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Coming Collateral Crunch Charted
To better comprehend the chaos that is currently viciously circling in European funding markets, its critical to understand the difference between 'linear' collateral needs and the highly non-linear self-destroying re-pledging collateral crunch that is about to occur. Perry Mehrling, of INETeconomics, does a good job of explaining, in his chalkboard-style video, the three lending-based demands for collateral among the European banks and their central banks (Interbank, National Central Bank, and TARGET-2). He notes the IMF's proposed interjection might help to relieve the collateral crunch that we have been so actively discussing. However, these are all lending channels that rely simply on haircuts and specific collateral needs, what is being missed here is the much bigger problem of re-hypothecation (or re-pledging) of the collateral which leaves the considerably larger shadow-banking system facing a run on ever-decreasing piles of assets. So simply put we have a crunch in credit as increasing needs for collateral for 'pure' lending will be greatly exaggerated by the shrinking 'net' availability of collateral (as risk manager after risk manager tightens up their systemic risk criteria and reduce availability of funds for re-pledging). Put another way, while policy-makers focus on the big bazooka top-down, it is the smallest fund manager 'cog' in the chain of re-pledged collateral that will inevitably bring the system down.
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Promises, promises, promises...
Where does it all end?
the profits in the Oligarch's pocket, the losses on the country BS.
Pretty charts, but:
0. IMF does not buy sovereign debt. It makes loans to sovereigns and with highest seniority. This idea has also been completely squelched by ECB head Draghi's most recent conference stating EZ NCB's will not be involved (think about it: it deliberately bypasses ECB's monetary system and European treaty).
1. Europe's collateral crunch is a lot larger than just sovereign debt. Moving this little bit around different balance sheets would change nothing. In fact, they risk undermining the currency directly (I do not mean mere devaluation).
2. Europe's crises are more than just a collateral crunch. Entire funding markets have dried up, most importantly unsecured lending. This is why there was a switch to collateralised lending in the first place and this is why intermediaries are facing the ECB and their NCBs (ELA etc).
3. It is even worse than above. Due to the total funding requirement in the EZ, it barely matters how much the ECB changes their eligible collateral requirement (which are already the widest of the majors), all the collateral that could be used to secure liquidity has been already.
4. This is a trust and confidence led crisis. That is, we are well past the point where these issues can be fixed by monetary solutions. The core problem are the EZ institutions and the fiscal plus structural policies that underpin the Euro currency.
5. There is plenty of liquidity available already both inside the banks (e.g. ECB deposits) and outside, though not enough once bad and encumbered collateral is taken into account in the banks, i.e. bank recaps are required too. The fact is that few are in interested in taking the risk of putting it directly to work within the Eurozone financial system which is causing the problem. This includes foreign funding, such as in USD.
In short, the core problems of the Eurozone are fiscal (banks, sovereign backstops) and structural (ECB, treaties). You cannot bailout such problems from outside the Eurozone. It would be as ridiculous as the world coming together to bailout the US during its subprime crisis. There are some problems that must be solved alone because they strike at the very heart of your existence and future.
So what has happened since 1971 as we prepare to march over the fiscal cliff of financial insolvency?
Since the complete transfer from a fiat currency the Dow Jones Industrial Average (DJIA) has increased 1,262% and the Gross Domestic Product (GDP) 1,233% using “nominal” numbers or numbers not adjusted for inflation. More or less in lock step as one would expect.
Total credit market debt owned has increased 2,902%, outstripping GDP growth by a factor of 2.35.
The Federal Reserve monetary base, (coins, paper money, and commercial banks’ reserves with the central bank) has increased 3,658%, outstripping GDP growth by a factor of 2.97.
The third central bank of the US will end its reign soon mired in inflation, corruption, and scandal
Gold, the traditional source of real monetary value, has increased 4,177%, outstripping GDP growth by a factor of 3.39.
Translation the haircut needs to be 43 cents on the dollar.
For the USA. I don't know shit about Europe.
sqz - You hit the nail on the head. Truer words were never spoken:
"This is a trust and confidence led crisis. That is, we are well past the point where these issues can be fixed by monetary solutions. The core problem are the EZ institutions and the fiscal plus structural policies that underpin the Euro currency."
