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On May 12 2013 05:16 Nyxisto wrote:Show nested quote +As I understand as of now banks have 10:1 equity/debt ratio, compelled by law (not sure). How would this change with this? requiring 100% backing for deposits means they can't have debt or I am misunderstanding something? :s ( How are banks gonna make not go insta bankrupt? Yes you understand it right, they basically can't create money anymore, and everything they lend they are forced to have in cash. That means that everyone could turn their check money into cash. And regarding the bankruptcy question, i can't answer that either, and i'm pretty sure you can't actually start that "financial revolution" without crashing the whole system.
Yeah it would be the worst thing ever since they would be forced to completly slow down their current credit practices. Some people think that would be a good thing but I have no idea why, a financial world based on this would be ugly real quick with the people not having money (which is almost everybody but the richs these days) being in deep shit.
Our current way of lives and banks requiring 100% backing just doesn't look compatible to me.
Anyway, if I'm way wrong I'd be gladly enlightened since I'm no economist.
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On May 10 2013 20:24 Melliflue wrote:Show nested quote +On May 10 2013 08:52 JonnyBNoHo wrote:On May 10 2013 05:54 aksfjh wrote:
There was not, and still isn't, anything wrong with the fiscal policy of Spain. There are some provisions that made their labor more expensive, but a great deal of Spanish issues stem from a massive jump in unemployment in 2009 (maybe due to construction, but I'm not sure) and huge amounts of government money going to bail out banks. The latter should have never happened with a competent ECB, but it did. Then, the massive expansion of Spanish government debt fueled concerns that they, too, would have a liquidity problem. Of course this happened because, again, of the incompetency of the ECB. Time and time again, the ECB restricted funds to troubled nations and banks because of their finances in moments of crisis. They waited for those countries to catch fire, then made them sign agreements in desperation to keep their countries from fully imploding. Spain's problem wasn't anything they did wrong, but instead got duped by a system that turned on it when crisis struck. Could you explain what you think the ECB should have done a bit more? My colloquial understanding is that Spanish firms had become uncompetitive which meant that incomes and asset prices had to fall. The debts that underwrote those incomes and asset values then had to fall in tandem, which destroyed bank capital. That doesn't sound like something the ECB can deal with, unless I don't have my story straight or I'm neglecting some policy tools at the ECB's disposal. I think the Spanish firms being uncompetitive was more of a problem after the crisis, rather than before the crisis. The crisis itself was more a result of foreign money flowing into Spanish housing/construction. When the global crisis hit, the Spanish housing market collapsed. The Spanish government took on massive debt to fund bailouts. The ECB did a couple of things that made things worse. Firstly, they set interests rate for the Eurozone and they kept the interest rate quite high until 2009, which was not helpful for the weaker Eurozone economies. Secondly, it repeatedly distanced itself from the idea of securing national debt. If it had been willing to say from the start that it would back all national debt then the rates countries like Spain had to pay when taking on new debt would not have been anywhere near as high. The interest rate was kept high to avoid inflation, even though inflation wasn't the problem in the struggling countries. It was mostly fear of hyperinflation in countries like Germany that kept the interest rate high. A high interest rate encourages saving money, but if everyone is trying to save money at the same time then things spiral downwards (businesses/corporations are reluctant to invest any money since demand is weak, but then it's harder to find jobs so people try to save money, thus reducing demand more and so on). Also, some inflation could help Spain become more competitive; if wages rise across the Eurozone as a whole but wages in Spain don't then Spain becomes more competitive. (Side note; it would also help if Germany had better worker rights, which could help fight the rising inequality in Germany too). I try to read up on these things but am by no means an expert, so if someone else wants to correct anything or explain better then they're welcome to 
Hey, that's actully a really good post! I could add some things for detail, and elaborate on some points, but it would be mostly technical econo-speak. Your assesment of Spanish competitivity is very good.
