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illicit still is ill
Dec. 18th, 2007 07:44 pmWell, still ill, as they say. I managed to send off the "final" bunch of cards today, but the effort sent me into levels of exhaustion that compeleed a return to bed. I have to load up on Lemsip (for the flu), nurofen (for the teeth, as the brace was retightened yesterday) and Benilyn (for the dry cough) to get about four hours' functionality. Then I have to crash out for another four hours. Bleaagh.
But it has given me the chance to catch up on some movies. I enjoyed The Illusionist, not least because it had Ed Norton as lead, a Philip Glass score, and a script that was straight out of David Mamet from when he was good (although this is a Neil Burger film and script). I was unsusprised to see that Ricky Jay was the magic consultant for this. Anyone who enjoyed House of Games would like this. In fact the script was also similar in parts to an X-Files episode from years ago that also featured Ricky Jay.
There are certain films that only the French seem to do brilliantly. A sad part of my love of movies is that world cinema is much more accessible these days than it was a decade ago, thus leaving me with even less time as I struggle to keep up with unrealeased classics that get one or two showings on a digital channel. BBC 4 showed Les Choristes and Brodeuses recently, and both were quintessentially French. The latter immediately recallled The Lacemaker (Isabelle Huppert), perhaps because of the similar subject matter. But it's hard to imagine a British film focusing on embroidery. Les Choristes had echoes of the documentary Etre et Avoir, and was, in retrospect, schmaltz from start to finish, but that didn't stop you getting caught up in the film. Indeed, there is one classic moment when the bachelor schoolteacher has a final meeting with the mother of one of his classmates that has you virtually screaming at the screen; "You stupid cow! Can't you see his heart is breaking!"
+++++++++++
The international liquidity crisis continues apace, and would provide limitless entertainment to market-watchers such as myself if the whole thing wasn't so serious. As I think I wrote a few months ago, and as the Central banks are now realizing to their cost, it's all very well cutting the base rate, but that can't make banks lend to each other at that rate.
What has happened is that artificially narrow credit risk "spreads" have bounced the other way. So, whereas last year you might have lent to a very safe company at 5% and to a very dodgy company at 8%, now you will lend to very safe company at 4.5% (because rates have beeen cut) but you won't lend to very dodgy company at any price at all. So, a cut in rates does nothing to help very dodgy companies (e.g., any number of landesbanks in Germany, a number of tier 2 banks in Europe, and any banks in the US known to have or which might have a substantial sub-prime exposure on their books).
The ECB still seems to think that throwing money at the problem will solve things, so it's effectively offering free cash at 4.21% for a couple of weeks. I don't see how this solves the problem, because the borrowers of this money would, at the moment, rather lend it on "safely" at 4.31% than "riskily" at 8.31%. And the credit squeeze is at this higher end, not at the safe end.
What the ECB move does do is shift the standard interbank rate down (this spread has gone up by, what, about 150 basis points in the past few months?), but I don't see how it solves the systemic San Andreas Fault of three-month and even one-year interbank rates, all of which is down to "we don't know who we can trust, so we're not functionnig in that market". Indeed, that lack of confidence only gets solved when greed (a need for profit) overtakes fear (worries about repayments). The ECB could pump €1tn extra into the European markets -- that still wouldn't help to restore this area of lack of confidence. Unless I'm missing something.
The Northern Rock is just one rather high-profile nook and cranny of this whole affair, but it's interesting to see that it became it little bit more of a de facto nationalized institution today, in that Alistair Darling now seems to be guaranteeing the funds not just of retail depositors, but also of commercial lenders. Horrific as this might seem to some free marketeers (and surely this drives a cart and horses through the EU rules?) it's probably a far more effective move in safeguarding the future of the bank. It effectively turned a BB minus borrower into a triple A borrower. That means that Northern Rock has access to funds again without having to desperately woo retail savers. This saves on marketing, improves cash flow and tides things over nicely until the new boys take over.
