Liquidity, Solvency, And Timing

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors

In 2007 and 2008 the Fed instituted all sorts of programs to enhance liquidity. It was the first time they went beyond simple rate cuts (which they also employed).  In the end it didn't help much.  It ensured that banks could fund the positions they wanted, but it didn't stop the sell-off in assets, because the banks didn't want the risk.  No one wanted the risk.  Corporate bonds and mortgages had gotten priced too tightly and banks and hedge funds had far too much leveraged exposure.  No matter what the Fed did in terms of providing liquidity, they couldn't stem the tide.

In 2009 the Fed continued to add new liquidity tools.  TALF and QE helped a lot, but by 2009, hedge funds, and even banks wanted assets, they just didn't have the money or capital to buy them.  The liquidity that was provided was used because many investors thought the assets were CHEAP!

There are clearly liquidity problems again, but they are directly tied to solvency.  The Euro basis swap isn't getting worse because US banks don't have money to lend to European banks, they don't want to lend to European banks.  The risk/reward at these spreads isn't deemed attractive.  The European banks can borrow from the ECB swap lines if they need, but unless they are willing to pay some real rates that reflect the risk, they won't encourage other banks to lend to them.  Short term lending is the first to go, because there is limited profit opportunity as a lender and lots of downside.

Liquidity concerns and even some capital concerns are driving down Italian and Spanish bonds, but behind that, there are real solvency concerns.  Additional liquidity tools don't really do much.  Stocks rallied hard the day the globally co-ordinated swap lines were put in place, and the basis swap traded back to -80 on the day.  That was on September 15th.  From there, the market got worse.  Maybe we should be worried the Fed knows something we don't about how bad it is and are trying this ploy again, because it is one of the few things they can do to help Europe?

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Gubbmint Cheese's picture

Fear not.. Big Ben will come to the rescue.

john39's picture

there is a difference between real magic and illusion...

Au_Ag_CuPbCu's picture

Of course he will, that's why I don't understand this: "The risk/reward at these spreads isn't deemed attractive."  The way the system works the risk is socialized and the reward is privatized.  WTF do the banks have to worry about?

GeneMarchbanks's picture

Don't think Americans mind too much ... because it's time for another installment of... Whats Trending Now:

Hot Searches   (USA)

  1. sopa   2. mirror mirror trailer   3. elisabeth hasselbeck   4. ecu   5. 2013 ford escape      6. bob knight   7. john wooden   8. sexiest man alive   9. marcel the shell with shoes on 10. duke basketball
GeneMarchbanks's picture

'Maybe we should be worried the Fed knows something we don't about how bad it is and are trying this ploy again, because it is one of the few things they can do to help Europe?'

According to a poll I made up just for this post, Americans do not care.

SheepDog-One's picture

Americans dont care, until reality suddenly smashes them in the face with a brick and then it will be too late anyway.

pmcgoohan's picture

WE know how bad it is.

Someone tell the SPY

g speed's picture

Americans care way more than you realize--they just don't whine so much-but the truth is out there and the tide is building--

The trend is your friend's picture

don't forget the fucking kardashians.....the most annoying bitchez on the web

When Argentina fell apart, the populous was clueless, then one day all the banks are closed and no one can get to their money  UNTIL the currency is revalued much much lower.  That is what we should be looking out for in Greece when they are finally kicked out or willingly leave.  It will happen over a weekend or long weekend.


Nadaclue's picture

Cue Ferfal, the Argentinian who blogs about his surival through the Argentine Crisis and how he and his got through it.


BTW, he see's identical indicators again and thinks a second collapse of Argentina may be coming around the bend.

Sancho Ponzi's picture

USA: Foreign currency liquidity swap lines for the Central Banksters, and food stamps for the serfs. 

wombats's picture

Ben should try spray-painting his new dollars with gold paint.  Maybe somebody will be fooled into thinking they are actually valuable then.

g speed's picture

Already did that--look at the 20 on a twenty dollar bill

Sudden Debt's picture

Yeah... liquidity!


ps: We Europeans love you Americans! And not just for you're money! We Especially love the blonds with the D cups and Tight asses!!! YOU'RE WELCOME ANYTIME!!!


Raymond Reason's picture

Tight asses?  You've been watching way too much American TV.  You don't know how spoiled you are over there.

SheepDog-One's picture

Even Gerald Celente got kornholed by MF Global....get your money OUT of the reach of these crooks! This will be happening more and more believe me!

Seb's picture

Ha ha. Turd Ferguson (the guy who claims to fight the "Evil Empire" by buying gold and silver) also lost some money with MF Global. So much for following your own preachings.

JSD's picture

Tyler. you happen to have an updated list of bank holdings for EU soverign debt? You probably posted it and I missed it, but...thanks if you do!

JSD's picture

I could have just said "Anyone". Apologies.

If Anyone could help out, that would be great. Thanks!

