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The "QE 2 As A European Bank Bailout Vehicle" Story Picks Up Traction
The blockbuster story first posted on Zero Hedge claiming that QE 2, and more specifically the $600 billion (to date, and $750 billion through maturity) in reserves generated as a result, was nothing more than another European bank bailout smokescreen is starting to pick up steam with the contrarian intelligentsia. Here is Sean Corrigan's take on a topic which we have a very distinct feeling will be the cause of substantial Q&A between the Chairman and the Monetary Policy Subcommittee shortly. From Corrigan: "Note that while Large domestically-chartered banks have cash assets of some $509 billion v non-cash ones of $6.840 billion (a ratio of around 8%), and small domestics hold $293 billion in cash against $3,595 billion in no-cash (a similar ratio of approx 9%), foreign banks have the startling sum of $940 billion piled up against non-cash assets of $998 billion for a ratio of an incredible 94%. Put another way, despite the fact that all domestics’ combined non-cash assets amount to getting on for ten times those of foreign banks ($9,633 billion v $998 billion), they actually hold 15% LESS cash ($803 billion v $940). Once again, European banks have a lot for which to thank Mr. Bernanke, even if his fellow citizens have far fewer reasons to be grateful!"
Full note from Sean:
There has been a great deal of misplaced commentary about how the presence of some $1.6 trillion in commercial banking deposits with the Fed has somehow meant that its QE programmes were NOT increasing they money supply (they have been, by 30% since the panic first broke out) but were merely effecting some kind of wholly neutral ‘asset swap’ (yes, but the point is the Fed has been swapping bonds for MONEY!).
We have often tried to point out that while this excess reserve accumulation may mean that the classic, fractional reserve multiplication of the Fed’s injections has not been taking place to its theoretical maximum, the Fed’s programmes were, nonetheless exerting sufficient inflationary impetus all by themselves - albeit with the severe impediment that they were funding government-sponsored profligacy and zombiehood, rather than aiding the recuperation of a vibrant private commercial and industrial sector.
A breakdown of the cash ‘hoarding’ by bank origin further reinforces the point, for here we find that much of the extraordinary rise in precautionary cash holding has been undertaken by foreign, not domestic, banks.
After the salutary lesson given banks across the word when they suddenly found they could no longer roll over their short-date eurodollar funding at the height of the LEG-AIG crisis, this is hardly inexplicable. We suspect, too, that if you were to squint at the two side by side you would see the pattern of reserve holdings for this group would make for a passable a facsimile of the chart of the path of European sovereign CDS prices!
Meanwhile, US banks are notable in having added nothing more to their own backstop over the last two years or so, meaning THEY are not really holding up American creditisation to the extent some would have us believe.
To make the contrast even more clear, note that while Large domestically-chartered banks have cash assets of some $509 billion v non-cash ones of $6.840 billion (a ratio of around 8%), and small domestics hold $293 billion in cash against $3,595 billion in no-cash (a similar ratio of approx 9%), foreign banks have the startling sum of $940 billion piled up against non-cash assets of $998 billion for a ratio of an incredible 94%.
Put another way, despite the fact that all domestics’ combined non-cash assets amount to getting on for ten times those of foreign banks ($9,633 billion v $998 billion), they actually hold 15% LESS cash ($803 billion v $940).
Once again, European banks have a lot for which to thank Mr. Bernanke, even if his fellow citizens have far fewer reasons to be grateful!
NB, A year before the crisis (Sept 07), large domestic banks’ cash:non-cash ratios stood at 3.7% and small domestics’ at 3.1%, for a combined 3.5% which they have since just more than doubled. Foreign bank equivalents, however, rocketed from 7.7% to 94%.
What is also telling is that non-cash asset growth at large domestics in the intervening period has amounted to 38%, small ones’ to 18% - incidentally, not only proof that there has been no overall credit ‘deflation’ generated here, but a clear sign that TBTF corporatism and asset speculation has been the main outlet for Fed largesse – while the corresponding entries on foreign banks balance sheets have only grown a derisory 4.3%
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I've been saying this for a while, and the Fed's actions seen to confirm it. The idea that the Dollar and Euro are somehow fighting to the death for global supremacy is a nonsense. If the Euro keels over and goes to the great Fiat graveyard in the sky, the dollar will do so the very next day, and vice versa.