However, the rest of the world seems to be catching up with the contributors to this blog, with it looking less and less likely to me that any kind of fully private initiative can take this sorry mess on.
But the real consequence isn't some poxy regional bank that got ideas above its station. We have people in political power today who know fuck-all about what is going to happen - rising basic foodstuff prices in the emerging world, an inflationary push that will eventually export itself to the First World, plus a recession in the US that will tie in with that supply-pricing pressure. This leads to the horrible situation where the Fed wants to cut and raise interst rates at the same time (perhaps they should be made to play Tikal for a week to get used to the concept). And it doesn't have as its fallback solution "print more dollars", because there's a horrible sign that dollars are not the current choice of currency for foreign savers.
That could mean that the ECB has, kind of, come up with the right answer to the wrong question. Pumping money into the economy at below-market rates might not solve the liquidity crisis, but it might help to forestall a recession, because the Euro is much more a currency of choice now than it was. Would the ECB be willing to print money (which would benefit current European consumers in the way that printing dollars benefited US consumers in the past 15 years) to forestall a global depression? I doubt that they would be willing to do so for that public reason, but perhaps they would if they could say that they were doing it for other, "nobler" reasons.
More likely, I fear, will be a return to the old ECB "sound money" policy. In other words, when inflationary pressures start seeping through, it will head in exactly the wrong direction and will start restricting the supply of money. OK, I know it's counterintuitive to say that the way to stop inflation is to print more money -- but when all the extra money that you print goes elsewhere, rather than feeding into your domestic economies, it makes a weird kind of economic sense. The problem with nearly all current modes of conventional economics (classical, monetarist, Keynesian and post-Keynesian) is that it has an outdated introspective view on the way money functions in the modern global system. But just a quick look at the US over the past 25 years (starting with Reagan in 1981) shows that you can print shedfuls of money without it necessarily causing an increase in the inflation rate. All that matters is that the money has somewhere to go. This is the problem the US now has. It can't print more dollars, because they do not have somewhere else to go (foreigners' pockets). The ECB, on the other hand, does now have this option. The only worry is that it will not have the intelligence, or courage, to exploit it.
______________________________
But it has given me the chance to catch up on some movies. I enjoyed The Illusionist, not least because it had Ed Norton as lead, a Philip Glass score, and a script that was straight out of David Mamet from when he was good (although this is a Neil Burger film and script). I was unsusprised to see that Ricky Jay was the magic consultant for this. Anyone who enjoyed House of Games would like this. In fact the script was also similar in parts to an X-Files episode from years ago that also featured Ricky Jay.
There are certain films that only the French seem to do brilliantly. A sad part of my love of movies is that world cinema is much more accessible these days than it was a decade ago, thus leaving me with even less time as I struggle to keep up with unrealeased classics that get one or two showings on a digital channel. BBC 4 showed Les Choristes and Brodeuses recently, and both were quintessentially French. The latter immediately recallled The Lacemaker (Isabelle Huppert), perhaps because of the similar subject matter. But it's hard to imagine a British film focusing on embroidery. Les Choristes had echoes of the documentary Etre et Avoir, and was, in retrospect, schmaltz from start to finish, but that didn't stop you getting caught up in the film. Indeed, there is one classic moment when the bachelor schoolteacher has a final meeting with the mother of one of his classmates that has you virtually screaming at the screen; "You stupid cow! Can't you see his heart is breaking!"
+++++++++++
The international liquidity crisis continues apace, and would provide limitless entertainment to market-watchers such as myself if the whole thing wasn't so serious. As I think I wrote a few months ago, and as the Central banks are now realizing to their cost, it's all very well cutting the base rate, but that can't make banks lend to each other at that rate.