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On May 10 2013 20:24 Melliflue wrote:Show nested quote +On May 10 2013 08:52 JonnyBNoHo wrote:On May 10 2013 05:54 aksfjh wrote:
There was not, and still isn't, anything wrong with the fiscal policy of Spain. There are some provisions that made their labor more expensive, but a great deal of Spanish issues stem from a massive jump in unemployment in 2009 (maybe due to construction, but I'm not sure) and huge amounts of government money going to bail out banks. The latter should have never happened with a competent ECB, but it did. Then, the massive expansion of Spanish government debt fueled concerns that they, too, would have a liquidity problem. Of course this happened because, again, of the incompetency of the ECB. Time and time again, the ECB restricted funds to troubled nations and banks because of their finances in moments of crisis. They waited for those countries to catch fire, then made them sign agreements in desperation to keep their countries from fully imploding. Spain's problem wasn't anything they did wrong, but instead got duped by a system that turned on it when crisis struck. Could you explain what you think the ECB should have done a bit more? My colloquial understanding is that Spanish firms had become uncompetitive which meant that incomes and asset prices had to fall. The debts that underwrote those incomes and asset values then had to fall in tandem, which destroyed bank capital. That doesn't sound like something the ECB can deal with, unless I don't have my story straight or I'm neglecting some policy tools at the ECB's disposal. I think the Spanish firms being uncompetitive was more of a problem after the crisis, rather than before the crisis. The crisis itself was more a result of foreign money flowing into Spanish housing/construction. When the global crisis hit, the Spanish housing market collapsed. The Spanish government took on massive debt to fund bailouts. The ECB did a couple of things that made things worse. Firstly, they set interests rate for the Eurozone and they kept the interest rate quite high until 2009, which was not helpful for the weaker Eurozone economies. Secondly, it repeatedly distanced itself from the idea of securing national debt. If it had been willing to say from the start that it would back all national debt then the rates countries like Spain had to pay when taking on new debt would not have been anywhere near as high. The interest rate was kept high to avoid inflation, even though inflation wasn't the problem in the struggling countries. It was mostly fear of hyperinflation in countries like Germany that kept the interest rate high. A high interest rate encourages saving money, but if everyone is trying to save money at the same time then things spiral downwards (businesses/corporations are reluctant to invest any money since demand is weak, but then it's harder to find jobs so people try to save money, thus reducing demand more and so on). Also, some inflation could help Spain become more competitive; if wages rise across the Eurozone as a whole but wages in Spain don't then Spain becomes more competitive. (Side note; it would also help if Germany had better worker rights, which could help fight the rising inequality in Germany too). I try to read up on these things but am by no means an expert, so if someone else wants to correct anything or explain better then they're welcome to
The only thing I would add is that, for the first 3 years of the crisis, every ECB bankroll came with immense fiscal strings attached. It's not the job of the ECB to decide fiscal policy for these nations, but it played politics nonetheless.
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On May 12 2013 07:49 aksfjh wrote:Show nested quote +On May 10 2013 20:24 Melliflue wrote:On May 10 2013 08:52 JonnyBNoHo wrote:On May 10 2013 05:54 aksfjh wrote:
There was not, and still isn't, anything wrong with the fiscal policy of Spain. There are some provisions that made their labor more expensive, but a great deal of Spanish issues stem from a massive jump in unemployment in 2009 (maybe due to construction, but I'm not sure) and huge amounts of government money going to bail out banks. The latter should have never happened with a competent ECB, but it did. Then, the massive expansion of Spanish government debt fueled concerns that they, too, would have a liquidity problem. Of course this happened because, again, of the incompetency of the ECB. Time and time again, the ECB restricted funds to troubled nations and banks because of their finances in moments of crisis. They waited for those countries to catch fire, then made them sign agreements in desperation to keep their countries from fully imploding. Spain's problem wasn't anything they did wrong, but instead got duped by a system that turned on it when crisis struck. Could you explain what you think the ECB should have done a bit more? My colloquial understanding is that Spanish firms had become uncompetitive which meant that incomes and asset prices had to fall. The debts that underwrote those incomes and asset values then had to fall in tandem, which destroyed bank capital. That doesn't sound like something the ECB can deal with, unless I don't have my story straight or I'm neglecting some policy tools at the ECB's disposal. I think the Spanish firms being uncompetitive was more of a problem after the crisis, rather than before the crisis. The crisis itself was more a result of foreign money flowing into Spanish housing/construction. When the global crisis hit, the Spanish housing market collapsed. The Spanish government took on massive debt to fund bailouts. The ECB did a couple of things that made things worse. Firstly, they set interests rate for the Eurozone and they kept the interest rate quite high until 2009, which was not helpful for the weaker Eurozone economies. Secondly, it repeatedly distanced itself from the idea of securing national debt. If it had been willing to say from the start that it would back all national debt then the rates countries like Spain had to pay when taking on new debt would not have been anywhere near as high. The interest rate was kept high to avoid inflation, even though inflation wasn't the problem in the struggling countries. It was mostly fear of hyperinflation in countries like Germany that kept the interest rate high. A high interest rate encourages saving money, but if everyone is trying to save money at the same time then things spiral downwards (businesses/corporations are reluctant to invest any money since demand is weak, but then it's harder to find jobs so people try to save money, thus reducing demand more and so on). Also, some inflation could help Spain become more competitive; if wages rise across the Eurozone as a whole but wages in Spain don't then Spain becomes more competitive. (Side note; it would also help if Germany had better worker rights, which could help fight the rising inequality in Germany too). I try to read up on these things but am by no means an expert, so if someone else wants to correct anything or explain better then they're welcome to The only thing I would add is that, for the first 3 years of the crisis, every ECB bankroll came with immense fiscal strings attached. It's not the job of the ECB to decide fiscal policy for these nations, but it played politics nonetheless.