Aren't you confusing the trigger (lack of trust and confidence) with the cause (too much debt)?
I would say it's more of a crisis led by inherent design flaws of a monetary regime aided by incentives to over leverage thus making the system even more vulnerable to real life stresses (i.e. difference in fiscal regimes), thus it's a crisis of reality-- one where the flawed nature of the current monetary system is coming into question because it doesn't work when there are no proper checks and balances and only political career risk being the main driver behind decisions.
This is good for debtor nations: Germany, Netherlands, Luxembourg, and Finland. According to FT Alphaville, their central banks have TARGET2 balances of €65 billion, €89 billion, €85 billion and €33 billion, respectively, for a total of €672 billion owed to the rest of the Eurozone central banks, including France (!).
If they can shift €200 billion to IMF, that is a much safer trade than keeping it within TARGET2.
http://ftalphaville.ft.com/blog/2011/12/06/782961/why-france-could-be-on-the-wrong-side-of-the-eurozone-crisis/
@sqz
4. This is a trust and confidence led crisis. That is, we are well past the point where these issues can be fixed by monetary solutions. The core problem are the EZ institutions and the fiscal plus structural policies that underpin the Euro currency.
With all due respect, and as great as that sounds, no. This is a ponzi, fraud, and theft led crisis. Get your head out of Buffett's ass please.
Yeah right. Let me eat your lunch first and I promise that I will let you eat my children's lunch, okay? How does that sound? Not very convincing eh?
It ends soon, I promise.
Then what?
"It ends soon, I promise."
IT starts soon, promise or no promise...
With you, with me.
Small is the opposite of large.
Large = bad.
Get real.
Ron Paul.
It's going to end soon. That much is for sure!
-John
http://www.youtube.com/CarMarketer
Jim Sinclair is calling for $4500 gold . I didn't see a time line though , before the euro implodes .
Who's Jim Sinclair? Tell him I call $100 gold, mind you a dollar when gold hits that level will be enough to feed a family of 8 for a week.
Wasnt he a wide-receiver for the Green Bay Packers back in the '85=86 season?
Global Hunter
Who's Jim Sinclair?
No one special, I think he's cousins with Cramer./sarc
Your dollar and its attendant cult is going to hell. I will wipe my ass with it and then you can eat that for a week.
Friendly advice to you. Do not use dollar bill as toilet paper!! Again, not with dollar bill. The reason? It's not water absorbent...you only mess yourself up, yack! Worthless fiat make high quality wall paper though
That is too stupid for a snarky reponse...
I suspect when the Euro collapse gold will plunge in the first days of the carnage. Obviously this will be the time to pounce depending how easy it is to procure physical. Could be one of those everything that isn't nailed down gets sold scenario. Or shit will get sold to satisy margin. At any rate hopefully some bargains will be found....
+1 Liquidity requirements will unwind the paper "gold" market at the point where the dominoes kick over. If you have the ability to hold the gold, it'll go back up with the Bernanke express starts to print.
The question is: how far will the paper value of Gold fall before Central banks and other buyers step in and buy?
When you st5art to understand this, you start to understand that to have the debt destruction you need to make the ystem safer, you need to have deflation. The insqane focus on deflation being the root of all evil makes them unable to fix teh system. In theory you could print so much money that much of tyeh debt becomes real money, and then make sure they don't leverage up again. But I don't know how to do this. Please note, you also must add the minsky monent to your understanding of the problem, and incomes that can't support debt. the system is really designed to fail
they refuse to deflate.....thus it will be a great collapse
Come on ,,, STOP this fake pseudointellectual MUMBO JUMBO I dont have time to get pulled around by some fancy emperors Clothes and it doesnt impress me either I believe in SIMPLE THINGS if IF money cannot be explained as that ... its FAKE and not worth wasting time on
I'm fascinated by just how fake it is and how deep it goes
It is so deep and so fake that even cynics have a challenge getting their heads around it.
children, the insane, most drug addicts and only a select few normal able bodied adults are able to understand
its not 'fake', its just disconnected from the productive capacity it was once supposed to track. and marginal cost of energy now permanently (until things crack of course) going up -so productive capacity going down while debt going up - not good trends.
