Combined commercial and industrial loans and commercial paper show a leveling off after the initial drop.
Back in mid 2006, I remember commenting that I thought the government deficit was no longer high enough (given everything else that was going on) to support the credit structure.
The last push up was largely a product of fraudulently obtained sub prime and Alt-A loans.
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Seems banks have taken up much of the slack from the commercial paper markets, but at wider spreads.
Bodes well for bank earnings while it lasts, as the real economy manages to chug along, led by exports.
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Increase FDIC insurance to include deposits up to $10 million for private sector agents.
Unlimited FDIC insurance for Fed advances to US banks.
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News Headline:
| Credit Suisse Writes Down $5.26 Billion |
Over the last few years, I’ve been saying that with diversity risk is pretty well spread out.
Seems to have been the case – risk seems to have been well diversified.
Losses seem to be spread around more evenly than in the past with no one major US company failing as of yet due to losses per se.
But that also meant that in the adjustment process total losses would build to higher levels before the ‘cycle’ reversed and might be higher than in previous cycles.
Up 11% ex financials, and if you do it ex financial writeoffs and include financial operating earnings its higher than that.
The risks to 2008 come from perceived risks of a general slowdown that hasn’t happened yet.
They also point to the January payroll number to support their 2008 concerns. Yes, payrolls are a concern which may solidify if the first revision next month isn’t upward by at least 50,000.
http://license.icopyright.net/user/viewFreeUse.act?fuid=NzM4NTU2 .
Q4 Earnings Really Weren’t Too Bad  Except For Banking
by Ed Carson
Corporate profits can be boom or bust. Right now they’re both. With 58% of the S&P 500 reporting results as of Monday morning, fourth-quarter earnings are on track to dive 20.7% from a year earlier, according to Thomson Financial. It would be the worst showing since the fourth quarter of…
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(an interoffice email)
Deep,
Interesting!
In the case of a bank failure, Spain still is the entity that would
repay depositors. To get the funds Spain would somehow liquidate the
failed bank. If the loss was large enough so that Spain couldn’t
raise the funds to pay off the depositors (via both liquidating the
bank and attempting to borrow in the credit markets) payment to the
depositors would be delayed until Spain did raise the funds.
The ECB would either return the mtg collateral to Spain for payment,
or, if Spain would not or could not receive the collateral vs payment,
the ECB would liquidate the collateral and hold Spain responsible for
any deficiency balance.
This makes the ECB much like any other depositor, but with collateral
as security.
It does not reduce the risk of loss to bank shareholders should the
mtgs not perform.
It does not remove ultimate liability from Spain.
It does not involve risk to the ECB beyond that of Spain paying for
any deficiency, and presumably the ECB isn’t loaning at 100% of market
value.
It does not create a ‘moral hazard’ issue as bank shareholders and
Spain are still in first loss position for any loan losses.
It does prevent a disruptive ‘fire sale’ from ‘technical volatility’
of forced liquidations.
It does provide bank funding at the ECB’s target rate for interbank
lending, which is what the target is all about, so that seems ok?
I have no problem with institutional structure that doesn’t use the
liability side as a source of ‘market discipline’ and instead uses
capital requirements/ratios/gap rules, etc. and regulates the asset
side as well?
And with the right haircuts and regs funding non bank mtg production
can likewise suit public purpose.
>Spanish banks funding mtgs at the ECB
>
> Shortcut to:
> http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/28/bcnspa
> in128.xml
>
>
>
Dear Philip,
Yes, as in my previous posts, bank stability is all about credible deposit insurance.
I would go further, and have all regulated, member banks, be able to fund via an open line to the BOE at the BOE target rate.
That would eliminate the interbank market entirely, and let all those smart people doing those jobs go out and do something useful, maybe cure cancer, for example!
This would not change the quantity of retail bank deposits, only the rate paid on those deposits, which would be something less than the BOE target rate. Loans create deposits so they are all still there, but with this proposal all the banks would necessarily bid a tad less than the BOE target rate for deposits. And note this pretty much the case anyway.
With insured deposits market discipline comes from via capital requirements, and regulators also tend to further protect their
insured deposits by creating a list of ‘legal assets’ for banks, as well as various other risk parameters. The trick is to make sure the shareholders take the risk and not the govt.
This would change nothing of macro consequence but it would enhance the efficiency and stability of the banking sector, presumably for further public purpose.
Note to that the eurozone has the same issue, only perhaps more so, as the ECB is prohibited by treaty from ‘bailing out’ failed banks. Hopefully this gets addressed before it is tested!
All the best,
Warren
On Jan 5, 2008 7:46 PM, <noreply@sundayherald.com> wrote:
>
>
> Hi Warren Moslder,
>
> Philip Arestis stopped by Sunday Herald
> website and suggested that you visit the following URL:
>
> http://www.sundayherald.com
>
> Here is their message …
>
> Dear Warren,
>
>
>
> Interesting developments over here. Would it make much difference I wonder.
>
>
>
> Best wishes, Philip
>
>
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