BofE's Haldane Sees Greater Volatility Ahead; Warns Of Too-Big-Too-Fail "Problem From Hell"

Tyler Durden's picture




 

While the Bank of England's chief economist, Andrew Haldane, admitted that reviving investors’ appetite for risk was one of the forgotten goals of central banks, he notes there are concerns that risk is not being "removed" but changing shape and migrating to more liquid markets but that should not be a problem as "monetary policy can on occasions have a role to play in ensuring against these financial stability risks..." i.e. the market put. His biggest concern is the aggregation of derivatives clearing which could be a "problem from hell" but he notes the future will not be the same as the past as "volatility in financial-market asset prices will be somewhat greater," and that interest rates will not 'normalize' to the levels of the past.

 

Some key excerpts from Andy Haldane's speech today at Camp Alphaville,

We blew the bubbles...

"That’s why we did it. Lower rates and QE were an exercise in, among other things, trying to stimulate risk taking."

 

The economic cost of inaction would have been considerable, he argued.

But, as WSJ reports, he appears to be concerned...

Critics say these tools may be ineffective, particularly if risky activity migrates into shadowy parts of the financial system beyond regulators’ reach.

 

Mr. Haldane acknowledged this was a possibility and said central banks must be prepared to use higher interest rates as part of their defenses.

The future won't look like the past...

“The level of rates to which we are returning won’t be the numbers we’ve seen in the past”

As "risk" is rising...

"What we’re seeing in financial markets “isn’t risk being somehow removed or obliterated, we’re seeing risk change shape”

 

Risk is migrating off the balance sheets of banks and onto the balance sheets of non-banks in the form of market liquidity risk, Haldane says

 

"We’re now moving to a world where more of that risk “shows up on the mark-to-market balance sheets of asset managers and other funds,” he says

And volatility will pick up...

“That will mean on average that volatility in financial-market asset prices will be somewhat greater than in the past”

ut Central Banks can contain it...

Monetary policy can on occasions have a role to play in ensuring against these financial stability risks, not as a first line of defense”

 

“There are other things that can and would be done as a first line of defense if we thought financial markets were detaching themselves too materially from fundamentals

But there are other problems...

Excess agglomeration of CCPs [derivative clearing houses] "would cause the too-big-to-fail problem from hell"

*  *  *

Quite a different level of honesty than the bullshit Yellen spewed this morning of the US utopia of goldilocks growth and inflation forecasts.

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Wed, 07/02/2014 - 18:24 | 4919434 LawsofPhysics
LawsofPhysics's picture

I see a lot of wealthy fucks like this starting to be "truthy" all of a sudden, yet, none of the fuckers will name names.

Someone on ZH called this about a month ago, forget who.

Same as it ever was.

Wed, 07/02/2014 - 18:32 | 4919450 fonzannoon
fonzannoon's picture

in 2008 Grandma had her 150k in a CD in a Citibank CD making 4%. 6 years of zirp later Grandma is in a pimco bond fund or SPY. Let the banks fail this time. Anyone dumb enough to have deposits in them deserves to lose it all.

Wed, 07/02/2014 - 19:04 | 4919534 LawsofPhysics
LawsofPhysics's picture

As always, you remain an unwaivering optimist.

Wed, 07/02/2014 - 19:07 | 4919545 fonzannoon
fonzannoon's picture

LOL 

Wed, 07/02/2014 - 19:49 | 4919658 Clint Liquor
Clint Liquor's picture

Reminds me of 2007. I was reading warnings like this everyday and when it came unglued they said 'nobody saw it coming'.

Wed, 07/02/2014 - 20:33 | 4919786 DeadFred
DeadFred's picture

There are a lot of people named nobody this time around as well.

Wed, 07/02/2014 - 18:37 | 4919457 Miffed Microbio...
Miffed Microbiologist's picture

I think this is just to impress their friends at gala parties that they were the one to predict it. I can just see the published memoir prominently displayed for all to see.

Naming names at this stage may be too premature and result in a booting from the club or, at worst, a nail gun mishap. Psychopaths and narcissists are consistent in only looking out for themselves. Anyone else who had a conscience would use the truth constructively to help others.