Bills of legal tender not backed by precious metals are like radiators without coolant. There is nothing getting in the way of a meltdown.
Chalkboard to eraser to hide devriatives BITCHEZES
Sorry, but the accountant in me had to speak up: On the chalkboard, when the assets are transferred to IMF from the NCB, they should be drawn in the Assets side of the IMF not the Liabilities side of IMF. Correspondingly, with the assets transferred from NCB, Liabilities should be created on the NCB balance sheet to show that it would owe that amount to IMF. The Assets on the IMF balance sheet would be Liabilities of the NCB. Supposedly, the IMF would be funded by contributing entities, which would create Liabilities on the balance sheet of the IMF for the amounts owed to those contributors (the U.S. Fed?). And where would those contributors get the money? Create it from thin air?
sorry but the accountant in you is hurting my head, I really am walking around and living surrounded by absolute insanity
The accountant in Hedge Fund of One speaks of archaic accountancy terms and practices from a bygone era of non-fictional accounting, when books had to balance and book entries were tied to reality.
Back then, what he speaks of would have mattered. However, modern accounting has made things much easier; you simply start with the results you want, and then work your way backwards, creating book entries which flow from the bottom line. Just think of it as creative writing, but with numbers instead of words.
when 1:1 (double entry) relationships mutate into 1:M (rehypothecation entry) relationships you have a situation for a clusterfuck.
the great reset cometh.
It's not just a clusterfuck. It's a global, daisychained clusterfuck. Further, rehypothecation means that each participant in said clusterfuck has multiple penises and dozens of cloacal orifices.
So, that'a a multi-cloacal rehypothecated cluster-fuck. Captain, we are doomed
the new technology that has driven all this? ...Spreadsheets.
That's why I started with "Sorry ..." I knew it would probably hurt. Great responses from all. lol
"And where would those contributors get the money? Create it from thin air?"
- yes, which is why this whole argument about costing the taxpayers is BS...
And what happens to the value of the taxpayer's dollar every time new ones are created from thin air?
Exactly; it costs the taxpayer via theft through inflation...
Think of all the fixed income people that you know who will be affected by this ' inflation' theft.
they used to be incinerated, now their just electronicfied to bits
I'm no accountant but you are wrong. The ECB is not on the blackboard but "Eurosystem Lending" is an ECB liability that becomes an IMF liability in this exercise. The Banks "sovereign debt" assets are transferred as an asset to the IMF in return, and the other book entries are eliminated. Again, I am not an accountant.
Somebody was paying attention in class.
Exactly. Created from thin air and the old (off the books) foreign aid shell game. Liabilities? These guys still owe us money from WW2 war debts!!
Even if you move the liabilities to the IMF, it doesn't solve the problem of finite collateral in a system highly leveraged from rehypothecation, using finite collateral.
Eventually the synthetic liquidity will reverse, and the bubble from rehypothecation will pop. Assets you thought you owned will be put in legal dispute by a host of other parties, and the drop in confidence will exasterbate the credit crunch. Thus the great deflation in shadow banking will hemorrage out into the real economy, and ruin it.
And if the Central Banks monetize to stabilize sytnhetic liquidity in shadow banking, they merely kick it down the road, until the future adjustment becomes apocalytpic, if it isn't already.
Then there will no one to protect bankers from pitchforks.
You've answered my question below it doesn't solve it (moving shit on to the IMFs books)
DormRoom observed:
They still haven't realized that the road down which they're kicking the can ends in a cul-de-sac.
Don't forget the torches, tar, feathers, and nooses.
They have eyes. They can see the cul-de-sac but another month, year or decade gives them more chance to loot the world. He who has the most toys won't rule after the great reset, it will be he who has the most gold.
I love it Dorm Room:
"exasterbate" =
exacerbate + masturbate
Which seems to be *exactly* what is going on.
nothing like a drawing board to explain something complicated that's actually simple - now if we could only get back to X's & 0's
what ever happened to double-entry?
earleflorida asked:
It's been rehypothecated to octuple-entry. In other words, assets and liabilities are counted in four completely different sets of books. It works perfectly as long as nobody ever exercises their claims to anything on any of the books.
like aig's mbs insurance that worked as long as there were no claims; like greek cds that didn't have to pay because the haircut was voluntary; like ....