Are you talking about ECB or Troika actions?
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They are one-in-the-same currently. The ECB won't act outside of a political mandate from the Troika (for nations). Even the "unlimited backing of government debt" is conditioned on being a recipient of the EFSF, which comes with strings attached. Strings that are being pulled by Draghi and Trichet towards austerity, mind you.
As for banks, the ECB has had the power to maintain capital flows and guarantee solvency of major banks, directly and indirectly through national banks. It chose not to do so, forcing these nations to foot the bill or turn to the Troika for a bailout (which has strings attached).
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On May 12 2013 04:14 Nyxisto wrote:Show nested quote +You should read more kf the report since it's definetly not the same as going back to the gold standard. If you're backing up all credits with gold or cash or with horses is irrelevant, the key idea of the proposed system is to stop banks from creating money by forcing them to hold assets that equal the money they're giving out as credits. And that is essentially the idea of the gold standard. (Where it's always possible for you to go to your bank and trade in any amount of money into gold). So if you disagree at least try to elaborate why. Also with the Bretton-Woods-System we had a very similar idea applied and funnily enough also as an reaction to the Great Depression, and said System didn't even hold for 30 years.
Backing credits with gold or money is not irrelevant since gold is a finite resource while money is not. I will elaborate tomorrow since I am quite drunk atm.
@akfsjh how can the ECB control solvency when they're giving loans to banks. All that's doing is decreasing solvency.
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On May 12 2013 09:20 aksfjh wrote:
They are one-in-the-same currently. The ECB won't act outside of a political mandate from the Troika (for nations). Even the "unlimited backing of government debt" is conditioned on being a recipient of the EFSF, which comes with strings attached. Strings that are being pulled by Draghi and Trichet towards austerity, mind you.
As for banks, the ECB has had the power to maintain capital flows and guarantee solvency of major banks, directly and indirectly through national banks. It chose not to do so, forcing these nations to foot the bill or turn to the Troika for a bailout (which has strings attached).
Well the ECB is certainly part of the Troika, just don't forget the other members when leveling blame
Draghi is certainly pro austerity, though to be fair he's been disappointed with the austerity programs that have been enacted.
Back to the point about other members of the Troika, I don't see how the ECB would have the power to rescue the major banks on its own. Ex. the Fed has lots of power, but the US still needed TARP to save major banks.
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On May 12 2013 10:45 JonnyBNoHo wrote:Show nested quote +On May 12 2013 09:20 aksfjh wrote:
They are one-in-the-same currently. The ECB won't act outside of a political mandate from the Troika (for nations). Even the "unlimited backing of government debt" is conditioned on being a recipient of the EFSF, which comes with strings attached. Strings that are being pulled by Draghi and Trichet towards austerity, mind you.
As for banks, the ECB has had the power to maintain capital flows and guarantee solvency of major banks, directly and indirectly through national banks. It chose not to do so, forcing these nations to foot the bill or turn to the Troika for a bailout (which has strings attached). Well the ECB is certainly part of the Troika, just don't forget the other members when leveling blame Draghi is certainly pro austerity, though to be fair he's been disappointed with the austerity programs that have been enacted. Back to the point about other members of the Troika, I don't see how the ECB would have the power to rescue the major banks on its own. Ex. the Fed has lots of power, but the US still needed TARP to save major banks.
But what policy action(s) do you take when your leading economic advisers are advocating for austerity?
As for TARP, the Fed issued an additional $1 trillion to banks for AAA rated assets, over twice the amount in TARP. I'm not aware of the ECB doing anything similar, but they definitely had the tools. Like it was stated earlier, they even kept rates high, despite signs that a collapse was imminent.