Miffed;-)

Wed, 07/02/2014 - 19:14 | 4919567 Da Yooper
Da Yooper's picture

BUT but but Jeremy Siegel says buy buy buy

 

OY vey vee hab a problem

 

vould Jeremy lie?

 

the "renowned" Wharton School of Finance professor Jeremy Siegel opined that the Dow could top 18,000 by year-end or 19,000, or 20,000...

Wed, 07/02/2014 - 23:13 | 4920210 TheReplacement
TheReplacement's picture

'We did it to save the world' isn't truthy.

"We did it to enrich ourselves" is truthy.

They are still lying like snakes. 

Wed, 07/02/2014 - 18:25 | 4919438 Stoploss
Stoploss's picture

Choke on it Haldane.

Wed, 07/02/2014 - 18:38 | 4919458 i_call_you_my_base
i_call_you_my_base's picture

Priming only works if it isn't completely broken.

Wed, 07/02/2014 - 18:40 | 4919466 fonzannoon
fonzannoon's picture

"The pumps don't work because the vandals took the handle"

Wed, 07/02/2014 - 18:43 | 4919472 lasvegaspersona
lasvegaspersona's picture

Can volatility be negative? Not in reality but could they drive that 'financial product' into negative numbers?...problem solved. 

Until all the funds being used to do the crazy stuff the central banks are doing, escape from the cages  they are kept in, we should do fine.

Wed, 07/02/2014 - 18:44 | 4919480 Pheonyte
Pheonyte's picture

“The level of rates to which we are returning won’t be the numbers we’ve seen in the past”

No shit, never again will they match the rate of inflation. 

Wed, 07/02/2014 - 19:22 | 4919594 AdvancingTime
AdvancingTime's picture

I  respectfully disagree with your premise. If rates remain below inflation the economic efficiency of credit will at some point collapse. It will soon become clear the additional money poured into the system coupled with lower rates can no longer drive the economy forward.  When this happens we are at the end game.

At some point the return on loaning money is simply not worth the risk!  Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.

http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit...

Wed, 07/02/2014 - 20:00 | 4919682 flacon
flacon's picture

But isn't that the same sort of common sense logic that also believes that negative interest rates would drive people to stash cash under their mattresses? 

Wed, 07/02/2014 - 19:28 | 4919602 Ness.
Ness.'s picture

This dude is late to the party.  I think Benny '$250k' Benanke broke this story months ago.

 

"No Rate Normalization During My Lifetime"

 

"Learn it.  Know it.  Live it." ~ Brad Hamilton

Wed, 07/02/2014 - 18:54 | 4919504 GooseShtepping Moron
GooseShtepping Moron's picture

Mr. Haldane says:

"That’s why we did it. Lower rates and QE were an exercise in, among other things, trying to stimulate risk taking."

This statement seems to contain a contradiction. How exactly are backstops, bailouts, "Bernanke puts," ZIRP, and all the other bank-inspired arcana of recent provenance supposed to stimulate risk taking while they are at the same time eliminating risk? That simply does not compute. I think the minds of modern economists have been stretched so thin by the tenuous connections they are forced to draw in order to make their theories seem believable, that they no longer notice when they have argued for two contradictory conclusions from the same premises, or asserted that X is ~X, or that X entails Y and ~Y.

I've noticed that this kind of thing happens a lot whenever a losing argument has been completely backed into a corner by contradictory data. I've even regrettably had it happen to me before. It is a psychological phenomenon rather than a logical one, for a purely logical man would abandon his argument at once whenever it started violating the law of non-contradiction. But human beings are not purely logical creatures and we become attached to our theories. Denying non-contradiction is the last psychological redoubt a person has before he must bite the bullet and accept that his argument is wrong.

It's frustrating that things had to go this far, but it is a step in the right direction to see that the even the architects of the QE argument can no longer consistently defend it.

