Swap lines in a narrow range
Posted by WARREN MOSLER on February 20th, 2009
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February 20th, 2009 at 4:30 pm
ECB did the normal weekly 7-day ($66B) USD auction this week…
ECB current totals for USD$ operations:
3 rolling 84-day auctions outstanding: $105B (11 + 24 + 70)
28-day: $15B
7-day: $66B
So they have decreased the collateralized funding this week.
Totals of all outstanding auctions (3 maturities):
$212B as of Nov 18
$224B as of Nov 20
$236.5 as of Nov 28
$294B as of Dec 2
$267B as of Dec 10
$262B as of Dec 16
$246B as of Dec 17
$257B as of Dec 23
$254B as of Dec 30
$237B as of Jan 7
$227B as of Jan 15
$229B as of Jan 22
$186B as of Jan 27
$179B as of Feb 9
$190B as of Feb 11
$186B as of Feb 19
Post is getting lengthy but I include past amount for trend. The next 3-mo. auction is scheduled for next week Feb 24th, when the $70B on the oldest of the rolling 3-mo. is going to roll off. Expect the amount to drop if the last two 3-mo. operations are an indication.
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February 20th, 2009 at 5:51 pm
New (Jan 15, 09)H.4.1 Report Line Item: “Mortgage Backed Securities”
this week up $55B to $63B; maybe another $450B to go:
From Fed Chairmans Speech at Nat. Press Club this week:
“The Federal Reserve’s third set of tools for supporting the functioning of credit markets involves the purchase of longer-term securities for the Fed’s portfolio. For example, we are purchasing up to $100 billion in the debt of government-sponsored enterprises (GSEs) and up to $500 billion in mortgage-backed securities guaranteed by federal agencies by midyear.”
http://www.federalreserve.gov/newsevents/speech/bernanke20090218a.htm
BTW this speech covered alot about Fed Operations “101″ (which fortunately I already knew thanks to TCOTU!) but it is still good to see a high public official reiterate the fundamentals once in a while, especially lately.
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February 20th, 2009 at 8:16 pm
Matt
I’ve been closely following your detective work. Thanks for your efforts and posting these details here.
Regards
Paul
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Matt Franko Reply:
February 22nd, 2009 at 8:51 pm
Paul, your welcome, I hope it provides some quick objective insight. I have mostly been focused on the ECB/Europe, but Japan has caught my interest lately due to the high absolute amount the BOJ has drawn vs the small amount of collateralized operations they are doing, begs the question: What is the BOJ doing with the other $100B?
BTW the Fed/Treasury reported to Congess on Feb 12 the 4th qtr 08 foreign exchange issues:
http://www.ny.frb.org/markets/quar_reports.html
It provides a summary of the swaps, etc. for the 4th qtr of last year which was a most tumultuous qtr. If you look towards the back of the full report (pg 14), I interpret that the Fed made over $2.6B of investment income for the qtr on these swaps (I’m trying to figure out how it was invested). As Warren Mosler has said here: “it’s good to be the Fed!”.
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February 24th, 2009 at 7:42 am
ECB did 84-day op today ($19B) USD auction…
ECB current totals for USD$ operations:
3 rolling 84-day auctions outstanding: $54B (11 + 24 + 19)
28-day: $15B
7-day: $66B
So they have decreased the collateralized funding this week.
Totals of all outstanding auctions (3 maturities):
$212B as of Nov 18
$224B as of Nov 20
$236.5 as of Nov 28
$294B as of Dec 2
$267B as of Dec 10
$262B as of Dec 16
$246B as of Dec 17
$257B as of Dec 23
$254B as of Dec 30
$237B as of Jan 7
$227B as of Jan 15
$229B as of Jan 22
$186B as of Jan 27
$179B as of Feb 9
$190B as of Feb 11
$186B as of Feb 19
$135B as of Feb 24
While the ECB auction allotments (at 1.25%) have been coming down, the US Feds 28-day TAF auctions (at 0.25%) have been going up:
Dec: $63B
Jan: $107B
Feb: $142B
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February 25th, 2009 at 7:48 am
ECB did 7-day op today ($75B) USD auction…
ECB current totals for USD$ operations:
3 rolling 84-day auctions outstanding: $54B (11 + 24 + 19)
28-day: $15B
7-day: $75B
Totals of all outstanding auctions (3 maturities):
$212B as of Nov 18
$224B as of Nov 20
$236.5 as of Nov 28
$294B as of Dec 2
$267B as of Dec 10
$262B as of Dec 16
$246B as of Dec 17
$257B as of Dec 23
$254B as of Dec 30
$237B as of Jan 7
$227B as of Jan 15
$229B as of Jan 22
$186B as of Jan 27
$179B as of Feb 9
$190B as of Feb 11
$186B as of Feb 19
$135B as of Feb 24
$144B as of Feb 25
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February 25th, 2009 at 10:08 am
Matt
Thanks for the data.
The $ swaps appear to be on a down trend which, frankly, is shocking given what’s going on in both Western and Eastern European banking.
My guess is that it’s a red herring, a deliberate attempt by the ECB to (falsely) signal that things are beginning to stabilize, fearing that a large increase in swaps would further damage confidence and send the whole system in a downward spiral.
Just looking at the level of loan exposure and the leverage in the system, it’s hard to see how this thing doesn’t end very badly, especially given the fiscal-policy challenged ECB framework.