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On May 12 2013 11:25 aksfjh wrote:Show nested quote +On May 12 2013 10:45 JonnyBNoHo wrote:On May 12 2013 09:20 aksfjh wrote:
They are one-in-the-same currently. The ECB won't act outside of a political mandate from the Troika (for nations). Even the "unlimited backing of government debt" is conditioned on being a recipient of the EFSF, which comes with strings attached. Strings that are being pulled by Draghi and Trichet towards austerity, mind you.
As for banks, the ECB has had the power to maintain capital flows and guarantee solvency of major banks, directly and indirectly through national banks. It chose not to do so, forcing these nations to foot the bill or turn to the Troika for a bailout (which has strings attached). Well the ECB is certainly part of the Troika, just don't forget the other members when leveling blame Draghi is certainly pro austerity, though to be fair he's been disappointed with the austerity programs that have been enacted. Back to the point about other members of the Troika, I don't see how the ECB would have the power to rescue the major banks on its own. Ex. the Fed has lots of power, but the US still needed TARP to save major banks. But what policy action(s) do you take when your leading economic advisers are advocating for austerity? As for TARP, the Fed issued an additional $1 trillion to banks for AAA rated assets, over twice the amount in TARP. I'm not aware of the ECB doing anything similar, but they definitely had the tools. Like it was stated earlier, they even kept rates high, despite signs that a collapse was imminent.
Well it would depend on what the economic situation is and what austerity is being advocated. With regards to Spain I think it's pretty clear that their austerity has been extremely harsh and ineffective in addressing the underlying problems that the country is faced with.
As for the Fed - weren't those liquidity measures?
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On May 12 2013 11:51 JonnyBNoHo wrote:Show nested quote +On May 12 2013 11:25 aksfjh wrote:On May 12 2013 10:45 JonnyBNoHo wrote:On May 12 2013 09:20 aksfjh wrote:
They are one-in-the-same currently. The ECB won't act outside of a political mandate from the Troika (for nations). Even the "unlimited backing of government debt" is conditioned on being a recipient of the EFSF, which comes with strings attached. Strings that are being pulled by Draghi and Trichet towards austerity, mind you.
As for banks, the ECB has had the power to maintain capital flows and guarantee solvency of major banks, directly and indirectly through national banks. It chose not to do so, forcing these nations to foot the bill or turn to the Troika for a bailout (which has strings attached). Well the ECB is certainly part of the Troika, just don't forget the other members when leveling blame Draghi is certainly pro austerity, though to be fair he's been disappointed with the austerity programs that have been enacted. Back to the point about other members of the Troika, I don't see how the ECB would have the power to rescue the major banks on its own. Ex. the Fed has lots of power, but the US still needed TARP to save major banks. But what policy action(s) do you take when your leading economic advisers are advocating for austerity? As for TARP, the Fed issued an additional $1 trillion to banks for AAA rated assets, over twice the amount in TARP. I'm not aware of the ECB doing anything similar, but they definitely had the tools. Like it was stated earlier, they even kept rates high, despite signs that a collapse was imminent. Well it would depend on what the economic situation is and what austerity is being advocated. With regards to Spain I think it's pretty clear that their austerity has been extremely harsh and ineffective in addressing the underlying problems that the country is faced with. As for the Fed - weren't those liquidity measures?
Collateral based loans. They essentially traded AAA rated assets for money, but I'm hazy how the price of which was evaluated. The issues from a financial crisis have to do with liquidity for the most part anyways. Even TARP was essentially that, transferring extremely illiquid assets for liquidity from the USGov.
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On May 12 2013 12:46 aksfjh wrote:Show nested quote +On May 12 2013 11:51 JonnyBNoHo wrote:On May 12 2013 11:25 aksfjh wrote:On May 12 2013 10:45 JonnyBNoHo wrote:On May 12 2013 09:20 aksfjh wrote:
They are one-in-the-same currently. The ECB won't act outside of a political mandate from the Troika (for nations). Even the "unlimited backing of government debt" is conditioned on being a recipient of the EFSF, which comes with strings attached. Strings that are being pulled by Draghi and Trichet towards austerity, mind you.
