Shoot the messenger
Jul. 12th, 2011 01:49 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksThere is a noble tradition of shooting the messenger in the history of economics and politics, and recent events have shown that little has changed.
First we had the EC and the ECB postulating that, if the rating agencies insist on calling a default a default, the best thing to do would be to say that whatever the rating agencies call something is irrelevant. If the ECB and the EC say that it isn't a default, then that's good enough.
Unfortunately, the ECB and the EC haven't sussed that the markets don't work that way.
Then yesterday the German banks criticized the planned release on Friday by the European Banking Association of the results of the so-called "stress tests" on the EU's larger banks, including 13 German ones. This new set of stress tests differs slightly from the last set (you remember them, the ones that banks which went bust shortly afterwards had sailed through). It differs in that it's actually a genuine stress test, and the rumours are that the results will not be pretty for a good few of the German banks.
The response of the German banks has been to criticize the release of the report because it could "spark further market volatility". The German ZKA has told the EBA that fewer details should be published, stating that:
Whoa, 20-word rewind there. The ZKA states that the whole point of the stress test is "to avoid further market turmoil". Oh, well aren't I a dumbo. I thought that the point of the stress test was to find out which banks were at risk. But, apparently not.
It's actually all going a bit pear-shaped for both the politicians and the banks. As George Soros observes in the FT today, "both Greece and the eurozone must urgently adopt a Plan B". Unfortunately, what Soros does not mention is that Greece couldn't adopt a Plan B, or indeeed any plan, even if you put 10,000 volts up its backside, and the eurozone wither doesn't have a Plan B, or it has about 30 of them. The Eurozone is more likely to adopt Katy B than Plan B.
Soros is mainly coming at it from the corporate side, which mainly consists of "the taxpayer must bear the burden". He's clever enough to realize that democracy can only take so much strain. But, once again unfortunately for Soros, if he admits this, then he has to say "there is no solution" (apart from the banks taking a haircut and thus in many cases admitting that they are insolvent).
One important thing has happened in the past 48 hours, during which the spread between Italian and German bonds widened dramatically. Allister Heath spotted it in this morning's City AM. At least the politicians ("the economically illiterate establishment" as Heath terms them) no longer have to worry about contagion. Yesterday, as Heath observed, contagion arrived.
This means that even the dumbest of the dumb in the EC and the ECB will now realize that what they have been doing so far was useless. They aren't yet willing to accept that the euro is dead, but they are prepared to think a little bit more out of the box. Although the banks' senior executives are fighting desperately to save their own skin and not to pay for the mistakes that they made, one "out of the box" solution would be some kind of Europe-wide acceptance of banking insolvency. Now, we are talking seriously radical here, and also about a massive redistribution of wealth (because banks going bust would be bad news for people with lots of cash). It's probably only 40:60 that Europe itself (let alone the euro) could survive in its current form. But if we forced the banks to take sovereign debt haircuts throughout Europe, the governments (even the Finnish government - there would be no need for unanimity on this) would have no choice but to nationalize their own banking systems. That would permit a parcelling out of "the money that's left" in a way that would cause a great deal of squealing, but which should avoid the worst of what might occur if we hit a disorderly default.
Once again, this 'solution' almost certainly won't happen, and a disorderly default along the lines of the 1998 south-east Asian crisis looks the most likely result. How that will turn out is anybody's guess, but I certainly wouldn't like to be an establishment politician (or an investment banker) if it did. The banks (and the politicians) are desperately looking for a solution that saves their own arses at the expense of the banks (see government) or the taxpayer (see banks). The impasse that has followed will eventually mean that both will lose out.
Not for nothing are the rich rushing to put their cash into high-level London, New York and Paris property, or fine art, or antiques, or diamonds, or gold (all of these asset classes are up by double-digits in the past 18 months). They are not predicting, but they are allowing for, a collapse in the banking system and a loss of faith in fiat currency. This has happened many times before, but not in our lifetimes, and each time that it happens again, it's a little bit different.
_________________
Diary Footnote. I dead-lifted 135kg today, a personal best. I'd kind of hoped to shoot for 140kg, and in retrospect I think that I would have made it, but in the preparation as we built up to it I was only about 50:50 in my head for succeeding at 140kg, while I was at 80:20 for 135kg. (It sounds more impressive to us oldsters if I call it 21 stone.)
