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The ECB and the euro: Too central a banker?

The ECB and the euro: Too central a banker? | Banking, Finance, Capital Markets | Scoop.it

Sep 7th 2012, 14:49 by A.L.G. | BRUSSELS

 

WHEN European leaders declare that they will do whatever is necessary to protect the euro zone, most people just yawn. But when Mario Draghi, president of the European Central Bank, said the same in July, everybody took notice.

 

This week plaudits (and some protests) have been showered on Mr Draghi after he confirmed on September 6th (over the explicit objections of Germany's Bundesbank) that the ECB would resume buying the bonds of troubled countries—on strict condition that stricken countries submit to formal, externally monitored reform programmes. (The details are here, the transcript of the press conference is here and the assessment of my fellow Economist blogger is here).

 

Often in the crisis the ECB has appeared to be the only thing standing between the euro and the abyss. This has brought it ever greater influence. The proposed new banking supervisor for the euro zone will be an offshoot of the ECB (see my column this week, Eurobankingfragilistic). Moreover, the ECB's officials are part of the troika that monitors and enforces countries' compliance with their bail-out conditions. And when it comes to the future of the euro zone, Mr Draghi has become the most explicit of the “four presidents” (of the ECB, the European Council, the European Commission and the Eurogroup of finance ministers) who are drafting a “road map” for future integration (their first report is here)

All this raises a question: is the ECB becoming too powerful? Is it straying too far from a central banks’ role of setting interest rates and controlling inflation? Is it becoming too overtly political?

 

Figures close to the ECB argue that, at a time when Europe is confronting its greatest economic crisis since the second world war, European institutions must respond with the imperfect means at their disposal. The European Union, or even the euro zone, is not a federal state. So it is up to the most integrated parts of it to show leadership.

 

That the ECB should take such a central role is in many ways a reflection of the failure of the euro-zone’s political leaders to bring the debt crisis under control in more than two years of emergency summits and bail-outs. There reasons are many: publics are reluctant to give up sovereignty and share risks to the degree needed to stabilise the currency; parliaments are reluctant to give out taxpayers' money; debtor states are resistant to demands for ever more austerity. None of Europe’s leaders except Germany's chancellor, Angela Merkel—and probably not even her—can resolve the crisis alone. Yet every leader can place obstacles in the way of solutions. So progress, when it takes place, is measured in haphazard half-steps, which never quite satisfies investors who want certainty.

 

Mr Draghi is in an entirely different position. Whereas politicians must raise money from taxpayers, the ECB can in theory print unlimited quantities of the stuff. As an independent central banker he is accountable to no government or parliament—only to other unelected central bankers in the ECB's governing council. The only real obstacle is the Bundesbank's chief, Jens Weidmann. But in a body where Germany has the same vote as Greece, Mr Weidmann can easily be outvoted—as he was this week. Despite his denunciation of the bond-buying plan, Mr Weidmann shows no sign of resigning in protest.

 

Mr Draghi is supposed to rise above base politics, yet he takes part in every European summit. His public pronouncements are studied like Greek oracles. The high priest of Europeanism does not officially negotiate with leaders. But Like Jean-Claude Trichet before him, he sends messages to political leaders from the top of the Eurotower in Frankfurt, listens for a response and then pronounces.

Last December Mr Draghi spoke vaguely of the need for a “fiscal compact” and, lo, leaders agreed to a new treaty enshrining balanced-budget rules. Mr Draghi then sprayed the banks with €1 trillion worth of cheap money.

 

Now Mr Draghi is setting conditions more explicitly. Forget “light” forms of conditionality. The ECB said it would resume its dormant bond-buying programme only if two conditions were met. First, countries needing help must ask for it and submit to a fully-fledged programme agreed and monitored by European institutions (and preferably by the IMF too). Second, the rescue funds should start buying bonds in the primary market. This could be done by the temporary European Financial Stability Facility, or the new improved European Stability Mechanism that should soon enter into force, pending a ruling by Germany's constitutional court on September 12th.

 

In the past, the ECB’s conditions would be spelled out in secret letters, for instance when the ECB started buying Italian bonds last year (see my earlier blog post here). Now the ECB wants the conditions to be made explicit by governments. Bond-buying would end when the (unspecified) objective had been achieved, says Mr Draghi, or if the country in question breached the terms of its reform programme.

 

Mr Draghi, then, is not going to stand in the front line wielding the ECB's big bazooka. But if others man the trenches, he will provide artillery support from the rear to avert a catastrophe. Mr Draghi himself uses a different image: the response to the crisis has to stand on “two legs”. ECB action without reforms would be ineffective. But he also acknowledges that reforms by governments are taking too long to bear fruit and need to be supported by the ECB.

 

Mr Draghi justifies his action with the argument that high yields faced by southern European governments are not only the product of a higher credit risk, but also the result of markets' “unfounded” fear that the euro would break up. The former is a matter for governments, but the risk of currency redenomination is the ECB's business because it impedes “the transmission of monetary policy”. It is an appealing argument, but hard to put a number on the extra interest countries are paying because of the convertibility risk.

Nevertheless, Mr Draghi insists the euro is irreversible. The ECB's intervention in the market is aimed at removing the “tail risk” of a break-up. At his press conference a journalist cheekily asked why it was Mr Draghi's job to ensure the euro’s irreversibility. By what authority could he decide what currency countries should use? Mr Draghi offered no real answer.

 

Even if one accepts the premise that saving the euro is part of the ECB's mandate, Mr Draghi is straying into awkward territory. The ECB's independent action has been made dependent on fickle politicians. At least indirectly, Mr Draghi will be bargaining with governments over the terms of their reform programme.

 

To the irritation of the ECB and Brussels institutions, the Spanish prime minister, Mariano Rajoy, has prevaricated for weeks over whether to seek more assistance, declaring he would wait to see the ECB's terms before deciding whether to ask for help. What if Mr Rajoy takes the money but is later deemed to have missed its targets for reform? If Mr Draghi really cuts off a country like Spain, he would surely be calling into question the future of the euro after all.

There are other worries. Next week the European Commission will propose placing all of the euro zone's 6,000-odd banks under an ECB-directed central supervisor. Many worry that, despite the attempt to place a Chinese wall between the supervisory and monetary roles, the ECB's hallowed independence will become compromised by taking on the huge new task. Can the ECB really separate its decisions on inflation-fighting from its growing role in ensuring financial stability? Perhaps more importantly, would the ECB’s reputation for competence survive a major failure of supervision?