What has happened is that artificially narrow credit risk "spreads" have bounced the other way. So, whereas last year you might have lent to a very safe company at 5% and to a very dodgy company at 8%, now you will lend to very safe company at 4.5% (because rates have beeen cut) but you won't lend to very dodgy company at any price at all. So, a cut in rates does nothing to help very dodgy companies (e.g., any number of landesbanks in Germany, a number of tier 2 banks in Europe, and any banks in the US known to have or which might have a substantial sub-prime exposure on their books).
The ECB still seems to think that throwing money at the problem will solve things, so it's effectively offering free cash at 4.21% for a couple of weeks. I don't see how this solves the problem, because the borrowers of this money would, at the moment, rather lend it on "safely" at 4.31% than "riskily" at 8.31%. And the credit squeeze is at this higher end, not at the safe end.
What the ECB move does do is shift the standard interbank rate down (this spread has gone up by, what, about 150 basis points in the past few months?), but I don't see how it solves the systemic San Andreas Fault of three-month and even one-year interbank rates, all of which is down to "we don't know who we can trust, so we're not functionnig in that market". Indeed, that lack of confidence only gets solved when greed (a need for profit) overtakes fear (worries about repayments). The ECB could pump €1tn extra into the European markets -- that still wouldn't help to restore this area of lack of confidence. Unless I'm missing something.
The Northern Rock is just one rather high-profile nook and cranny of this whole affair, but it's interesting to see that it became it little bit more of a de facto nationalized institution today, in that Alistair Darling now seems to be guaranteeing the funds not just of retail depositors, but also of commercial lenders. Horrific as this might seem to some free marketeers (and surely this drives a cart and horses through the EU rules?) it's probably a far more effective move in safeguarding the future of the bank. It effectively turned a BB minus borrower into a triple A borrower. That means that Northern Rock has access to funds again without having to desperately woo retail savers. This saves on marketing, improves cash flow and tides things over nicely until the new boys take over.
However, the rest of the world seems to be catching up with the contributors to this blog, with it looking less and less likely to me that any kind of fully private initiative can take this sorry mess on.
But the real consequence isn't some poxy regional bank that got ideas above its station. We have people in political power today who know fuck-all about what is going to happen - rising basic foodstuff prices in the emerging world, an inflationary push that will eventually export itself to the First World, plus a recession in the US that will tie in with that supply-pricing pressure. This leads to the horrible situation where the Fed wants to cut and raise interst rates at the same time (perhaps they should be made to play Tikal for a week to get used to the concept). And it doesn't have as its fallback solution "print more dollars", because there's a horrible sign that dollars are not the current choice of currency for foreign savers.
That could mean that the ECB has, kind of, come up with the right answer to the wrong question. Pumping money into the economy at below-market rates might not solve the liquidity crisis, but it might help to forestall a recession, because the Euro is much more a currency of choice now than it was. Would the ECB be willing to print money (which would benefit current European consumers in the way that printing dollars benefited US consumers in the past 15 years) to forestall a global depression? I doubt that they would be willing to do so for that public reason, but perhaps they would if they could say that they were doing it for other, "nobler" reasons.
More likely, I fear, will be a return to the old ECB "sound money" policy. In other words, when inflationary pressures start seeping through, it will head in exactly the wrong direction and will start restricting the supply of money. OK, I know it's counterintuitive to say that the way to stop inflation is to print more money -- but when all the extra money that you print goes elsewhere, rather than feeding into your domestic economies, it makes a weird kind of economic sense. The problem with nearly all current modes of conventional economics (classical, monetarist, Keynesian and post-Keynesian) is that it has an outdated introspective view on the way money functions in the modern global system. But just a quick look at the US over the past 25 years (starting with Reagan in 1981) shows that you can print shedfuls of money without it necessarily causing an increase in the inflation rate. All that matters is that the money has somewhere to go. This is the problem the US now has. It can't print more dollars, because they do not have somewhere else to go (foreigners' pockets). The ECB, on the other hand, does now have this option. The only worry is that it will not have the intelligence, or courage, to exploit it.
______________________________
