Lehman Deja Vu: There Goes Market Liquidity

Tyler Durden's picture

European liquidity just went into Defcon 1. Presenting the FRA-OIS spread. Oops.

And now moving to a US near you...

An explanation from a trading desk:

So the fact that Greece itself was stretched further on the rack was not the be all and end all of the new credit crisis and catalyst of the latest Libor jitters.

In reality, analysts immediately warned that the ramifications of any action on the 'threat' of French Bank downgrades was this time a significant event in the financing market.

When other EuroZone Banks had been downgraded or threatened with downgrades, the markets were to some extent immune because any shortfalls in Euro funding were continually topped up via swapped Dollars.

However, this '$-Funding' has been dominated by the Big French Banks and now we see the reality of such a polarized or skewed funding profile for Europe.

Not only are these French Banks significant players in the short-term $ markets, but many investors have large exposures to these entities either via CP?CD/ABCP or the Repo Markets.

**Based on the current market info on their money-market activities, we are told that the 3main French Banks collectively account for as much as 50% of all Eurozone CP/CD exposure as at recent month-end (31st May)...and, furthermore, they account for almost 15% of $ Repo Markets as per the end of Q1 2010 (31st March).!!!**

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Ahmeexnal's picture

Euro, we have a problem!

baby_BLYTHE's picture

DOW/GOLD ratio @ 7.82!

equity_momo's picture

Along way to 3 , 2 ....1 still.

Greyhat's picture

God save the Irishmen! Jesus, bail them out, they are swapping shares for bonds. ;)

Ahmeexnal's picture


Like I noted days ago, it is infinitely easier to place Frankreich under another Vichy, than to deal with a Greek intifada.

Rider's picture


The F-PIIGS to be precise.

Ropingdown's picture

Pfigis.  And it sounds kind of German.

Cleanclog's picture

Might FIIGS be "Financial Institutions Including Goldman Sachs"?

Separate note - liquidity in equities IS gone except for HFT and options expiry prep.  Really raising the stakes for a gianourmous problem when several HFT unable to be got off simultaneously in different names.  Get out of the way of that panic!

Arius's picture

or...Financial International Institutions Goldman Sachs aka FIIGS.... peut- etre...

TruthInSunshine's picture

Even a pig can fly [temporarily, before being rendered dead when slammed to the ground] if caught in a Typhoon.


- Ancient Chinese Proverb

eureka's picture

For general enlightenment I coined the term the "USUK"s (US+UK) -

The true, original Mega Fi Scum of the Earth.

The world caught its disease:

Anglo-Fi-Filia (symptums: cannibalism, incest, rape & murder).

Ceterum censeo Angloginem USUKs delendam esse!

etrader's picture

Those PhD's Desks @  Soc Gen sure nailed it ;-)

slow_roast's picture

"Lehman who?" - Wall St.

Internet Tough Guy's picture

FRA/OIS spread was 128 after Lehman. Not quite there yet.

No Bid's picture

80.8 on 08/15/08, exactly one month before bankruptcy.


As the original poster noted, a long way to go.

Tyler Durden's picture

And how many trillions in short-term central banking bailout capital was pledged on 8/15/2008 one month before bankruptcy?

falak pema's picture

TD how come Euro zone is short of liquidity given the QE-2 pumping they are supposed to have received according to ZH estimates? 

Those Euro banks must be washed with 600 B USD of cash!

filletandrelease's picture

and TED Spread heading lower, not higher?

Tyler Durden's picture

TED spread is completely irrelevant as it is based on LIEBOR

Tyler Durden's picture

That was base cash needed for statutory requirements. Any incremental cash will need to come from the ECB, which in turn means reactivation of FRBNY FX swap lines.

dark pools of soros's picture

you guys are totally missing out on Pandora.. empty your pockets and back up the truck!

slewie the pi-rat's picture

@ falak_p:  good question! 

ducking the Q of cause here, i think one of the underlying "reasons" for these liquidity events is the leverage of the financials, esp TBTF, even the FED.  so, a relatively normal event becomes a whoop-tee-freaking-doodoo as a 2-3% dip wipes out the entire capital equity structure of __________ (fill in blank; use xtra pages as needed).

No Bid's picture

Not arguing that they should be weighed on the same scale.  Just agreeing that implying  Lehman II is around the corner via Greece is a bit heavy-handed.

Cassandra Syndrome's picture

Why? Similar debt levels and possibly more rampant of a contagion, both financially and especially politically. Also need to factor in how more battered, bloodied and bruised the Global Financial System is in comparison to 2008.

The fact they cannot agree on a bailout may infer they simply haven't the resources to do so anymore.

Takingbets's picture

One can only hope they've run out of bullets. All these bailouts should have never have happened in the first place, including here.

Arius's picture

another thing to factor in....people are much more alert now, and expect smt to happen....which means they are much more inclined to shoot first and ask questions later...only this could speed things up very quickly....

not the same mindset as prior to Lehman....not many will stand up to the coming wave....people are not so sure the federalis got it together....its everyone for himself...

Cassandra Syndrome's picture

Excellent point. People are more in touch with where whatever is left of their savings and investments are and can easily call their fund managers and cash it in.

What percentage of the entire system is available in liquid cash? Less than 1% possibly. Imagine more than 1% of people cashing in their chips at the same time?

Arius's picture

yep...lets hope for the best and prepare for the worst...

Lord Welligton's picture

It is I think about 3%.

I have made the point previously that if the people knew there was virtually no "cash" in the system they might panic.

trav7777's picture

cash is now available, ad infinitum, by the CBs, especially the FRBNY

Cassandra Syndrome's picture

Good point. I was working on a combined value of €10 Trillion worth of Gold, Silver and liquid M0 cash assets as a tiny subset of €1 Quadrillon worth of Derivatives, Property and real estate, equities, bonds and other capital and short term money market instruments.

A lot of the derivatives cancel each other out, so the 3% may be more accurate, in a fire sale event.

Eyes on the World's picture

Posted the play-by-play to my blog in hopes my regular folks reader will catch the drift - WE WON'T GET FOOLED AGAIN!

So, if a similar event occurred today where do we stand?  From the exchange above we gain some perspective:

  1. The "collateral" damage of a Greek collapse would be far-wider and more devastating than Lehman's collapse.  Check.
  2. The global financial system was much more prepared to absorb the collapse of Lehman in '08 than it is today if a similar event occurred.  Check.
  3. People who don't have resources don't make deals.  They sit on the sidelines.
  4. The populace is much more on edge and will panic financially sooner - i.e., runs on the bank.
  5. More people are educated today and watching the banks' every move, we won't get fooled again.
  6. Only a small percentage of total "money" is available in cash at any given time - maybe somewhere between 3 - 5% of total outstanding assets.  This means all it would take to shut down the financial system would be for somewhere around 5% of the people to demand all their money in cash.

Link: Here.

Lord Koos's picture

I'm sooo glad I got most of mine out some time ago.

Cassandra Syndrome's picture

Nice summary of this interesting thread EOTW. Even 5% is a dangerous low number in a day of unravelling credit events.

Jalaluddin's picture

Do you remember what happened after the assassination of Archduke Ferdinand?

Jalaluddin's picture

Do you remember what happened after the assassination of Archduke Ferdinand?

banksterhater's picture

Joe ASSHOLE LAFORNICIA on CNBS to the rescue!

Alea Iacta Est's picture

And 3...2...1...queue French Riot!

The Fonz's picture

At least the French remember how to properly riot.