 

Then there is the question of how to fix the design flaws of the euro zone. An article written by Mr Draghi last month for the German daily, Die Zeit, caused much excitement because the mention of “exceptional measures” seemed to confirm that the bond-buying programme would be restarted.

 

In fact, most of the piece set out Mr Draghi’s vision for the economic and political integration of the euro zone. It is not just the currency that should be irreversible, he said, but also the whole “historic process of European unification”. In his view, stabilising the euro would require political integration that stops short of a full federation.

 

...this new architecture does not require a political union first. It is clear that monetary union does entail a higher degree of joint decision-making. But economic integration and political integration can develop in parallel. Where necessary, sovereignty in selected economic policy fields can and should be pooled and democratic legitimation deepened.How far should this go? We do not need a centralisation of all economic policies. Instead, we can answer this question pragmatically: by calmly asking ourselves which are the minimum requirements to complete economic and monetary union. And in doing so, we will find that all the necessary measures are firmly within our reach.For fiscal policies, we need true oversight over national budgets. The consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed.

 

For broader economic policies, we need to guarantee competitiveness. Countries must be able to generate sustainable growth and high employment without excessive imbalances. The euro area is not a nation-state where persistent cross-regional subsidies have sufficient popular support. Therefore, we cannot afford a situation where some regions run permanently large deficits vis-à-vis others.For financial policies, there need to be powers at the centre to limit excessive risk-taking by banks and regulatory capture by supervisors. This is the best way to protect euro area taxpayers. There also needs to be a framework for bank resolution that safeguards public finances, as we see in other federations. In the U.S., for example, on average about 90, mostly smaller, banks per year have been resolved since 2008 and this had no impact on the solvency of the sovereign.Political union can, and shall, develop hand-in-hand with fiscal, economic and financial union. The sharing of powers and of accountability can move in parallel. We should not forget that 60 years of European integration have already created a significant degree of political union. Decisions are made by an EU Council filled by national ministers and by a directly elected European Parliament. The challenge is to further increase the legitimacy of these bodies commensurate with increasing their responsibilities and to seek ways to better anchor European processes at the national level...


It is hard to imagine any other central banker setting out such a detailed political blueprint for economic and constitutional reform. Then again, the ECB is no ordinary central bank and these are no ordinary times. In a crisis it may make sense for a trusted figure to offer direction, even to take risks. But it is not a role that an unelected central banker can play for too long.

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La politique économique avant et pendant la crise

La politique économique avant et pendant la crise | Banking, Finance, Capital Markets | Scoop.it
Publié le 12/09/2012


Le libéralisme est accusé à tort d'avoir provoqué une "financiarisation" de l'économie, et donc la crise. Réexamen des politiques économiques menées avant et pendant la crise.
Par Vladimir Vodarevski.

 

Discerner la politique économique menée dans le monde avant et après la crise n'est pas aisé, tant les médias sont pauvres en analyses et en débats économiques. La responsabilité de la crise est, dans les grands médias, généralement attribuée aux marchés financiers. L'idée simpliste développée est que le monde a connu des politiques libérales et de dérégulation après la crise de 1973, qui ont constitué une rupture avec les politiques keynésiennes et interventionnistes de l'après deuxième guerre mondiale. Ces politiques auraient entraîné une "financiarisation" de l'économie, et la crise. Il n'y a pas de débat sur le sujet, aucun questionnement.


Pourtant, une analyse plus fouillée, un simple questionnement, un simple regard sur les faits montrent une réalité bien différente. Ainsi, la libéralisation de l'économie mondiale, et des marchés financiers, est-elle réelle? La financiarisation de l'économie est un fait, mais son origine n'est pas le libéralisme. Car un élément primordial de la politique économique est totalement ignoré dans les médias : l'expansionnisme monétaire. Cet expansionnisme est la principale caractéristique de la politique économique suivie avant la crise, mais aussi pendant. La monnaie est devenu la variable utilisée pour contrôler l'économie, la relancer, atténuer une éventuelle surchauffe. Le tout accompagné d'un encadrement strict du monde de la finance.


La dénonciation courante de "l'ultralibéralisme" suppose que l’État se désengage de l'économie. La progression des dépenses publiques indique pourtant clairement le contraire. De même, les déficits budgétaires des pays occidentaux montrent de façon criante que la politique budgétaire a toujours été à l'honneur. En fait, seule l'Allemagne, depuis une dizaine d'année, est engagée dans une diminution à la fois de son déficit et de ses dépenses publiques. Il y a aussi la Suède, mais elle part de très loin : la dépense publique a représenté plus de 70% du PIB. Quant au Royaume Uni, présenté comme un parangon de libéralisme, durant la seconde partie du mandat de Tony Blair, et pendant celui de Gordon Brown, la dépense publique a augmenté, l'emploi public servant à soutenir la croissance.


Le marché du travail n'est pas non plus vraiment libéralisé. En France, les réglementations du marché du travail se sont accumulées, et ont été considérablement alourdies par rapport aux années 1960. Les lois Auroux, les 35h, les plan de sauvegarde en cas de licenciement, les prudhommes qui interviennent dans la gestion de l'entreprise en jugeant de la nécessité de licencier ou non avec la notion de motif économique de licenciement (même si cette notion est tellement subjective qu'elle aboutit surtout à une insécurité juridique).


Dans d'autres pays, le marché du travail a peu évolué. En Allemagne, Gerhard Shroder a ouvert quelques possibilités, mais ce sont surtout les syndicats qui ont fait preuve de réalisme, sans que les règles changent. En Espagne, il y a eu de légers changement, mais la réglementation reste très rigide. En Italie, le patron de Fiat organise des référendums dans les usines pour changer les règles. Le Royaume Uni a connu sa révolution, avec Margaret Thatcher. Même si Tony Blair, puis Gordon Brown, ont à nouveau rigidifié la réglementation avec par exemple un salaire minimum, ce pays reste un exemple de révolution. D'ailleurs, l'emploi résiste aujourd'hui malgré la crise.


La mondialisation est aussi évoquée comme une rupture et un symbole de "l'ultra-libéralisme". Mais, qu'est-ce que la mondialisation ? Ce n'est pas l'ouverture des pays au commerce par la diminution des droits de douanes. En effet, cette ouverture a débuté après la deuxième guerre mondiale, avec les accords du GATT. Et elle est bloquée depuis une quinzaine d'années. Il n'y a pas un vaste espace mondial de libre-échange : les droits de douanes existent toujours. De plus, l'ouverture est régulée, avec notamment la création de l'OMC.


