GFC 2

DB008 · 20 May 2012

Worthy of a look.
BBC - The Great Euro Crash with Robert Peston
(Gets interesting around the 25 minute mark and delves into how Greece 'cooked the books')

http://www.guardian.co.uk/tv-and-radio/2012/may/17/great-euro-crash-robert-peston?newsfeed=true

stacks · 20 May 2012

cynic said:
+1

I too eagerly await the demise of the original GFC. GFC1 was hastily swept under a "magical" carpet woven from financial bailouts/stimulus whilst still in its infancy. Now that the financial liquidity is drying up, the "magic" is wearing out. GFC1 is once again rearing its ugly head. It has been well nourished by financial stimulus/bailouts/quantitive easing etc. and has grown even bigger than before.

Hopefully those political/economic geniuses that thought fighting fire with kerosene was a good idea, will learn something from their previouse follies - but I won't be holding my breath!

I doubt the central bankers of the world will allow the 'financial liquidity to dry up'.

As far as resolving the problems in Europe, I can see more coordinated central bank moves in the not too distant future. Their form is on the board, they have no other option now. Another GFC 1 type event would make the previous trillions spent on QE, LTRO etc. programs redundant if they stopped now.

Interesting to see the markets response though. And by 'market' I'm including the general European public. Its one thing to provide unlimited liquidity to the big players to allow continuing function, its another thing entirely once individuals lose confidence in their banking system and start withdrawing money from their bank. Unless this response from individuals happens in Europe happens, I wouldnt discount the upcoming moves by the central monetary authorities staving off a major crisis.

The China debate while obviously related to moves in Europe is another matter entirely...

Julia · 20 May 2012

cynic said:
+1

I too eagerly await the demise of the original GFC. GFC1 was hastily swept under a "magical" carpet woven from financial bailouts/stimulus whilst still in its infancy. Now that the financial liquidity is drying up, the "magic" is wearing out. GFC1 is once again rearing its ugly head. It has been well nourished by financial stimulus/bailouts/quantitive easing etc. and has grown even bigger than before.

Hopefully those political/economic geniuses that thought fighting fire with kerosene was a good idea, will learn something from their previouse follies - but I won't be holding my breath!

+1.

stacks said:
I doubt the central bankers of the world will allow the 'financial liquidity to dry up'.

As far as resolving the problems in Europe, I can see more coordinated central bank moves in the not too distant future. Their form is on the board, they have no other option now. Another GFC 1 type event would make the previous trillions spent on QE, LTRO etc. programs redundant if they stopped now.

So this would continue ad infinitum? Layer upon layer?

StumpyPhantom · 20 May 2012

stacks said:
I doubt the central bankers of the world will allow the 'financial liquidity to dry up'.

As far as resolving the problems in Europe, I can see more coordinated central bank moves in the not too distant future. Their form is on the board, they have no other option now. Another GFC 1 type event would make the previous trillions spent on QE, LTRO etc. programs redundant if they stopped now.

Interesting to see the markets response though. And by 'market' I'm including the general European public. Its one thing to provide unlimited liquidity to the big players to allow continuing function, its another thing entirely once individuals lose confidence in their banking system and start withdrawing money from their bank. Unless this response from individuals happens in Europe happens, I wouldnt discount the upcoming moves by the central monetary authorities staving off a major crisis.

The China debate while obviously related to moves in Europe is another matter entirely...

I thought this was just the "pouring kerosene on fire" argument by another name? It wasn't the central bankers that had anything to do with liquidity drying up last time.

The Lehmann Brothers collapse caused the inter-bank lending to freeze up almost overnight. What the Federal Reserve didn't do was to prop up the dead corpse (like it did a couple of weeks earlier with a bank whose name I can't remember).

For months after this, central bank liquidity sloshed around but no-one was prepared to risk it by lending to someone else.

So this is where the 'bank runs' are currently headed. It would take a large-ish European bank (Societe Generale?) to keel over for everyone to think the same way again. At this point, the dilemma for the central banks isn't going to be about pumping the system with liquidity.

That's easy compared to the 'moral hazard' in propping up failed businesses, even if they could do so. That's the other problem, how much have they got in reserve to do some of this, without then spiralling the global economy into a decades-long deflationary spiral?

Julia · 20 May 2012

StumpyPhantom said:
The Lehmann Brothers collapse caused the inter-bank lending to freeze up almost overnight. What the Federal Reserve didn't do was to prop up the dead corpse (like it did a couple of weeks earlier with a bank whose name I can't remember).

Bear Stearns?

StumpyPhantom · 20 May 2012

Julia said:
Bear Stearns?