11b40's picture

Try Reggie's blog....more than you want to know about European exposures of all types.  It's one of his favorite subjects, and he knows it beter than anyone else I have run across.


Mark123's picture

Can some one please explain how these swap lines work between the fed and other central banks?  Where do these show up on the Fed balance sheet?


Oh forget it....who cares.  The new One World Order has won anyways.  Do we have to start wearing common uniforms now like in those science fiction movies?

Vincent Vega's picture

Speaking of solvency...anybody noticed lately? We will hit $15T debt in about 2 hours.

ebworthen's picture

Being provided credit when you can't pay your bills because you don't have sufficient income simply tightens the noose, or nudges the horse away from you, or both.

Decreased spending and increased revenue based upon organic growth is the only solution but unpalatable to profiteers and politicians who get bonuses, kickbacks, and contributions based on quarterly cycles.

common_sense's picture

                                              =========    GAME   OVER    ==========

                                               =========    GAME   OVER    ==========

                                                =========    GAME   OVER    ==========

----------------                     PLEASE INSERT COIN               ---------------

----------------                     PLEASE INSERT COIN               ---------------

----------------                     PLEASE INSERT COIN               ---------------


*to get money, please contact our FED supervisor, berni bernike. thanks.

Gringo Viejo's picture

Moved here in '72 and lived the California dream. It was a great place until the socialists took it down the shitter.

BennyBoy's picture



01 EuroTrash Spreads

02 Greek defaulting on their default

03 Spanish Fly in the ECB ointment

04 Monti--Goldman's Boy In Rome

05 Greek PM Papademos hired Squid to cook books in 2001

06 Libor--Truth in Lending Rates

07 Pyramid Schemes made EZ--EFSF

08 Corzine spotted floating face down in East River

09 Monti forms new Italian govt with no politicians--GS alum only.

10 Bernanke's Beard Trimmings on Ebay

bernorange's picture

And the men who spurred us on
Sit in judgment of all wrong
They decide and the markets sing the song.

integrale's picture

Does anyone know if the ECB counts as a member of the "interbank market" in terms of setting LIBOR?  The official LIBOR-setting question is:

At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?

If the ECB counts, the max answer anyone could ever give is 2% (ECB liquidity facility). If it doesn't, the sky's the limit:  if no one wants to lend to e.g. BNP Paribas, their borrowing rate could be way higher than 2%....

slewie the pi-rat's picture


Liquidity, Solvency, And Timing
  1. get drunk
  2. snort crank
  3. try to play golf
swani's picture

They are going to squeeze the tax payers of the world for all that they can get until they revolt. They will not take their medicine, they will not accept losses, they are criminals and they will stop at nothing. And since they have infiltrated all areas of government, even replacing the leaders of sovereign nations with central bank proxies, I don't see any hope. The Ponzi will continue for a while longer, the sheeple will be on the hook and forced to pay. The sheeple are getting wise and this could pose a problem but they have the Patriot Act to deal with that, maybe this is a good time for starting another profitable war of distraction.


mick_richfield's picture

And since they have infiltrated all areas of government, even replacing the leaders of sovereign nations with central bank proxies, I don't see any hope.

If the Perversion were on the verge of collapse -- what do you think it would look like?  Would it look weak and trembly?  Or would it look like -- this?



Mediocritas's picture

This is something that I've been banging on about for ages, good to see it being stated by Peter. This is not a liquidity crisis, it's a solvency crisis.

As Peter correctly points out, attempts to target liquidity do nothing unless it results in the real hot potato being traded away from the financial sector, and that hot potato is risk, both unrealized (eg, Greek debt) and already detonated (eg, subprime MBS with high defaults).

So what ends up happening is that insolvency trades hands. Sounds mad doesn't it? Who the hell wants to buy insolvency / commit financial suicide. Why, who else? The Fed!

It's the only option open. They can fuck around endlessly with rescue funds, bailout facilities, liquidity injection, etc, but ultimately, we end up in one place and one place only: central banks acquire all the insolvency and then they slowly print it away or sit on it for decades and allow governments to slowly tax it away. Either way, the write off ends up being paid for by general society, not the crooks who caused the mess. Unless societies are prepared to tolerate shocking and rapid debt/deflation, this is where we end up.

Meanwhile, that's just the central bank angle. How much justice we end up scrounging out of this depends on the ability of governments to eliminate corruption (ie eliminate lobbying by the FIRE sector). Obviously, given history, I'm not optimistic about the future of the USA, but there is still potential for something of a stick-save here, in theory existing regulations could be actually applied, older, better regulations could be reinstated (eg Glass-Steagall). If governments are going to tax society for decades to slowly bailout an insolvent central bank (rather than resorting to inflation), then there should be a heavy bias on taxing the shit out of the FIRE sector, to the point of eliminating it.

Is that likely to happen? No damn way. These parasites have burrowed in far too deep. I don't have any solution for this shit that doesn't involve the guillotine on Wall St.