La véritable rupture, c'est l'émergence de certains pays, dont la Chine. Ces pays ont commencé à adopter certains principes de l'économie de marché, ce qui a permis leur développement. Donc, la mondialisation est effectivement due à une libéralisation, limitée. Mais pas du commerce mondiale, ni des pays développés.


Les privatisations sont aussi considérées comme un symbole de la libéralisation de l'économie. Cependant, elles ne représentent pas un basculement du modèle économique. En Europe de l'Ouest, ce sont simplement quelques entreprises, parmi toutes celles qui étaient déjà privées, qui sont dénationalisées. C'est dans les anciens pays communistes que le paradigme a changé. Dans les pays qui étaient déjà des économies de marchés, les dénationalisations ont simplement rajouté quelques entreprises au secteur privé, qui était déjà l'essentiel du tissu économique.
Examinons maintenant le cas des marchés financiers, accusés d'avoir provoqué la crise actuelle, qui est nommée "crise financière". Le libéralisme est accusé d'avoir provoqué une "financiarisation" de l'économie, et donc la crise.


Il est vrai que les marchés financiers se sont ouverts, se sont internationalisés, et se sont développés. Cependant, leur mode de développement est loin d'avoir été libéral. Ce n'est pas parce que l'appellation de "marché" est usité que les règles de l'économie de marché sont respectées.


En effet, le secteur financier n'est pas régi par les règles de l'économie de marché. D'abord, ses principaux acteurs, les banques, voient leur comportements strictement encadrés par les critères de Bâle. Ces critères sont établis par le Comité de Bâle, qui se présente ainsi : « Le Comité de Bâle sur le contrôle bancaire, institué en 1975 par les gouverneurs des banques centrales des pays du Groupe des Dix, rassemble les autorités de contrôle des banques. Il est composé de hauts représentants des autorités de contrôle bancaire et banques centrales d’Allemagne, de Belgique, du Canada, d’Espagne, des États-Unis, de France, d’Italie, du Japon, du Luxembourg, des Pays-Bas, du Royaume-Uni, de Suède et de Suisse. Ses réunions ont habituellement pour cadre la Banque des Règlements Internationaux, à Bâle, siège de son Secrétariat permanent. » Les recommandations de ce comité sont appliquées par les pays occidentaux.


Le comité de Bâle encadre strictement le comportement des banques. Il détermine le niveau de fonds propres en fonction des engagements de la banque. Par exemple, une banque doit immobiliser moins de fonds propres si elle prête à un État que si elle prête à une entreprise. C'est aussi le comité de Bâle qui a consacré le rôle des agences de notation. Celles-ci sont critiquées. Pourtant, c'est la réglementation qui oblige les banques à tenir compte de la notation. Et la réglementation définit aussi les obligations des agences de notation.


D'autres réglementations ont imposé les agences de notation. La Uniform Net Capital Rule, aux USA, en est un autre exemple, et la Nationally Recognized Statistical Rating Organization (NRSRO) définit une liste d'agences agréées. (Cf. Le surprenant pouvoir des agences de notation ).


Les décisions des acteurs du monde de la finance sont donc largement influencées, et même contraintes, par la réglementation. Ce n'est pas une économie de marché, où chacun est libre de ses décisions. Et où chacun doit assumer ses erreurs. Car, dans le système actuel, le respect de la réglementation implique un soutien des États aux établissements en difficultés. Alors qu'en économie de marché, c'est la responsabilité, le fait de devoir assumer les pertes, qui oblige à la prudence. La nationalisation des pertes est le contraire de l'économie de marché.


Les marchés financiers se sont également développés car il y avait une abondance de liquidités prêtes à s'y déverser. Ces liquidités ont été fournies par les banques centrales. Là est la plus grande rupture dans la politique économique depuis l'après deuxième guerre mondiale : la politique d'expansion monétaire pour soutenir l'économie.


À partir de 1944, la politique monétaire mondiale est régie selon les dispositions des accords de Bretton Woods. Selon ces accords, le dollar est convertible en or, selon une parité fixe. Les autres monnaies ne sont pas convertibles en or directement, mais leur valeur est définie par rapport au dollar. C'est donc une sorte d'étalon or indirect. Les pays devaient donc faire attention à leur création monétaire, et faire en sorte d'avoir toujours en réserve suffisamment de dollars. Sauf les USA, qui étaient liés par la parité du dollar en or, mais ne l'ont pas respectée, ce qui a mis fin aux aux accords de Bretton Woods, avec la fin de la convertibilité du dollar en or en 1971. Avant cette date, les États devaient donc gérer une création monétaire limitée, et ne pouvaient pas créer de la monnaie comme ils le souhaitaient pour, par exemple, relancer l'économie.


Après Bretton Woods, cela devint progressivement possible, au niveau mondial. L'avènement de l'euro a consacré cette politique en Europe. La Fed a ouvertement soutenu l'économie US par une politique de taux bas. La BCE, officiellement, a un objectif d'inflation. Mais elle n'a pas suivi les théories qui prônent la lutte contre l'inflation. Que ce soit la théorie quantitative de la monnaie, ou sa version remaniée, le monétarisme, toutes deux placent l'augmentation de la masse monétaire comme la cause de l'inflation. Or, la BCE n'a pas cherché à ralentir la croissance importante de la masse monétaire en euro. La Banque d'Angleterre a suivi le même type de politique. (Pour plus de détails, cf Monnaie et finances : de l'orthodoxie à l'expansionnisme.)


L'économie a donc été dirigée par le biais de la politique monétaire. Les taux étaient maintenus bas pour relancer l'économie, puis augmentés quand celle-ci était considérée en surchauffe. C'est cette création monétaire qui a également favorisé les dépenses publiques, par l'afflux de liquidités disponibles pour les financer. Cette politique a permis le soutien au crédit hypothécaire aux USA, ainsi que les crédits accordés à l'immobilier par les caisses d'épargne espagnoles.


La politique économique était donc la suivante : un pilotage de l'économie par la monnaie, et une réglementation dirigiste pour encadrer les organismes financiers. Rien à voir donc avec le libéralisme.