Wed, 07/02/2014 - 19:09 | 4919550 LawsofPhysics
LawsofPhysics's picture

In the absence of real consequences it remains a meaningless gesture.  The former treasury secretary of the #1 economy on the fucking planet admits that there were "arsonists who burned down the financial system and profited from it"...

 

One simple question motherfucker; how many of these arsonists are rotting in a real "pound you in the ass" prison?

Is arson a "good" thing now?

Tick tock...

Wed, 07/02/2014 - 23:19 | 4920226 TheReplacement
TheReplacement's picture

I hate to sort of disagree with you twice in a month much less a day.

The arsonists are not the problem.  Most of us here would like to be arsonists and we do what we can by preparing for what is to come.  The problem is not those who benefit from a situation but those who caused the situation.  The arsonists did not cause it.  Politicians and bankers caused it, starting with politicians.  They passed the laws that allow banks to behave badly that created a scenario where individuals could benefit through bad behavior.

The arsonists should be held accountable for their actions.  I'm only saying that their actions did not put us where we were or where we are.

 

 

 

Wed, 07/02/2014 - 18:55 | 4919512 max2205
max2205's picture

Some of these guests reminds me of watching cnbc back when I did....

ZH numbers will drop if this continues

Wed, 07/02/2014 - 23:21 | 4920233 TheReplacement
TheReplacement's picture

Aaaannnnnd heeeeeeere's Top GEEEEAAAAAR.

 

Wed, 07/02/2014 - 19:02 | 4919524 orangegeek
orangegeek's picture

What are the odds of Andy Haldane jumping?

 

Having heard of a bankster going splat is quite a few weeks.

Wed, 07/02/2014 - 23:23 | 4920241 TheReplacement
TheReplacement's picture

Nah, guys like him have fatal heart attacks.

Wed, 07/02/2014 - 19:04 | 4919532 surf0766
surf0766's picture

It's a global "don't hang me bro movement"

Wed, 07/02/2014 - 19:11 | 4919561 MrTouchdown
MrTouchdown's picture
“There are other things that can and would be done as a first line of defense if we thought financial markets were detaching themselves too materially from fundamentals

 

So... Which fundamentals are financial markets currently attached to that he doesn't want them to detach from? From where I'm sitting, it looks like CB intervention is the only fundamental that matters.

Wed, 07/02/2014 - 19:13 | 4919568 AdvancingTime
AdvancingTime's picture

We may soon be forced to face our economic Armageddon. The forces that have driven stock markets ever-higher and upward may be beginning to wane. Many markets became distorted years ago when QE and super low interest rates hit the economy in an effort to lessen many of the missteps of recent years.

This has been more helpful in holding up the underlying value of assets and derivatives it now appears than helping to repair a wounded economy. QE has up to now stopped an implosion of derivatives including the resulting contagion and shock that would have spread throughout the financial system. Unfortunately the economy has not fared as well as these asset prices and in many ways these policies have harmed Main Street. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/05/facing-our-economic-armageddon.ht...

Wed, 07/02/2014 - 19:34 | 4919621 bentaxle
bentaxle's picture

"interest rates will not normalise to the levels of the past..?"

He/they think they can keep interest rates right where they want them ad infinitum, with bullshit and Ctrl + P? Some hubris....

Wed, 07/02/2014 - 20:50 | 4919828 Pumpkin
Pumpkin's picture
Warns Of Too-Big-Too-Fail "Problem From Hell"

 

Yeah, they're from hell all right.

Wed, 07/02/2014 - 21:03 | 4919865 JailBanksters
JailBanksters's picture

So the cure is.....

More Volatility and More free Money (free money for the banks, not for you, you have to pay shiploads for it)

Thu, 07/03/2014 - 00:15 | 4920357 IANAE
IANAE's picture

Ironic that regulators apparently disclaim responsibility for permitting - or motivating - what are arguably regulated activities into the unregulated shadow banking system, funded by taxpayers via QE...can't make this stuff up.

Thus RRP ...an attempt to manage the inevitable chaos that will ensue as Fed unwinds QE and the non-bank balance sheets - where excess liquidity has gone seeking yield - abruptly adjust.

 

 

 

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