Ben Benanke's Incompetent

[smackdown]

You realize that yesterday-- PNC Bank was authorized to buy the USA indigenous assets of RBC, the Royal Bank of Scotland. That would include-- Citizen's First, basically a loser-bank when they bought it and now-- worse. Also, Charter First. Interestingly, Charter First was a direct competitor to National City, which was force-sold to PNC back in 2008. What we have now with the purchase is-- stacking of branch locations. There's a PNC and Charter First within eyesight of each other in every market. The fact is-- one of the primary catalysts in the National City failure was stacked branch locations. There was no good reason to okay the sale and certainly doing so will cause more financial havoc in each market the new conglomerate exists in.
The SOLE REASON I can see for allowing the sale is to maintain the LIBOR's core institutions. Royal Bank of Scotland has slid immeasurably since 2008, as have the other London Inter-Bank network. Basically, PNC got thrown under the wheels of the bus so that the likes of Wal-Mart, Caterpillar and other platforms could keep rates low on the massively excessive debt they live on.

Talk about a gambler's disease.

[flow5]

(DOW JONES) "Some rate futures participants expected a significant SELLOFF of short-dated EURODOLLAR CONTRACTS, based on the belief that a Greek DEFAULT would increase the chances of a funding crunch.

Signs of an impending funding crunch would be revealed in the form of expectations for a JUMP in the three-month London Interbank Offered Rate. The Libor is the rate banks charge each other to borrow U.S. dollars in the interbank market.

Banks would presumably RAISE THE RATE, fearing other financial institutions might be exposed to BAD GOVERNMENT DEBT.

However, there was little, if any, selling pressure Monday on short-dated Eurodollar contracts. The three-month dollar Libor is the underlying rate for Eurodollar futures, and also viewed as a BENCHMARK for determining lending costs for businesses and households.

[flow5]

"In finance, the yield curve is the relation between the interest rate (or cost of borrowing) and the time to maturity of the debt for a given borrower in a given currency" - Wikipedia

en.wikipedia.org/wiki/Yield_curve

==============

"A flat yield curve is observed when all maturities have similar yields"...A flat curve sends signals of uncertainty in the economy"
========

"there is usually little benefit in holding the longer-term instruments - that is, the investor does not gain any excess compensation for the risks associated with holding longer-term securities"
===============

"a flat yield curve means that the market does not believe inflation will change much from what it currently is"
==========

So investors will be attracted to short-term financial instruments when the yield curve flattens (when short-term rates are comparable to long-term rates), simply because the current risk is more certain than future risks (posing a dampening effect on the economy).

[flow5]

Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
06/01/11 0.04 0.05 0.11 0.18 0.44 0.74 1.60 2.28 2.96 3.83 4.15
06/02/11 0.04 0.04 0.11 0.19 0.45 0.78 1.65 2.34 3.04 3.92 4.25
06/03/11 0.04 0.04 0.10 0.18 0.42 0.75 1.60 2.28 2.99 3.90 4.22
06/06/11 0.03 0.05 0.10 0.18 0.43 0.74 1.60 2.29 3.01 3.92 4.25
06/07/11 0.01 0.05 0.11 0.18 0.39 0.74 1.59 2.29 3.01 3.94 4.27
06/08/11 0.01 0.04 0.11 0.18 0.39 0.68 1.52 2.24 2.98 3.88 4.20
06/09/11 0.02 0.05 0.10 0.19 0.43 0.73 1.60 2.30 3.01 3.91 4.22
06/10/11 0.02 0.05 0.10 0.19 0.41 0.71 1.58 2.28 2.99 3.87 4.18
06/13/11 0.02 0.05 0.11 0.18 0.40 0.72 1.59 2.30 3.00 3.89 4.20
06/14/11 0.03 0.05 0.11 0.19 0.45 0.79 1.70 2.41 3.11 4.00 4.30
06/15/11 0.02 0.05 0.11 0.19 0.38 0.68 1.55 2.26 2.98 3.89 4.19
06/16/11 0.02 0.05 0.11 0.18 0.38 0.68 1.52 2.22 2.93 3.84 4.16
06/17/11 0.02 0.04 0.10 0.17 0.38 0.68 1.53 2.23 2.94 3.86 4.19
06/20/11 0.02 0.03 0.10 0.18 0.38 0.68 1.55 2.25 2.97 3.87 4.19
============

One year or less @.18%.