Yep - that's it. It would have been far more appropriate to have let the bears lose with the collapse of Bear Stearns.

young-gun · 20 May 2012

cynic said:
+1

I too eagerly await the demise of the original GFC. GFC1 was hastily swept under a "magical" carpet woven from financial bailouts/stimulus whilst still in its infancy. Now that the financial liquidity is drying up, the "magic" is wearing out. GFC1 is once again rearing its ugly head. It has been well nourished by financial stimulus/bailouts/quantitive easing etc. and has grown even bigger than before.

Hopefully those political/economic geniuses that thought fighting fire with kerosene was a good idea, will learn something from their previouse follies - but I won't be holding my breath!

agreed, no one wants to see deflation/contraction. it's not pretty, but unfortunately it comes with the territory of living beyond our means for far too long.

lol, when it comes to learning from mistakes i think you will find the financial world is the equivalent to a bunch of goldfish(unless im mistaken and the fishies memories do actually span further than 10 seconds).

as you say, in trying to prevent catastrophe, they have indeed fed this monster into something much larger, and far worse, it is not(and never really was) containable.

the only thing that will determine when total collapse occurs is how much longer they can print and stimulate for. i personally think they are reaching their limits, but wouldnt be surprised so see a qe3, and more LTR's from europe. it's quite evident that more and more stimulus is required to achieved the desired effect, all the while lasting less and less each time.

stacks · 20 May 2012

StumpyPhantom said:
I thought this was just the "pouring kerosene on fire" argument by another name? It wasn't the central bankers that had anything to do with liquidity drying up last time.

The Lehmann Brothers collapse caused the inter-bank lending to freeze up almost overnight. What the Federal Reserve didn't do was to prop up the dead corpse (like it did a couple of weeks earlier with a bank whose name I can't remember).

For months after this, central bank liquidity sloshed around but no-one was prepared to risk it by lending to someone else.

So this is where the 'bank runs' are currently headed. It would take a large-ish European bank (Societe Generale?) to keel over for everyone to think the same way again. At this point, the dilemma for the central banks isn't going to be about pumping the system with liquidity.

That's easy compared to the 'moral hazard' in propping up failed businesses, even if they could do so. That's the other problem, how much have they got in reserve to do some of this, without then spiralling the global economy into a decades-long deflationary spiral?

Bear Stearns.

I wouldnt say its like putting kerosene on a fire, more like building a slow burning timber enclosure around a fire and stacking some tankers of kerosene on top. In the hope that they can find a big enough hose later.

I agree if SocGen goes the way of Lehman Bros we are all in big trouble. I wasn't arguing that.

I think they (central banks) learnt the Lessons of Lehman, lol, and wont let a SocGen go under without a fight. The trillions they have spent so far will have been in vain. I think they will act before that happens.

And its not about how much they have in reserve, its about how much they create.

Im sure the day of reckoning will come but the powers of the central banks to delay it, I think, should not be underestimated. Unless, as I said, the public trust in the banking system dies and the people says 'no mas'.

I think its interesting the contrast of the German and US (and UK) approaches: Germany still bearing the inflationary scars of the Weimar episode and continually preaching balanced budgets and austerity; the US bearing the deflationary scars of the Great Depression and all in favour of printing money to stimulate growth.

Would love to have been a fly on the wall at Camp David. Although Angelas tone seems to have moderated recently with slightly more mentions of growth and less of austerity in her speeches. Maybe Obama turned on that famous charm and promised her one of Bens printers, on the condition she only uses it profusely...

young-gun · 20 May 2012

stacks said:
I doubt the central bankers of the world will allow the 'financial liquidity to dry up'.

it's not upto them as has been mentioned.

As far as resolving the problems in Europe, I can see more coordinated central bank moves in the not too distant future. Their form is on the board, they have no other option now. Another GFC 1 type event would make the previous trillions spent on QE, LTRO etc. programs redundant if they stopped now.

everything they have done has been redundant anyway. what they have achieved is one gigantic can kick.

Interesting to see the markets response though. And by 'market' I'm including the general European public. Its one thing to provide unlimited liquidity to the big players to allow continuing function, its another thing entirely once individuals lose confidence in their banking system and start withdrawing money from their bank. Unless this response from individuals happens in Europe happens, I wouldnt discount the upcoming moves by the central monetary authorities staving off a major crisis.

StumpyPhantom said:
I thought this was just the "pouring kerosene on fire" argument by another name? It wasn't the central bankers that had anything to do with liquidity drying up last time.
So this is where the 'bank runs' are currently headed. It would take a large-ish European bank (Societe Generale?) to keel over for everyone to think the same way again. At this point, the dilemma for the central banks isn't going to be about pumping the system with liquidity.

