Wednesday 12 December 2007

Credit crunch solved at last

Today saw a big move by all the Western central banks to try and ease the liquidity problems that banks have been having. Effectively they have all agreed to accept a wide variety of collateral in return for loans at normal rates.

All sorted now then. [This sentence is issued with a warning; laughing too hard can split your sides]

This means no Northern Rock style punishment for having to go cap in hand to the Banks. So why now? Why not a couple of weeks ago?

I see 3 main reasons:

1. With year end approaching all banks need more cash than usual to close out books for the year and maintain ratios. The crunch had been getting worse and may have taken down a major institution.

2. The UBS move of this week, to go desperately to the Middle East for funding, was threatening to put many of the major Western firms into the hands of sovereign funds and oil rich investors. It was therefore quite important that 'we' sorted our problems out before 'they' took too much of the action. Citigroup, Barclay's and others had already done a UBS previously.

3. With bonus' due banks need loads of cash to pay their staff. Most of the world's central bankers are ex-Goldman Sachs or other investment houses and did not want their friends to go short; it would have ruined all their Christmas' social parties. [this sentence may contain wildly exaggerated statements[

Did I miss any?


Anonymous said...

[this sentence may contain wildly exaggerated statements]

OK, I give. Where were the exaggerations?

Mark Wadsworth said...

"4. Total panic has set in and they can't think straight any more"?

Your point 2 illustrates this - if wealthy foreigners are happy to fund all this by getting in at the top of the market (c. Tim W) then we should be welcoming them with open arms!!

Foreign ownership of UK assets is A Good Thing, because we then have them over a barrel!

CityUnslicker said...

Matt - I had a fear of too many lawyers reading this...

Mark - It does still depend on whether you think they are acting with political rather than economic motives.

yes it could be a re-run of the Japan disaster of investing in the US (quite likely) or we could end up with stock markets heading out to Dubai etc, which I can't see is in our long term interests; just because we splurged too much cheap money.

Anonymous said...

If Johnny Arab invests in our banks, then we can eventually pay him back for his stealing our oil by our stealing his banks. I don't see any equivalent for Johnny Singapore, though; we surely have no bone to pick with him. Perfectly decent cove. Earned his position in the world fair and square. Sets a good example, by and large.

Anonymous said...

Sadly it hasn't worked. Libor rates are still sky high. Whats worse is that Gold suddenly leapt up. Now if only all those banks actually HAD any collateral...

...problem is what they have is a stack of people not paying their mortgages and a bunch of derivatives that no-one can pin down as to who actually owns the underlying assets (if indeed there ever were any). So of about as much interest to the central banks as collateral as it currently is to the financiers (Citigroup and UBS had to pay junk bond rates for their bailouts, so we can only assume that they are really in the do-do if they need hard cash that badly).

All the central banks have managed to achieve is demonstrate that the banking crisis is a REAL banking crisis and not one based merely on an unfortunate lack of confidence, so it appears to be backfiring at the mo.

Mark Wadsworth said...

Dearieme "we can eventually pay him back for his stealing our oil by our stealing his banks"

I am sure that I agree with the overall thrust of this, but I think :

(1) it's their oil - what they appropriated/stole/nationalised is oil rigs and stuff owned by UK or US-based companies. Hugo Chavesz take note - it doesn't work, you'll be back weeping in five or ten years because your twat of a brother-in-law lacks the expertise to run a highly sophisticated operation like that!

(2) We're not actually stealing his banks - we've sold them at several times market value, and if worst comes to worst, we'll just appropriate/steal/nationalise them again. In a gentlemanly sort of way by reintroducing Advance Corporation Tax for foreign shareholders at 75% of dividends paid, or something.

Jeremy Jacobs said...

you cynic!

idle said...

The UBS solution was quite clever, under the circumstances. Singapore is the Switzerland of the East and UBS is by far the biggest wealth manager there. So selling a slug to the Singapore Govt seems to me to be good long term thinking. There is a banking secrecy law and they speak Chinese dialects. QED.

CityUnslicker said...

I think Anon has it about right, unfortunately!

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