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abelenkpe Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 11:44 AM
Original message
The Fed Bails Out Eurobanks Yet Again
The Fed Bails Out Eurobanks Yet Again

http://www.nakedcapitalism.com/2011/09/the-fed-bails-ou...

Watching re-enactments of scenes from the global financial crisis is a very peculiar experience indeed. The opening by the Fed of currency swap lines to allow the ECB and other central banks to extend dollar funding to Eurobanks was seen as an extreme measure the first time around, a sign of how close to the abyss the financial system had come. This time, allegedly because the powers that be acted before things got quite so dire, bank stocks rallied impressively. Similarly, the media treated this move as just another episode in the ongoing Perils of Pauline drama running on the other side of the Atlantic. The $2 billion loss by a UBS rogue trader got far more extensive coverage, even though rogue traders also seem to be all of a muchness.

Now narrowly, the jaundiced media response and the market bounce both make sense. The Eurodrama has gone so many chapters that its easy to get rescue fatigue. And a bailout handled tidily among central bankers makes for less gripping reporting that the national and interpersonal theatrics involved in the typical Eurozone cliffhanger. Similarly, the Eurobanks were under real stress by being frozen out of dollar funding, largely because US money market funds were not longer willing to do repos with them or buy their commercial paper. And US banks were also encouraged to cut back on their exposures to them. So the central banks have stepped into this breach.

But this is just a liquidity fix, and here, that means largely a palliative. The Eurobanks will suffer serious hits when the sovereign debt crisis losses come home to roost; this alone will render many major banks undercapitalized. The ECB has, as the Fed did, allowed banks to pledge dreckly collateral in return for shiny new funds. But the big difference between the ECB and the Fed is the ECB apparently sees itself as constrained by its $5 billion in equity (even though it could simply print, give the proceeds to national governments, and have them give that back to the ECB as an equity contribution) and is loath to bloat its balance sheet too much. The self imposed balance sheet growth limits of the ECB plus the refuse of EU leaders to consider other mechanisms such as Eurobonds means its hard to see how the wheels are not going to come off the European financial system in the not too distant future.

The UBS saga provided a stark reminder that the visible sovereign credit risk is not the only peril facing these banks. In the crisis, it wasnt one problem that felled banks; it seemed like everything came apart in quick succession. The UBS losses were on a desk that took ETF-related exposures, something that regulators have belatedly realized has concentrated a lot of risk in already highly leveraged dealer banks. This situation sounds scarily like a rerun of the CDO saga of the crisis.

(more at link)

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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 11:47 AM
Response to Original message
1. I guess that's why Geithner ran over to Europe before they
let Greece default, and which it will do anyhow.

This system is a massive failure, but they won't give up on it. Someone is going to have to make them.
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abelenkpe Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 12:06 PM
Response to Reply #1
3. I just find it ironic
that we supposedly have no money and need to cut jobs and government programs that aid the poor but we apparently have plenty of dollars to give to European banks so they don't default (even though they will eventually anyway.)

How does this make sense?
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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 12:19 PM
Response to Reply #3
5. I've been reading some British economic blogs lately trying to
understand all of this, and one of the best bloggers who seems to have a lot experience with economics says it's not real money anymore, in the sense that we think of money.

It's as if they are playing high stakes games with the lives of billions of people, I think he referred to it as a huge Global Casino.

I'm waiting for the day when someone will finally put a stop to it all. Because everything these Masters of the Universe do is done to make the Market go up, or down if they're betting on down, and they do not care about people. Their puppets in Europe, Sarkozy and Cameron et al, are told to ignore the outrage of their populations and just 'do what has to be done'.

In Greece they passed the austerity laws totally against the will of the people, but they couldn't implement them. You can't squeeze blood out of a turnip. So, rather than talk about the people of Greece, the Moneymen are sitting around trying to figure out if Greece CAN force the people there to go along with the 'program' regardless of the consequences to them. They never talk about the people other than in terms of how to subdue them when they riot or loot.

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banned from Kos Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 12:23 PM
Response to Reply #3
6. because you are reading a crappy source (NC)
someone else posted a NY Times article that explains why this costs the US nothing.

"The Fed will not offer loans directly, but will provide dollars to the E.C.B. by way of a swap agreement. The borrowing banks must supply collateral in the form of bonds or other securities."

Repeat -

No cost to US
loans only
collateral posted.
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abelenkpe Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 12:43 PM
Response to Reply #6
9. Naked Capitalism isn't a crappy source
and I posted the article from NY times too.
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saras Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 02:02 PM
Response to Reply #1
10. What failure? Whole countries crash and burn and the bankers rake it in. Works great for them.
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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 04:38 PM
Response to Reply #10
12. You're right, that is true.
Only the people get screwed and they don't count. Until we make ourselves count! They should always keep in mind that there are more of us than there are of them. Who knows, someday we the people might even get to hold them accountable for what they've done.
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defendandprotect Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 12:01 PM
Response to Original message
2. kr
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banned from Kos Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 12:11 PM
Response to Original message
4. These are just currency swaps. If that is your idea of a "bail out"
so be it.

I know, you don't have to remind me. There are many ZeroHedgers who want the whole system to crash so that --- something or another.
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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 12:28 PM
Response to Reply #4
7. It's a giant and failed, corrupt global scam and it's all about to
collapse, not because anyone wants it to, but because it was failed system from the day they deregulated everything and threw the doors of the Treasury open and the mob of greedy, corrupt money-men began the looting of the world population's resources. They couldn't even do it with any kind of intelligence or decency. They are criminals of the highest order and why none of them have been arrested for the economic terrorism they have inflicted on so many nations, can only be explained by the fact that they own the elected officials in those various countries.

When the people do what Iceland did, take their countries back from these Ayn Rand crooks, I hope there will be plenty of prosecutions as is happening in Iceland. At least there they got a few of them and now their economy is on the rebound. The only one.

So here's my solution to the Economic disaster that is about to crash once again, arrest and prosecute the responsible parties, find the money they stole and return it to the people. Instantly reinstate the toughest banking regulations ever just to show them that since they abused the system so criminally, now they have to pay as they have demonstrated we need padlocks not just guards at the doors of our treasuries.


And then start all over again with a whole new system, and outlaw this system as it has been an economic WMD which has caused more damage than any terrorist could dream of. In fact I'm wondering if it was thought up by a terrorist.
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banned from Kos Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 12:39 PM
Response to Reply #7
8. That has been said since the Medici family invented modern banking/accounting
and the West has collapsed many times only to return to the same basic system.

The irony is that no one "has the money" that was lost. Wealth evaporates through valuation loss. When the tulip market crashed or the stock market of 1929 there were very few who profited from it.

Who profited from Lehman's bankruptcy? Very few did compared to the $700 billion lost.

Same as it ever was.
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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-16-11 02:34 PM
Response to Reply #8
11. Well then it's way past time to do something about it, isn't it?
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