B276] Read more about Basel's compromise.

While analysts don't consider current double-digit levels an "overcapitalization," banks have made the effort to surpass expected requirements, even with the expensive process of raising fresh capital.

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frank the impaler
Message #146 - 08/06/10 04:52 PM

Banks are waiting for the ultimate deflation play...lower prices...Bruce will you try and tell these people things ARE NEVER WHAT THEY SEEM?

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bubblyandblue
Message #147 - 08/06/10 05:55 PM

I agree with frank the impaler. It has been the Fed course of action to remove toxic and improve balance sheets all along in prep to loan out at lower cost/risk

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BiMetalAUPT
Message #148 - 08/06/10 07:41 PM

Cont:Well at least some of the banks are doing better.. ...
Have raised $25.75 billion in common equity so far this year, according to SNL Financial. Most recently, Riverview Bancorp Inc. priced an $18.1 million offering on July 30, while Fulton Financial Corp. and Synovus Financial Corp. completed $230 million and $806 million follow-ons in April, respectively.

While the latest earnings revealed lower but ever-present problem-loans at regional banks, building up ammo for post-recession activity and the battle for market share has already begun.

"If you haven't positioned yourself with plenty of capital, a core-deposit gathering network, and by growing your brand -- all things you need to have done during [the past few quarters], you're already in trouble," said Nancy Bush of NAB Research LLC, pointing to U.S. Bancorp as a positive example.

Markets have already spotted the big banks that are doing a good job expanding market share, she added, with the regionals to be judged next after they stop relying on reserve-driven earnings.

Buy their way into new markets

After the credit and regulatory pictures clear up, the remaining levels of cash on hand may draw a line between survivors and those that become acquisitions targets.

"At some point, there will be a bunch of banks with a solid amount of capital looking for ways to grow," Ramsey said. And with loan demand still sluggish, "it will be hard to grow organically."

Organic growth, or making money with fresh loans, needs time to revive and depends heavily on borrower appetite. Based on the latest quarter, signs point to loan activity staying muted as spenders and investors hesitate to borrow and banks keep lending standards tight.

On recent earnings calls, executives at Comerica Inc. , Fifth Third Bancorp, and Huntington Bancshares Inc. each expected loan demand to remain soft, especially in commercial real estate.

According to the Federal Reserve, outstanding loans and leases made by commercial banks in the U.S. dropped 7.5% in the second quarter on a seasonally-adjusted annualized basis, accounting for the shrinking loan portfolios across the banking sector.

That leaves growth by way of acquisitions.

According to an SNL Financial report, talk of M&A was rife among bank executives at last month's KBW community bank conference. While the timeline is murky, understanding who can and cannot withstand the tough environment may be just around the corner.

"Some will come out as winners and others will find that growth prospects are too challenging and that it's better off to partner up," Ramsey said.

Deutsche Bank analysts named SunTrust Banks Inc. their favorite among the regionals, with lighter loan run-offs and a sturdy 13.4% tier 1 ratio as of June 30.

"While we don't view SunTrust as a seller, we think [the bank] would benefit from a rise in overall deal activity," they said in a recent note.

Within Ramsey's coverage universe of Northeastern banks, he considers First Niagara Financial Group, Hudson City Bancorp, and People's United Financial some of the better-positioned players.First Niagara made a "very prudent

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BiMetalAUPT
Message #149 - 08/10/10 07:21 PM



Treasuries rose after the Federal Reserve said it would use the proceeds from maturing mortgage securities to buy U.S. government debt in order to reduce borrowing costs throughout the economy and stimulate lending.

The central bank acted after reports cast doubt on the ability of the economy to pull itself out of the deepest slump since the Great Depression without additional support from policy makers. The Fed bought $300 billion of Treasuries ending in October 2009, helping lower the difference between yields on government and company debt.

“Deflation is more of a problem than previously thought,” said [search.bloomberg.com/search?q=Jason%20Rogan&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York- based brokerage for institutional investors, before the Fed’s statement. “The biggest buyer out there is coming back to buy bonds.”

The yield on the 10-year note dropped six basis points, or 0.06 percentage point, to 2.78 percent at 2:20 p.m. in New York, according to BGCantor Market Data. The price of the 3.5 percent security maturing in May 2020 gained 15/32, or $4.69 per $1,000 face amount, to 106 5/32.

The Fed retained a commitment to keep its benchmark interest rate close to zero for an “extended period” of time.

“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement in Washington. “To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level.”