I think the simple fact that people are acknowledging the very real possibility of banks runs being introduced in the very very near future shows just how much trouble we are in.

The China debate while obviously related to moves in Europe is another matter entirely...

absolutely, but a very important one for good old aus

Julia said:
+1.

So this would continue ad infinitum? Layer upon layer?

doesn't sound like a viable option to me

i found a suitable emoticon for whats happening - :microwave

anywho, it may appear to be getting closer, but we all know that everyone is gonna step in and try to prevent it one last time, so id say we're safe for another...6-12 months??

StumpyPhantom · 20 May 2012

stacks said:
Bear Stearns.

I wouldnt say its like putting kerosene on a fire, more like building a slow burning timber enclosure around a fire and stacking some tankers of kerosene on top. In the hope that they can find a big enough hose later.

I agree if SocGen goes the way of Lehman Bros we are all in big trouble. I wasn't arguing that.

I think they (central banks) learnt the Lessons of Lehman, lol, and wont let a SocGen go under without a fight. The trillions they have spent so far will have been in vain. I think they will act before that happens.

And its not about how much they have in reserve, its about how much they create.

Im sure the day of reckoning will come but the powers of the central banks to delay it, I think, should not be underestimated. Unless, as I said, the public trust in the banking system dies and the people says 'no mas'.

I think its interesting the contrast of the German and US (and UK) approaches: Germany still bearing the inflationary scars of the Weimar episode and continually preaching balanced budgets and austerity; the US bearing the deflationary scars of the Great Depression and all in favour of printing money to stimulate growth.

Would love to have been a fly on the wall at Camp David. Although Angelas tone seems to have moderated recently with slightly more mentions of growth and less of austerity in her speeches. Maybe Obama turned on that famous charm and promised her one of Bens printers, on the condition she only uses it profusely...

OK - now that we're seemingly singing prayers from the same hymn sheet, the task is to try and quantify the 'contagion', assuming no Central Bank intervention.

I don't want to sound too optimistic a note here, for fear of undermining my 'bear aura', but trying to compare it with GFC1, is it possible the contagion can be limited after the initial panic phase?

The reason I'm thinking this is that the inter-bank lending froze instantaneously because nobody knew who was holding the toxic debt.

This time around, besides having had the panic experience once before (a person taken out to sea in a rip the second time would have more of a clue if he/she didn't drown the first time), would everyone just take out their calculators and work out that you and me 'bank runners' are pretty small fry compared to the trillions in multiplied toxic debt and, after the initial change of undies, the banks would just settle into this new order and get on with business?

I know it's not that simple, but GFC2 is destined to be different to GFC1, and I'm trying to put a finger on what to watch out for.

stacks · 20 May 2012

young-gun said:
it's not upto them as has been mentioned.

Was it not up them late last year? So it wasn't the ECB who released LTRO and kicked off the New Year rally?

young-gun said:
everything they have done has been redundant anyway. what they have achieved is one gigantic can kick

Sort of agree but I would say not redundant, just buying time. This was admitted by ECB board member Benoit Couere in the doco above. For what though? seems they are still looking for a solution that causes only bearable pain for the public. The current pain was too much. The PTB might be hoping for a slow grind of living standards in profligate countries to reduce the debt problems. But the public need to sign on and good luck with that.

young-gun said:
I think the simple fact that people are acknowledging the very real possibility of banks runs being introduced in the very very near future shows just how much trouble we are in.

Plenty of reports of big deposit withdrawls in European banks lately. If you are not ackowledging this, you are not looking. I know what Id be doing if I had money in a Greek bank

Glen48 · 20 May 2012

Whilethe feds world wide keep propping up the banks it tells them to do what they like or think best ( pay a large bonus)the bankesters don't have to be accountable as the taxpayer will cover any thing they do, until a few more are send broke nothing will change until the plug is pulled on the money making machine or it all grinds to a halt.

young-gun · 20 May 2012

stacks said:
Sort of agree but I would say not redundant, just buying time. This was admitted by ECB board member Benoit Couere in the doco above. For what though? seems they are still looking for a solution that causes only bearable pain for the public. The current pain was too much. The PTB might be hoping for a slow grind of living standards in profligate countries to reduce the debt problems. But the public need to sign on and good luck with that.

you just have to look at greece, the people are more than happy to vote in parties that are ready to wipe the austerity measures that are supporting them(in way of bailouts).