As for banks, the ECB has had the power to maintain capital flows and guarantee solvency of major banks, directly and indirectly through national banks. It chose not to do so, forcing these nations to foot the bill or turn to the Troika for a bailout (which has strings attached). Well the ECB is certainly part of the Troika, just don't forget the other members when leveling blame Draghi is certainly pro austerity, though to be fair he's been disappointed with the austerity programs that have been enacted. Back to the point about other members of the Troika, I don't see how the ECB would have the power to rescue the major banks on its own. Ex. the Fed has lots of power, but the US still needed TARP to save major banks. But what policy action(s) do you take when your leading economic advisers are advocating for austerity? As for TARP, the Fed issued an additional $1 trillion to banks for AAA rated assets, over twice the amount in TARP. I'm not aware of the ECB doing anything similar, but they definitely had the tools. Like it was stated earlier, they even kept rates high, despite signs that a collapse was imminent. Well it would depend on what the economic situation is and what austerity is being advocated. With regards to Spain I think it's pretty clear that their austerity has been extremely harsh and ineffective in addressing the underlying problems that the country is faced with. As for the Fed - weren't those liquidity measures? Collateral based loans. They essentially traded AAA rated assets for money, but I'm hazy how the price of which was evaluated. The issues from a financial crisis have to do with liquidity for the most part anyways. Even TARP was essentially that, transferring extremely illiquid assets for liquidity from the USGov.
The main thrust of TARP was to recapitalize the banks. The treasury bought preferred stock in the banks in exchange for cash.
If I'm not mistaken, Spain's bank bailout has the same goal of recapitalization. I don't know what mechanism they are using.
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On May 12 2013 14:49 JonnyBNoHo wrote:Show nested quote +On May 12 2013 12:46 aksfjh wrote:On May 12 2013 11:51 JonnyBNoHo wrote:On May 12 2013 11:25 aksfjh wrote:On May 12 2013 10:45 JonnyBNoHo wrote:On May 12 2013 09:20 aksfjh wrote:
They are one-in-the-same currently. The ECB won't act outside of a political mandate from the Troika (for nations). Even the "unlimited backing of government debt" is conditioned on being a recipient of the EFSF, which comes with strings attached. Strings that are being pulled by Draghi and Trichet towards austerity, mind you.
As for banks, the ECB has had the power to maintain capital flows and guarantee solvency of major banks, directly and indirectly through national banks. It chose not to do so, forcing these nations to foot the bill or turn to the Troika for a bailout (which has strings attached). Well the ECB is certainly part of the Troika, just don't forget the other members when leveling blame Draghi is certainly pro austerity, though to be fair he's been disappointed with the austerity programs that have been enacted. Back to the point about other members of the Troika, I don't see how the ECB would have the power to rescue the major banks on its own. Ex. the Fed has lots of power, but the US still needed TARP to save major banks. But what policy action(s) do you take when your leading economic advisers are advocating for austerity? As for TARP, the Fed issued an additional $1 trillion to banks for AAA rated assets, over twice the amount in TARP. I'm not aware of the ECB doing anything similar, but they definitely had the tools. Like it was stated earlier, they even kept rates high, despite signs that a collapse was imminent. Well it would depend on what the economic situation is and what austerity is being advocated. With regards to Spain I think it's pretty clear that their austerity has been extremely harsh and ineffective in addressing the underlying problems that the country is faced with. As for the Fed - weren't those liquidity measures? Collateral based loans. They essentially traded AAA rated assets for money, but I'm hazy how the price of which was evaluated. The issues from a financial crisis have to do with liquidity for the most part anyways. Even TARP was essentially that, transferring extremely illiquid assets for liquidity from the USGov. The main thrust of TARP was to recapitalize the banks. The treasury bought preferred stock in the banks in exchange for cash. If I'm not mistaken, Spain's bank bailout has the same goal of recapitalization. I don't know what mechanism they are using.
They were offered nonvoting equity shares at a discounted price, but that was relatively minor compared to the massive amount of "troubled assets" purchased by the USGov.
For Spain (and any other troubled EU bank), the only thing I'm reading about is nationalization, which I assume is a direct capital injection for majority voting shares. Their toxic assets are still on bank balance sheets. However, I don't know this for sure, since I can't read Spanish or German.