The physical effect that lifting these big weights have on you later in the day is really quite weird (although we also did some upper body work as well, afterwards). I had a 90-minute sleep when I got home, but when I woke up my first thought was "fuck, I'm knackered". It took me a good 10 minutes to get going, and by 8.30 this evening I was ready for bed again! It's now 9.15pm, and I'm going to head up in a minute to do a bit of reading and a lot of sleeping.
But doing a personal best is a great feeling, especially since I also felt that there was plenty of scope for improvement ahead. I achieved it without feeling any strain on the back and with fairly perfect form. Once that weight was an inch and a half off the ground, I knew I was going to make it.
Curiously, the only minor strain (and I might have picked it up in other training later in the session) was on the outer part of my right wrist, which feels as if the tendon has flamed up a bit. You obviously put a bit of strain on the wrist when lifting a big weight (you put a lot of strain on everything when dead-lifting a big weight. That's how you can lift so much more in a dead lift than, say, in a bench press – where I still struggle at 55kg) but it wouldn't be the area where I'd expect to feel the effects a few hours later.
My weakest area at the start of this campaign in mid-March was upper body, and at last I feel as if I am making progress in those areas that I hated training (biceps, triceps, abdomen). I'd train my lower body until the cows came home (or, more accurately, until collapse) but I just didn't have that willpower with upper body training (unless PT Nick was there to push me on). I'm beginning to get near to it now, which is encouraging.
So now the only big leap to make is in diet. If we are talking about serious weight-lifting improvement, we have to talk about a much stricter dietary regime. And that could be the toughest part of all.
__________________
First we had the EC and the ECB postulating that, if the rating agencies insist on calling a default a default, the best thing to do would be to say that whatever the rating agencies call something is irrelevant. If the ECB and the EC say that it isn't a default, then that's good enough.
Unfortunately, the ECB and the EC haven't sussed that the markets don't work that way.
Then yesterday the German banks criticized the planned release on Friday by the European Banking Association of the results of the so-called "stress tests" on the EU's larger banks, including 13 German ones. This new set of stress tests differs slightly from the last set (you remember them, the ones that banks which went bust shortly afterwards had sailed through). It differs in that it's actually a genuine stress test, and the rumours are that the results will not be pretty for a good few of the German banks.
The response of the German banks has been to criticize the release of the report because it could "spark further market volatility". The German ZKA has told the EBA that fewer details should be published, stating that:
"To avoid further market turmoil, which would fly totally in the face of what the stress test was actually intended to achieve, we believe the level of detail needs to be significantly reduced".
Whoa, 20-word rewind there. The ZKA states that the whole point of the stress test is "to avoid further market turmoil". Oh, well aren't I a dumbo. I thought that the point of the stress test was to find out which banks were at risk. But, apparently not.
It's actually all going a bit pear-shaped for both the politicians and the banks. As George Soros observes in the FT today, "both Greece and the eurozone must urgently adopt a Plan B". Unfortunately, what Soros does not mention is that Greece couldn't adopt a Plan B, or indeeed any plan, even if you put 10,000 volts up its backside, and the eurozone wither doesn't have a Plan B, or it has about 30 of them. The Eurozone is more likely to adopt Katy B than Plan B.
Soros is mainly coming at it from the corporate side, which mainly consists of "the taxpayer must bear the burden". He's clever enough to realize that democracy can only take so much strain. But, once again unfortunately for Soros, if he admits this, then he has to say "there is no solution" (apart from the banks taking a haircut and thus in many cases admitting that they are insolvent).
One important thing has happened in the past 48 hours, during which the spread between Italian and German bonds widened dramatically. Allister Heath spotted it in this morning's City AM. At least the politicians ("the economically illiterate establishment" as Heath terms them) no longer have to worry about contagion. Yesterday, as Heath observed, contagion arrived.