The global ponzi is so interconnected and interdependent that a failure in just about any part of it dooms the whole system. Would you drive a vehicle so fragile that failure of any one of it's thousands of parts would lead to an explosion and certain death? I wouldn't, yet that is pretty much the situation in which the financial system now finds itself.
The Fed knows this. The ECB knows it too. The level of systemic risk is so high now it's almost tangible. They're just waiting for the metaphorical pebble to fall and start the avalanche.
Perhaps this is why Fukushima news is so hard to come by and usually false. If Japan drops, I think it all must go just because of CDO/CDS exposure. Thoughts?
Agreed. I think the elephant in the room is the spider's web of CDO/CDS instruments behind the scenes. This is the mechanism by which MAD is assured in the event of a significant failure in Japan/Europe/Asia. Just look what happened when Lehman's fell over and entities that thought they had hedged their derivative exposures suddenly found out that the counterparties they had hedged with were questionable. Blow that up to a continental scale, where for example all European banks are suddenly in a state of questionable solvency and imagine the mess.
don't forget plain vanilla interest rates and FX swaps which have the biggest share of derivative markets
Everything is going down, its just on a timeline like a demolition team count down.
Here's 1 fly in the ointment fact, Libya and Gadaffi with his proposed gold currency was supposed to have fallen 3 months ago and now NATO is being bankrupted due to the ongoing attempts to 'get Gadaffi' have failed so far. After the Tomahawk missile strike, they announced he would be stepping down within hours.
Thats just 1 reason things are weird right now, they thought they'd be much further ahead on the schedule.
How much derivative exposure is based in Yen/carry trade at what level Yen valuation? At face, this appears to be fly in ointment. Rising Yen. We must keep eye off the ball.
I agree with Sean's point concerning the ratio of cash to non-cash - it is almost parity, with the cash to total assets at 49% for foreign banks, but not for US commercial banks, where it is 14%. However, I am unsure why the US commercial banks also had an increase in cash, in the order of 708.10BN (NOV10 through 01JUN11), whereas the foreign-related institutions had a a cash increase of 639BN, with the latter the point of this story. Presumably the 708 + 639 (= 1347) comprises the majority of QE2.
Assets and Liabilities of Commercial Banks in the United States (Weekly) - H.8
http://www.federalreserve.gov/releases/h8/current/default.htm
H.8; Page 18
Assets and Liabilities of Foreign-Related Institutions in the United States 1
Seasonally adjusted, billions of dollars
USD638.80: Line 25 Cash assets: from USD301.7 November 2010 to USD940.5 (end June 1, 2011).
Non-current assets = USD997.60 = total Assets 1938.1 - cash assets 940.5
H.8; Page 2
Assets and Liabilities of Commercial Banks in the United States 1
Seasonally adjusted, billions of dollars
USD708.10: Line 25 Cash assets: from USD1,035.5 November 2010 to USD1,743.6 (end June 1, 2011).
Non-current assets = USD10631.00 = total Assets 12,374.5 - cash assets 1,743.6
Ultimately, I think we have to question what allows these events to take place. All commerce is an exchange. This exchange requires instruments of value to facilitate the completion of exchange-we need a sound form of money.
However, it does not require a central bank. Interest rates can be set by the market. Currency can be distributed privately or publicly. There is no need for a CB.
I would argue, it does not need a government either. Common law is more than capable of being administered in a way that allows society to function and guarantee liberty without the police power of a state.
Consequently, the solutions are not to be found in central banking or government. In fact, it is because of these institutions that solutions are at odds with the people and commerce.
The discovery of the excesses of fraud and manipulation, while maddening to all, is useless in a system that protects their proliferation and design. So, I guess the question is: do you feel lucky, punk?
''do you feel lucky, punk?''
...what the ''Pit (bottomless) Boss'', AKA Chairsatan, says to the Widows and Orphans Pension Fund Manager's husband ...at the casino ...in Hell. http://www.youtube.com/watch?v=mmdPQp6Jcdk
Yes the pieces of paper appear totaly bullet proof.
Fekete has some interesting ideas on how to facilitate trade by going back to real bills. This system was used with great success prior to WW1. Real bills were rapidly maturing notes payable in gold that were liquid and easily circulated as means of exchange.
http://www.professorfekete.com/articles/AEFPositionPaper10MoreRealBillFallacies.pdf
Fekete is a very under read economist. Thanks for the post.
