There is a very interesting case thought of sharing across on the CDS market which may results in to two possible futures for the big banks. In one, the various efforts to “make banking boring” – more onerous capital and liquidity regulation, clearing and futurization of derivatives, bans on prop trading, calls to break up big banks, and so forth – would create amazing opportunities for people with the intelligence, motivation, and shall we say aesthetic sensibilities to find new ways to accomplish their non-boring goals within a shifting framework. Just like changes in the tax code create work for smart tax lawyers, so changes in banking regulation View full article »
Tag Archive: LINE OF CREDIT
It’s not mandatory that all good investors are good writers and visa viz that all good finance writers are good investors. It’s the experience of the people who is good or bad that counts . Here again some of the best remarks from Peter Lynch :
- When the operas outnumber the football games three to zero, you know there is something wrong with your life.
- Gentleman who prefers bonds don’t know what they are missing.
- Never invest in any idea you can’t illustrate with a crayon.
- You can’t see the future through a rear view mirror
- There’s no point paying Yo-Yo Ma to play a radio.
- As long as you’re picking a fund, you might as well pick a good one.
- The extravagance of any corporate office is directly proportional to management’s reluctance to reward the shareholders.
Stocks down, gold down, oil down, copper down, EU periphery debt down. The day is shaping up to be the worst for risk thus far in 2012.
The deal is turning on the screws, my last post on where ISDA Under criticism on GREECE indicates that Investors are under pressure to sign up to the deal, which will see them lose almost three-quarters of the value of their bonds.
Greece wants creditors who hold 90% or more of the debt to agree. If take-up falls below that but exceeds 75%, it is expected to force losses on those who do not willingly sign up, known as collective action clauses (CACs). View full article »
This week is going to be fun; With Greece at the end of a gun; Will they resist? And get really pissed? Please wake me up when it’s done….
In the mean time during the weekend A “source in Berlin said Germany’s proposal was aimed not just at Greece but also at other struggling euro zone members”. German Economy Minister Demands Surrender Of Greek Budget Policy, First Of Many Such requests.Roesler statement means Germany will next demand Portuguese fiscal policy hand over. Then Spanish. Then Italian ????
When Greece is trying to reach a deal with private sector creditors that would pave the way for additional bailout funding. S&P confirming even after the deal Greece “in all likelihood” qualify as a default.
IMF warned yesterday and reduced its forecast growth for the world 2012 amid concerns with the European Crisis and the IMF chairman confirmed that the debt crisis in Europe is the biggest threat, Christine Lagarde also pointed to the challenges facing the U.S. economy.
Yesterday the talks fall apart and Greece is stuck with Troika (EU/ECB/IMF) on the one hand and Bondholders on the other.So here Greece acting as an intermediary( reference entity) where the Bond holders demanding 4% coupon on the restructured debt that is not acceptable by the Troika.
How much the aviation industry owe to Indian government guess?? Only two of the major air line Kingfisher and Air India owe a total of INR 360crores.
The condition looks bizarre and they are burdened by debts and losses.
The only sigh of relief that came yesterday night when the news broke out that FDI in airlines may get a nod, Kingfisher, Jet Air fly high. But there is one hurdle by the regulator SEBI it might have to make this an exception to save this sector. As per the SEBI norms a 25% stake triggers an open offer. This should be exempted from the aviation sector 26% FDI cap will otherwise be breached due to the open offer.
View full article »
- When ever RBI wants to hit the market with big orders to make the difference, In order to make a material difference they have to be in the market with at least $2 to $3 a day.
- Impact in the market after RBI intervention:
- If RBI sells $2.75 billion a day the reserve of $275 will be wiped out very soon
- When RBI sells dollars and buys rupees, this sucks liquidity out of the market. The side effect of selling dollars would be a sharp rise in domestic interest rates. In other words, monetary policy would get hijacked by currency policy. This would not be wise. Monetary policy should be focused on delivering low and stable inflation: it should have no ulterior motives
- Suppose you and I saw a market price of Rs.45 per dollar, which is created by RBI and not a market reality. We would know that in time, the truth will out, that the price will go back to Rs.52 a dollar. The rational trading strategy for each of us would be: To sell any and every domestic asset, and shift money out of the country. This would trigger off an asset price collapse in India .
On6 December 2011Bank of Englandposted on its website information about the new financial instrument, which main goal is to preserve liquidity during the shortage as to save the financial stability of the country.
“In light of the continuing exceptional stresses in financial markets, the Bank of England is today announcing the introduction of a new contingency liquidity facility, the Extended Collateral Term Repo (ECTR) Facility. This Facility is designed to mitigate risks to financial stability arising from a market-wide shortage of short-term sterling liquidity. There is currently no shortage of short-term sterling liquidity in the market. But should that position change, the new Facility gives the Bank additional flexibility to offer sterling liquidity in an auction format against the widest range of collateral. The introduction of the ECTR Facility underlines the Bank’s commitment to take appropriate measures to maintain UK monetary and financial stability.