Cette politique économique trouve sans doute son inspiration dans le principe de la banking school, qui prône un relâchement du lien entre l'or et la monnaie, et chez Keynes et ses successeurs de la synthèse qui prônent la relance de l'économie, et qui croient pouvoir la contrôler par l'action sur des agrégats, comme le taux d'intérêt peut influencer l'activité économique.


Curieusement, cette politique économique a également une inspiration monétariste. En effet, les monétaristes accusent une brutale restriction monétaire de la Fed d'avoir aggravé la crise de 1929 et d'avoir conduit à la grande récession. Ce qui est compris comme une justification à la baisse des taux d'intérêt pour relancer l'économie. Or, le monétarisme conclut plutôt à l'effet perturbateur d'une politique monétaire dirigiste. Il prône une croissance continue et modérée de la masse monétaire, afin de ne pas perturber l'économie. Il y a donc une contradiction entre la politique de pilotage de l'économie par la monnaie et le monétarisme.


Après le déclenchement de la crise, c'est toujours la même politique économique qui est menée. Les banques centrales soutiennent l'économie par la création monétaire. La dépense publique augmente. La réglementation financière garde la même philosophie dirigiste. Les politiciens appellent en Europe à la création d'eurobonds, en vue d'accroître encore la dépense publique. La politique d'assainissement se met en place bien timidement. Elle est nommée "austérité", tandis que la politique d'expansion monétaire est nommée "politique de croissance".


Cette brève revue de la politique économique avant et après la crise montre que la libéralisation est inexistante. Et que les thèmes centraux sont l'expansionnisme monétaire, utilisé pour soutenir la croissance, et une réglementation financière interventionniste, dans le but officiel d'éviter les crises. Mais il y a eu crise. Et comme par hasard, elle est partie du secteur financier, le secteur le plus réglementé de l'économie.


La crise devrait pousser à s'interroger sur la politique économique dans laquelle elle s'inscrit. La politique de pilotage par la création monétaire ne devrait-elle pas être remise en cause ? Qu'est-ce qui la justifie réellement, sachant qu'elle se base sur des théories contradictoires, mêlant synthèse keynésienne et monétarisme ? Ne faudrait-il pas mener une autre politique ?


Cette interrogation échappe aux grands médias. Ainsi qu'aux débats politiques. Tous se focalisent sur la dénonciation d'un libéralisme inexistant qui occulte les questions essentielles, et dérangeantes peut-être, sans diffuser les vrais débats.

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Derivatives markets regulation : Unintended consequences

Derivatives markets regulation : Unintended consequences | Banking, Finance, Capital Markets | Scoop.it

Sep 12th 2012 by M.C.K. | WASHINGTON

 

AFTER the crisis, policymakers agreed that the opacity of the over-the-counter (OTC) derivatives market was a source of financial instability. In response, they decided to push derivatives trading onto exchanges that would require firms to post safe collateral. If one trader blew up, the exchanges could use this collateral to help net out positions. This would be a huge improvement over the old approach, where everyone bet with each other bilaterally and every failure cascaded throughout the entire financial system (cf. AIG and Lehman).

 

However, relatively tight fiscal policy, the private sector’s desire to rebuild its balance sheet, and central bank asset purchases are combining to deprive the system of enough safe collateral to support existing levels of trading. This in itself is not news; the ways that monetary “stimulus” can actually tighten financial conditions have been covered in many places, including here, while a wide variety of commentators have noted the need for the fiscal authorities to accommodate private deleveraging by creating more safe assets.

What is new, according to a thorough piece from Bloomberg, is how banks are reacting to these developments by offering to “transform” risky assets into “safe” collateral—for a fee, of course. According to Bloomberg, “at least seven banks plan to let customers swap lower-rated securities that don’t meet standards in return for a loan of Treasuries.” This will undo whatever was accomplished by pushing derivatives trading onto exchanges.

 

In a certain sense, “collateral transformation” represents the essential function of any financial intermediary, namely, assembling a portfolio of risky assets that is perceived to be safer than any individual asset in the portfolio. (Steve Waldman has previously made a provocative case that the value of banks is that they can systematically con cautious savers into funding risky enterprises, some of which actually pay off and make life better for everyone.) The banks hope that the collateral pledged by their swap customers will constitute a portfolio that, after collecting fees, will generate a greater return than a portfolio of Treasury bonds—without being any riskier. To make this work, the banks need to determine the extent to which their portfolios are actually diversified, which in turn will allow them to charge enough in fees to compensate them for the risks they are incurring.

 

But this is basically impossible over long periods. The distributions of returns in non-sovereign fixed income portfolios are about as non-normal as can be, yet conventional modeling techniques are based on average default probabilities over given time periods. It is difficult to imagine that banks will be able to properly protect themselves against the risk that their swap loans will go bad. This means that any single failure, for whatever reason, will be magnified and propagated throughout the financial system—precisely what the new rules were trying to prevent.

 

This is not the fault of the rules themselves. Rather, as mentioned above, it is the fault of the fiscal and monetary authorities, which have exacerbated the shortage of safe collateral by first failing to supply enough and then by removing whatever remains. The fiscal authorities are too busy trying to fight off the imaginary bond vigilantes and the monetary authorities are too busy creating bank reserves for either of them to notice that their actions are destabilizing the financial system.

 

Of course, there is another reasonable point of view, best expressed by Yves Smith: the problem is not the lack of collateral but the excessive size of the derivatives markets. In that case, financial reform has a very long way to go indeed.

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The ECB and the euro: Too central a banker?

The ECB and the euro: Too central a banker? | Banking, Finance, Capital Markets | Scoop.it

Sep 7th 2012, 14:49 by A.L.G. | BRUSSELS

 

WHEN European leaders declare that they will do whatever is necessary to protect the euro zone, most people just yawn. But when Mario Draghi, president of the European Central Bank, said the same in July, everybody took notice.

 

This week plaudits (and some protests) have been showered on Mr Draghi after he confirmed on September 6th (over the explicit objections of Germany's Bundesbank) that the ECB would resume buying the bonds of troubled countries—on strict condition that stricken countries submit to formal, externally monitored reform programmes. (The details are here, the transcript of the press conference is here and the assessment of my fellow Economist blogger is here).

