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Ahh, it's just like Long Term Credit Management all over again, except more, well, more global.
While early this year Mikey obviously told the guys upstairs about my views on risk "not disappearing" (net result, Deutsche Bank makes billions by shorting the ABX Index in proprietary trading), other "less sophisticated" players in the German market have, er, done their pieces. Step forward IKB.
So, what should one do when a bank is useless and invests in shit? Well, if you are in Germany, you do what they did for LTCM in the US a decade ago. You bail the hapless bugger out.
Indeed, the parallels with the LTCM rescue are almost spooky. The German finance minister called the banks in for a meeting at the weekend. Arms were undoubtedly twisted, and the next thing you know, Deutsche Bank (which admittedly has a few euros to spare -- see above), Commerzbank and (and this was probably a key part of the deal) public sector Sparkassen and Landesbanken, have put together a €3.5bn rescue fund. That's a big rescue fund for a rather small bank. Was this really a bank that the politicos could not allow to fail?
What's interesting about this is that I suspect such a deal would not be practical in the UK, and probably wouldn't be practical in the US any more either, because, as an institutional investor, I might like to ask why my capital was being used in such a self-evidently uneconomic manner (talk of "metagame/macroeconomic considerations" aside). This happened in France a few years ago when Groupama subscribed to a rights issue for Scor at 1-for-1 when, if it had been in the UK, any institutional investor worth his salt would have walked away from anything less than 2-for-1.
Going back to Germany, an interesting situation could arise if it turns out that some of the Landesbanken that have subscribed to this rescue package are in trouble as well. How many rescue packages can there be?
However, stepping back from "the sky is falling", and going back to our vase of $100bn in jellybeans (less a couple of cents for the ones used by Pietersen and Vaughan), it does rather look as if the liability is being spread, in the main, where the owners of the risk can take the hit. AIG (shares down nearly 10% in a month), might have $3.5bn in losses, but that's only about 20% of the money it generates every year.
Also, it's interesting that the analysts converted this to $2.3bn in losses net of tax, as if $1.2bn of it disappeared. Well, it hasn't really disappeared, because that's $1.2bn that the US government won't have available to spend on whatever it wants to spend it on. Either that money comes from somewhere else, or the US prints more dollars than it would have otherwise -- and we can all see where that is leading at the moment.
++++++++++++
On a cheerier note (I've got the dentist again this afternoon - cheerier notes are much needed) my experimental transfers to the new Citibank dollar account went through fine, and $950 from the poker accounts turned into $938 in the Citibank account. Five bucks went as withdrawal fee to Party, while seven bucks went in exchange conversion costs when withdrawing from Ultimate. An effective 1% fee or thereabouts is fine -- better than I anticipated and almost certainly better than any sterling-based cheque I would get from the usurers at Neteller. It's still slightly easier for me to get a cheque in dollars (cheque to me, pay in at Citibank branch) than in Sterling (cheque to me, pay into Smile account, electronically transfer to Citibank) but it's nice to know that the dollar-to-sterling-to-dollar route isn't that pricey.
_____________
While early this year Mikey obviously told the guys upstairs about my views on risk "not disappearing" (net result, Deutsche Bank makes billions by shorting the ABX Index in proprietary trading), other "less sophisticated" players in the German market have, er, done their pieces. Step forward IKB.
So, what should one do when a bank is useless and invests in shit? Well, if you are in Germany, you do what they did for LTCM in the US a decade ago. You bail the hapless bugger out.
Indeed, the parallels with the LTCM rescue are almost spooky. The German finance minister called the banks in for a meeting at the weekend. Arms were undoubtedly twisted, and the next thing you know, Deutsche Bank (which admittedly has a few euros to spare -- see above), Commerzbank and (and this was probably a key part of the deal) public sector Sparkassen and Landesbanken, have put together a €3.5bn rescue fund. That's a big rescue fund for a rather small bank. Was this really a bank that the politicos could not allow to fail?
What's interesting about this is that I suspect such a deal would not be practical in the UK, and probably wouldn't be practical in the US any more either, because, as an institutional investor, I might like to ask why my capital was being used in such a self-evidently uneconomic manner (talk of "metagame/macroeconomic considerations" aside). This happened in France a few years ago when Groupama subscribed to a rights issue for Scor at 1-for-1 when, if it had been in the UK, any institutional investor worth his salt would have walked away from anything less than 2-for-1.
Going back to Germany, an interesting situation could arise if it turns out that some of the Landesbanken that have subscribed to this rescue package are in trouble as well. How many rescue packages can there be?
However, stepping back from "the sky is falling", and going back to our vase of $100bn in jellybeans (less a couple of cents for the ones used by Pietersen and Vaughan), it does rather look as if the liability is being spread, in the main, where the owners of the risk can take the hit. AIG (shares down nearly 10% in a month), might have $3.5bn in losses, but that's only about 20% of the money it generates every year.
Also, it's interesting that the analysts converted this to $2.3bn in losses net of tax, as if $1.2bn of it disappeared. Well, it hasn't really disappeared, because that's $1.2bn that the US government won't have available to spend on whatever it wants to spend it on. Either that money comes from somewhere else, or the US prints more dollars than it would have otherwise -- and we can all see where that is leading at the moment.
++++++++++++
On a cheerier note (I've got the dentist again this afternoon - cheerier notes are much needed) my experimental transfers to the new Citibank dollar account went through fine, and $950 from the poker accounts turned into $938 in the Citibank account. Five bucks went as withdrawal fee to Party, while seven bucks went in exchange conversion costs when withdrawing from Ultimate. An effective 1% fee or thereabouts is fine -- better than I anticipated and almost certainly better than any sterling-based cheque I would get from the usurers at Neteller. It's still slightly easier for me to get a cheque in dollars (cheque to me, pay in at Citibank branch) than in Sterling (cheque to me, pay into Smile account, electronically transfer to Citibank) but it's nice to know that the dollar-to-sterling-to-dollar route isn't that pricey.
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