IN 2007:

06/01/07 4.80 4.79 4.98 4.98 4.97 4.94 4.92 4.92 4.95 5.15 5.06
06/04/07 4.78 4.81 4.99 4.99 4.97 4.92 4.91 4.91 4.93 5.11 5.02
06/05/07 4.75 4.83 4.99 4.99 4.99 4.97 4.96 4.96 4.98 5.16 5.07
06/06/07 4.78 4.80 4.95 4.96 4.97 4.94 4.94 4.94 4.97 5.17 5.08
06/07/07 4.80 4.80 4.97 4.99 5.03 5.03 5.05 5.07 5.11 5.29 5.20
06/08/07 4.76 4.77 4.93 4.96 5.01 5.03 5.06 5.08 5.12 5.30 5.22
06/11/07 4.70 4.73 4.96 4.98 5.01 5.03 5.07 5.10 5.14 5.32 5.24
06/12/07 4.65 4.72 4.97 5.01 5.08 5.13 5.18 5.21 5.26 5.44 5.35
06/13/07 4.62 4.66 4.94 4.98 5.08 5.10 5.13 5.16 5.20 5.36 5.28
06/14/07 4.51 4.65 4.93 4.98 5.10 5.13 5.16 5.19 5.23 5.39 5.30
06/15/07 4.46 4.56 4.87 4.93 5.05 5.07 5.10 5.12 5.16 5.34 5.26
06/18/07 4.47 4.63 4.93 4.95 5.01 5.05 5.07 5.10 5.15 5.34 5.26
06/19/07 4.44 4.65 4.91 4.92 4.94 4.98 5.00 5.03 5.09 5.28 5.20
06/20/07 4.42 4.74 4.97 4.97 4.97 5.01 5.05 5.09 5.14 5.32 5.24

======================

2007 was much flatter. It makes the yield curve in 2011 look steep.

[flow5]

"In terms of U.S. Treasury net new issuance to the public, total U.S. government borrowing since the inception of QE II through May 2011 was $654 billion. Annualized that’s over $1.1 trillion, equating to roughly 100% of U.S. net private savings (NPS). By any measure a huge amount of money."

"And how much of that debt new issuance has the Federal Reserve purchased? Answer, $681 billion or 104%…"

"the Federal Reserve intends on continuing its policy of reinvesting the principal payments from its maturing Agency and MBS portfolio into U.S. Treasuries. Using recent Agency and MBS roll-off history as a proxy, we estimate that bid to be some $35 billion to $45 billion per month"

blogs.forbes.com/michaelpollaro/2011/06/21/the-end-of-qe-ii-impact-on-the-treasury-market/

[flow5]

blogs.forbes.com/michaelpollaro/2011/06/16/u-s-governments-fiscal-state-worsens-dc-politicians-fiddle/


For the twelve months ending May 2011, the government’s deficit is $1.3 trillion, equating to 8.7% of nominal GDP.

...Underscoring that ugly number, government receipts to outlays remain near historic lows. At a scary 64% that ratio is up just 4 percentage points these past twelve months, this despite a 10.7% increase in government receipts....guess what’s up… government outlays to the tune of 4.4%. And as for those receipts…

...Problem is that borrowing binge is overwhelming America’s savings pool, this despite a private sector desperately trying to refill the pool. The fact is, U.S. Treasury borrowing has taken some 110% of net U.S. private savings (NPS) these past twelve months.

....Turning to the balance sheet side of the government’s fiscal position, U.S. Treasury debt footings – and their burden on the economy – continue to mount. At $14.3 trillion, gross U.S. Treasury debt is now 96.7% of nominal GDP. And publicly held U.S. Treasury debt is a startling 864% of NPS. Twelve months ago those numbers were 91.1% and 827%, respectively. This debt of course is nothing more than deferred taxes, with interest to boot, and its growing larger by the day.

As for the interest on that government debt, at a gross cost of $441 billion these past twelve months, its absorbing near 20% of government receipts. It would of course be much worse if not for historically low interest rates. Much worse.

It’s important to note that the growth in the government’s take of America’s savings pool these past several months has lagged behind its mounting deficits, reflecting a U.S. Treasury actively managing the government’s balance sheet so as to keep those debt footings within the Congress’ statutory debt limit...

[flow5]

Stone & McCarthy Research Associates:


"How Did the Reserves or Cash Assets Get to Foreign Banks Operating in the US?