Can anybody answer how moving things from one central bank balance sheet to the IMFs free up collatoral which we know now is has be re re re re hypotheticated (sp)?
It creates one more layer of obfuscation, thus delaying the day of reckoning by one more day. I'll bet you thought kick the can was a kids' game.
Try as they may, (CRIMINALS) no good place to dispose of the TOXIC WASTE!...
As spectators, do we continue to watch or prepare for the worse?...
Heck, bunker loaded to the max, prepared to close the hatch! U2?
I haven't been sleeping very much the last few nights. Its not going to be about a long life and retirement dreams any longer its going to be about survival. One fucking day at a time, cold war has nothing on this, that was just a warm up.
once the hatch is closed, it'll never be reopened! billions of us throwing rocks, couls easily overpower hundreds with guns! i know for a fact, armies will choose to fight on our side!
The problem is NOT a "shortage" of collateral. The problem is that the bonds these banks are holding are worth squat, which is why no one, except Comrade Ben, wants to place a bid on them. Hence the need for all the gibberish, smoke, and mirrors.
It looks like the good bank/bad bank scenario of the S&L crisis years. Except at the mutli-national level.
But what does it say about sovereign nations who over promise and can never meet their obligations when they have to resort to such balance sheet tricks?
They'll just do it all over again. And again.
So, again, we turn to...what is the point of taxing the serfs? Just print to the point of implosion and then dump the debt derived from printing into a concocted holding tank...errr, bank.
Rinse & repeat. Its PFM.
nmewn asked:
Control. Taxing them ensures that they remain serfs for life. It was never about revenue. I think you already knew that, but others might not see the rhetorical nature of the question.
+1
It is about control.
But they've gotten sloppy over the years as egomaniacs often do. Its at the point now where they ask for our trust based on nothing at all. No track record. No great accomplishment to point to.
A life spent sponging off of others hardly qualifies...lol.
Gold.
And remember folks, were dealing with CRIMINALS! logic, common sense, plays no part in the equation...
Just be ready to close the hatch at a moments notice!
so, criminals don't have necks?
Chalkboard to eraser to pawn off then more debt, priceless fix!
If only we had an elastic money supply, fractional reserve requirements, and less regulation, then we could simply expand the collateral pool when needed.
Oh wait... Isn't that how we got here?
$30 Trillion is the minimum they need to print.
Watch oil, food, PMs spike.
only then, will the people finally be forced to hang and castrate the satan loving oldidorks! armies will turn ther guns towards those beasts, and we shall reclaim all that was taken! and, let's not forget to hang all those who enriched themselves in the process!
HEY OLDIDORKS! WE"VE GOT GOD ON OUR SIDE!!!!!!
nah, the armies will be the only ones getting paid. Other than the oldidorks that is.
A "small cog" will not take down this system. This is not Humpty Dumpty sitting on the wall. It's a dark army of fraudster spiders in full control of a very robust and dishonest global financial system. We are trapped in it and they can manipulate us at will using fiat money and fractional reserve banking to stealthily loot our collective wealth to serve their purposes. It won't collapse until we reject fiat money as a store of wealth and means of exchange.
pretty much paying our "Stop-Loss" vet's with salt now,... and we all know, salt loses it charater as time goes on,... ?
"It's a dark army of fraudster spiders in full control of a very robust and dishonest global financial system."
They also control a vicious global gulag with hit squads, torturers and all the trimmings.........
Okay Bitchez, I read enough of the "poke the other guy in the eye" bullshit posted here. Face it, the only way to quickly end all the crap is to declare a worldwide jubilee. All debts are forgiven and we can all start over. Do it however you want, but if you disagree answer me this Batman: So far the only thing that's really been tried is to give public money to private banksters. How 'bout we turn than on its head and give the money to the people instead? Either way the people wind up paying it back. We can effectively set the economy how ever we want it. The rich won't like this, but fuck 'em.
