Bernanke Getting Cold Feet On European Bank Bail Out?

Tyler Durden's picture

Two weeks after Bernanke agreed to invest unlimited taxpayer funds in the form of global FX swap lines to prevent a worldwide dollar funding squeeze arising from the Europen financial collapse, the Chairman appears to be getting cold feet. BusinessWeek reports: "The Federal Reserve Bank of New York may ask foreign lenders for more detailed daily reports on liquidity as the U.S. steps up monitoring of risks from Europe’s sovereign debt crisis, according to two people with knowledge of the matter. Regulators held informal talks with some of the largest European lenders about producing a “fourth-generation daily liquidity” or 4G report, according to the people, who asked for anonymity because communications with central bankers are confidential. The reports may cover potential liabilities such as foreign-exchange swaps and credit-default swaps, said one person. The U.S. has already increased the number of examiners embedded in these banks, the person said." In other words, not only after Bernanke's pledge to fund as much money as is needed to prevent bank defaults around the world, is he actually going to have enough information to determine if there is any danger of this money not getting repaid. Well, better late than never. But at least we can permanently set aside any latent questions over whether European banks have liquidity problems. When even the Fed no longer believes you, you have far bigger problems than just liquidity (except for Dexia: liquidity there may well be the largest problem, but at least it won't be for long).

From Business Week:

Concern is growing that European lenders may falter as Greece teeters on the brink of default. U.S. Treasury Secretary Timothy F. Geithner has warned that failure to bolster European backstops would threaten “cascading default, bank runs and catastrophic risk” for the global economy.

 

“The Fed is trying to understand what the pressure points are in terms of liquidity and potential risks that are imposed by foreign banks to domestic institutions in our financial system,” said Kevin Petrasic, an attorney at the Washington- based law firm of Paul, Hastings, Janofsky & Walker LLC. “There is a little bit more sense of urgency as a result of what’s going on in Europe.”

 

"The report requires rapid and in some cases daily data on a banks’ assets, liabilities and potential claims to measure the degree to which the bank could be caught in the classic borrow- short, lend-long squeeze,” Petrou said. “The 4G is one of the tools to reveal liquidity risk.”

Oh, wait, so there is liquidity risk...because based on the prior set of lies, it didn't seem that way. And it gets better:

Regulators lack access to data on foreign institutions operating in the U.S. that would allow them to “make informed judgments about the adequacy of such firms’ capital and liquidity buffers,” William C. Dudley, president of the Federal Reserve Bank of New York, said in a Sept. 23 Washington speech.

But, but, isn't September 23 a week after the Fed pledged however much money is needed to rescue the world? Shouldn't the Fed have had this information before it took the generous decision to risk not only taxpayer capital but the reserve currency status of the dollar. Because based on historical experience, and based on Bernanke and Geithner's repeated promises that the only thing they care about is the stability of the dollar, there may be a modest to quite modest discrapncy between rhetorica and reality.

As for the actual 4G reports, we can't wait to find out just which European bank has bought or sold CDS on itself (because, unlike in the US, in Europe it appears that this is actually not prohibited).

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Robslob's picture

 

 

ALL YOUR DOLLARS ARE BELONG TO US!

mcguire's picture

Borat, is that you?  I thought you arrived in America's airport with clothings, U.S dollars and a jar of gypsy tears to protect you from AIDS...



Cynical Sidney's picture

bruno loves Ron Paul and so could i. Dr. Paul will stop all this nonsense, he'll give you a bag of silver, a copy of auditing manual and a strand of bernanke's jewish beard to protect you from the FED's flagrant malfeasance in complete disregard of its mandates

brandy night rocks's picture

SOMEBODY SET UP US THE LIQUIDITY BOMB

jekyll island's picture

What's the big deal?  The Bernank has unlimited resources, why shouldn't he bail out European banks, errr, countries.  I am sure his handlers have significant exposure and they need to protect their positions.  

Spirit Of Truth's picture

Seriously, who in the hell does Bernanke think he is?  This unelected dweeb is grossly out-of-touch with reality.  His PhD in economics testifies to this fact.  What's worse, he acts on his delusory worldview WITH EFFECTIVELY OUR MONEY (via taxpayer obligations)! What is this?!  How could such a system ever have been concocted in the first place?!!

http://www.youtube.com/watch?v=JXt1cayx0hs

America's Founding Fathers are rolling in their graves. 

Old Poor Richard's picture

YOU HAVE NO CHANCE TO SURVIVE SPEND YOUR FIAT.

Market Efficiency Romantic's picture

well, now they have at least achieved to hold the key to directly crash and burn Europe or let it prosper at its will. Who was that again that owns the FED?

Spitzer's picture

Its just the opposite actually. The ECB holds the key to the dollars demise. If the ECB refuses to print then all the Fed primary dealer banks in Europe go broke. So the ECB is forcing the Fed to print rather then print Euro's. That is long term dollar negative and long term Euro positive.