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BiMetalAUPT
Message #150 - 08/10/10 07:23 PM



Fed Target

The Fed held the target rate for overnight lending between banks at zero to 0.25 percent, as forecast by all of the 74 economists in a Bloomberg News survey. The central bank lowered its benchmark to that range in December 2008 to encourage the economic recovery.

Before the Fed’s policy statement, futures on the CME Group Inc. exchange showed a 36 percent chance that the Fed will raise its [www.bloomberg.com/apps/quote?ticker=FDTR:IND] target rate for overnight lending between banks by at least a quarter-percentage point by the August 2011 meeting, compared with 45 percent odds a week ago.

In testimony before the Senate Banking Committee on July 21, Fed Chairman [search.bloomberg.com/search?q=Ben%20S.%20Bernanke&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] Ben S. Bernanke said the central bank wasn’t ready to take any action in the “near term.” At the same time, he said the “economic outlook remains unusually uncertain.”

St. Louis Fed President [search.bloomberg.com/search?q=James%20Bullard&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] James Bullard wrote in a paper released July 29 that the central bank should resume purchases of Treasuries if the economy slows and prices fall. Philadelphia Fed President [search.bloomberg.com/search?q=Charles%20Plosser&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja] Charles Plosser said in a Bloomberg News interview three days earlier that calls for more stimulus are premature.

U.S. Payrolls

Treasuries rallied last week after the Labor Department said non-farm U.S. payrolls lost 131,000 positions in July, double the median forecast in a Bloomberg News survey.

U.S. economic growth slowed to a 2.4 percent annual rate in the second quarter from a 3.7 percent pace in the first three months of the year. Consumer spending, pending home resales and factory orders were weaker in June than projected.

The government auctioned $34 billion of three-year notes at the lowest yield ever.

The securities drew a record low yield of 0.844 percent, compared with the 0.862 percent average forecast in a Bloomberg News survey of 7 of the Fed’s 18 primary dealers.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.31, compared with an average of 3.08 for the previous 10 sales. The sale was the first of three note and bond auctions this week totaling $74 billion.

Treasury 10-year notes dropped following the January and April central bank meetings and rallied after policy makers met in March and June.

The yield will climb to 3.32 percent by year-end, according to the average forecast in a Bloomberg News survey of banks and securities companies, with the most recent estimates given the heaviest weightings.

[Virgil Showlion]

BiMetalAUPT
Message #151 - 08/10/10 10:54 PM

This is what Ben B. did in 2007.. Increase liquid assets but not total Money..Wash out or sterilized deal.. No more cash.. Money is tight esp with M3 down 1.5 Trillion .. Best I can say is the free fall in M3 has been stopped.. for the time being with lower T-Note and T-Bond rates.. Still he is only working on the middle range of the model..So much for Maiden Lane...

On August 10, 2010, the Federal Open Market Committee directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities (agency MBS) in longer-term Treasury securities.  The most recent H.4.1 data release indicates that outright holdings of domestic securities in the System Open Market Account (SOMA) totaled $2.054 trillion as of August 4, 2010.  The Desk will seek to maintain the face value of outright holdings of domestic securities in the SOMA at approximately this level.  Due to differences in settlement dates for purchases and principal payments, it is anticipated that the actual level of domestic securities held will vary around this level to some degree.  

In the middle of each month, the Desk will publish a tentative schedule of purchase operations expected to take place through the middle of the following month, as well as the anticipated total amount of purchases to be conducted over that period.  The anticipated total amount of purchases will be calibrated to offset the amount of principal paymentsMaden from agency debt and agency MBS expected to be received over that period.  The announcement will occur shortly after the monthly releases of current MBS factors from Fannie Mae, Freddie Mac, and Ginnie Mae, allowing the Desk to anticipate the principal payments to be received by the SOMA portfolio over the period.

The first tentative schedule of purchase operations and the anticipated total amount of purchases to be conducted through the middle of September will be published tomorrow, August 11, at 3 p.m.  The purchase schedule will include a list of operation dates, settlement dates, security types to be purchased (nominal coupons or TIPS), and a maturity date range of eligible issues for each scheduled operation.  The Desk expects to begin purchasing Treasury securities under this policy on or around August 17.

The Desk will concentrate its purchases in the 2- to 10-year sector of the nominal Treasury curve, although purchases will occur across the nominal Treasury coupon and TIPS yield curves.  The Desk will typically refrain from purchasing securities for which there is heightened demand or of which the SOMA already holds large concentrations. 

Purchases will be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions via the Desk’s FedTrade system.  The exact list of securities eligible for purchase will be made available at the beginning of each purchase operation.  The results of each operation will be published on the Federal Reserve Bank of New York’s website shortly after each purchase operation has concluded.