The ECTR Facility will form part of the Sterling Monetary Framework and is reflected in an update to the Bank’s “Red Book”. In conjunction with the Indexed Long-Term Repo (ILTR) operations, and the permanent availability of the Discount Window Facility (DWF) for bilateral transactions, the ECTR Facility will give the Bank the ability to ensure that the banking sector has a sufficient access to sterling liquidity to mitigate risks arising from unexpected shocks.
Operations under the Facility will be announced at the discretion of the Bank to respond to actual or prospective market-wide stress. The operations would offer sterling for 30 days against collateral pre-positioned for use in the Bank’s Discount Window Facility (DWF). All firms registered for access to the Bank’s DWF would be eligible for ECTR operations. The size of any ECTR operation would be announced the day prior to the operation. Further operational details are available in the accompanying Market Notice.” (www.bankofengland.co.uk)
A week before is taken other but similar decision by six of the largest central banks namely Bank of Canada, Federal Reserve, The Swiss Central Bank, Bank of Japan, Bank of England and European Central Bank. They announced coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity. These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be:
the U.S. dollar overnight indexed swap (OIS) rate + 50 basis points.
This pricing will be applied to all operations conducted from December 5, 2011 to February 1, 2013.
As of December 2011 the LIBOR-OIS spread, which is important indicator for how likely borrowing banks will default, stands 40+ bps level or approximately 30 bps more than average 1Y value in 2007.
In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.
As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise. These swap lines are authorized through February 1, 2013 too.
By my friend Marina Peneva
The Europe dithering govt can easy be blamed, but it’s the Washington that looks decisive.
In truth, there’s not much too choose between them. When you strip away the superficial differences you’re left with politicians on both sides of the Atlantic who fear the electoral consequences of betraying there base: Whether it’s German chancellor Angela Merkel, President Obama or Speaker of the House John Boehner.
In Europe, as well as the US, their “too little too late” decision-making is making headlines. This is what passes for leadership these days. It’s pathetic.
Unfortunately this time Politicians are not the real culprit in the melodrama going on in Europe, the contagion could lead the way to US.
It’s the speculators who are making the latest global financial crisis worst. They’ve set up shop in Wall Street and High Street and make a living bringing economies perilously close to collapse.
Green light in 2000 allowed them to leverage beyond there means and the rampage ever since.
Oil, gold, wheat and silver are just some of their favorite targets in the past decade. Their latest?
Speculators are picking apart Europe’s bond market country by country. First Greece, then Ireland, followed by Portugal, Spain, Italy and France.
And now Germany.
And they’ve been getting a free pass, because their buying and selling of bonds represents the supposed sacrosanct free market.
And we all know that when free markets are allowed to operate unencumbered by rules and intrusive politicians, the end result is fair prices.
So if bond prices are going down and yields are going up, that’s merely the markets serving as the proverbial canary in the coalmine warning us that the finances of these countries are in big trouble.
So how would this play out in the government bond markets?
Those investors expecting interest rates to rise and prices to fall would “short” bonds, meaning borrowing bonds for a fee and then selling them.
If they’re right they can buy them back later for a lower price. Their profit is the difference between the selling and purchase price.
If they’re wrong the holders of these bonds, normally the Treasuries, win. So what’s the problem here?
Nothing if these was normal circumstances. But they’re not. There is a great deal of concern over the future viability of certain European countries, with Greece topping the list.
But is Italy in the same category as Greece? Is France or Germany (they could only sell 61% of their bonds last week)?
This is simply the herd behavior of speculators taking over the bond markets.
The paper describes how the European banks intermediate the US dollar funds and influenced the credit conditions in US. Hyung Song suggested that the culprit for the easy credit conditions in US up to 2007 may have been “Global Banking glut” rather than the “Global saving glut”
The paper is based on the hypothesis that the cross border banking and the fluctuating leverage of the global banks are the channels through which permissive financial conditions are transmitted globally, focusing on the impact of global liquidity on advanced economies.
The gross capital inflows to the United States represent lending by foreign (mainly European) banks via the shadow banking system through the purchase of private label mortgage-backed securities and structured products generated by the securitization of claims on US borrowers. In this way, European banks may have played a pivotal role in influencing credit conditions in the United States by providing US dollar intermediation capacity.
Comparatively Euro zone had a roughly balanced current account while the UK is actually a deficit country.
The Paper also provides an opportunity to study why it was Europe that saw rapid increase in banking capacity and why did European (and not US) banks expand intermediation between US borrowers and savers?
The conclusion ends with a remark and a question why the European banks expanded so rapidly in the decade beginning in 1999.Introdution of the EURO lead to free-floating of money (bank liabilities) in the euro zone across borders but the asset size remained stubbornly local and immobile.
Link to the source paper. http://www.princeton.edu/~hsshin/www/mundell_fleming_lecture.pdf