The skewing of the distribution of reserves towards foreign banks operating in the US was not because the LSAPs were disproportionately from these banks or from the clients of these banks.

Rather the Eurodollar market provided a vehicle enabling a skewing of reserve balances towards foreign banks operating in the US.

Effectively the AFFILIATED FOREIGN BRANCH of a US bank (whether a domestic or foreign institution) would BORROW DOLLARS in the EURODOLLAR MARKET. A Eurodollar is nothing more than a dollar denominated deposit at a bank outside the US.

The bank holding the Eurodollar deposit will ultimately have a dollar denominated claim against a bank domiciled in the US. That US bank in turn holds reserve balances at their local Federal Reserve Banks.

When Eurodollar deposits move from one foreign bank to another, the claim against the original US bank follows the eurodollar deposit.
If a bank domiciled in the US borrows dollars from a bank outside the US, including its own foreign branch, effectively what happens is the reserve balance of the US bank underpinning the Eurodollar account is REDUCED, and the reserve account of the borrowing bank in the US is INCREASED.

Overall US bank reserves are left unchanged, but the DISTRIBUTION OF THOSE RESERVES is changed from one bank in the US to another, possibility even from the books of one Federal Reserve Bank to another."

==============

[The Virginian]

Federal Reserve Chairman Ben Bernanke says some of the problems that are slowing the economy could persist into next year.

Bernanke says at a news conference that the slowdown could be due, in part, to the troubled housing market and other factors that will continue to depress growth in 2012.

Is this man Brilliant or what?

I wonder how he got his first clue?

[Driftr]

Jun 22, 2011 15:49:30 GMT -5 The Virginian said:

Federal Reserve Chairman Ben Bernanke says some of the problems that are slowing the economy could persist into next year.

Bernanke says at a news conference that the slowdown could be due, in part, to the troubled housing market and other factors that will continue to depress growth in 2012.

Is this man Brilliant or what?

I wonder how he got his first clue?

I'll go out on a limb and wager he bought it. On credit.

[flow5]

QE2 was announced on August 27, 2010 in Jackson Hole. Stocks (DJI), bottomed Aug 26 @9,985.81.

First POMO buying started on November 12, 2010. I.e., stocks started rising c. 2.5 months prior to the start of QE2.

QE2 ends June 30. Stocks topped on April 29th @ 12,810.54 or 2 months prior to the end of QE2.

Just as QE2's announcement jump-started financial speculation, the end, and anticipation of the end, of operation QE2 will validate the prior effects of QE2, with many trend reversals.
------------------

QE2 Yield Curve changes (Aug 31, 2010 bottom vs. 6/22/2011):

1 mo...... -0.15
3 mo...... -0.12
6 mo...... -0.10
1 yr....... -0.09
2 yr....... -0.08
3 yr....... -0.04
5 yr....... 0.25
7 yr....... 0.37
10 yr..... 0.54
20 yr..... 0.68
30 yr..... 0.70

[flow5]

www.minyanville.com/businessmarkets/articles/gold-gold-price-collateralized-lending-european/6/23/2011/id/35332?page=3

good example of euro-dollar. tried to cut this down. full article website above:


European turmoil is being revisited within interbank marketplaces. Fears of exposures to Greece, Portugal, Italy, Spain, etc. have forced many banks to rethink their lending policies. The Telegraph reported on June 18 that Standard Chartered and Barclays (BCS) moved billions out of the UNSECURED INTERBANK LENDING MARKET, with Standard Chartered cutting its overall exposure by an astounding two-thirds.

…LIBOR spreads have moved noticeably wider, though not nearly as much as 2010 and a far cry from 2008. Liquidity changes appear to be in the very opening stages.

There are two distinct lending/borrowing options as well as two geographical “districts”. First, there is UNSECURED lending vs. COLLATERALIZED lending. The former is a simple OVERNIGHT or short-term loan from one institution to another, premised solely on the lender’s perception of the borrower’s ability to repay. The latter, collateralized lending, takes unsecured lending to a “safer” level. In instances where counterparties are not intimately familiar, overnight lenders demand additional assurance for repayment in the form of collateral. This collateral usually takes the form of a liquid financial security, such as US treasuries.

Geographically, the interbank markets are dominated by dollars. European and Asian banks can get involved in these most liquid and deep short-term markets through EURODOLLARS. The name eurodollar is very misleading since it is a catchall name for the FUNDING MARKET BASED OUTSIDE THE US.