The ECB can print Euro's as easy as the fed can print dollars. If printing was the answer then why wouldn't the ECb just do it ?

Market Efficiency Romantic's picture

well, somewhat agree, to the FED, it appears to be a necessity, but it is not the ECB power, as the ECB is differently structured than the FED ( I guess that is what you refer to). Although, legally independent, it is a public central bank and not a private one, meaning, they will never bail out with astronomic balance sheet expansions as they have no legitimacy to do so.

Ahmeexnal's picture

Silly Spitzer.  If the ECB refuses to print, uncle Sam will confiscate all european gold currently under US custody.

K-A-B-L-A-A-M!!!!!!

Crash, burn, reset.

From the ashes a gold backed Amero, and a tribal europe at war with itself....again.

Market Efficiency Romantic's picture

Right. In practical terms, the FED provides swap lines with the ECB guaranteeing instead of individual entities (as it is). As ECB members, EU nations will indirectly gurantee with their gold reserves in US vaults. 

Somewhat funny: US gold was virtually transferred to Germany to reflect trade imbalances, now it will be redirected to reflect currency imbalances. As if it had never moved, always residing in those NY vaults, right? At least that way, Europe would not be outraged if those gold reserves were not where they were promised to be. 

Spitzer's picture

France pulled out of the London Gold pool,  destroyed Bretton Woods 1 and sent a ship to New York to pick up its gold.

Confiscation didn't happen then and it will not happen now. The US had more legit reasons to play that card then and they didnt do it. The actions France took is what led to the oil shock in the 70's and 20% interest rates in the 80's.

Market Efficiency Romantic's picture

Well there is a difference between the gold reserves of France and Germany. And secondly, there is an even bigger difference between the degree self-confident, conflict-provoking action between what France has done and what Germany would ever dare to do to the US.

Ahmeexnal's picture

Back in the early 70's the US was the worlds largest creditor. It ran a trade surplus (deficit on some years). It manufactured loads of goods. Giving France it's gold back would not break the bank.

Fast forward 40 years.

Now the US is the largest debtor. It runs a huge trade deficit.  Manufacturing has been mostly outsourced. The US will not give that gold back. Now now. Not ever.

http://www.census.gov/foreign-trade/statistics/historical/gands.txt

Spitzer's picture

The ECB could easily threat to buy gold on the open market with all of its remaining dollar holdings if the US didnt hand over the gold.

Market Efficiency Romantic's picture

Right and at what price, why does China not follow that gold-focussed strategy with all its even bigger dollar reserves? Who is supplying such amounts of physical gold? No one, and that is why China is catching up so slowly with its open market gold accumulation.

And why threat? With the US being the by far largest holder of physical gold, a threat to exchange dollars for gold in the open market with drecreasing valuation of the dollar and increasing dollar valuation of gold would not really pose a threat to anyone. If it did, European and Chinese dollar reserves had long been used as a threat, but as we all know the are more a burden than anything else.

Spitzer's picture

No. The ECB has more gold then the US.

ECB 10,300 tons

US Treasury/Fed 8000 tons

Ahmeexnal's picture

And who's got more ICBMs?

You think the MIC will just fold it's cards and give it's chips, when they are holding a Royal Flush?

You must be a 7 year old living in candyland.

Euro is dead. It was born dead. It was a scam to destroy some european economies and to reignite the same thousand year imperial pipedreams of old.

 

Spitzer's picture

its not as simple as un sophisticated gold bugs like you think.

BigJim's picture

A sovereign holding large amounts of USD reserves threatening to spend them all on gold on the open market is the economic equivalent of dropping an ICBM on Washington DC.

Yes, the US has huge reserves of gold (though it should be remembered all the CBs in the world only hold an estimated 20% of all gold), but, at the moment, the US has something even better; it has world reserve currency status, the equivalent of a credit-card that never has to be paid back. If the US no longer has the exorbitant privilege of being able to exchange valueless paper for value, how long do you think its gold reserves will last?

This is why the US and its client states will fight tooth and nail to retain the dollar standard. The end of the dollar standard means OPEC are no longer exchanging US paper for oil.

The day we lose the dollar standard is the day we invade the entire ME to maintain our oil supplies.

schadenfreude's picture

While you might be right with the confiscation, a war in Europe is as impropable as Americans get out of their passiveness and start revolting against the corporatocracy.

jm's picture

Rubbish.  The world hung its hat on cheap dollar funding that spewed out of the front end of the yield curve.  Operation Twist makes the TSY yield curve flatten and you get a funding squeeze trap. 

The ECB has been monetizing like wild, and it can't print fast enough because half of Europe's governments are bankrupt, and its financial system is net in worse shape.  You say the ECB has the Fed by the balls... the ECB is at death's door.    