[www.newyorkfed.org/markets/agency_agencymbs_faq.html] FAQs: Reinvestment of Principal Payments on Agency Debt and Agency Mortgage-Backed Securities in Treasuries »

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BiMetalAUPT
Message #152 - 08/11/10 09:28 PM

bump.. this did not post correctly.. ;problems with the mice at MSN??..

 Well I will try this again.. I posted we will see 2% for the4 10 year T-Note by 1/1/2011.. The average expert said 3.32% by 1/1/2011.. So I am no Expert and MMX is not also but that is the number We have..it is for 365 days so it would be correct to say 8/11/2011 rather then 1/1/2011.. Need some sleep but the program MMXI is comming along.. Back to the La Place .. Sin/cosine Harmonic Brain Pinpoint allocator
It looks like we again are having posting problems.. Watch for rejection notes and you my need to sign back on .. keep a copy just in case...
Bruce.. 

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IN.HOUSTON
Message #153 - 08/11/10 09:36 PM

The central bank acted after reports cast doubt on the ability of the economy to pull itself out of the deepest slump since the Great Depression without additional support from policy makers.

Bruce - (to me)  - Central bank - this seems more like a Band-Aid solution

IMHO - we need actual economic growth -

reversal of our negative BOT (to a surplus)

 

Every month we run a negative BOT - we become poorer as a nation.

 

 



 

 

Until this changes - all other solutions seem to be temporary Band-Aids

(or trying to keep the bubble inflated - with a huge hole in it)

 

Your thoughts? 

 

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IN.HOUSTON
Message #154 - 08/11/10 09:38 PM

problems with the mice at MSN??..

Fluffy is on the way.........   Good job

 

[www.google.com/imgres?imgurl=http://forum.l0lz.com/members/chills-albums-funny-cats-picture33-cat-mouse.jpg&imgrefurl=http://forum.l0lz.com/members/chills-albums-funny-cats-picture33-cat-mouse.html&usg=__ZqKa-MTOSt9_OAN4xEiH7wWR4IU=&h=393&w=430&sz=55&hl=en&start=2&um=1&itbs=1&tbnid=sPHGsTCTgL3HbM:&tbnh=115&tbnw=126&prev=/images%3Fq%3Dcat%2Bmouse%26um%3D1%26hl%3Den%26ndsp%3D20%26tbs%3Disch:1]

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BiMetalAUPT
Message #155 - 08/11/10 10:18 PM

In.Houston,
 The Trend is your friend.. Less Import and more Renewable Oil is very good.. TAMU is working on the DNA for B.Braunii Race B... Could be a real winner.. My Evaputron will be ready to remove the oil from the Algae.

Bonds will help the banks with a solid asset needed to rebuild faith in the system.  Then we could see more investing in M3!! that will hep lending.. It is all about Tier1 Capital.  The joke of the year was the German Government running the German Bank Stress Test.. B.I.S. III reports banks need 12.125% Tier1 capital.. In stocks not hybread.. and they used six percent (6%) Stock and Hybread bonds and had the largest failure in the EU.   Joke of the year and every one in the EU I know of well tell you so up front.


Now All I need is to get GE to make me a one million litter reactor/oil separator/gas injector..to process about 50 million litters of algae /salt solution daily to make the thing effervescent and large enough to make money...What a deal

Just a thought,
Bi Metal Au Pt.. () aka Bruce

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IN.HOUSTON
Message #156 - 08/11/10 10:42 PM

Less Import  and more Renewable

But that has not happened either   ...........

 



 

First Solar - announced new construction  -  IN  CHINA  

 

 

Sep 8, 2009 ... First Solar, the globe's largest photovoltaic cell manufacturer, will also build a factory in China to manufacture thin-film solar

 

[Virgil Showlion]

BiMetalAUPT
Message #157 - 08/11/10 11:58 PM

In.Houston,
 Well, So much for TAMU new R&D program that could increase oil production : B.Braunii Race B.  It is all about cutting cost and the cost line has been down.  Esp with a large number of graduates looking for work..
Bad news is also good news.

.. In a few years we will have several next generation high temp gas Nukes up and working with a fifty year cycle in fuel.. They can used waste from from the old reactors and we will have a lot of energy.

Bet on it!!

Bi Metal Au Pt..

Also look at the numbers of gold mines going into the ground in the Mountains of CO, NV, AZ and

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IN.HOUSTON
Message #158 - 08/12/10 12:54 AM

.. In a few years we will have several next generation high temp gas Nukes up and working with a fifty year cycle in fuel.. They can used waste from from the old reactors and we will have a lot of energy.