Does anyone know of a bank account, or a money market account that is held in a basket of currencies? Something where people can obtain the benefits of buying currencies without paying the high bank fees?
There have been some heated arguments on the Real Bills Doctrine on ZH in the past. Some quite in favor, and some not. You might enter the search term in the ZH search box to catch up on the debate. It is a very interesting concept and my tendency is to fall in the favorable camp. What could be worse than the fiat crap we are now dealing with?
Many of Fekete's articles can be found at The Daily Bell:
http://www.google.com/search?q=daily+bell+fekete&ie=utf-8&oe=utf-8&aq=t&...
If a rational trader found himself massively on the wrong side of a major bull market, one would expect that trader to take extreme steps to COVER his short position during a sell-off of 36% of said commodity. This is only rational.
In perhaps the best evidence of silver manipulation to date, the CFTC's Bank Participation Report for June shows that from May 4th to June 7th, the silver short position held by 4 large US banks increased from 20,613 to 22,628 short contracts.
This means that the 4 largest US banks increased their short silver position from 103,065,000 ounces when silver was trading near $50 in early May, to 113,140,000 on June 7th. Basically, The Morgue and HSBC ADDED 10 MILLION OUNCES OF SILVER TO THEIR SHORT POSITIONS WHILE SILVER DECLINED 36% IN PRICE!
...
http://silverdoctors.blogspot.com/2011/06/jp-morgue-and-hsbs-added-2000-...
Welcome to the New World Order.
The European banks are much more over concentrated in terms of the top banks controlling most of the market. They are much more over leveraged.
American banks look quite good in comparison.
Why is anyone surprised that the European banks are in such poor shape and needed the most help?
'American banks look quite good by comparison'
Well I dont much care for trailerpark troll beauty contests. The least haggish looking beauty queen doesnt impress me.
Theyre all bankrupt entities, and its all going down in spectacular events we'll be seeing soon.
All about the benchmark.
Euro banks have had plenty of time to raise capital. Why haven't they? Why is it the responsibility of the US FED?
And why are they considering throwing another $120B down the Greek black hole, when they could use that money as part of a TARP program, post Greek restructing. Or is the aversion to Greek restructuring by the ECB all about the ECB not having to take any restructuring losses on their balance sheet?
Gee how about we use that money to bail out americans devastated by floods and tornadoes and hurricanes? We've got vast disaster areas in the US, and we're worried about the Greeks 6 month per year paid holidays?
Black hole? The bondholders don't see it as a black hole. It's money in the bank for them!
When the options are either the bankers/hedgies/bond-dudes get bailed out or not, it is certainly NOT not.
That leaves us with Options 0 / Moral Hazrd 1. Great scoreboard.
I'm really not understanding the issue here. The FED is it's own entity and can bail out whoever it wants. Clearly the FED has been funding the big boys in the US through QE 2. Help me understand what exactly the issue is here.
There is none. Live your life. Love your fellow man and thank God you have your health. Amen.
The issue is that you, if you are a US taxpayer, are on the hook for all of it. You pay the cost of inflation as they bail out a select group of favorites. You pay the interest as they run up the debt.
No issue. The FED has transfered your wealth to save world central banks, for a little while...people just havent felt the effect yet but they soon will big time. Enjoy it now while things still appear somewhat normal and they have not yet seized your 401K, pension, and likely bank accounts as well in a sudden 'national financial emergency' one morning soon. Ignorance is bliss, enjoy.
The real issue in terms of legal governance is that though the FED be private in ownership, by US Dept of TREASURY mandate, it be guardian of monetary temple of USA! Of the people, NOT of its shareholders, the PDs! They have failed that mission...a public mission that can lead to criminal prosecution if proven...that they did not do due diligence in this respect.
Simple...but WHO will bell the cat?
Nobody! As the TARP rip-off and subsequent Ponzi showed. We are getting deeper and deeper into a criminal quagmire...if the facts were clearly exposed which they won't be with this or any other R/D administration, as they are all party to the Ponzi.
Also, read Tylers other article from this morning about how the Fed has simply taken over everything...'legal' is only a term that applies to govt in the present Brave New World. Poverty is wealth, slavery is freedom, war is peace. Enjoy.
I'm really not understanding the issue here. The FED is it's own entity and can bail out whoever it wants.