You should look into the work of economist steve Keen from australia. He is one of gthe beest in the world. revolutionary, etc. By the way your remark is 100% accurate and thqat's why it isn't working. But steve keen can give you the reasosns and numbers. The reason is because banksters control policy option, along with their owned elites. they have in fact prevented a real solution because it would mean they loose. those with the most must loose the most when a system collapses if they gained the most. that is what is supposed to happen. now they are bankrupting us making themselves rich, it will still collpase, but they will have everything then. This is also certain there will be a lot of violence a tthe end of this. I wonder a lot if I am going to be shot by american troops when the people decide they have had enough of banker tyranny
"[t]hey merely kick it down the road, until the future adjustment becomes apocalyptic, if it isn't already".
This is what they do. To me it is the most grievous crime they commit - to sell the future right out from under the young and the unborn. Kicking cans and burning oil so their children's children inherit debt and an arid earth. Kin and country be damned. Eventually the technocrats will reap the whirlwind and we will enter a Canticle for Liebovitz scenario; only instead of technology the mob will destroy anything remotely resembling banking, fiat and usury.
As to above Trailer :
First of all ... EUROPEAN DEBT I including Sovereign Debt ) IS ( just like in Japan ) MAINLY TO EUROPEAN ENTITIES ....
NOT to the remaining World , towards which EUROPE OVERALL ... has a POSITIVE CAPITAL BALANCE SHEET !
This enables an INSIDE EUROPE NEGOTIATION ... HOW to ... in a structured mutually acceptable way SOLVE the problem of too much SOVEREIGN DEBT
It is said ..that there is TOO LITLE COLLATERAL ... Well ... Gentlemen .... I have previously forwarded the IDEA ( probably laughed at by many ) .. that EUROPEAN NATION STATES use the ENOURMOUS WEALTH bound in all the HARD REAL ASSETS in SOVEREIGN POSSESSION as COLLATERAL for its DEBT.. so to speak PUT ITS PURSE where ITS MOUTH is...
And THAT CAPITAL .. in SOVEREIGN EUROPEAN POSESSION .. by far surpasses any DEBT there may be ... INFRASTRUCTURE ..EQUITIES ..REAL ESTATE ..GOLD .. this WEALTH is ENOURMOUS .. probably the biggest Wealth ..on EARTH .
Why let that CAPITAL stand there IDLE ? It is REAL .. contrary to all the fictious leveraged products in common use in the financial world to day . It would ofc necessitate a RELIABLE STRUCTURED AND TRANSPARENT WAY .. to IMPLEMENT this.. but when looking at current ETFs .. there is ample financial expertice ..how to set up such an asset backed currency !
Ofc Nation states would need to ALLOCATE sufficient of Assets in Sovereign posession into an INDEPENDANT ENTITY ..run by sound principles of sustainable Profit .. for this to be menaingful ..
But also this is not something New ..as such is already in practice ..regarding many of the Assets of the Sovereigns .. throughout Europe
It is mainly a political decision ...only
And I certainly would know ..where I would put my Savings if I had the opportunity to put it in a transparent asset backed currency .. contrary to some pieces of paper ..based on some vague human promises to pay me ... in the future
Or WHAT ?
this worked in Germany in 1924...but the damage that had been done led to greater problems 15 years down the road.
Hookers and blow man.
It will work it self out.
Confidence.........the entire fiat system hangs on this single construct. All the smoke and mirrors just serve to try and put crutches under the imploding levels of confidence throughout the chain.
So, you are forced to ask yourself.....what is left after confidence goes?What can you trust? Self, and unhypothecated "resources"and things without counterparties.
Confidence.........the entire fiat system hangs on this single construct. All the smoke and mirrors just serve to try and put crutches under the imploding levels of confidence throughout the chain.
So, you are forced to ask yourself.....what is left after confidence goes?What can you trust? Self, and unhypothecated "resources"and things without counterparties.
Uhhh excuse me but that doesn't fix the problem..
So, move all the soveriegn debt onto the books of the IMF..... so effectively the US can solve all their mess via "foreign aid". Better not happen.
re-pledged collateral
bipity bopity boo comes to mind because it is some how a factor of less than nothing any way.... how?
Ah, it is the old "For want of a nail, th shoe was lost....for want of a shoe the horse was lost....etc."
Or in more modern terms, the biggest nuclear blast starts small.....
I guess someone disagrees with this theory..
see http://reszatonline.wordpress.com/