That is probably the best news -

I have heard about reducing our foreign energy consumption

(along with Geo-Thermal  : which I think should be mandatory in all new construction)

 

Thanks Bruce

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BiMetalAUPT
Message #159 - 08/12/10 01:56 AM

In.Houston,
 Back to the subject of banks and banking.. They will need a lot of Tier1 capital to finance energy projects of this size.   I do rememer the hay days in Midland and Houston.. Put a lot of money in the deals to many what little Money I ended up making.. Many banks over financed and when under.. Like Continental Illinois...  for a high risk Oil bank 12.125% may not be enough capital.. Some of the banks out here have 15 to 18% Pure Tier1 common stock!!!

Just a thought,
Bi Metal Au Pt

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neohguy
Message #160 - 08/17/10 06:45 PM



bloomberg.econoday.com/byshowevent.asp?fid=445872&cust=bloomberg United States : Speech Released For 8/17/2010 12:30:00 PM Description
Minneapolis Federal Reserve Bank President Narayana Kocherlakota speech on the FOMC to a business leaders lunch at Northern Michigan University in Marquette, Michigan.

Highlights
Minneapolis Federal Reserve Bank President Narayana Kocherlakota gave his views on the economy while explaining the FOMC to business leaders. The Minneapolis Fed president stated that he was surprised by the negative reaction by markets to the Fed's decision to engage a modest new round of quantitative easing.

"The FOMC decided to arrest the decline in its holdings of long-term assets by re-investing the principal payments from the MBSs into long-term Treasuries. . . . The FOMC's decision has had a larger impact on financial markets than I would have anticipated. My own interpretation is that the FOMC action led investors to believe that the economic situation in the United States was worse than they, the investors, had imagined. In my view, this reaction is unwarranted."

Kocherlakota appears to be ruling out a double dip recession.

"In terms of GDP, I believe that a modest recovery is under way and is likely to continue. In terms of inflation, I expect a slight but welcome uptick over the next 18 months. Finally, in terms of unemployment, I see current and future problems in labor markets that are likely to continue to prove resistant to the tools of monetary policy."

"Based on estimates from our Minneapolis forecasting model, I expect GDP growth to be around 2.5 percent in the second half of 2010 and close to 3.0 percent in 2011. There is a recovery under way in the United States, and I expect it to continue."Similarly, the Minneapolis Fed chief is not forecasting deflation and expects a firming in inflation over the next two years.

"The Fed's price stability mandate is generally interpreted as maintaining an inflation rate of 2 percent, and 1 percent inflation is often considered to be too low relative to this stricture. I expect it to remain at about this level during the rest of this year. However, our Minneapolis forecasting model predicts that it will rise back into the more desirable 1.5-2 percent range in 2011."

Finally, he notes that a large part of current unemployment is due to more than just lack of demand. He sees a mismatch of worker skills and needs for job openings as a significant problem that monetary policy cannot fix.

"How much of the current unemployment rate is really due to mismatch, as opposed to conditions that the Fed can readily ameliorate? The answer seems to be a lot. I mentioned that the relationship between unemployment and job openings was stable from December 2000 through June 2008. Were that stable relationship still in place today, and given the current job opening rate of 2.2 percent, we would have an unemployment rate of closer to 6.5 percent, not 9.5 percent. Most of the existing unemployment represents mismatch that is not readily amenable to monetary policy."

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BiMetalAUPT
Message #161 - 08/18/10 04:39 AM

Neoh guy,
 It is SUMMER and a "FOXXY" stock and bond market.. Little thing get big actions in the summer. 

This is the first time I have heard Minneapolis Federal Reserve Bank President Narayana Kocherlakota so it is hard to tell much about the movement in thinking.. He sound OK. 

Banking did take a hit on the news.. IT WILL TAKE A JOLT ON THE POSITIVE SIDE TO GET CAPITAL NEEDED FOR TIER1 TO MEET B.I.S.III DEMANDS.. GERMANY IS NOT IN THE FRONT TO DO IT.. UP TO THE SMALL BANKS IN WEST TEXAS TO TAKE THE LEAD!!!

JUST A THOUGHT,
Bi Metal Au Pt

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frank the impaler
Message #162 - 08/18/10 07:29 AM

Bruce-Lots of stinking thinking out there today...but no vision...the poor souls are locked in a death grip of fear

[Virgil Showlion]

BiMetalAUPT
Message #163 - 08/18/10 05:32 PM

Frank,
 Last paragraph tells it all!!! lose money by paying more then par!! You Bet!!