At this point, the question usually arises as to why foreign banks would want exposure to dollar-denominated funding. The answer is simply that the dollar is being used as RESERVE CURRENCY. It offers depth of liquidity, the SCALE needed to accomplish large and consistent transactions, and stability. If these kinds of funding regimes were tried in another smaller, less stable currency, large transactions would lead to outsized, disruptive moves in rates and currencies. That would mean volatility and a breakdown in stability, threatening the interbank market itself.

The eurodollar market grew as an alternate to US-based lending rules. It was entirely a product of the desire to increase LEVERAGE and maximize profitability per unit of deployed capital.

Because the eurodollar market was subject to much less rigorous regulation, it attracted trillions of dollars in capital and balance sheet capacity. US-based lenders even created ways to circumvent Federal Reserve rules to participate in eurodollars as much as possible. Because of the market’s size,

European banks have accumulated assets that far exceed their home country’s GDP and local currency capacity. In many cases -- Switzerland in particular -- the largest banks have total asset exposures that are multiples of GDP, leaving these countries precariously exposed to the dollar.

The US housing bubble took down so many European banks simply because they had outgrown their local foundation through access to eurodollar financing (and the attendant desire to match the currency of the assets to these dollar liabilities).

While many of the biggest banks can get funding in the unsecured market, most other institutions need to have acceptable collateral. Collateralized lending is done through repurchase agreements, or repos.

In the pre-crisis period, securitized mortgage bonds (tranches) rated AAA or AA were commonly accepted collateral with minimal haircuts. Once it became more widely known that ratings agencies’ models were dangerously flawed, mortgage bonds were no longer accepted as “safe” collateral.

That meant that institutions reliant on short-term repo funding (nearly every bank) now had to find an alternate source of liquidity. The options were limited to fire sales of longer-dated assets (the mortgage bonds themselves), alternate collateral arrangements, or unsecured lending.

The problem here was that at the same time the need for unsecured lending rose, its availability shrank as lenders fretted even their most familiar counterparties. Unsecured lending in eurodollars is done at LIBOR, while unsecured lending within the Federal Reserve system takes place at the Fed Funds rate. Both spiked at the height of the crisis as the desperation for liquidity grew increasingly acute, and was conspicuously lacking in the Fed funds market (the Fed is supposed to add enough liquidity to ensure that the Fed funds target is always met).

…The safety of the dollar was really nothing more than the size of the eurodollar market and the related need to find an alternate source of dollar-denominated collateral. A much better description would be a “flight to liquidity”.

As much as US treasuries were sought as “safe” collateral, so were other forms of sovereign debt. Euro-denominated funding with Greek, Portuguese, or Irish sovereign debt collateral might not have been the first choice of institutions, but any doubts were set aside in the name of funding practicality.

The reason European (and American) banks have so much exposure to PIIGS debt is nothing more than this evolution of collateral from mortgage bonds to sovereigns. Alternate sovereigns were sought in increasing amounts as US treasury rates hit zero (and were negative at certain points) and the European debt market was the only liquid market of significant size. “Safety” was not the primary goal; funding needs superseded all other calculations.

Now that the PIIGS are falling off one-by-one from the repo market schematic, haircuts have been elevated on PIIGS collateral in the same way they were on mortgage bonds in 2008. The need for alternate collateral or funding arrangements is again pressing.

…If we look at LIBOR spreads and the euro/dollar cross, the SHORTAGE OF DOLLAR-DENOMINATED COLLATERAL again becomes clear. We know that the largest foreign buyer of US treasuries in mid-2010 was the United Kingdom.

It is easy to deduce from that, plus the behavior of the euro, that London-based eurodollar participants were simply switching collateral from Greek or Portuguese sovereigns to US treasuries (and created the need for more quantitative easing.

===============

The supply & demand for dollars in the Euro-dollar market moves currency exchange rates. Hence QE2 accelerated the dollar's fall.

[flow5]

blogs.wsj.com/marketbeat/2011/06/23/t-bill-yields-plunge-toward-zero/

"Yields on the shortest-term Treasury debt has COLLAPSED toward zero in the latest risk-off episode. Three-month bills recently yielded 0.01%.

