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The Next Head of the SNB – Thomas J. Jordan

Bruce Krasting's picture





 

Mr. Jordan is my guess as the next head of the Swiss National Bank. He’s been at the SNB since 1997. He moved up from the economics department and is now the Vice Chairman.

Mr. J is well qualified. This link to his CV shows that he is an academic at heart. He has never worked in the private sector. “Euro Technocrat” comes to mind. A quick review of some of J’s writings convinces me that he has been a strong advocate of an active and interventionist role in financial markets by the SNB.

He was actively involved with the bailout of UBS in 2008. The SNB created a SPIV where UBS dumped its toxic assets. This came to a $60B transaction. 90% of the funding came from the SNB, the balance came from UBS, but the SNB back doored the money to UBS to get the deal done.

In the 4th quarter of 2008 the financial world was coming apart. There were big funding problems with Swiss Banks as global liquidity dried up. Jordan was actively involved with formulating the SNB response. He flooded the domestic market with liquidity. He wrote of the period in this article. His words:

 

The turmoil in the money market prompted the SNB to conduct money market operations to an extent that had never before been witnessed. There were days when up to five auctions were held. The volume of the operations varied considerably. On record days, we carried out operations worth over CHF 100 billion.

 

Note: CHF 100B is equal to 20% of Swiss GDP. This is equivalent to $3 trillion in the US markets

The extent of the money market operations also has a major impact on the size of the SNB’s balance sheet. Before the crisis, approximately CHF 20 billion of the balance sheet went towards monetary policy; today, we are looking at around CHF 80 billion.

 

This was the first step of many for what has become a massive increase in Swiss reserves (now CHF260B, a 7 fold increase). Clearly, Jordan was pushing the reserve increases as a solution in 2008. No doubt but that he has continued to be a strong advocate for continued reserve accumulation as a “simple” solution to the problems Switzerland faces.

I found this article at Bloomberg dated 8/11. On this day Jordan made a very important public statement. He confirmed, that after legal review, it was possible for the SNB to establish a currency peg. (There was a question if a peg violated the currency laws of the country) Two important points:

-Jordan had to have been the one at the SNB who was pushing for the peg. He took it on his own to resolve the legal questions. When he had done that, he went public. This was a warning/threat to the FX market that the SNB would soon act (they did, two weeks later).

-This happened on August 11. Four days before Kashya Hildebrand did her fateful FX trade. I maintain that Kashya had key insights into what would soon unfold with the devaluation of the Franc. She never discussed with her husband on 8/11 the important information provided by Jordan? While it no longer matters, I find this aspect of the affair very hard to believe. This story has more holes than the cheese of Switzerland.

Should Thomas Jordan be appointed as the next head of the SNB I would strongly suspect that one of his first acts will be a confirmation that “Existing Policy Measures of the SNB” (AKA – the Peg) will be maintained. The "peg" is Jordan’s baby. He will not back off. If pushed by the market, I believe he would step up to the plate and aggressively defend the peg.

That said, the Hildebrand Affair has significantly weakened the SNB. I have said this before, I will say it again. There are powerful political forces in Switzerland who are philosophically apposed to the unending reserve accumulation by the SNB. These opposition forces have had a major victory. They have forced Hildebrand out; something they have been attempting to do for years.

The opposition to the strategies and tactics of the SNB will not end. Should we see another significant increase in Swiss reserves this issue is going to come right back on the table. I think that additional reserve accumulation is now inevitable. So the stage is getting set for a showdown.

 

 


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Sun, 03/04/2012 - 14:43 | Link to Comment l.hauri
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This is great for many small businesses who started with a profile page vs. a business page. Good move! surrey bouncy castle hire

Tue, 01/10/2012 - 04:19 | Link to Comment AlmostEven
AlmostEven's picture

That dude needs to hang out with Angelo Mozillo for awhile.

Mon, 01/09/2012 - 17:37 | Link to Comment anonnn
anonnn's picture

SNB reserve accumulation acts as barrier to any outsider plan [covert or not] to first beggarize the SNB so as to make key persons vulnerable to corruption/control. Isn't it so?

Forcing Hildebrand out opens the door to replacement by s/o more pliable/reasonable  who might see the "wisdom" of having  less reserves. Oh, btw, his wife also holds US passport? Now that's a pliable access terminal, errr... starting point, to "git 'er done" planning. We loves coinkydinks.

Mr. Jordan might disappoint if he persists on having hi-integrity level of reserves. Who do we know that could have any influence on him to "see" our "wisdom"? Alternatively, who might could aid us in his departure? 

Oh, wait...I'm being the enemy. I want high levels of reserves. It's so confusing to consider other viewpoints.

Mon, 01/09/2012 - 14:45 | Link to Comment onebir
onebir's picture

Here's SNB's accounts:

http://www.snb.ch/ext/stats/balsnb/pdf/deen/Bilanz_der_SNB.book.pdf

Foreign Currency Reserves: CHF 231bn (@ end Nov, maybe Bruce's number is more recent?)

Capital & provisions: CHF 53bn

A (generalised) 20% appreciation of the CHF (~40% vs the Euro alone) & they're looking kind of bankrupt & we get to find out if central banks really need capital - or think they do :)

Mon, 01/09/2012 - 13:26 | Link to Comment DavidC
DavidC's picture

Interesting and thought provoking post Bruce, thank you.

DavidC

Mon, 01/09/2012 - 14:45 | Link to Comment masterinchancery
masterinchancery's picture

Yes, great job Bruce.  Looks like another academic fool is about to wreak havoc on the markets.