 

Often in the crisis the ECB has appeared to be the only thing standing between the euro and the abyss. This has brought it ever greater influence. The proposed new banking supervisor for the euro zone will be an offshoot of the ECB (see my column this week, Eurobankingfragilistic). Moreover, the ECB's officials are part of the troika that monitors and enforces countries' compliance with their bail-out conditions. And when it comes to the future of the euro zone, Mr Draghi has become the most explicit of the “four presidents” (of the ECB, the European Council, the European Commission and the Eurogroup of finance ministers) who are drafting a “road map” for future integration (their first report is here)

All this raises a question: is the ECB becoming too powerful? Is it straying too far from a central banks’ role of setting interest rates and controlling inflation? Is it becoming too overtly political?

 

Figures close to the ECB argue that, at a time when Europe is confronting its greatest economic crisis since the second world war, European institutions must respond with the imperfect means at their disposal. The European Union, or even the euro zone, is not a federal state. So it is up to the most integrated parts of it to show leadership.

 

That the ECB should take such a central role is in many ways a reflection of the failure of the euro-zone’s political leaders to bring the debt crisis under control in more than two years of emergency summits and bail-outs. There reasons are many: publics are reluctant to give up sovereignty and share risks to the degree needed to stabilise the currency; parliaments are reluctant to give out taxpayers' money; debtor states are resistant to demands for ever more austerity. None of Europe’s leaders except Germany's chancellor, Angela Merkel—and probably not even her—can resolve the crisis alone. Yet every leader can place obstacles in the way of solutions. So progress, when it takes place, is measured in haphazard half-steps, which never quite satisfies investors who want certainty.

 

Mr Draghi is in an entirely different position. Whereas politicians must raise money from taxpayers, the ECB can in theory print unlimited quantities of the stuff. As an independent central banker he is accountable to no government or parliament—only to other unelected central bankers in the ECB's governing council. The only real obstacle is the Bundesbank's chief, Jens Weidmann. But in a body where Germany has the same vote as Greece, Mr Weidmann can easily be outvoted—as he was this week. Despite his denunciation of the bond-buying plan, Mr Weidmann shows no sign of resigning in protest.

 

Mr Draghi is supposed to rise above base politics, yet he takes part in every European summit. His public pronouncements are studied like Greek oracles. The high priest of Europeanism does not officially negotiate with leaders. But Like Jean-Claude Trichet before him, he sends messages to political leaders from the top of the Eurotower in Frankfurt, listens for a response and then pronounces.

Last December Mr Draghi spoke vaguely of the need for a “fiscal compact” and, lo, leaders agreed to a new treaty enshrining balanced-budget rules. Mr Draghi then sprayed the banks with €1 trillion worth of cheap money.

 

Now Mr Draghi is setting conditions more explicitly. Forget “light” forms of conditionality. The ECB said it would resume its dormant bond-buying programme only if two conditions were met. First, countries needing help must ask for it and submit to a fully-fledged programme agreed and monitored by European institutions (and preferably by the IMF too). Second, the rescue funds should start buying bonds in the primary market. This could be done by the temporary European Financial Stability Facility, or the new improved European Stability Mechanism that should soon enter into force, pending a ruling by Germany's constitutional court on September 12th.

 

In the past, the ECB’s conditions would be spelled out in secret letters, for instance when the ECB started buying Italian bonds last year (see my earlier blog post here). Now the ECB wants the conditions to be made explicit by governments. Bond-buying would end when the (unspecified) objective had been achieved, says Mr Draghi, or if the country in question breached the terms of its reform programme.

 

Mr Draghi, then, is not going to stand in the front line wielding the ECB's big bazooka. But if others man the trenches, he will provide artillery support from the rear to avert a catastrophe. Mr Draghi himself uses a different image: the response to the crisis has to stand on “two legs”. ECB action without reforms would be ineffective. But he also acknowledges that reforms by governments are taking too long to bear fruit and need to be supported by the ECB.

 

Mr Draghi justifies his action with the argument that high yields faced by southern European governments are not only the product of a higher credit risk, but also the result of markets' “unfounded” fear that the euro would break up. The former is a matter for governments, but the risk of currency redenomination is the ECB's business because it impedes “the transmission of monetary policy”. It is an appealing argument, but hard to put a number on the extra interest countries are paying because of the convertibility risk.

Nevertheless, Mr Draghi insists the euro is irreversible. The ECB's intervention in the market is aimed at removing the “tail risk” of a break-up. At his press conference a journalist cheekily asked why it was Mr Draghi's job to ensure the euro’s irreversibility. By what authority could he decide what currency countries should use? Mr Draghi offered no real answer.

 

Even if one accepts the premise that saving the euro is part of the ECB's mandate, Mr Draghi is straying into awkward territory. The ECB's independent action has been made dependent on fickle politicians. At least indirectly, Mr Draghi will be bargaining with governments over the terms of their reform programme.

 

To the irritation of the ECB and Brussels institutions, the Spanish prime minister, Mariano Rajoy, has prevaricated for weeks over whether to seek more assistance, declaring he would wait to see the ECB's terms before deciding whether to ask for help. What if Mr Rajoy takes the money but is later deemed to have missed its targets for reform? If Mr Draghi really cuts off a country like Spain, he would surely be calling into question the future of the euro after all.

There are other worries. Next week the European Commission will propose placing all of the euro zone's 6,000-odd banks under an ECB-directed central supervisor. Many worry that, despite the attempt to place a Chinese wall between the supervisory and monetary roles, the ECB's hallowed independence will become compromised by taking on the huge new task. Can the ECB really separate its decisions on inflation-fighting from its growing role in ensuring financial stability? Perhaps more importantly, would the ECB’s reputation for competence survive a major failure of supervision?

 

Then there is the question of how to fix the design flaws of the euro zone. An article written by Mr Draghi last month for the German daily, Die Zeit, caused much excitement because the mention of “exceptional measures” seemed to confirm that the bond-buying programme would be restarted.

 

In fact, most of the piece set out Mr Draghi’s vision for the economic and political integration of the euro zone. It is not just the currency that should be irreversible, he said, but also the whole “historic process of European unification”. In his view, stabilising the euro would require political integration that stops short of a full federation.

 

...this new architecture does not require a political union first. It is clear that monetary union does entail a higher degree of joint decision-making. But economic integration and political integration can develop in parallel. Where necessary, sovereignty in selected economic policy fields can and should be pooled and democratic legitimation deepened.How far should this go? We do not need a centralisation of all economic policies. Instead, we can answer this question pragmatically: by calmly asking ourselves which are the minimum requirements to complete economic and monetary union. And in doing so, we will find that all the necessary measures are firmly within our reach.For fiscal policies, we need true oversight over national budgets. The consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed.