Yesterday the [www.bankrate.com/finance/federal-reserve/translating-what-the-fed-said8-151156.aspx] Federal Reserve resumed purchasing [www.bankrate.com/rates/interest-rates/treasury.aspx] Treasury bonds in hopes of bolstering the economy and fighting deflation fears. Purchases are being made with proceeds from principal payments on mortgage-backed securities. The Federal Reserve completed its $1.25 trillion purchasing program of agency mortgage-backed securities in March 2010.

and notes in maturities ranging from 2 to 10 years. They will release information about future purchases next month.According to the Web site for the Federal Reserve Bank of New York, the Fed plans to buy $18 billion in Treasuries over the next month, purchasing Treasury bonds

A Bloomberg.com article titled "Treasury Yield Near 17-month Low on Speculation Fed May Increase Purchases," reported this morning that Treasury prices jumped at the news and the yield on the 10-year Treasury note fell to 2.61 percent.

As investors pile into [www.bankrate.com/brm/green/investing/investing3-1a.asp?caret=12] Treasuries the question now is: what will happen to individual investors when the bond bubble pops?

An opinion piece on the Wall Street Journal today, titled, "The Great American Bond Bubble" posits that if interest rates on the 10-year note double over the next year, bondholders will be in for large capital loss.

"Rates are either going to stay flat or go up but when they go up its going to be hard on bond principal," says Wayne Copelin, Certified Financial Planner and president of Copelin Financial Advisors in Sugar Land, Texas.

He recalls the rate increases of the 90s and the impact on the bond market then.  

"In December of '93, the Fed Funds rate was 3 percent. Fourteen months later, rates had doubled. Greenspan raised rates three or four times during that period," says Copelin.

"The bond market got crushed. Everyone says, 'bonds are safe, stocks are risky,' but people got decimated. In October of '94 the cover story was The Great Bond Market Massacre," he says.

With Treasury securities, there's no threat to principal if you hold it until maturity. But if yields rise and you're stuck with a note that pays 2.6 percent, selling will be an unattractive option. On the other hand, 2.6 percent might be a hot ticket in a deflationary environment.

This Bankrate article from Dr. Don explains how to [www.bankrate.com/finance/investing/u-s-treasury-securities-remain-safe.aspx] lose money on an investment in Treasury securities.

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frank the impaler
Message #164 - 08/18/10 05:53 PM



Bruce-Right now if the 10 year rate interest rate is 2.8% were to rise to lets say 4% as they did last spring and as that WSJ article pointed out in the 90's....bondholders will suffer a capital loss equal to three times their current yield.

 

When I do the flows in the "streak" thread...I follow the bond inflows with "pity the fools"

 

PEOPLE PAY ATTENTION...YOU ARE ABOUT TO GET CLIPPED IN BONDS...TREASURY'S AND BOND FUNDS

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Life was good
Message #165 - 08/18/10 06:11 PM

I say we pull the plug and drain all the dirty water out.  Then put the plug back in and fill with fresh clean water.

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frank the impaler
Message #166 - 08/18/10 06:33 PM

Start draining

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BiMetalAUPT
Message #167 - 08/18/10 06:51 PM

Life is good,
 Like, return to the gold standard of value.. without redemption rights???

---

BiMetalAUPT
Message #168 - 08/24/10 05:22 PM

Want to bet.. Someone or more are in hot water... no single bank.. then it is the six we talked about.


BERLIN (Dow Jones)--Germany plans to implement its bank restructuring bill, designed to provide a tool box for handling troubled banks without relying on state bailouts, by the end of the year, a German finance ministry official said Monday.

A proposed bank levy to generate funds for troubled banks, a key feature of the bill, will have to be paid by all banks with headquarters in Germany which post an annual net profit, the official said. The bill wasn't drawn up with any specific bank in mind, he added.

"The bank levy doesn't only have a financing function but also a steering function," said the official, who declined to be identified.

The draft law will be put to the cabinet Wednesday. Key points of the bill, which requires lower and upper house approval, were outlined in the spring.

Banks which engage in higher-risk activities must contribute more to the fund than those with less risky transactions on their books. The aim is to spare taxpayers in the future from having to bailout systemically relevant banks, as was the case during the recent global financial crisis.

Finance Minister Wolfgang Schaeuble plans to "stimulate the European debate" with Germany's bill.

The measures aim to make the restructuring of banks easier, allowing systemically relevant parts of a financial institution to be off-loaded to either to a private third party or a public bridging bank, the official said. Non-systemically relevant parts of the bank would then continue to operate, according to the draft bill.