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On May 12 2013 09:25 RvB wrote:Show nested quote +On May 12 2013 04:14 Nyxisto wrote:You should read more kf the report since it's definetly not the same as going back to the gold standard. If you're backing up all credits with gold or cash or with horses is irrelevant, the key idea of the proposed system is to stop banks from creating money by forcing them to hold assets that equal the money they're giving out as credits. And that is essentially the idea of the gold standard. (Where it's always possible for you to go to your bank and trade in any amount of money into gold). So if you disagree at least try to elaborate why. Also with the Bretton-Woods-System we had a very similar idea applied and funnily enough also as an reaction to the Great Depression, and said System didn't even hold for 30 years. Backing credits with gold or money is not irrelevant since gold is a finite resource while money is not. I will elaborate tomorrow since I am quite drunk atm. @akfsjh how can the ECB control solvency when they're giving loans to banks. All that's doing is decreasing solvency.
Handing out cheap loans with explicit or implicit aim of guaranteeing solvency goes a long way to improving institutions' position in the loan markets. If a bank's solvency is seen by market agents as "guaranteed", money will flow.
This does not guarantee a return to profitability for said banks, but ECB aim could be to keep them afloat through the bad years, until either there is a return to profitability (as the economy improves), or bankcruptcy can be settled (without massive negative effects on the real economy, again, after the economy has improved).
How the ECB could afford this is a different issue to debate, but betting against the supreme power of big central banks is a widow maker trade.
[edit: fixed tense]
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On May 12 2013 23:08 aksfjh wrote:Show nested quote +On May 12 2013 14:49 JonnyBNoHo wrote:On May 12 2013 12:46 aksfjh wrote:On May 12 2013 11:51 JonnyBNoHo wrote:On May 12 2013 11:25 aksfjh wrote:On May 12 2013 10:45 JonnyBNoHo wrote:On May 12 2013 09:20 aksfjh wrote:
They are one-in-the-same currently. The ECB won't act outside of a political mandate from the Troika (for nations). Even the "unlimited backing of government debt" is conditioned on being a recipient of the EFSF, which comes with strings attached. Strings that are being pulled by Draghi and Trichet towards austerity, mind you.
As for banks, the ECB has had the power to maintain capital flows and guarantee solvency of major banks, directly and indirectly through national banks. It chose not to do so, forcing these nations to foot the bill or turn to the Troika for a bailout (which has strings attached). Well the ECB is certainly part of the Troika, just don't forget the other members when leveling blame Draghi is certainly pro austerity, though to be fair he's been disappointed with the austerity programs that have been enacted. Back to the point about other members of the Troika, I don't see how the ECB would have the power to rescue the major banks on its own. Ex. the Fed has lots of power, but the US still needed TARP to save major banks. But what policy action(s) do you take when your leading economic advisers are advocating for austerity? As for TARP, the Fed issued an additional $1 trillion to banks for AAA rated assets, over twice the amount in TARP. I'm not aware of the ECB doing anything similar, but they definitely had the tools. Like it was stated earlier, they even kept rates high, despite signs that a collapse was imminent. Well it would depend on what the economic situation is and what austerity is being advocated. With regards to Spain I think it's pretty clear that their austerity has been extremely harsh and ineffective in addressing the underlying problems that the country is faced with. As for the Fed - weren't those liquidity measures? Collateral based loans. They essentially traded AAA rated assets for money, but I'm hazy how the price of which was evaluated. The issues from a financial crisis have to do with liquidity for the most part anyways. Even TARP was essentially that, transferring extremely illiquid assets for liquidity from the USGov. The main thrust of TARP was to recapitalize the banks. The treasury bought preferred stock in the banks in exchange for cash. If I'm not mistaken, Spain's bank bailout has the same goal of recapitalization. I don't know what mechanism they are using. They were offered nonvoting equity shares at a discounted price, but that was relatively minor compared to the massive amount of "troubled assets" purchased by the USGov. For Spain (and any other troubled EU bank), the only thing I'm reading about is nationalization, which I assume is a direct capital injection for majority voting shares. Their toxic assets are still on bank balance sheets. However, I don't know this for sure, since I can't read Spanish or German.
Capital purchases were the main function of TARP. The government could have gotten a better deal if it pushed harder, but the pricing was pretty fair. There were other programs at the Treasury and Fed to buy agency MBS but that was mainly high quality and already guaranteed by the government (and the programs were profitable).