This means that even the dumbest of the dumb in the EC and the ECB will now realize that what they have been doing so far was useless. They aren't yet willing to accept that the euro is dead, but they are prepared to think a little bit more out of the box. Although the banks' senior executives are fighting desperately to save their own skin and not to pay for the mistakes that they made, one "out of the box" solution would be some kind of Europe-wide acceptance of banking insolvency. Now, we are talking seriously radical here, and also about a massive redistribution of wealth (because banks going bust would be bad news for people with lots of cash). It's probably only 40:60 that Europe itself (let alone the euro) could survive in its current form. But if we forced the banks to take sovereign debt haircuts throughout Europe, the governments (even the Finnish government - there would be no need for unanimity on this) would have no choice but to nationalize their own banking systems. That would permit a parcelling out of "the money that's left" in a way that would cause a great deal of squealing, but which should avoid the worst of what might occur if we hit a disorderly default.
Once again, this 'solution' almost certainly won't happen, and a disorderly default along the lines of the 1998 south-east Asian crisis looks the most likely result. How that will turn out is anybody's guess, but I certainly wouldn't like to be an establishment politician (or an investment banker) if it did. The banks (and the politicians) are desperately looking for a solution that saves their own arses at the expense of the banks (see government) or the taxpayer (see banks). The impasse that has followed will eventually mean that both will lose out.
Not for nothing are the rich rushing to put their cash into high-level London, New York and Paris property, or fine art, or antiques, or diamonds, or gold (all of these asset classes are up by double-digits in the past 18 months). They are not predicting, but they are allowing for, a collapse in the banking system and a loss of faith in fiat currency. This has happened many times before, but not in our lifetimes, and each time that it happens again, it's a little bit different.
_________________
Diary Footnote. I dead-lifted 135kg today, a personal best. I'd kind of hoped to shoot for 140kg, and in retrospect I think that I would have made it, but in the preparation as we built up to it I was only about 50:50 in my head for succeeding at 140kg, while I was at 80:20 for 135kg. (It sounds more impressive to us oldsters if I call it 21 stone.)
The physical effect that lifting these big weights have on you later in the day is really quite weird (although we also did some upper body work as well, afterwards). I had a 90-minute sleep when I got home, but when I woke up my first thought was "fuck, I'm knackered". It took me a good 10 minutes to get going, and by 8.30 this evening I was ready for bed again! It's now 9.15pm, and I'm going to head up in a minute to do a bit of reading and a lot of sleeping.
But doing a personal best is a great feeling, especially since I also felt that there was plenty of scope for improvement ahead. I achieved it without feeling any strain on the back and with fairly perfect form. Once that weight was an inch and a half off the ground, I knew I was going to make it.
Curiously, the only minor strain (and I might have picked it up in other training later in the session) was on the outer part of my right wrist, which feels as if the tendon has flamed up a bit. You obviously put a bit of strain on the wrist when lifting a big weight (you put a lot of strain on everything when dead-lifting a big weight. That's how you can lift so much more in a dead lift than, say, in a bench press – where I still struggle at 55kg) but it wouldn't be the area where I'd expect to feel the effects a few hours later.
My weakest area at the start of this campaign in mid-March was upper body, and at last I feel as if I am making progress in those areas that I hated training (biceps, triceps, abdomen). I'd train my lower body until the cows came home (or, more accurately, until collapse) but I just didn't have that willpower with upper body training (unless PT Nick was there to push me on). I'm beginning to get near to it now, which is encouraging.
So now the only big leap to make is in diet. If we are talking about serious weight-lifting improvement, we have to talk about a much stricter dietary regime. And that could be the toughest part of all.
__________________
![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
Best. Joke. Ever.
Date: 2011-07-12 09:17 pm (UTC)In the wider world, one thing you can say about these various crises is that they are definitely sorting the men from the boys -- even in the blogging world. Take the BBC. Peston is getting ever more self-satisfied, and Steph is over-fond of meaningless graphs (an occupational hazard, I know). The real shining star there is Paul Mason, who is both authoritative and quirky and seems to like talking to ordinary people. I particularly like his latest reference: "Hang on, lads, I've got a great idea..." Indeed.
Part of it, of course, is getting the frequency of posts right, which is difficult and varies by individual. Most journalists seem to carry over the habits and rhythms of their day job, which is clearly a mistake. Good to know that you and Paul do not.