Gosh....you're right....Econ 101.
We're not getting screwed.....at least that's what my textbook says.
The dollar and the Euro are fighting to the death....Which one expires first. How come so few of us see this?
Yes , but it is not as simple as that.
I believe the FED joined the BIS in the early ninthies.
Once the Clinton administration was embedded they set about the task of imploding the dollar using the counterintuitive strong dollar policey - this created the conditions for massive malinvestment and final export of Americas industrial productivity - setting the stage for the final crisis.
Fiscal austerity does not work out very well - it merely creates a leverage implosion withen less then 10 years.
The similar trajectories of both the dollar and Euro are testament to this observation.
BECK"S ON BOARD
Nuff Said
http://www.theblaze.com/stories/zero-hedge-the-feds-600-billion-stealth-bailout-of-foreign-banks-continues-at-the-expense-of-the-domestic-economy-or-explaining-where-all-the-qe2-money-went/
The comments are the usual hoot. Blaming Obama mostly, Democrats/Pelosi next, and then the, well, you know -- starts with a "J".
A couple of mentions of Ron Paul. (At least a few are sane.)
There is no way out, folks. Too much kool-aid consumption.
Its a world re-ordering, the reason they went after Gadaffi was because of his planned gold backed currency and refusal of a central bank. theyre 3 months behind on that and NATO is cracking, theyre bankrupt and have no means for a slog-fest war day after day. Next is Syria that has to go down, and Iran, all the non-participants in the New World Order. I dont think they can make it, the militaries including the US are cracking under the strain.
5 front wars are costly, Iraq, Afganistan, Pakistan, Yemmini, Libya. Those are just the ones we know about.
Missing quotient. What percentage of the Community Reinvestment Act (CRA) 1.6 Trillion in mandated government loans since the late 70's were made by foreign based banks in the United States?
Apparently the U.S. based bank portion was approximately 1 trillion or ~66% of the 1.6 trillion. It makes sense that the government opened the shell game to foreign banks over the last 35 yrs of the poorly designed program. Could the 600 Billion simply be the government "obligating" itself to remaining entire portion exposed through these foreign entities? Not agreeing with the premise of the program at all, but if the Fed is making "good" on all our bad mortgage promises, then this is nothing but old news rehashed to be more sinister than it really is. Other than the fact that one may argue that foreign based banks had no business in participating in originating subprime business within the boundaries of the U.S.
That is all.
Missing quotient. What percentage of the Community Reinvestment Act (CRA) 1.6 Trillion in mandated government loans since the late 70's were made by foreign based banks in the United States?
Apparently the U.S. based bank portion was approximately 1 trillion or ~66% of the 1.6 trillion. It makes sense that the government opened the shell game to foreign banks over the last 35 yrs of the poorly designed program. Could the 600 Billion simply be the government "obligating" itself to remaining entire portion exposed through these foreign entities? Not agreeing with the premise of the program at all, but if the Fed is making "good" on all our bad mortgage promises, then this is nothing but old news rehashed to be more sinister than it really is. Other than the fact that one may argue that foreign based banks had no business in participating in originating subprime business within the boundaries of the U.S.
That is all.
Fractional landing, finally I get it!
Gold getting the beat down this morning.
But the PPT is having a hard time keeping it down for long.
They are trying to gun out all the stops.
Funny, I have no 'stops' on my gold, it just sits in the safe same as always.
Bingo! +1
Thus, could it be of grand design:
- non-motion (other than fungible, Central Banksters cross-market pumping global market openings) of non-lending, inner-continental bank reserves, means S&P minis jump - and/or 10 yr bond rates crash, but no-flation is the "transient" result that was planned all along. Gold, CRB et SLV...?
- jobless recovery, a favorite condition for the 0% bankster rule once again. No Jobs also means no-flation at input levels (or cost push), and no-flation means continued ZIRP (HC, Employment Regs, payroll taxes, etc.) for the banksters.
- Thus, deflation from deleveraging, and no-flation in the fudged CPI books,... means longer ZIRP (Fed needs a decade or two of sub_1% primary dealer funding rates for profitable bankster recapitalization spreads to take full effect in order to offset the impaired balance sheets vis-a-vis retained earning capital charges that lay ahead.)
- 0.01- 0.075% and "ZIRP FOREVER" is now tatooed on the back of my hand as it is likely our QE 3 "smoking gun".