On May 12 2013 23:36 Kontys wrote:Show nested quote +On May 12 2013 09:25 RvB wrote:On May 12 2013 04:14 Nyxisto wrote:You should read more kf the report since it's definetly not the same as going back to the gold standard. If you're backing up all credits with gold or cash or with horses is irrelevant, the key idea of the proposed system is to stop banks from creating money by forcing them to hold assets that equal the money they're giving out as credits. And that is essentially the idea of the gold standard. (Where it's always possible for you to go to your bank and trade in any amount of money into gold). So if you disagree at least try to elaborate why. Also with the Bretton-Woods-System we had a very similar idea applied and funnily enough also as an reaction to the Great Depression, and said System didn't even hold for 30 years. Backing credits with gold or money is not irrelevant since gold is a finite resource while money is not. I will elaborate tomorrow since I am quite drunk atm. @akfsjh how can the ECB control solvency when they're giving loans to banks. All that's doing is decreasing solvency. Handing out cheap loans with explicit or implicit aim of guaranteeing solvency goes a long way to improving institutions' position in the loan markets. If a bank's solvency is seen by market agents as "guaranteed", money will flow. This does not guarantee a return to profitability for said banks, but ECB aim could be to keep them afloat through the bad years, until either there is a return to profitability (as the economy improves), or bankcruptcy can be settled (without massive negative effects on the real economy, again, after the economy has improved). How the ECB could afford this is a different issue to debate, but betting against the supreme power of big central banks is a widow maker trade. [edit: fixed tense]
Sounds like zombie banking...
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On May 13 2013 02:17 JonnyBNoHo wrote:Show nested quote +On May 12 2013 23:08 aksfjh wrote:On May 12 2013 14:49 JonnyBNoHo wrote:On May 12 2013 12:46 aksfjh wrote:On May 12 2013 11:51 JonnyBNoHo wrote:On May 12 2013 11:25 aksfjh wrote:On May 12 2013 10:45 JonnyBNoHo wrote:On May 12 2013 09:20 aksfjh wrote:
They are one-in-the-same currently. The ECB won't act outside of a political mandate from the Troika (for nations). Even the "unlimited backing of government debt" is conditioned on being a recipient of the EFSF, which comes with strings attached. Strings that are being pulled by Draghi and Trichet towards austerity, mind you.
As for banks, the ECB has had the power to maintain capital flows and guarantee solvency of major banks, directly and indirectly through national banks. It chose not to do so, forcing these nations to foot the bill or turn to the Troika for a bailout (which has strings attached). Well the ECB is certainly part of the Troika, just don't forget the other members when leveling blame Draghi is certainly pro austerity, though to be fair he's been disappointed with the austerity programs that have been enacted. Back to the point about other members of the Troika, I don't see how the ECB would have the power to rescue the major banks on its own. Ex. the Fed has lots of power, but the US still needed TARP to save major banks. But what policy action(s) do you take when your leading economic advisers are advocating for austerity? As for TARP, the Fed issued an additional $1 trillion to banks for AAA rated assets, over twice the amount in TARP. I'm not aware of the ECB doing anything similar, but they definitely had the tools. Like it was stated earlier, they even kept rates high, despite signs that a collapse was imminent. Well it would depend on what the economic situation is and what austerity is being advocated. With regards to Spain I think it's pretty clear that their austerity has been extremely harsh and ineffective in addressing the underlying problems that the country is faced with. As for the Fed - weren't those liquidity measures? Collateral based loans. They essentially traded AAA rated assets for money, but I'm hazy how the price of which was evaluated. The issues from a financial crisis have to do with liquidity for the most part anyways. Even TARP was essentially that, transferring extremely illiquid assets for liquidity from the USGov. The main thrust of TARP was to recapitalize the banks. The treasury bought preferred stock in the banks in exchange for cash. If I'm not mistaken, Spain's bank bailout has the same goal of recapitalization. I don't know what mechanism they are using. They were offered nonvoting equity shares at a discounted price, but that was relatively minor compared to the massive amount of "troubled assets" purchased by the USGov. For Spain (and any other troubled EU bank), the only thing I'm reading about is nationalization, which I assume is a direct capital injection for majority voting shares. Their toxic assets are still on bank balance sheets. However, I don't know this for sure, since I can't read Spanish or German. Capital purchases were the main function of TARP. The government could have gotten a better deal if it pushed harder, but the pricing was pretty fair. There were other programs at the Treasury and Fed to buy agency MBS but that was mainly high quality and already guaranteed by the government (and the programs were profitable). Show nested quote +On May 12 2013 23:36 Kontys wrote:On May 12 2013 09:25 RvB wrote:On May 12 2013 04:14 Nyxisto wrote:You should read more kf the report since it's definetly not the same as going back to the gold standard. If you're backing up all credits with gold or cash or with horses is irrelevant, the key idea of the proposed system is to stop banks from creating money by forcing them to hold assets that equal the money they're giving out as credits. And that is essentially the idea of the gold standard. (Where it's always possible for you to go to your bank and trade in any amount of money into gold). So if you disagree at least try to elaborate why. Also with the Bretton-Woods-System we had a very similar idea applied and funnily enough also as an reaction to the Great Depression, and said System didn't even hold for 30 years. Backing credits with gold or money is not irrelevant since gold is a finite resource while money is not. I will elaborate tomorrow since I am quite drunk atm. @akfsjh how can the ECB control solvency when they're giving loans to banks. All that's doing is decreasing solvency. Handing out cheap loans with explicit or implicit aim of guaranteeing solvency goes a long way to improving institutions' position in the loan markets. If a bank's solvency is seen by market agents as "guaranteed", money will flow. This does not guarantee a return to profitability for said banks, but ECB aim could be to keep them afloat through the bad years, until either there is a return to profitability (as the economy improves), or bankcruptcy can be settled (without massive negative effects on the real economy, again, after the economy has improved). How the ECB could afford this is a different issue to debate, but betting against the supreme power of big central banks is a widow maker trade. [edit: fixed tense] Sounds like zombie banking...