Defining the systemically relevant parts of a financial institution will be clarified "in times of peace" in order to know what can be spun off during times of crisis, the official said. Germany's banking supervisors, which are the BaFin and the Bundesbank, will decide which parts of a bank are systemically relevant, the official added.

The ministry has said it expects the levy, the proceeds of which will go into a bank restructuring fund only to be used in future crises, to generate around EUR1.2 billion annually.

The levy will be imposed on all banks, including savings and cooperative banks.

Banks won't be allowed to offset their bank levy costs as an operational expense from their tax bill, the official said.

The bank levy will be calculated based on a bank's total equities and liabilities minus its own capital and liabilities to customers. This means there will be less of a burden from the levy on retail banks than on investment banks, the official said.

The burden on banks will progressively rise, starting with two basis points of up to EUR10 billion in net profit, three basis points for profits up to EUR100 billion and four basis points for profits higher than EUR100 billion, the official said.

In a second component, the levy will take into account a bank's interconnectedness with the financial sector, with a flat levy of 0.015 basis point imposed on its nominal volume of off-balance sheet derivatives.

The restructuring fund will receive state guarantees of up to EUR100 billion and the government will give the fund a loan of up to EUR20 billion if the financial means generated by the bank levy isn't sufficient in times of crisis.

The annual levy must be "reasonable" for any single bank and it can only be imposed if the bank is solvent and has posted a net profit. For those with no net profit, banks will have to pay a minimum contribution of 5% of their regular annual contribution.

The government's steering committee of Germany's financial market stability fund, or SoFFin, must approve if the bank restructuring fund is to be tapped, the official said.

SoFFin will expire by the end of the year and banks won't be able to apply for help from this fund after Dec. 31. However, the exception will be Hypo Real Estate Holding AG and West LB AG, which are in the process of being wound down, the official said. For those banks, assets may yet be spun off in

[Virgil Showlion]

frank the impaler
Message #169 - 08/24/10 05:25 PM

Bruce next week we will look like geniuses and the world looks like a big BOO BOO

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BiMetalAUPT
Message #170 - 08/25/10 03:22 PM

Assessment of the macroeconomic impact of stronger capital and liquidity requirements 18 August 2010

The [www.financialstabilityboard.org/index.htm] Financial Stability Board (FSB) and [www.bis.org/bcbs/index.htm] Basel Committee on Banking Supervision (BCBS) today published reports prepared as inputs to the calibration of the new bank capital and liquidity standards and to inform the transition arrangements for implementation of the new standards. 

The two reports are [www.bis.org/publ/bcbs173.htm] An assessment of the long-term economic impact of stronger capital and liquidity requirements , prepared by the Basel Committee, and [www.bis.org/publ/othp10.htm] Assessing the macroeconomic impact of the transition to stronger capital and liquidity requirements, the interim report of the joint FSB-BCBS Macroeconomic Assessment Group (MAG). Together, the two reports provide an assessment of both the net economic impact of stronger capital and liquidity reforms once implementation is complete and the macroeconomic implications during the transition to full implementation.

The Basel Committee's assessment of the long-term economic impact finds that there are clear net long term economic benefits from increasing the minimum capital and liquidity requirements from their current levels in order to raise the safety and soundness of the global banking system. The benefits of higher capital and liquidity requirements accrue from reducing the probability of financial crisis and the output losses associated with such crises. The benefits substantially exceed the potential output costs for a range of higher capital and liquidity requirements.

The FSB-BCBS MAG assessment of the macroeconomic transition costs, prepared in close collaboration with the International Monetary Fund, concludes that the transition to stronger capital and liquidity standards is likely to have a modest impact on aggregate output. If higher requirements are phased in over four years, the group estimates that each one percentage point increase in bank's actual ratio of tangible common equity to risk-weighted assets will lead to a decline in the level of GDP relative to its baseline path by about 0.20% after implementation is completed.  In terms of growth rates, this means that the annual growth rate would be reduced by an average of 0.04 percentage points over a four and a half year period, with a range of results around these point estimates. A 25% increase in liquid asset holdings is found to have an output effect less than half that associated with a one-percentage point increase in capital ratios. The projected impacts arise mainly from banks passing on higher costs to borrowers, which results in a slowdown in investment. A two-year implementation period leads to a slightly larger reduction from the baseline path, with the trough occurring after two and a half years, while extending the implementation period beyond four years makes little difference. In all of these estimates, GDP returns to its baseline path in subsequent years.