Those interested might want to check out this blogger, who along with a few others, such as Michael Hudson, was the first to point out the financial madness taking place in countries like Latvia and Hungary.
http://edwardhughtoo.blogspot.com/
A few key points from his blog:
“The total quantity of debt outstanding is hard to put a precise number on, but the Bank for International Settlements estimated that, as of last September, more than $1.25 trillion had been leant by eurozone banks [To Central and Eastern Europe], and if you add in U.K., Swedish and Swiss bank liabilities the number rises to $1.45 trillion.â€ÂÂ
Austrian loan exposure to the East ($290 b) is equivalent to 70% of its GDP
“The Austrian government has already announced it is trying to raise support for a general European Union initiative to rescue the region’s banking system. The government has set aside 100 billion euros in cash and guarantees to stabilize its banking sector. Next in line in terms of exposure are Italy ($232 billion), Germany ($230 billion) and France ($175 billion).â€ÂÂ
Note: The $1.45 trillion is total loan exposure (mostly euros) translated back to US$, not $US dollar exposure per se. It would be interesting to find out how much of that $1.45 trillion is actual dollar exposure.
But whether dollars or Euros, for Eastern Europe it is still a non-sovereign exposure and still spells trouble.
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Matt Franko Reply:
February 25th, 2009 at 2:18 pm
Knapp,
Thanks for the info, on my one post above, I recorded how as the ECB auctions for dollars (at 1.25%) have been falling, the US Feds TAF auctions (at 0.25%) have been rising. Could US Banks be getting TAF funds and offering them to Euro instituitions and undercutting the ECB on price with the same collateral in the market to provide USD liquidity?
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knapp Reply:
February 25th, 2009 at 5:58 pm
Matt
Clever thought and it wouldn’t surprise me. European institutions probably need more dollars than their central banks have been willing to supply, so TAF-funded US banks are a likely second-best source of funds.
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Matt Franko Reply:
February 25th, 2009 at 7:25 pm
Knapp,
Got into your post a little more this evening.
One thing I dont understand is how an Austria can “set aside” 100B which is probably over 20% of GDP for its banks when the Treaty says that a country cannot exceed 3% gdp for a current year deficit? If they would have to appropriate the funds that would put them way over. The other day I read that Ireland put e7B into just 2 banks that is 3% of GDP right there. Is there no enforcement mechanism?
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knapp Reply:
February 25th, 2009 at 10:43 pm
Maastricht enforcement is dead, until the crisis blows over or the euro blows up, whichever comes first. My money is with the latter.
Heard from a friend that Deutsche Bank’s liabilities are greater than Germany’s GDP. So plenty of de-leveraging to go even in the “stable” countries within the Eurozone.
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Scott Fullwiler Reply:
February 25th, 2009 at 10:54 pm
Knapp . . . didn’t know Michael was blogging . . .what’s his web address?
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February 26th, 2009 at 12:12 am
Hey Scott,
Michael Hudson is not blogging but he pops up all over the web on places like Democracy Now and on his own website michael-hudson.com
Here he is on Latvia in last week’s Counterpunch:
“Latvia is a poster child for this kind of disaster. Its recent agreement with Europe is a case in point. To help the Swedish banks withdraw their funds from the sinking ship, EU support is conditional on Latvia’s government agreeing to cut salaries in the private sector – and not to raise property taxes (currently almost zero).
The problem is that Latvia, like other post-Soviet economies, has scant domestic output to export. Industry throughout the former Soviet Union was torn up and scrapped in the 1990s. (Welcome to victorious finance capitalism, Western-style.) What they had was real estate and public infrastructure free of debt – and hence, available to be pledged as collateral for loans to finance their imports. Ever since its independence from Russia in 1991, Latvia has paid for its imported consumer goods and other purchases by borrowing mortgage credit in foreign currency from Scandinavian and other banks. The effect has been one of the world’s biggest property bubbles – in an economy with no means of breaking even except by loading down its real estate with more and more debt. In practice the loans took the form of mortgage borrowing from foreign banks to finance a real estate bubble – and their import dependency on foreign suppliers.
So instead of helping it and other post-Soviet nations develop self-reliant economies, the West has viewed them as economic oysters to be broken up to indebt them in order to extract interest charges and capital gains, leaving them empty shells. This policy crested on January 26, 2009, when Joaquin Almunia of the European Commission wrote a letter to Latvia’s Prime Minister spelling out the terms on which Europe will bail out the Swedish and other foreign banks operating in Latvia – at Latvia’s own expense:
‘Extended assistance is to be used to avoid a balance of payments crisis, which requires … restoring confidence in the banking sector [now entirely foreign owned], and bolstering the foreign reserves of the Bank of Latvia. This implies financing … outstanding government debt repayments (domestic and external). And if the banking sector were to experience adverse events, part of the assistance would be used for targeted capital infusions or appropriate short-term liquidity support. However, financial assistance is not meant to be used to originate new loans to businesses and households. …
… it is important not to raise ungrounded expectations among the general public and the social partners, and, equally, to counter misunderstandings that may arise in this respect. Worryingly, we have witnessed some recent evidence in Latvian public debate of calls for part of the financial assistance to be used inter alia for promoting export industries or to stimulate the economy through increased spending at large. It is important actively to stem these misperceptions’.”
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Jim Baird Reply:
February 26th, 2009 at 11:34 am
All you need to do to understand the IMF is to rent “Goodfellas” and fast forward to the scene where they “bust out” the restaurant…
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February 26th, 2009 at 3:51 pm
Question for everyone, how does all of this impact the future of “LIOBR”? Just curious…
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Matt Franko Reply:
February 26th, 2009 at 7:33 pm
Paul M, Warren spoke about libor on Mike Normans show I think this past Monday, early segments.
http://www.mikenormaneconomics.org
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