Mon, 01/09/2012 - 12:55 | Link to Comment steve from virginia
steve from virginia's picture

 

BTW, Krasting's photo of Jordan is the world's worst portrait, he looks like a vampire.

(Maybe he is ...)

Mon, 01/09/2012 - 12:57 | Link to Comment steve from virginia
steve from virginia's picture

 

Out of the frying pan ...

.. into another frying pan!

Good grief! The ordinary Swiss Joes are thinking, "We're (fucked) Irish. We changed our government and we are stuck with the same government."

So 'Son of Hildebrand' is going to defend the famous peg? How long? It's 'man vs. market'. Market is in the process of selling the euro to zero. Is 'Mr New/Old Guy' going to ride the euro all the way down? That what Mr Brains is saying when he adamantly defends the peg-without-value.

This same question is when is Germany going to make like a rat and abandon the sinking euro ship? UK is already gone.

So far, the peg isn't working. Instead of supporting Swiss trade to the rest of Europe, the business of the country has become trying to control the flow of capital into the country. The outcome is bankruptcy. What sort of 'plan' is this that purposefully chooses bankruptcy as a sort of 'chicken game'? When are the Swiss gonna get smart and ditch the peg, requiring that any funds entering Swiss are to be turned into equity in Swiss companies at risk from capital flight? This is what China does, force overseas capital into a channel. Instead, the SNB fights the market.

That's just plain dumb! Thanks Bruce Krasting you just made my day I know for a fact I'm smarter than both the current and late bosses of the Swiss Central Bank.

Mon, 01/09/2012 - 12:44 | Link to Comment Eally Ucked
Eally Ucked's picture

Which part of Switzerland he's coming from, German, French or Italian? 

Mon, 01/09/2012 - 12:42 | Link to Comment williambanzai7
williambanzai7's picture

PHILLIP HILDEBRAND (EX-SNB) 2016

Mon, 01/09/2012 - 12:41 | Link to Comment DonutBoy
DonutBoy's picture

In a period of just over  two years the Swiss have destroyed a reputation for safegaurding wealth centuries in the making. 

In August of 2009 they elected to turn over names of account holders. 

http://abcnews.go.com/Blotter/story?id=8363725#.TwsX7Xrl30Q

And in 2011 they devalued their currency, pegging it to a zombie. 

Neither swiss francs nor a swiss bank account in any currency remains a private store of value.

Mon, 01/09/2012 - 13:16 | Link to Comment slackrabbit
slackrabbit's picture

In 2012 they will turn over the accounts numbers of zombies......namely almost everyone else who still has money in any banks....CNBS says this is actually bullish for vampires and werewolves, although mummy's via the egyption banking system say they will appeal :-)

Mon, 01/09/2012 - 13:03 | Link to Comment onebir
onebir's picture

But until SNB's capital is wiped out by forex losses, CHF looks pretty standing next to to EUR ;-)

Mon, 01/09/2012 - 12:51 | Link to Comment Ghordius
Ghordius's picture

"In August of 2009 they elected to turn over names of account holders."

They were pressured into turning over names of account holders - get the thing right, the US threats were quite massive, and this with help of the German Government paying bounties for account lists...

Mon, 01/09/2012 - 12:40 | Link to Comment Ghordius
Ghordius's picture

"There are powerful political forces in Switzerland who are philosophically apposed to the unending reserve accumulation by the SNB."

There are also powerful political forces in Switzerland who are absolutely against any movement of the CHF versus the EUR, including Tourism, Machine Industries, and the banks.

Which will probably shift the conflict in Parliament... Where a South-African-style dual-currency solution might be found...

Mon, 01/09/2012 - 12:38 | Link to Comment Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

NO links to the squid????

Mon, 01/09/2012 - 14:07 | Link to Comment thomcat00
thomcat00's picture

None that have yet been found. Doesn't preclude there being any, just have to dig deeper.

Mon, 01/09/2012 - 21:42 | Link to Comment ViewfromUnderth...
ViewfromUndertheBridge's picture

Keep looking, The Squid has testicles everywhere...

Mon, 01/09/2012 - 12:31 | Link to Comment onebir
onebir's picture

Xpost from "SocGen On Hildebrand Departure Next Steps: "Will SNB Have To Make A Move?", mainly because I can't believe what looks like the genesis of a currency peg blowout a la (every couple of months of the) ERM seems to unfolding before our eyes and I can't believe they they've been stupid enough to paint themselves into a very tight-looking corner:

Am I right in thinking that even with zero nominal interest rates, Switzerland is the only country in the world with +ve real interest rates? And if CHF strengthens, their deflation rate will get 'worse', pushing up real rates further, and attracting in momentum traders at the same time. Not to mention CHF is a destination of choice for capital flight from EUR.

SNB seems to have set itself up for nicely for a "Black Wednesday" & if anyone there has two brain cells to rub together, they'll be quietly crapping their pants. :)

(Translation: "long CHF bitchez")

Mon, 01/09/2012 - 12:31 | Link to Comment anarchitect
anarchitect's picture

One bastard goes out and another one comes in.

Mon, 01/09/2012 - 13:11 | Link to Comment Azannoth
Azannoth's picture

There is a near infinite supply of 'bastards' in the world and that is why 'vote the bums out' philosophy will never work, we have to have a Revolution to accomplish anything

Mon, 01/09/2012 - 12:25 | Link to Comment falak pema
falak pema's picture

bull's eye BK, good shot!

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