 

Spitzer's picture

If the ECB was printing like wild then Greek interest rates wouldn't be through the roof.

The Eurozone is a net creditor with no trade deficit.

The US has about 50 billion in forex reserves, just enough to cover one months trade deficit.I could go on and on about how screwed the US is but some people need to learn the hard way.

 

jm's picture

If the ECB was printing like wild then Greek interest rates wouldn't be through the roof.

Enjoy some facts:

http://www.ecb.europa.eu/mopo/implement/omo/html/communication.en.html#a...

Greece is a problem is bigger than the ECB printing press can handle, because nobody knows what flame it will spark. 

Your argument doesn't put the ECB in the drivers seat... it just speaks to the lengths people will go to justify their biases.

 

 

Cliff Claven Cheers's picture

Sunday, Oct 02, 2011 09:29 PM

. . . . . . . . . . . . . . . . . . . . . . . . . 

 *NOYER SAYS EUROPE PUNISHED FOR ECB REFUSAL TO MONETIZE DEFICITS

Sunday, Oct 02, 2011 09:29 PM

. . . . . . . . . . . . . . . . . . . . . . . . . 

 *NOYER: EUROPE WILL BE `REWARDED' FOR REFUSAL TO MONETIZE DEBT

Sunday, Oct 02, 2011 09:33 PM

. . . . . . . . . . . . . . . . . . . . . . . . . 

 *NOYER: FRENCH BANKS VULNERABLE DUE TO DOLLAR-FUNDING DEPENDENCE

Sunday, Oct 02, 2011 09:52 PM

. . . . . . . . . . . . . . . . . . . . . . . . . 

 *NOYER: EUROPE NOW HAS `SPECIAL ROLE,' `SPECIAL RESPONSIBILITY'

Spitzer's picture

Greece is the whipping boy for the world when it comes to bad economics. Every time the US gets in trouble, like debt downgardes, they trot out a new story about Greece.

Funny how California is the biggest state in the dollar bloc and its in equally as bad of shape as little Greece. I wonder what Cali will look like with 50% interest rates....

The ECB doesn't want to print. It is not because they have a slower printer that interest rates are up.

http://freegoldobserver.blogspot.com/

IrritableBowels's picture

Just wondering...You penned the above link and it appears to be your only entry?

Spitzer's picture

I just started the blog a day ago.

abalone's picture

Standing ovation to you Sir

macholatte's picture

Where do the Swiss fit into this?

They volunteered to hold up the Euro and print as much as needed. Soooo.. if the ECB was printing that would cause the Euro to fall but the Swiss have to print more to hold it up but everyone wants to dump the Euro so the Swiss have to print more. What was that section from Princess Bride>>>

You'd like to think that, wouldn't you? You've beaten my giant, which means you're exceptionally strong, so you could've put the poison in your own goblet, trusting on your strength to save you, so I can clearly not choose the wine in front of you. But, you've also bested my Spaniard, which means you must have studied, and in studying you must have learned that man is mortal, so you would have put the poison as far from yourself as possible, so I can clearly not choose the wine in front of me.

pauhana's picture

I was laughing my ass off until I got to the last paragraph which is really not funny.  I knew our regulators were derelict but it seems they have lots of company.

Atomizer's picture

The Federal Reserve will use unconventional measures to prop up ghost assets.

X.inf.capt's picture

protect your assets accordingly

glad i broke out the post hole digger....

zorba THE GREEK's picture

One Fed governor when recently asked if the Fed was out of bullets replied; "The Fed is not now out of bullets, nor will the Fed ever 

be out of bullets". That may not be the exact quote but it is the exact meaning of the quote. What that conveys to me is that there is no limit

to how much the Fed can print. So if Bernanke's masters need him to bail out Europe and every bank in the western world and the U.S.A.,

he not only can, but will oblige them as the people look on in horror. One must always remember, Bernanke first and foremost works for

the banks.

buzzsaw99's picture

the only thing the bernank cares about is doing the Lloyd's work.

Spitzer's picture

He has no choice. The ECB has the Fed by the balls.

 The world gets a new monetary system every 30 or 40 years, and it is past due for a change. We had the classical gold standard from 1873 until World War I(43 years), the gold exchange standard between the two world wars(21 years), the Bretton Woods 1 system from 1944 until 1971(27 years), and since 1971, the entire world has been on the Bretton Woods 2 system or the dollar standard.(40 years and counting)

Now let's look back at Bretton Woods 1 again....Full article link

http://freegoldobserver.blogspot.com/

 

Alvaro de Esteban's picture

Are everybody so insane to use a multicountry ( yes Greece included), multidebt, unanimous decission diven & Draghi ( Greece scamm designer) supervised currency as the new standard????.