IMhO...
Relax, it's just an extension of the Lend-Lease program.
Somehow the word oops just doesn't cut it here.
Maybe a little emphasis; OOPS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Nope, still not enough.
Little question here, based on sneaking suspicion: if Bernank has secretly bailed the European banks, do the Euro banks not in turn bail their East Euro co-conspirator banks who's balance sheets are glowing with toxic waste?
I like ZH about half the time. The other half it is laced with dubious stories and remarks. This is one of those other half of the times. This story presented as it is would get you fired for going to press forty years ago when there was some semblance of a free press. It is worth questioning the correlation but this is the same ridiculousness Al Gore used to win a Nobel Prize. And he duped most of the world. Ditto here. QE2 is and was a program meant to allow the government to issue debt without the concerns of having Treasury auctions going off unfunded and/or increasing the money supply in the economy because the banks aren't lending.
We all can choose to believe what we will on QE2, Tyler is presenting additional evidence with his other exclusive post about empirical data that does not subscribe to the official line as to what QE2 was intended to be for. The fact that there have to be any QE programs at all confirms a quite troubled market in many areas. I for one appreciate Tyler's analysis that looks at empirical data that was gathered, and does not rely on or assume Fed proclamations as to what QE2 is doing.
This is a ridiculous remark. So, because the moon is blue and has holes in it, is it made of cheese? This is not evidence of anything. And if you were a scientist, you would be unemployed. It is a data point that may have nothing to do with anything. One might determine it is worth investigating or one may not. But regardless it doesn't prove anything. Correlation is used by Al Gore to show that man-made CO2 emissions are the cause of global warming. His analysis is pure hogwash. The sun rises every morning that your programmed coffee pot automatically turns on and brews your cup of coffee. Do we conclude that the sun is responsible for making your cup of coffee? The comments on here are usually ridiculous. This is no exception.
ok. Now I believe you.
lol, you must be at the synagogue : when the rabbi repeats himself thrice it becomes God's word!
As for EQ he belongs to another church where we only believe a calf is dead when we see its carcass...not its photograph, nor its lamb chops...could be anybody's lamb, even if there be only ONE lamb in the country, logic is not evidence. Shame on you Sherlock!
Gee Tyler, are you telling us Republican cocksuckers like Peter Wallison of AEI can't falsely blame this one on the CRA (Community Reinvestment Act) !?!?!?!?!?
But that idiocy maybe be a type of “convenient idiocy” which is common among the political right when finding rationalizations for crushing poor people under a tank or foreclosing on their homes that can get their 2 extra basis points on their garbage bonds they bought. See the CRA as an excuse was so much crap it wouldn’t even be worth mentioning if the cocksuckers didn’t bring it up all the time, like the welfare Mom driving the Cadillac that I never met. So Republicans never explain why bondholders and bankers can never take responsibility for the mess they created. Including we are now paying for foreign bankers’ losses now. See here:
http://www.zerohedge.com/article/exclusive-feds-600-billion-stealth-bailout-foreign-banks-continues-expense-domestic-economy-
here
http://www.bloomberg.com/news/2011-03-31/belgium-s-dexia-drew-most-from-discount-window-during-record-week-in-2008.html
and here
http://www.bloomberg.com/news/2011-03-31/libya-owned-arab-banking-corp-drew-at-least-5-billion-from-fed-in-crisis.html
Interesting to note, when Jamie Dimon got to ask Bernanke his one question, he never asked about all that Fed money that goes to “recapitalize” (recapitalize= welfare checks for banks) foreign banks. I guess Jamie Dimon’s cool with large FOREIGN banks getting free money from the Fed. But lowering debit card fees to citizens of his OWN COUNTRY really pisses Jamie Dimon off to no end.
The reason you haven't heard about the welfare mom driving her Cadillac is because the cocksucking legacy media don't report it. That would be racist;)
I wrote never met, not didn't hear. Learn to READ.
You can't be a debt slave if you are not in debt.
Without the CRA there would be fewer people eligible to borrow, and thus fewer debt slaves.
I don't know or care what Peter Wallison or AEI are trying to "blame" on the CRA, but it is an inherently STUPID piece of legislation, unless one wants to increase the debt the number of debt slaves.