Mr Mario Draghi, Chairman of the FSB and Governor of the Bank of Italy, said that "the analysis undertaken is comprehensive and utilises state-of-the-art macroeconomic modelling methods currently in use at national authorities and international organisations. The analysis shows that the macroeconomic costs of implementing stronger standards are manageable, especially with appropriate phase-in arrangements, while the longer term benefits to financial stability and more stable economic growth are substantial."

Mr Nout Wellink, Chairman of the Basel Committee and President of the Netherlands Bank, added that "the economic benefits of the proposed reforms are substantial and need to be considered alongside the analysis of the costs. These benefits result not only from a stronger banking system in the long run, but also from greater confidence in the stability of the financial system as soon as implementation starts".

The MAG's final report will reflect the fully calibrated global capital and liquidity standards, which are to b

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BiMetalAUPT
Message #171 - 08/25/10 03:29 PM

Many small and a few reginal banks have already gained the 12.125% Tier1 Capital requirement of B.I.S. III.The old bankers from the Federal Reserve could demand 10% or more Tier1 for money centered banks like New York or St Louis ( that was then a  money center Federal Reserve Bank like New York)

An assessment of the long-term economic impact of stronger capital and liquidity requirements August 2010

The [www.financialstabilityboard.org/] Financial Stability Board (FSB) and [www.bis.org/bcbs/index.htm] Basel Committee on Banking Supervision (BCBS) today published reports prepared as inputs to the calibration of the new bank capital and liquidity standards and to inform the transition arrangements for implementation of the new standards.

The two reports are "[www.bis.org/publ/bcbs173.pdf] An assessment of the long-term economic impact of stronger capital and liquidity requirements[www.bis.org/publ/bcbs173.htm] ," prepared by the Basel Committee, and "[www.bis.org/publ/othp10.htm] Assessing the macroeconomic impact of the transition to stronger capital and liquidity requirements " , the interim report of the joint FSB-BCBS Macroeconomic Assessment Group (MAG). Together, the two reports provide an assessment of both the net economic impact of stronger capital and liquidity reforms once implementation is complete and the macroeconomic implications during the transition to full implementation.

The Basel Committee's assessment of the long-term economic impact finds that there are clear net long term economic benefits from increasing the minimum capital and liquidity requirements from their current levels in order to raise the safety and soundness of the global banking system. The benefits of higher capital and liquidity requirements accrue from reducing the probability of financial crisis and the output losses associated with such crises. The benefits substantially exceed the potential output costs for a range of higher capital and liquidity requirements.

The FSB-BCBS MAG assessment of the macroeconomic transition costs, prepared in close collaboration with the International Monetary Fund, concludes that the transition to stronger capital and liquidity standards is likely to have a modest impact on aggregate output. If higher requirements are phased in over four years, the group estimates that each one percentage point increase in bank's actual ratio of tangible common equity to risk-weighted assets will lead to a decline in the level of GDP relative to its baseline path by about 0.20% after implementation is completed.  In terms of growth rates, this means that the annual growth rate would be reduced by an average of 0.04 percentage points over a four and a half year period, with a range of results around these point estimates. A 25% increase in liquid asset holdings is found to have an output effect less than half that associated with a one-percentage point increase in capital ratios. The projected impacts arise mainly from banks passing on higher costs to borrowers, which results in a slowdown in investment. A two-year implementation period leads to a slightly larger reduction from the baseline path, with the trough occurring after two and a half years, while extending the implementation period beyond four years makes little difference. In all of these estimates, GDP returns to its baseline path in subsequent years.

[www.bis.org/publ/bcbs173.pdf] Full publication (PDF 69 pages, 363 kb) Full text

• [www.bis.org/publ/bcbs173.pdf?noframes=1] PDF 69 pages, 363 kb

Press release

• [www.bis.org/press/p100818.htm] 18 August 2010

Related information

• [www.bis.org/publ/othp10.htm] Assessing the macroeconomic impact of the transition to stronger capital and liquidity requirements - Interim Report

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bubblyandblue
Message #172 - 08/25/10 03:57 PM

Well at least a recognition that overall leverage needs to be reduced leading back toward more sane lending based on sound economics is encouraging. Looks like they are setting out a good 'band' (high/low parameters) of banking activities more capable of addressing the trans-shipment of money bags across the globe.

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BiMetalAUPT
Message #173 - 08/30/10 01:00 PM

YOU BE THE JUDGE.. B.I.S.iii WILL COST THE CEO'S OF WORLD BANKS A LOT OF BONUS.. BASED ON ROI DECLINE AS CAPITAL IS RAISED AND LOWER STOCK PRICE...