MONEY FUNDS FLEEING GREECE are partly to blame, Min Zeng writes:

Yields have been hovering around zero for months — some yields actually dipped below zero on several occasions after the Lehman crisis — thanks to the Fed’s near-zero policy rate, while the debt ceiling impasses pushed Treasury to reduce supply.

And now the GREEK DEBT CRISIS and signs of weakness in global data fuel more investors to seek safety in T-bills, including US money funds shifting some money away from euro zone banks and into domestic markets.

Update: Kelly Evans just flagged a Reuters report that 1- and 3-month T-bills actually WENT NEGATIVE very briefly today, according to Tradeweb, meaning people were paying the government for the chance to lend it money.

I don’t see yields turning negative in the Tradeweb charts, so I’m not sure if these were real trades or not.

But if true, this is the first time it’s happened since December 2008 — another one of those Greece/Lehman echoes."

[flow5]

The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of REINVESTING PRINCIPAL PAYMENTS from its securities holdings.

The Committee will regularly review the SIZE & COMPOSITION of its SECURITIES HOLDINGS and is prepared to adjust those holdings as appropriate.

www.federalreserve.gov/newsevents/press/monetary/20110622a.htm

[silverdollar]

[flow5]

"When the first round of quantitative easing came to an end, we saw a massive dollar rally"

www.moneyshow.com/trading/article/26/currency-23520/How-the-End-of-QE2-Will-Affect-USD/

[flow5]

"The Fed’s QE2 stimulus plan comes to an end on June 30...The key is not necessarily the day QE2 ends. Instead, the inflection point is likely to arrive once the Fed’s balance sheet finally tops out.

The stock reaction to the end of QE1 was severe. The market as measured by the S&P 500 Index touched a post crisis intraday peak of 1219 on April 26, 2010. In the next 47 trading days over the next eight weeks, the stock market plunged by -17%.,,And this stretch also included the infamous “flash crash” on May 6 when the market plunged intraday by nearly -9% in minutes before recovering to end the day still down -3% from its previous close...

...It’s worth noting that QE1 did not end on April 26, 2010. Instead, it had technically ended roughly three weeks earlier on March 31, 2010. Thus, the stock market continued to rally higher for a full 17 trading days after QE1 had ended before finally peaking.

...what accounted for this continued stock rise for several weeks after the end of QE1?

The answer – the CONTINUED GROWTH OF THE FED'S BALANCE SHEET. Even though QE1 technically came to an end on March 31, 2010, the Fed continued to expand its balance sheet by another $30 billion through the first few weeks in April.

seekingalpha.com/article/276458-where-will-stocks-go-after-qe2-the-fed-s-balance-sheet-holds-the-key
==============

Not my interpretation. QE dates vs. stocks show something else is moving the market. However QE2's POMOs directly effected stock purchases & in their absence, the market's support will have to come from elsewhere.

[flow5]

"Allen Sinai, president of Decision Economics, says the chance that the U.S. will suffer a GROWTH RECESSION—that's when the economy expands at 1 percent or less for at least two quarters—has doubled recently, to 10 percent"

"Blinder thinks the Fed is being "a little too passive." He wants the Fed to cut to zero the rate it pays banks on the excess reserves it holds for them. That would remove banks' incentive to park money with the Fed. Even better, says Blinder, the Fed could effectively CHARGE BANKS FOR HOLDING THEIR RESERVES by paying a negative interest rate"

www.businessweek.com/magazine/content/11_27/b4235013598241.htm

[flow5]

QE2 Treasury Yield Curve changes (Aug 31, 2010 bottom vs. 6/24/2011):

1 mo ……. ……. -0.15
3 mo ……. ……. -0.12
6 mo ……. ……. -0.12
1 yr ……. ……. -0.09
2 yr ……. ……. -0.12
3 yr ……. ……. -0.15
5 yr ……. ……. 0.07
7 yr ……. ……. 0.21
10 yr ……. ……. 0.41
20 yr ……. ……. 0.6
30 yr ……. ……. 0.65



QE2 (announced on Aug 27th), has widened the gap, between short-term & long-term rates. It has increased the potential profitability of borrowing short, & lending long. But contrary supply & demand forces are at work.