Unawares of any formal definition of zombie banking, I am willing to agree that's exactly what it is.
Perhaps it is a more sustainable(?) approach to have governments recapitalize failing banks, and have ECB prop up the governments instead. Of course, this opened the way for demanding massive austerity programs in the south.
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I often see people arguing that banks role is to "liquidify" but as I see it it is only a way to avoid their real role which is risk management. Assets who are not liquid are this way because they can't be to sold in a little time or because there are various risks attached to them that prevent the selling (risk in regard to evaluating their price, risk that their value decrease, risk of uncertainty, etc.).
Crisis are most of the time linked to risk management, and its deny. The subprime (the core of all that is happening in the EU) was linked to such problems. There are a lot of discussions that blossomed after the crisis around the evaluation of the risk carried by banking institutions (especially hedge founds, half of the hedge founds in the world disappeared after the crisis).
Trust in this regard is really important : you need to trust the ECB's actions, to believe that it is not an institution that will itself carry a risk (changing policy in a badway).
The ECB's answer to that is heavily influenced by Kydland and Prescott, who thinks that the way to manage those problems is to evade any discretionary actions. In this regard, it is pretty simple to understand why the ECB lacked flexibility to face the crisis. (They basically based their credibility on their ability to follow their one rule that is avoiding inflation)
The Federal Reserve is in a different perspective because it base trust around the competence and the skill of the people that runs it : Greenspawn was a very respected man so allhis actions were instantly regarded positively in a way that most banks belived in th Fed ability to face the crisis.
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Economy is mostly based upong the "feeling" on the streets.
You have to realize that money in itself is worth nothing. Its us that give it value.
Thats how the offer-Demand system works:
Money is just a way we have created to exchange goods with a more precise price.
Now, with electronical money, we have done the same thing the Romans did with their coins (changed its value), and due to that, humans had to react in a way. The more intelligence disparity that there is between the educated classes and those that are not, the bigger the potencial for Economical crysis.
1 easy example: Lets assume that a bank is starting to have problems economicly speaking, and we are assuming a big city.
Person A) is afraid that they wont be able to take their money out of the bank, and tries to go get that money out.
Person B) tries to get the population to calm down so the bank can recover from its problems
Person C) spends their money on goods that can be later traded on for other things.
Person D) tries to take away their money to another country.
So who would be the smart one? In my books, person B. Any other option leads to a possible break in the monetary system in the long run and even the guy with the goods wont do much when those goods are forcefully taken away from him.
However. If the intelligance disparity is insignificant, and all the population choose the same option, there is no crysis at all.
Even if every human gets 10 Euros from the bank instead of 10.000, prices will simply adjust to what people can spend.
(again we will give things their value related to money).
The economy on the entire world is a well constructed lie, but telling the truth now would be even worse :D.
And yeah, im kinda looking only at the big picture and excluding isolated events, but its jsut one point of view.
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It is difficult for prices to adjust downwards, in theory it is possible but in reality it will be verry difficult if not impossible for people and companys to accept accounting losses.
Agree that telling the truth is a bad idea and up till now the truth has been verry well hidden.
Henri ford once said "if people knew how the monney game is played there would be a revolution" Still if you look for a long time and just keep looking you can discover the truth, the old saying still goes.
Just follow the monney
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Zurich15324 Posts
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