NOW.. EDIT IT IS ALL ABOUT WHO'S POCKET YOUR HAND IS IN.. B.I.S. III IS OUT TO IMPROVE SAFETY IN INTERNATIONAL BANKING .. POWER OF BANKS LIKE FARM CREDIT BANKS WILL BE INTERESTING AS MOST HAVE 12.125% TIER1 CAPITAL.. CITIBANK ALSO HAS THE NEEDED NUMBER BUT MANY WILL HAVE TO DOWNSIZE. The headline tells about CAPM.. We have not yet seen BETA decline in the Banking Stocks!!!That should be a fact after they raise the needed capital or sell off assets like Citigroup did and is doing.. Beta for C is 2.65 vs 2.8 in January.. not bad but it is only a start

The banking business in its simplest form is about taking intelligent risk using leveraged, lower cost funds. This requires that risk is properly priced, funding is stable (tenor and cost) and sufficient capital is held to offset risks inherent in leverage. The industry’s arguments seeking to weaken the proposed BIS III standard ring false and were weakly supported. The Basel Committee on Bank Supervision recently issued a report assessing the economic benefits and costs of stronger capital and liquidity regulation in terms of their impact on output, negating the industry’s arguments.

Strong capital ratios offer higher loss-absorbing cushions, particularly since leverage is inherent in a bank. All bank crises reveal the down-side of leverage: capital consumed at an alarming rate. Stable funding reduces the risk of asset-liability mis-matches and related balance sheet destabilization.

History reveals that, on average, bank crises occurred every 20 – 25 years. However, since the early 1980s, co-incident with a shift away from heavy regulation, the frequency of bank crises has increased. These crises extract a heavy economic toll. The BIS analysis finds that each 1% reduction in probability of crises generates a 0.19% benefit of GDP per year. Stronger capital ratios (TCE/RWA*) and/or liquidity standards meaningfully reduce the probability of a banking crisis. At the data’s lower and upper bounds, low (high) capital and liquidity standards are associated with high (low) cumulative losses relative to pre-crisis GDP levels. Crises in markets with both capital and liquidity standards had lower probabilities than those with capital requirements alone. And, in all cases, raising capital levels up to 11% meaningfully reduced impact. For example, assuming no liquidity standard, raising capital levels from 6% to 10% reduces the probability of crisis by nearly 6%, generating a 1% benefit of GDP per year. This would be meaningful, particularly for most developed countries.

More onerous capital and liquidity requirements raising the cost of credit was a key argument of the banking industry. Reviewing the impact on lending spreads, the study finds that each percentage point increase in capital ratio results in a median increase of 13bps. This assumes that the bank makes no improvements in its cost structure to otherwise maintain RoE. Increasing capital levels to 10% would mean cumulative spread widening of 60 to 76 bps. On existing developed market spreads, such an increase would be most meaningful for top rated corporate borrowers.

Implementing higher capital and liquidity standards clearly have costs associated with them. Using the 10% level, these are estimated to be 35bps. But these are offset by the benefits discussed, even assuming that the banking crisis has no permanent effect on the economy.

Clearly the costs of higher capital and liquidity standards must be passed on to borrowers. But it is remarkably disingenuous for the banks to claim that this would not be possible. The current crisis has made abundantly clear that the cost of risk has been under-priced, this time specifically on the premise that house prices do not decline. Historically, lending margins have narrowed and expanded given economic conditions, loan demand and bank management resolve and common sense. This tim

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BiMetalAUPT
Message #174 - 09/03/10 06:26 PM

thoughts from the German Banking Group on
Basel III

Background

The Basel Committee on Banking Supervision's oversight body, the Group of Governors and Heads of Supervision, reached broad agreement yesterday on the overall design of new capital and liquidity rules for internationally operating banks.

Position

The agreement takes into account some central criticisms made by the German banks and banking associations. These include, in particular, the adjustments with regard to deductions from regulatory capital. At the same time, some important conceptual questions are, in our view, still not answered or not answered in a balanced manner. The final rules, which the Basel Committee intends to present in September 2010, must provide further guidance in this respect. Only then can the new rules and their impact be fully assessed. For this reason, we welcome the reservations expressed by the German representatives in the oversight body about immediate approval of the reform package.

The debate has just started on Tier1.. Bet the banks do not like the idea of 12.125% Tier1 capital needed to make the BIS III or 8.25% for BISII.. Both would be great but will cause a huge "Phase Delay" in the recovery due to low loan growth or contraction will be greater then it is now!! M3 will be under-fire and We will have the "W" recession Flow5 has predicted for months.. I published the "W" forecast in Nov 2009!!!!

Just a thought,
Bi Metal Au Pt