[flow5]

"Richard Bernstein Advisors, highlighted some recent trends in global yield curves:

“One of our favorite indicators is the slope of the yield curve. Yield curves have historically been very good predictors of future profits growth and of future trends in equity market volatility. Steep curves (i.e., a wide, positive spread between 10-year and 2-year notes) have generally BEEN FOLLOWED BY PERIODS OF STRONGER GROWTH and lower volatility, whereas inverted yield curves (i.e., the 2-year rate is higher than the 10-year rate) have generally been followed by profits recessions (i.e., periods with negative year-over-year trailing EPS growth) and higher volatility.

The United States currently has the STEEPEST YIELD CURVE IN THE WORLD....The spread between US 10-year and 2-year notes was about 259 basis points at the end of May. Interestingly, this is not only the steepest yield curve in the world at present, but the US yield curve is close to its steepest since the mid-70s (the steepest was the 291 basis-point spread on February 4, 2011).

pragcap.com/yield-curves-dont-lie

[smackdown]

One startling angle we all need to consider is-- the economics strayed from reality after we shifted from the Gold Standard and meandered along a number of adopted alternatives. The core mechanism was lost over time and evolved by degradation to actually consider DERIVATIVES to be an Index. The idea isn't far-fetched because each time the Greeks wallow, it impacts the markets here. We aren't remotely beholden to anything Greek so we must be tied to those debt notes. In order to be so, we must vicariously be seeing them as some sort of Index for our own activity. That said, derivatives are not real, so the entire economy is a distorted fantasy.

[marshabar1]

Heard estimate at 57% of the credit default swaps. Goldman Sachs bought their own crap back just to the ponzi going?

[bimetalaupt]

Jun 25, 2011 8:57:04 GMT -5 @marshabar1 said:

Heard estimate at 57% of the credit default swaps. Goldman Sachs bought their own crap back just to the ponzi going?

Marsha,
85% of all derivatives expire worthless.. 57% bought back .. going to go out on the limb and say they must have written most of these again. and again.. Like the old day.. They can do it without paying a huge brokers fee..

How much of the market value do you relate to a ponzi Operation???The one large financial system I keep hearing called a ponzi system is the SS System.. They own more T-Bonds then the Federal Reserve.. Trick question as that is all they can buy...

Just a thought,
Bi Metal Au Pt

[marshabar1]

What do you call a scheme where the banks keep writing and rewriting and repackaging and extending and renaming to keep interest payments flowing? What are they going to be able to do for Greece? I don't think any of the standard apps are going to apply. The Greeks aren't going down easy, looks as if they'd burn that country to the ground before they'd accept the big austerity suppository. Is there an income producing canal another nation can be forced to give them? I don't think so.

Honestly I think the banks have overreached by a long shot. Can't remember who it was recently, Obama advisor I think, who said a World War could fix the economy. Some people (world socialists) think it's starting in Libya.

[bimetalaupt]

Jun 25, 2011 10:31:17 GMT -5 @marshabar1 said:

What do you call a scheme where the banks keep writing and rewriting and repackaging and extending and renaming to keep interest payments flowing? What are they going to be able to do for Greece? I don't think any of the standard apps are going to apply. The Greeks aren't going down easy, looks as if they'd burn that country to the ground before they'd accept the big austerity suppository. Is there an income producing canal another nation can be forced to give them? I don't think so.

Honestly I think the banks have overreached by a long shot. Can't remember who it was recently, Obama advisor I think, who said a World War could fix the economy. Some people (world socialists) think it's starting in Libya.

Marsha,
Well .. I call it "High" finance... or that was what one of my Professors for my MBA did.. It is like some of the Real Estate No Money down programs that were Promoted in the USA during the 1980's.. Best taken with a little Bourbon. Looks like Greece is in a Depression right now.

I posted a list of countries and the years they were in Depression by Professor from Harvard Dr. Barro.. Like Finland before the War and France after WWII. Most of the major depressions were started by banks not taking corrections and write-off's before they went insolvent.. The world is full of insolvent banks that own bonds that are not worth the value placed on them by their owners.. Like Greek bonds.. The Long Depression and Great Depression both started in Austria with the banks lending too much money to East Europe.. Like Greek bonds today.. Are we in Greek bonds

Both Finland and Germany after the war had to go through huge Austerity Programs with huge exports of machine goods made with lower cost of Labor. In Greece they are not willing to cut wages or lower benefits.. It is a mess.

I think Axel Weber is correct and Greek bonds will have to be defaulted or extended with lower interest cost.. This is where the huge rescue fund will have to come in..