(And the thought of Peston trying to make a joke is simply appalling.)
no subject
Date: 2011-07-12 09:45 pm (UTC)Fiat Luxury
Date: 2011-07-13 09:06 pm (UTC)Of course, back then, there was a Rest Of The World XI to take up the slack, which is hardly likely right now, unless Sir Gary Sobers chooses to take back his mantle as a super-hero.
There are worse scenarios than a Europe-wide "disorderly deficit," and I think we're about to head into one of them.
Wouldn't it be nice if the politicians would pick one, just one? I don't care if it's the right one. I'd just like to see it coming.
Helaba-Bopping
Date: 2011-07-15 11:16 pm (UTC)It's precisely the same as the last time, isn't it? A disproportionate number of Spaniards 'fess up, and practically no Germans. Oh, and of course no French. It's mildly interesting that there is at least one Greek bank out there that doesn't think that it is hopelessly insolvent ... but only mildly.
I presume, btw, that the French banks (and maybe others) are still counting IT investment and the like as Core Tier 1. Not wishing to get too technical about this, but this is what we in the IT industry, let alone the banking industry, call "utter bullshit."
And as for the Spanish,
"However, Bank of Spain governor Miguel Angel Fernandez Ordonez said there was no need to inject further capital into the banks as the sector was already undergoing a fundamental restructuring."
Yes, that would solve everything. A fundamental restructuring is clearly the best way to deal with monumental insolvency and a looming crisis coming to a casa near you in, ooh, two weeks and counting.
Rien de plus
Date: 2011-07-15 11:28 pm (UTC)It is clearly a logical possibility that a massive investment in IT systems can be correctly considered as a wholly liquid fixed asset that can, at any time, be sold at mark price to somebody else ... let us say, another bank. Of course, even in the good times, this was always utter bullshit to everybody but the French. It was probably utter bullshit even to the French, but then that's the winning ways of Cartesian Logic for you, isn't it?
It's blindingly obvious utter bullshit now, what with the total absence of other banks who will buy this "asset" off you.
But I'm still being unfair, because ... why would any other part of your Tier 1 Capital portfolio be considered to be (a) fully liquid or (b) fair value?
Up until a few weeks ago, you'd have thought that US Treasury Bonds fulfilled both purposes. Which they clearly do not. So what other goodies lie in the collective European Banking bran-tub?
I think we're about to be hit with a massive (and justifiable) crisis of confidence.
Re: Rien de plus
Date: 2011-07-16 12:35 am (UTC)Re: Rien de plus
Date: 2011-07-16 01:17 am (UTC)Bit of a waste, that degree I took at Magdalen, wasn't it?
Yet I jest. The fundamental flaw in this whole Tier 1/stress-testing thing -- and I note that the stress test explicitly avoided a model ... what am I saying, a model would have involved dragging all those valuable Maths PhDs in quants over to do something meaningful ... a Greek default.
Thus the suddenly illiquid bit.
You know those airy-fairy timescales of end-of-2012 or end-of-2014 I waffled on about?
I cannot put money on it, because I have none. But the end of August sounds reasonable.
Things will turn into unimaginable shit.
Re: Rien de plus
Date: 2011-07-16 01:22 am (UTC)That would be the German constitutional court. Backed up by the German voters.
It is not going to happen.
Ack
Date: 2011-07-15 11:45 pm (UTC)It therefore looks to me as though we have eight (or nine, counting the wimp German) banks who have not merely "failed a stress-test," but who are, at this point, shark-bait. That €2.5 billion they need to limp on (and then a little more, and a little more, and)? At this point, I don't see them getting it. And that's 10% of the "top 90." There's sixteen more below that which might actually locate a white knight to resuscitate them.
Your suggestion that Europe-wide nationalisation of big banks is politically very unlikely may very well be bit by your other theory that nobody in the EU can agree on what to do and it is all too late anyway. I can easily see all five of the Spanish banks slipping into the abyss. Followed by the inevitable Greek default (or a market/Berlusconi-led Italian default, horrors). Followed by all those assumptions in the latest stress-tests being proved to be no more than an assumption that German taxpayers will pick up the slack, which simply won't happen.
I would very definitely not want to hold shares in large European banks right now. You may be right; there may be a Greater Fool out there.
But they'd have to be Fucking Humongous.