All Posts Tagged With: "banks"

Financial markets and institutions are mighty unstable no matter where you look these days. Europe, America, China, Australia. Where are you supposed to go to invest your money?

Instead of allowing capitalism to fix the problem, the feds made it worse. They gave more money to the very institutions and managers who had proved they couldn’t be trusted with it.
We don’t want to rehearse the whole sequence of events that got us to where we are. But it’s important to understand what happened.

Whenever a central bank cannot provide direct, overt assistance to a specific insolvent investment bank or government, not to worry, a central bank can still provide indirect, covert assistance.

There was a problem we promised to solve on Monday. To refresh your memory, the problem is that both banks and governments need money. Governments borrow from banks. But because government finances are so terminally bad in Europe, government bonds are destabilising the capital structure of the banking system.

Europe is begging for money but claiming it has plenty. Meanwhile, ordinary Europeans are voting with their feet and taking their money out of banks and up north, while they still can. An economic system based on command and coercion is collapsing. And meanwhile, stock markets and investors trundle along in an information-soaked stupor.

Once again, the Fed is distorting the signals the private market is trying to send. The market is saying there is a solvency problem and the Fed is saying it’s just a matter of liquidity.

But that’s the question – liquidity or insolvency?

Ever since the suspension of rigorous mark-to-market accounting rules one year ago, banks have gained the ability to “time” their credit losses. This development does not feel like progress. Banks now possess the ability to defer embedded credit losses for a very long time, in the hopes that a “typical” postwar rebound in house prices and employment comes to fruition.

He goes on to explain the relationship between the level of housing finance available in Australia and the mining industry. With 270 pre-RSPT projects queued up valued at $300 billion, foreign lenders had plenty of confidence in Australia as an attractive economy to lend into. This despite the fact that total debt in the economy (public, corporate, AND private) is the neighbourhood of Italian and Greek levels, according to Gottliebsen.