Just a thought,
Bi Metal Au Pt

Attachments:

[marshabar1]

Every depression has been caused by crazy impossible unsustainable banking practices. And every time it is their domestic herd of tax payers who bails them out or suffers great deprivation or population reduction through starvation or war. What could be more monstrous and evil than the bank cartel?

[The Virginian]

Honestly I think the banks have overreached by a long shot. Can't remember who it was recently, Obama advisor I think, who said a World War could fix the economy. Some people (world socialists) think it's starting in Libya.

Good point! We are not there for the heck of it and certainly not because we care about the people.

I'm not so sure that a World War would fix the economy. It worked in the past but the consequences (Collateral Damage) would be many times greater this time around. The losers (and maybe even the winners) would be back in the stone age.

[marshabar1]

Good points but I'll bet they'll do it if they can't wring it out of us some other way.

[flow5]

www.thedeal.com/magazine/ID/039849/2011/teturn-of-the-toaster.php

"Among the many Dodd-Frank Act fundamental changes to the U.S. financial system is the disappearance of yet another Roosevelt-era banking restriction.

Surviving beyond the demise of other New Deal policies, such as the required separation of banking and securities underwriting, the ban on the payment of interest on demand deposits now too has been deemed to have outlived its usefulness. The Federal Reserve Board is to lift the long-standing prohibition through repeal of its Regulation Q, effective July 21. This little-publicized, last-minute addition to the Dodd-Frank Act, though arguably having little to do with too-big-to-fail, will have a significant impact on the structure, pricing and profitability of bank deposit products.

Simply stated, a demand deposit is an account with an original maturity or notice period of at least seven days. While banks long ago developed "workarounds" allowing them to pay interest on demand deposits through the use of negotiable order of withdrawal accounts, money market fund sweeps and offshore accounts, the demand deposit account remains a source of stable-rate funding for long-term fixed-rate loans. With banks to be allowed -- though not required -- to pay interest on demand deposits as of July 21, it is not clear what the impact will be on the continued availability and cost of this funding source. Whether the repeal is a net plus or minus for banks will depend in part on their business models and asset portfolios.

The Federal Reserve Board has asked for comment on the implications of repeal of its Regulation Q on bank balance sheets and income, short-term funding markets and money market funds, the demand for interest-bearing demand deposit accounts and the competitive burden on smaller banks.

The responses, to date exclusively from community banks, bemoan the added burden that the repeal will place on business models premised on the spread between loan yields and the cost of funds. As one commentator notes, demand deposits, which for some community banks can represent up to 60% of funding, are "the life blood of community banks."

For other banks, the repeal may be an opportunity to gain a new source of funding by offering rates to lure large commercial deposits away from money market funds. Such bank products may gain some added traction from potential enhanced prudential regulation of money market funds that may have a potential adverse impact on money-market-fund yields. For the too-big-to-fail banks, the repeal of Regulation Q may merely result in a shift from implicit to explicit interest.

The effect of the repeal on depositors too remains unclear. A great many depositors in effect receive interest on their demand deposits -- through end-of-day sweeps into money market funds or offshore accounts, or as credits against charges for bank services.

Whether these arrangements continue will depend in part on the interest rate to be paid and the cost of services. It may be that banks, at least for now, seek to entice depositors to maintain non-interest-bearing accounts to take advantage of a "temporary" Dodd-Frank Act provision, which extends Federal Deposit Insurance Corp. unlimited deposit insurance coverage to all non-interest-bearing transaction accounts through Dec. 31, 2012. That temporary coverage, which extends to accounts that would have been deemed interest bearing under Regulation Q, may allow banks to structure new products that combine "interest" with unlimited FDIC insurance protection.

The elimination of the Regulation Q prohibition on interest payments on demand deposits continues the trend for more explicit pricing of bank services. It presents an opportunity for banks to review their offerings and for bank customers to review their banking relationships. For some banks, the repeal of interest payment prohibitions may be a boon if they can correctly identify and address the myriad issues that can arise.

It seems clear that some banks, at least, will try to find the silver lining, and some, particularly smaller community banks, may find the repeal, instead, to be their final undoing and seek a purchaser. As we come closer to July 21, more issues and new workarounds undoubtedly will surface. Going back to the experience of the 1970s, will banks be offering toasters for increased demand deposit balances?

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Higher costs & lower bank profits. Slower economic growth. It will put some smaller banks out of business.

Note: author defined a dd wrong.