Certainly the US banks sold a lot of crap to Europe and this it is a way to satisfy people on the bad side of the deal. Politics bought by big money, like is the way in the US. Things go around and come around, do not blame the average european, it's all about the money system. As you have allready seen in Europe people are taking a stand, I've not seen this in the US.
At this moment in Europe PIGGS people take care of glass bottles and petrol/oil for the classic molotov and I do not see this in the US
Who is standing up?
The U.S. is constantly pouring blood/sweat/money into Europe. WWI & WWII, fought on behalf of European interests. Cold War, paid for by the U.S. for Europe's benefit. ME-NA wars, fought for Europe's benefit (Europe gets 85% of its oil from ME-NA, USA gets 15% of its oil from ME-NA). Now, this Bankster B.S., billions and billions into Europe. Why? Where's the benefit for Joe Blow U.S.A.? IMHO, the U.S. Elite likes flattery from European royalty and pseudo-royalty (Rothschild, et. al.). Hell, we may be a wholly-owned subsidiary of said elements... see Warburg, Jekyll Island 1913. We are screwed. Jefferson and Washington are dead and long forgotten, they warned us that meddling in European bullcrap would kill the Republic. Paraguay is looking better all the time....
from NYT, the elite rats are placing bets:
"Some traditional heavy hitters in Democratic Wall Street fund-raising have stepped out of the game. They include Maureen White and her husband, Steven L. Rattner, a founder of the Quadrangle Group, whose Fifth Avenue living room was a critical conduit between Wall Street and Democratic candidates in the years before Mr. Rattner joined the Obama administration to help restructure the auto industry. The couple did not resume their old role after Mr. Rattner left government, and he was caught up last year in an investigation into kickbacks to New York’s state pension fund. "
"Rattner", how appropriate. Just like "Fink." Now, is there a Mr. Ratfink giving bundled donations to the DNC?? Paranoid ol' Tricky Dick was half-right..... at this point, the mask is falling away, and they are taking pleasure in rubbing our peasant faces into the mud. Just check out David Brooks' recent UK interview about "thinking yiddish, acting British...."
http://www.guardian.co.uk/politics/2011/may/19/david-brooks-big-idea-society
One more thing. We Americans don't have the 8-week vacations, cozy welfare state, and other bells & whistles that Europeans enjoy. You guys have much, much farther to fall than we do. Things have sucked here since 2000. Middle-class Americans are becoming inured to hardship.... I wonder how the coddled Continentals will do once the Evil Big Bad Uncle Sam finally kicks the bucket... who will subsidize your lifestyle then? China? LOL
Good point, as everyone worries about Greek bailouts, anyone wonder how the avg Greek can do with less than 6 months paid holiday per year and their 3 hour 'workday'?
The fed will pay for it.
Top Post-Collapse Barter Items and Trade Skills
http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/06/top-post-coll...
"Die Euro-Rettung wird nicht gelingen"
"The Euro rescue won't succeed"
Wirtschaftsprofessor Markus Kerber spricht im F.A.Z.-Gespräch über seine Klage gegen die Kredite für Griechenland und den Euro-Stabilitätsmechanismus (ESM). Dieser haben sich 54 Bürger und mittelständische Unternehmer angeschlossen.
Economics Professor Markus Kerber talks about his suit against the loans to Greece and the Euro stabillity mechanism (ESM) in a discussion with FAZ newspaper. 54 citizens and small business entrepreneurs have joined the suit.
...
http://www.faz.net/artikel/C30638/oekonom-markus-kerber-die-euro-rettung...
What's the alternative Herr Kerber?
I would need a bit more data before passing judgement on this - e.g. what was the EU banks non-cash assets in 2006 and 2007 (could the low growth and high cash to non-cash figures have something to do with heavier write-downs of non-cash assets)?
Or to put it another way: how many of the US banks non-cash assets are mark to market vs 'book/loan' value and how does this compare with EU banks?
In short - partial data does not paint a complete picture, which is why it is a method used daily in all media.
QE3 was decided last weekend at the BB conference.
There won't be a bank crash or other financial desaster. The world is being programmed into accepting only virtual cash or cash equivalents. Central banks will be allowed to deploy as much virtual money, add as many zeros as they need in order to keep the public debt afloat.
Now, BTFD. The summer rally is about to start.
Dream on, the transfer of wealth by printing is already complete. Next is the FED seizes 401K's and pensions. All those lulled into 'this time its different, and this time its permanent' will soon starve to death.