 

For broader economic policies, we need to guarantee competitiveness. Countries must be able to generate sustainable growth and high employment without excessive imbalances. The euro area is not a nation-state where persistent cross-regional subsidies have sufficient popular support. Therefore, we cannot afford a situation where some regions run permanently large deficits vis-à-vis others.For financial policies, there need to be powers at the centre to limit excessive risk-taking by banks and regulatory capture by supervisors. This is the best way to protect euro area taxpayers. There also needs to be a framework for bank resolution that safeguards public finances, as we see in other federations. In the U.S., for example, on average about 90, mostly smaller, banks per year have been resolved since 2008 and this had no impact on the solvency of the sovereign.Political union can, and shall, develop hand-in-hand with fiscal, economic and financial union. The sharing of powers and of accountability can move in parallel. We should not forget that 60 years of European integration have already created a significant degree of political union. Decisions are made by an EU Council filled by national ministers and by a directly elected European Parliament. The challenge is to further increase the legitimacy of these bodies commensurate with increasing their responsibilities and to seek ways to better anchor European processes at the national level...


It is hard to imagine any other central banker setting out such a detailed political blueprint for economic and constitutional reform. Then again, the ECB is no ordinary central bank and these are no ordinary times. In a crisis it may make sense for a trusted figure to offer direction, even to take risks. But it is not a role that an unelected central banker can play for too long.

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US 'to return to gold standard within two years', says Euro Pacific Capital chief Peter Schiff

US 'to return to gold standard within two years', says Euro Pacific Capital chief Peter Schiff | Banking, Finance, Capital Markets | Scoop.it

By Andrew Trotman | 31 Aug 2012

 

A major US investor has predicted the world's leading economy will return to the gold standard within two years, giving further weight to Republican moves to set up a commission to look at the issue.

 

Peter Schiff, chief executive of Euro Pacific Capital, has argued that the US is heading for a currency crisis, and an immediate move to peg the dollar to gold is needed as the economy is caught in a "phony recovery".


"Eventually we will be back on a gold standard, not because politicians want it, but because the public demands it and the situation requires it," he told King World News. "We are headed for a currency crisis, and the only way we’re going to stop it is by putting real value back into the paper dollar. So we have to tie it to gold. "The sooner we do it the better because the sooner we start to repair the problems the easier it is. The longer we wait, the bigger the problems get. But I think it’s happening soon [a return to the gold standard], in a year or two."


The economy is so bad, Mr Schiff argues, that despite Ben Bernanke's speech today in which he is expected to dampen hopes of further monetary policy stimulus, the Federal Reserve chairman will soon be forced into another round of quantitative easing.

 

“QE3 is coming. You know we’ve got a phony recovery, so it’s going to fail. So we are going to get more QE. It’s not that we need it, but if we don’t have QE3, then we are back in recession," said Mr Schiff, who ran as a candidate in the Republican primary for the US Senate seat in Connecticut in 2010. "We have a lot of problems, and if we cure them it’s going to mean a short-term recession as we repair the damage. Until the Fed lets us have a real recession, as painful as that may be, we are never going to have a recovery."


Added to North America's economic woes, a "fiscal cliff" is looming. A number of tax increases and spending cuts are due at the end of the year that are expected to weigh heavily on growth and possibly drive the economy back into a recession.


Mr Schiff believes this will push the US into currency and debt crises, paving the way for a return to the gold standard.
"They want to keep growing the government, growing the deficits. That eventually means we will have a currency crisis, and a sovereign debt crisis, which will lay the foundation for a return to the gold standard."


The gold standard has returned to mainstream US politics for the first time in 30 years with a “gold commission” becoming part of official Republican party policy. This commission will look at whether a return to the gold standard is feasible.


Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of the committee, recently told the Financial Times: “These were adopted because they are things that Republicans agree on. The House recently passed a bill on this, and this is something that we think needs to be done.”


The proposal evokes memories of the Gold Commission created by Ronald Reagan in 1981, 10 years after Richard Nixon broke the link between gold and the dollar during the 1971 oil crisis. That commission supported the status quo.


Some argue a return to the gold standard would foster economic stability and prosperity, primarily by creating price stability, fixed exchange rates and placing limits government deficit spending as well as trade imbalances.


However, opponents believe it would limit the flexibility of governments and central banks in managing economies, restricting the ability to adjust money supply, government budgets and exchange rates.

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Why Return to Gold Standard Is Seen By Some as 'Ludicrous'

Why Return to Gold Standard Is Seen By Some as 'Ludicrous' | Banking, Finance, Capital Markets | Scoop.it

Published: Friday, 24 Aug 2012

 

The Republican Party’s idea to return to the gold standard is ludicrous and nonsensical and is simply a plan put forward by the political opposition to score points, according to analysts.

 

The Financial Times reported on Friday that the Republican Party plans to set up a commission to look into re-establishing the link between the dollar and gold as part of its platform to be unveiled at the party convention in Tampa Bay, Fla., next week.

 

But analysts told CNBC that the idea would not work. “I think it’s absolutely nonsensical,” Moorad Choudhry, head of treasury at the corporate banking division of the Royal Bank of Scotland told CNBC Friday. “There’s a very good reason they unhooked it in 1971, because their deficit didn’t enable them to maintain it with the supply of gold. In fact, is there enough gold in the world to back the U.S. debt?”

 

U.S. federal debt grew to $15 trillion at the end of 2011 from around $400 billion in 1971.

 

The Richard Nixon administration originally broke the link between gold and the dollar in the early 1970s amid surging inflation (learn more), rising costs from the Vietnam War, and an oil crisis.

Before that, fixed amounts of gold were directly convertible to the U.S. dollar and vice versa. That meant money supply theoretically was limited by the amount of gold backing it, and exchange rates were based on the difference in price for an ounce of gold between the dollar and a foreign currency.

 

“The idea for the U.S. economy is fiscal retrenchment, but it isn’t the gold standard,” Choudhry said, adding that the U.K. tried the same idea in the 1920s to no avail. “The U.S. deficit since 1971 is exponentially greater in size and it’s not possible now, whether you want to fight inflation, whether you want to fight fiscal control, gold standard is not the answer.”