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blogs.wsj.com/marketbeat/2011/06/24/t-bill-yields-hit-zero/?mod=google_news_blog

Oh, look, everybody, one-month Treasury bill yields are YIELDING BASICALLY NOTHING, as investors scramble for the risk exits and try to hoard the safest stuff as the quarter ends.

The “ask” on one-month T-bill yields has been NEGATIVE ALL DAY. But the more-relevant “bid” has been a little higher, recently coming in at 0.005% after briefly touching zero a couple of times during the day.

This means that investors are WILLING TO GET ALMOST NOTHING IN RETURN FOR HOLDING GOVERNMENT PAPER IN THE SHORT TERM.

Min Zeng has more:

Besides uncertainty about Greece, another kicker to keep yields on some T-bills around zero is the coming quarter end next week, traders say. As the time for the quarterly ritual of WINDOW-DRESSING balance sheets draws near, many banks, mutual funds and companies prefer holding short-term assets considered less risky, such as T-bills. That means demand for T-bills will continue to be strong and T-bill as collateral in the Treasury repo market is likely to shrink. That means higher borrowing costs for those looking for collateral. Already, some REPO RATES HAVE TRADED NEGATIVE and some yields on 1-month T-bills have briefly dipped below zero.

Yields on some T-bills maturing less than a month are trading slightly below zero, at around negative 2bps, says Jerry Curley, a senior T-bill trader at BNP Paribas. He says window-dressing demand by dealers and some money funds prefer short-dated safe assets before quarter end. But he adds that many T-bill yields have TRADED AROUND ZERO FOR MONTHS, so easily be pushed slightly below the zero mark–a scenario that has come up in some quarter-ends in the past two years.

Expect this to keep happening for the next several days, in other words. And of course if that Greek austerity package doesn’t get passed, Katie bar the door.

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& with QE2 to end, could it also be that traders & investors are converting currencies? Transfer of demand from carry-trade speculation (Roubini's mother of all carry trades), to U.S. stocks & bonds (reason to expect market support after QE2).

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latimesblogs.latimes.com/money_co/2011/06/treasury-bond-rates-yields-economy-fed-greece-default-money-market-funds.html

Almost nobody on Wall Street believes that Treasury bonds are attractive investments at current yields.

But they’re still buying them, as many nervous investors focus on return of capital rather than return on capital.

Treasury yields sank again Thursday as economic reports in the U.S. and in Europe pointed to more weakness, and as FINANCIAL MARKETS IN GENERAL WERE ROILED BY PLUMMETING OIL PRICES.

The 10-year T-note yield (charted below) fell to 2.91%, down from 2.98% on Wednesday and the lowest since late November.

Shorter-term yields also slid. Heavy demand for three-month Treasury bills -- CONSIDERED THE ULTIMATE SAFE PARKING PLACE -- drove their annualized yield to a mere 0.008% from 0.015% on Wednesday. Some trading services said T-bill yields actually went negative for a time, meaning investors would in effect be paying the government to hold their money.

The latest slide in T-bill yields may reflect DECISIONS BY U.S. MONEY MUTUAL FUNDS TO CASH OUT SOME OF THE SHORT-TERM EUROPEAN BANK DEBT they own and bring the money home, as investors focus on potential risks stemming from the ongoing European government-debt crisis.

Federal Reserve Chairman Ben S. Bernanke on Wednesday said few money funds owned debt of governments or banks in Europe’s weakest countries (Greece, Ireland and Portugal) but that many funds had “substantial” holdings of securities issued by major German, French and British banks.

Because the biggest European banks, in turn, have significant stakes in Greek bonds and other troubled debt, the risk is that a default by Greece could start a chain reaction of panicked securities selling across the continent’s financial system -- shades of what followed brokerage Lehman Bros.’ collapse in September 2008.

But those concerns were blunted somewhat Thursday after European Union leaders agreed on more financial aid if the Greek government approves harsh new austerity measures. The EU has given the Greek Parliament a July 3 deadline to approve those measures.

With the Federal Reserve scheduled to complete its $600-billion Treasury-bond-buying program June 30, the concern a few months ago was that bond yields could jump if there weren’t enough private investors to replace the Fed’s demand.

FOR NOW, THAT DEFINITELY IS NOT A PROBLEM.

As for how much lower Treasury yields might go, that may depend on whether economic data worsen and whether Europe succeeds in putting off, yet again, the risk of a Greek bond default.