Yes I know the actual is not much better

Spitzer's picture

Who said anything about a standard ?

The Euro is simply designed to piggy back  gold after the dollar self destructs.

Every government will be dealing with the same circumstances as the govt of Jamaica after the reset. No borrowing power because nobody will be using bonds as a store of value.

Market Efficiency Romantic's picture

sorry, but I cannot follow the logic of the article, If you condemn debt and call for a move to an asset-backed reserve currency, then EUR is clearly inferior to USD. 

Due to China's lack of assets to back, the new world power will agree to lift SDR, the meta fiat, to power. The only difference: The IMF is global and virtual, so it cannot be attacked, voted down by people or traded against by any member.

The only way to avoid the final enslavement is for politicians to publicly state that the current debt situation cannot be solved, requiring a global haircut - or a social redistribution of wealth. If it was only for the elites to be haircut, that would be an easy task for politicians, but unfortunately, the elites managed to involve the majority of the people in the credit markets. Lets say, 80% are involved with 10% ownership through pension funds and life insurances. With that, the elite knows that no politician will dare to declare the necessity of a global haircut.

Not declaring the necessity will require a last resort lender, and with central banks being increasingly inelligable, it will be the IMF, resulting in the vanishing of monetary sovereigns and thus the national grip on their economies.

Spitzer's picture

You are totally underestimating the power of gold.

None of the millionaires in a country like Jamaica save their purchasing power in the local currency because they know it can be duplicated and spent by the socialist government. The Jamaican dollar still works fine as a medium of exchange for short term purchases even though nobody is saving in it. That is also why when a banana republic country decides to print money, inflation is realized the next day because there is so little purchasing power to draw on from printing. Now you know why you see all those random inflation numbers in banana republics at 8 to15 to 30 percent.

Now take the concept above and apply it to the developed world. What if all the savers in the world decide to start saving in a currency that cannot be duplicated ? (gold)

Would governments and central banks have anything to gain by printing ? No

Will local fiat currencies in the developed world still work fine as a medium of exchange ? Yes

Market Efficiency Romantic's picture

I get your point, but IMHO you overstimate the power of people grown up with fiat systems to truely revert to not only asset backing but asset. There is a power behind the fiat that derives its wealth from fiat inflation. They need to roll instead of shifting to an asset. IMF SDR are the perfect solution, especially given China will due to its lack of gold not support a gold reserve.

Spitzer's picture

"There is a power behind the fiat that derives its wealth from fiat inflation"

 

The only reason wealth can be derived from fiat is because people are using fiat denominated bonds as a store of value.

If fiat had value in itself then printing world work equally as good in any country. The reality is, it doesn't. The only places where fiat printing works is where there is savings to be accessed through duplication.

http://freegoldobserver.blogspot.com/

Market Efficiency Romantic's picture

Agree, but if they do so

"using fiat denominated bonds as a store of value."

why would they allow for shifting to an asset, which would due to an imbalance of fiat to asset mean writing down fiat-created bonds? Makes less sense than extending the fiat lie to the virtual world of the IMF.

And the China argument is still valid. Who will follow the US to a gold-backed-US-controlled-currency away from the next superpower China. Doing that would be an worthless statement of loyalty to the US at the price of cutting trade ties with China. Hm, no, don't think so.

But I agree, it would be in the interest of the US as a nation. The only problem, the US as a nation does neither create a currency nor is it the driver of dollar policy. 

As a result, the elite holding fiat bonds and controlling the FED would have no interest in appreciating and shifting to gold, neither has China, so why would it happen. Because of the people in social control of currencies, you are not serious about that???

Spitzer's picture

why would they allow for shifting to an asset

They have no control over the situation. That is like saying, why would they allow housing prices to fall. It wasn't in the bankers interest for that to happen either.

 

Market Efficiency Romantic's picture

Good point, but wrong interpretation: Right, housing prices fell, but who paid the bill? Capital power did not accept the write down of its inflated assets, instead it passed the mess to the next level in the fiat system. Why would the people not turn to an asset as source of value back then? That is exactly the same as passing decreasing sovereign bonds to the IMF at face value. 

I fully agree, from the people's perspective or from a normative perspective, condemming fiat and bailout policy is so necessary, but I have learned that the pragmatism of power works differently.

Ahmeexnal's picture

Once again, you prove to all you don't know shit from shinola.

It was in the bankers interest to have a subprime meltdown and have housing prices fall.

Goldman Sachs and other major banks were betting on this to happen, against their own clients!!

Spitzer's picture

Yeah and Goldman was on balance, bankrupt in 2008.

Everyone likes to pretend they are Peter Schiff now. Nobody really thought housing prices where going to crash. They still dont think so in Canada or Australia.

You dont know jack shit.

abalone's picture

Please stop discussing your wet dreams in public.