 

Ralph Silva, director at Silva Research Network, told CNBC that when politicians were in opposition they could say “some ludicrous things.” “Back in the ’50s and before that, when you were making economic decisions on a quarterly basis you could move slowly. You’ve got to make decisions on a quarter-of-a-second basis here, and having a gold standard doesn’t allow you to make those changes as quickly,” he told CNBC Friday.

 

Silva said however that a gold standard would benefit Canadian and South African gold miners, as there simply wasn’t enough of the commodity available to back the money supply.

 

But the Republican proposal may not come to much. In 1981, for example, former U.S. President Ronald Reagan created a “gold commission” which decided not to go back to the gold standard.

Mary Jo Jacobi, former special assistant to President Reagan and Assistant U.S. Secretary of Commerce for President George G.W. Bush, told CNBC that a lot of the Republican Party faithful are keen to look at the adoption of the gold standard.

 

However, she couldn’t confirm it was an idea put forward by Mitt Romney’s newly announced running mate, Paul Ryan. “As I understand it there is an ‘audit the Fed’ plank in the Republican platform that was drafted yesterday,“ she said, suggesting that the GOP are planning to scrutinize the U.S. Federal Reserve (learn more) as a key part of their election manifesto. “What the commission will be able to do is look at all of the issues big and small,” she said. “Utah accepts gold now as a medium of exchange, so what do you do about all the gold that’s out there when you have the federal government, the central bank holding it?”

 

Jacobi accepted that in the short term a return to the gold standard would be highly destabilizing, despite it being designed to naturally control government spending. She also conceded that in the short term it may mean more volatility and unemployment (learn more), as the central bank wouldn’t be able to vary interest rates in certain situations.

 

Both analysts, Choudry and Silva, said the key goal for the U.S. should be fiscal discipline with the economy set to be the key issue in this November's presidential election. “I’m always intrigued how (Paul Ryan’s) prescription for cutting public expenditure looks at things like medical care and things like that, not at say the defense budget,” Choudhry said. “You could pull out of Afghanistan and save yourself a few hundred billion dollars a year. We didn’t have to fight wars through the last ten years and spend maybe a trillion on that.”

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Les banques françaises assurent ne plus spéculer, les analystes dubitatifs

Les banques françaises assurent ne plus spéculer, les analystes dubitatifs | Banking, Finance, Capital Markets | Scoop.it

1 juin 2012

 

Echaudées par la crise et sous la pression du régulateur, les banques françaises assurent ne plus pratiquer la spéculation pour leur propre compte, mais les analystes s'interrogent encore sur une activité dont les profits, mais aussi les pertes, peuvent être considérables.

 

Les grands établissements de l'Hexagone reconnaissent avoir usé du "compte propre" - c'est-à-dire les achats et ventes que réalise une banque pour elle-même.

 

Mais alertés par le régulateur sur ces prises de risque excessives et sans bénéfice pour le client, notamment apres quelques incidents coûteux (Caisse d Epargne, Crédit Agricole), ils affirment avoir aujourd'hui avoir renoncé à la spéculation.

 

Si les grands établissements français reconnaissent avoir usé du "compte propre" - c'est-à-dire les achats et ventes que réalise une banque pour elle-même -, ils affirment avoir aujourd'hui renoncé à la spéculation. "Nous avons arrêté nos activités spéculatives", a déclaré à l'AFP le directeur général de Crédit Agricole SA, Jean-Paul Chifflet.

 

"Ce sont des activités que nous avons décidé d'arrêter et qui ont été presque totalement réduites au cours des trois dernières années. Elles représentent aujourd'hui une part infime de la banque de financement et d'investissement de Natixis, avec l'objectif d'arriver à zéro fin 2012", indique Stéphane About, responsable des marchés de taux, change, matières premières et trésorerie de la filiale de BPCE.

 

Quant à Société Générale et BNP Paribas, elles évaluent que le compte propre pèse, pour chacune, moins de 3% de leurs revenus.

Elles assurent que l'essentiel de ces activités est en réalité destiné à se couvrir contre des risques (évolution des taux d'intérêt ou des devises principalement) et à servir les clients.

 

Elles font référence au rôle de "teneur de marché" (market maker), qui consiste pour une banque à offrir des débouchés immédiats à ses clients qui souhaitent vendre ou acheter des produits financiers en se substituant temporairement à l'acheteur ou au vendeur final.

 

Toutes les banques françaises appellent ainsi le nouveau président François Hollande à préserver cette fonction lorsque son gouvernement préparera la loi annoncée depuis le début de l'année et qui doit isoler le compte propre du reste des activités de la banque.

 

Spéculation qui ne dit pas son nom ?

 

Toutefois certains analystes demeurent sceptiques, compte tenu des montants en jeu.

 

"S'il ne s'agissait que de réel +market making+ (teneur de marché), le compte propre ne générerait qu'un très faible revenu, car il n'a pas d'autre vocation que d'être tout juste à l'équilibre d'exploitation pour les banques", pointe ainsi Christophe Nijdam, analyste de AlphaValue. "3% (des revenus d'une banque générés par cette activité), ce n'est quand même pas rien", s'étonne de son côté un analyste, sous couvert d'anonymat.

 

Pour d'autres, le rôle de teneur de marché n'est qu'"un service rendu aux clients". "Donc on se rémunère un petit peu", justifie sous couvert d'anonymat un banquier, écartant toute notion de spéculation.

 

Mais il n'est pas aisé de distinguer cette activité de la spéculation.

Ainsi pour M. Nijdam, certaines "positions directionnelles" - c'est à dire qu'elles ne sont pas vouées à couvrir un risque - sont "prises sous couvert de +market making+". Selon lui, il s'agit alors de "spéculation".

 

Et de fait, souligne Joo-Yung Lee, managing director au sein de l'agence de notation Fitch, "il est très difficile de conserver des produits financiers en stock sans adopter de direction" c'est-à-dire sans parier sur l'évolution des marchés et donc sans prendre des risques.

 

M. Nijdam cite ainsi l'exemple récent de la banque américaine JPMorgan Chase qui, sous couvert d'une stratégie de couverture, en théorie sans risque, a perdu au moins deux milliards de dollars.

L'analyste d'AlphaValue met également en avant le trading haute-fréquence, activité qui consiste à placer, via des logiciels programmés en algorithmes, des millions d'ordres d'achat et de vente pour profiter de très faibles écarts de prix sur les marchés.