People won't even notice what happened.
You have virtual reality meets synthetic food and the financial industry.
Soylent Green on a shelf at a supermarket near you coming soon.
wow.....kudos to the big banks!!
after soaking the rest of the world into their GIANT PONZI CDS/CDO scheme they're actually doing the moral thing and bailing out their victims first.
of course....you American tax paying rednecks are (un)fortunately bearing the brunt of it....but who cares? us know-nuthin' foreigners got "our'n"
(evil laugh)
Evil laugh : are you Vincent Price in ...Michael Jackson's thriller? That was awesome.
I'm the perfect example off too much gov't bullshit. Spent two hours pumping iron this am, going over to my buddies house to target practice late, just sold a couple things under the table as i've been pushed into the blackmarket to make a living and now I fuck the man over every chance I get.
The countries with the stupidest taxpayers will continue to bailout the foreign and domestic banks.
Isn't this news bullish? Seems that this article invalidates the whole "Europe is a set of dominos ready to fall" thesis - they have so much cash that they can survive the default of the PIIGS.
Not surprised. The AIG bailout was for the same reason.
barnanke, along with his bosses, are citizens of the world...therefore his fellow citizens are NOT american.
There's a really good piece that posits the true warring nations are the private banks who are travelling across borders to take ove entire nations through predatory lending practices.
http://blog.commodityandderivativeadv.com/2011/06/09/sharecropping-in-gr...
So, just for analytical purposes, let's say the Fed monetizes all of the U.S. debt by purchasing it (via electronic cash transfers) with helicopter dollars that somehow don't dramatically collapse in value, perhaps due to continued reserve status, political and fiscal problems in the EU and elsewhere and relative purchasing power. What happens next? Will history reveal the Chairman as a financial genius, who used an economic crisis to effectively retire U.S. Eurodebt with temporarily bloated funny money, thereby preventing the EU banksters from LBOing the U.S? http://bit.ly/mjIQ75
I don't see how this constitutes a bailout for Europe. OK, maybe a very thin bailout, but it's not giving primary dealers net assets they didn't already have.
#1: PD purchases bonds, some time in the past using USDs they already hold.
#2: Everything falls to shit.
#3: The Fed initiates QE2, buying bonds in exchange for cash that came out of thin air.
#4: PDs sell bonds to the Fed in exchange for cash. Net PD worth at this point has not changed (ignoring commission), they simply swapped bonds for cash. The cash constitutes excess reserves and earns interest at the support rate, providing a more liquid asset than bonds with a similar yield.
#5: If you include the Fed in the net financial system, then this process has increased total cash in the system (ignoring the ongoing credit implosion). However, if you accept that Fed assets are on the sidelines of the economy / in the penalty box / iced, then there is no net inflationary effect. Said another way, bonds now on the Fed's books sit outside the regular system and the regular system has experienced no net increase in money supply.
#6: European PDs haven't been bailed out per se as net assets haven't increased. They've just been made more liquid and have increased reserves. Note that both US Treasuries and cash count towards core capital in accordance with the Basel Capital Accord. Cash is just more liquid.
#7: European PDs may now either leave cash as excess reserves and earn the support rate, or they may speculate (a contributing force to equity and commodity rallies no doubt, but certainly not the only force involved).
Anyway, regardless of how you look at it, I agree with ZH's conclusion that QE2 was FUBAR, if we assume that its intent was actually to stimulate the US economy. It was somewhat successful to the extent that the Fed acquired fresh US debt, but ineffective to the extent that the Fed acquired dated US debt (I don't know the breakdown of Fed holdings).
I guess one benefit is that a whole lot of US debt got 'onshored' and US debt sitting on the Fed's books may safely be considered low risk. By that I mean, the Fed isn't going to stop rolling and force austerity.
Well stated! If you view currency (USD) as common stock in a country, and gov't bonds as debt of that country, then the Fed may have accomplished (perhaps unwittingly) a downstream stock for debt swap with foreign banks (clothed as PDs). Stated differently, the Fed accomplished a balance sheet restructuring, using dollars temporarily bloated with flight-to-quality value as a result of the EU crisis. http://bit.ly/mjIQ75
I'm in agreement with the article you linked to. US Treasurys held by the Fed are effectively outside the system. They can be iced / ignored / deleted from net US debt.