Plenty of reports of big deposit withdrawls in European banks lately. If you are not ackowledging this, you are not looking. I know what Id be doing if I had money in a Greek bank

large amounts yes, but i don't think it constitutes as a 'bank run' just yet. completely agree, i would like to think i would have been out some time ago.

by definition a bank run leaves the bank with insufficient reserves, and are unable to fund any further withdrawals. which i would imagine would leave the bank virtually unable to function?

stacks · 20 May 2012

StumpyPhantom said:
OK - now that we're seemingly singing prayers from the same hymn sheet, the task is to try and quantify the 'contagion', assuming no Central Bank intervention.

I think there will be central bank intervention, that was my point.

StumpyPhantom said:
This time around, besides having had the panic experience once before (a person taken out to sea in a rip the second time would have more of a clue if he/she didn't drown the first time), would everyone just take out their calculators and work out that you and me 'bank runners' are pretty small fry compared to the trillions in multiplied toxic debt and, after the initial change of undies, the banks would just settle into this new order and get on with business?

The 'bank runners' public arent small fry. The sub prime/Lehman/GFC1 was bought about by individual people not paying their loans, that was the catalyst, lots of small fry. Regardless of how much liquidity central banks provide, individual deposits are vital to banks, as is trust. Sovereign debts, Greece in particular, are obviously vital but given the time to prepare, they may less of an isssue

stacks · 20 May 2012

young-gun said:
large amounts yes, but i don't think it constitutes as a 'bank run' just yet. completely agree, i would like to think i would have been out some time ago.

by definition a bank run leaves the bank with insufficient reserves, and are unable to fund any further withdrawals. which i would imagine would leave the bank virtually unable to function?

I didnt say it was a 'bank run'

stacks · 20 May 2012

Julia said:
So this would continue ad infinitum? Layer upon layer?

I didnt say ad infinitum, but I think their is more layers to come. Otherwise the layers used to date will be worthless. One major reason is I really cant see any central banker ready to admit his policies have been a failure and they have wasted trillions of dollars.

They've played their hand and I think they will stay the course until they no longer have the power.

StumpyPhantom · 20 May 2012

stacks said:
The 'bank runners' public arent small fry. The sub prime/Lehman/GFC1 was bought about by individual people not paying their loans, that was the catalyst, lots of small fry. Regardless of how much liquidity central banks provide, individual deposits are vital to banks, as is trust. Sovereign debts, Greece in particular, are obviously vital but given the time to prepare, they may less of an isssue

Agree they're not small fry, but FINITE fry in the sense that you can count them.

The problem with the sub-prime one was that it was multiplied many times over with the CDOs (collateral debt obligations) etc. so nobody knew who was holding what and who was next.

The run on banks here (Greece and Spain) relates to removing the Euros from the banking systems that might have to exit, so as to avoid massive devaluation.

stacks · 20 May 2012

StumpyPhantom said:
Agree they're not small fry, but FINITE fry in the sense that you can count them.

The problem with the sub-prime one was that it was multiplied many times over with the CDOs (collateral debt obligations) etc. so nobody knew who was holding what and who was next.

The run on banks here (Greece and Spain) relates to removing the Euros from the banking systems that might have to exit, so as to avoid massive devaluation.

Multiplication of the subprime issue was caused by CDO's but the trigger was individuals not paying loans. I believe the trigger may again be individuals.

The 'banking run' that you refer to is not a banking run at all. A 'run' is a withdrawl of deposits. If (when?) Greece leaves the eurozone, the problem will be loan defaults by Greece businesses and government.

Sovereign debt has largely been written off in the PSI program and with the LTRO program, banks may have prepared for this. Should have prepared for this really. The increased talk is that Greece leaving will be less painful than it once was because of this. BUT we'll see.. If we get there it will be messy, question is how messy...

Starcraftmazter · 20 May 2012

Yep, the world is heading into a very long and nasty depression.

Vixs · 21 May 2012

I try (obviously in vain) to try and keep abreast of things, but I just can't work out how everybody loses in this scenario.

Who is winning? Who is getting the losers money? If the solution to all of this is to keep printing more money while trying to balance that against the risk of hyperinflation or deflation...who is the printed money going to?

WHO has the bank account that's getting bigger off taxpayer funded bailouts?

When we've answered that, can someone please explain how it's not cheaper for the world to go to war with them and take it all back? Seriously. Where is it going and why can't it be recovered?

It's gotta be cheaper to kill them. Wish I was kidding.

PS: I'm not angry or personally affected detrimentally, this isn't the ranting of a loon...I just can't work out where it all goes, and I'm not a bloody idiot. No wonder the masses don't care.

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