Tag: banks

I have the impression that the Greeks are not bluffing here:

As Deutsche Bank’s George Saravelos politely puts it, “Developments since the Greek election on Sunday have moved very fast.” And indeed, so far the new Tsipras cabinet, and here we focus on the words and deeds of the new finance minister Yanis Varoufakis, has shown that the market’s greatest hope – that the status quo in Greece will continue – has been crushed into a pulp (and so have Greek stock and bond prices) especially following yesterday’s most recent comments by the finmin in which he said that Greece “does not want the $7 billion” from the Troika agreement and that it wants to “rethink the whole program”, culminating with an epic exchange with Eurogroup chief Jeroen Dijsselbloem in which Greece made it clear that the “constructive talks” are over.

And suddenly the Eurozone is stunned, because what had until now been its greatest carrot when it comes to dealing with Greece, has become completely useless when the impoverished, insolvent nation itself says it no longer needs a bailout, seemingly blissfully unaware of the consequences.

So earlier today the ECB’s Erikki Liikanen, tired of pleasantries and dealing with what to Europe is a completely incomprehensible and illogical stance, one which is essentially a massive defection by Greece in the European “prisoner’s dilemma”, and which while leading to a Greek financial collapse and Grexit – both prerequisites to a subsequent Greek economic recovery unburdened by the shackles of the Euro – would also unleash a European depression, came out and directly threatened Greece that it now has 1 month until the end of February to reach a deal with the Troika, or else the ECB would cut off lending to Greek banks, in the process destroying the otherwise insolvent Greek banking sector.

And since only the ECB backstop has prevented a banking sector panic, the ECB is essentially betting the house, and the sanctity of the Eurozone (because after a Grexit all bets are off which peripheral leaves next) that the threat, and soon reality, of a bank run (at last check Greece had about €145 billion in deposits still left in its bank after JPM’s latest estimate of €15 billion in outflows in January) will finally force Varoufakis and Tsipras to sit at the negotiating table with the understanding that not they but the Troika has all the leverage.

 Meanwhile, Germany has already ruled out any debt cancellation: “German Chancellor Angela Merkel ruled out any cancellation of Greece’s debt and said the country has already received substantial cuts from banks and creditors.”

The challenge that the EU faces is that they have nothing. Their only argument is that of a coven of vampires arguing with their victim: “you need to keep letting us bleed you, because if we die, you die.” But that argument means nothing to a dying man.


Once it’s clear that they can’t get any more out of the EU, it costs Greece nothing to allow the entire Euro edifice to collapse. They are already bankrupt, and it is no longer in their interest to permit the EU to continue concealing that simple fact.

One more check in the ICE box. Zerohedge cites Goldman Sachs concerning the surprise announcement of NIRP from the Swiss:

The Governing Board of the SNB surprisingly announced this morning that it will introduce a negative rate of -0.25% on sight deposit account balances at the SNB. The SNB’s target range for the three-month Libor was also widened from 0.0% – +0.25% to -0.75% – +0.25%. In our view, today’s rate decision simply underlines the determination of the SNB to enforce the minimum exchange rate target for the CHF against the Euro.

1. This morning, the SNB surprisingly announced that, on January 22, it will introduce a negative interest rate of -25bp on reserve holdings from banks at the SNB, above a threshold of 20 times the minimum reserve requirement. The SNB’s target range for the three-month Libor was also widened from 0.0% – +0.25% to -0.75% – +0.25%. Over the last couple of days, the CHF has traded very close to the 1.20 level on the back of rising market volatility. The subsequent demand for safe investments attracted large capital inflows into Switzerland, eventually prompting the SNB to react.

2. According to the SNB, the measure is aimed at making investments into CHF less attractive. Although it is only banks that will have to pay the negative deposit rate, banks will pass on, to some extent at least, the negative rates to customers. It is noteworthy in that respect that some German banks – in response to the ECB’s negative rates – have also started charging some clients negative deposit rates.

3. It remains to be seen how effective this measure will be and the SNB will continue to rely on FX interventions to defend the minimum exchange rate. But the measure in any case shows the determination of the SNB to maintain the lower bound for the CHF against the Euro.

When currencies are getting too strong and interest rates are going negative, this is a sign that the central banks are fighting against deflationary pressures. To fight inflation, you raise the interest rate, thereby encouraging people to save. To fight deflation, you lower it, thereby encouraging people to borrow and spend. Or, in this case, since the negative interest rate is only being applied to banks, it is to encourage them to lend. That points to the fundamental difference between fiat money and credit money. You can print paper, but you can’t print borrowers.

The Swiss are trying to weaken their currency, which is strong against the Euro and the dollar, so they are trying to make it less attractive to investors in order to protect their domestic exporters. Russia, on the other hand, isn’t trying to export, but is instead attempting to bring in capital that is frustrated at earning so little interest in the low-interest Western economies.

Widespread NIRP will dictate the eventual end of the credit money system as well as the banks. If you’re being charged to save your credit money, you might as well pay someone to securely hold something more tangible.

The fact that the Federal Reserve is the primary culprit in the credit disaster that is the U.S. economy – the current credit demand gap is $30.2 trillion – is no secret to any regular reader of this blog. But the egregious way in which the Fed employees have blithely gone about breaking the law is a little startling:

That (ed: the public’s glazed-eye look when you speak of financial reform) may very well change today, for today — Friday, Sept. 26 — the radio program “This American Life” will air a jaw-dropping story about Wall Street regulation, and the public will have no trouble at all understanding it.

The Fed encourages its employees to keep their heads down, to obey their managers and to appease the banks. That is, bank regulators failed to do their jobs properly not because they lacked the tools but because they were discouraged from using them. For instance, in one meeting a Goldman employee expressed the view that “once clients are wealthy enough certain consumer laws don’t apply to them.” After that meeting, Segarra turned to a fellow Fed regulator and said how surprised she was by that statement — to which the regulator replied, “You didn’t hear that.”

The US economy is entirely corrupt and is run solely for the benefit of the bankers. This has always been the case, but it should have been entirely obvious to everyone after Ben Bernanke “rescued” the housing market by giving money to the banks rather than to the homeowners.

And Karl Denninger corrects the report, pointing out that bank regulators were not discouraged from using their regulatory tools, but were fired if they did their jobs and used them.

So much for the strategy of preventing a foreign sovereign from defaulting through claiming sovereignty over its bonds:

At the stroke of midnight last night, Argentina officially defaulted on $29 billion worth of debt. It was the eighth time in its history, and the second time in 13 years, that Argentina told its foreign creditors it would not pay its bills.

But this time was different, and rather bizarre. When Argentina last defaulted, in 2001, it had roughly $80 billion worth of debt it couldn’t pay back. It was, at the time, the biggest sovereign-debt default ever. This time, Argentina—Latin America’s third- or fourth-largest economy, depending on who you’re asking—had the money on hand to pay a $539-million bill due by close of business on Wednesday. It didn’t make the payment, and as a result has now technically defaulted on the entire $29 billion it owes international creditors.

The defaults are still pretty small. But a fair amount of new credit will have to be issued to make up for that $29 billion contraction.