 

Selon ses estimations, basées sur ses sources de marché, cette seule activité dégagerait, pour Société Générale et BNP Paribas, des revenus conséquents, ce que contestent les banques.

Toutefois selon certains observateurs, les montants en jeu dans l'activité de "compte propre" ont sensiblement baissé depuis la crise.

 

"Nos inventaires (les volumes de produits financiers conservés par les banques pour répondre aux demandes de leurs clients) ont été énormément réduits ces dernières années", confie un banquier sous couvert d'anonymat.

 

Le trader de la Société Générale, Jérôme Kerviel, dont le procès en appel s'ouvre le 4 juin, n'a pas à proprement parler pratiqué le "compte propre" car il a agi sans mandat de ses supérieurs et en usant de procédés frauduleux.

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European big banks technically insolvent: Analyst

European big banks technically insolvent: Analyst | Banking, Finance, Capital Markets | Scoop.it
Interview with Max Keiser, financial journalist & broadcaster...

 

Thu Aug 9, 2012

 

The Bank of France has predicted that the European state is set to head toward recession in the third quarter of the current year as the eurozone continues to grapple with economic woes.

 

The bank warned on Wednesday that Paris is likely to enter recession in the third quarter of the year as its economy is expected to contract by 0.1 percent for the second quarter in a row.

 

The new jobless rate marked an increase of 0.8 percent over one month and 7.8 percent over one year.

 

Various eurozone member states have been struggling with deep economic stagnancy since the bloc’s financial crisis began roughly five years ago.

 

Also on Tuesday Italy's official government statistics agency, ISTAT, said that the country’s economy shrank for the fourth quarter in a row, contracting 0.7 percent in three months through June, underlining a deepening recession in the country.

 

Press TV has conducted an interview with Max Keiser, financial journalist and broadcaster from Paris.

 

The video also offers the opinions of two additional guests: Sean O'Grady, economics editor of The Independent from London, and Dr. Paul Craig Roberts who is the former assistant secretary of US treasury. What follows is an approximate transcript of the interview.

 

Press TV: Let’s look at France, another one of these countries, that is where you are, it is back in a recession and as it is reported is to go into for the second time in three years. But there was a warning from the national audit office that said about the economy of France that is in the “danger zone” and for the more risks falling into a “debt spiral”.

 

What kind of danger zone are they talking about? Is France in it right now? Will France need a bailout?

 

Keiser: In the eurozone, I always point to Ireland as a good example of what is going on here. Before the crisis, Ireland had very little debt but during the crisis, the government forced Anglo Irish, a private bank, more than ten times GDP of Ireland worth of debt onto the Irish people and then they asked them to suffer through austerity that paid for the debt that was incurred by one bank, Anglo Irish, one man, Sean Fitzpatrik.

 

And this is true throughout the eurozone. All the big banks in Europe are technically insolvent but they are doing deals with the government to take their bad debts off their balance sheets and in turn the governments are imposing austerity measures which in turn are forcing contraction in these economies.

 

It is a bit of a game of chicken though where Germany is probably poised to do relatively better than others because of course the weak Euro helps their export market and so they stand to do well but then of course France has a very large agricultural component of its economy and during this current drought season due to manmade global warming and climate change driving the price of wheat so high, France very studiously planted record wheat crop this year. So they are insulated to some degree.

 

Press TV: I would like to talk about these third world countries, Max, in terms of this effect that this is all having. The economists are saying that European policy makers are not moving fast enough to strengthen European banks and ease borrowing cost for example for Italy and Spain because they fear a global impact if Europe’s economy deteriorates further.

 

Are we looking at this global impact right now because of for example one of the reasons being what is happening in Europe and the eurozone? And of course what are these impacts?

 

Keiser: Of course it is a global problem with a global impact. You have two cases of response to the crisis. In parts of Europe, you have austerity being tried and in the UK, they are trying austerity.

In the United States, they are going with bailouts and money printing and quantitative easing more aggressively and neither approach is working.

 

The economy is still shrinking; GDP is still deteriorating. Look at the banking scandals that are coming every week now. Just as past five days, we have had Standard Chartered, HSBC and a massive 400-billion-dollar Mexican drug money laundering scandal, the Barclays’s Libor scandal.

 

So nobody is doing anything to stop the banks. So it is very similar to what we saw in the late 20s and 1930s, the crash and then the global depression. So that is where we are in right now, a global financial economic depression.

 

Some countries are falling at different rates but the entire globe with that exception is now heading into depression. The only exception maybe would be a country like Iceland which had the smart move of arresting bankers and prosecuting bankers and they are very self-sufficient with their own geothermal energy and lots of fish but other than Iceland, everybody is going into the tank.

 

Press TV: What is your reaction to what Sean O’Grady [the other guest on the show] said?

 

Keiser: It is not surprising that Sean O’Grady would be an apologist for banking fraud in the UK. I mean you have got AIG, Lehman Brothers, Madoff, MF Global, Standard Chartered, Barclays, HSBC, these add up to trillions of dollars of the fraud that run through the city of London and of course it is a big part of the UK GDP output is fraud.

 

We take the fraud out of the UK and there is very little left in terms of a functioning economy and this point about competitiveness is ludicrous also, Sean O’Grady, because look at the Apple Computer made in China by the government of China. Then they export to America with no duty.

 

Then Apple Computer has 120 billion dollars in cash that they do not reallocate much of it offshore that is another tax fraud. They do not bring that tax over and what is their answer? We are going to have the laws changed to favor us.

 

That is right. They have the lobbying ability to change the laws so they get favorable tax treatment and that is the attitude of people like Sean O’Grady and other people in the UK.

 

It is not that their economy is competitive or not competitive; they are going to lobby the government to change the law to make banking fraud more acceptable, to make lording over all these poor countries around the world that they used derivatives to destabilize their economy all over Europe and all over the world and they are just rent seekers.

 

It is pathetic. They should get real jobs instead of just picking the pockets of these other countries using financial fraud and it is a huge component. I understand why he is an apologist for banking fraud because without it, he would be out of a job; there will be nothing left in the UK.

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Quel contre-pouvoir face aux agences de notation ?

Quel contre-pouvoir face aux agences de notation ? | Banking, Finance, Capital Markets | Scoop.it
Après la dégradation des notes du Portugal, de la Grèce et de l'Irlande, la mise sous surveillance de la note Aaa des Etats-Unis, le ton monte de tous côtés pour dénoncer l'attitude des agences de notation, accusées d'envenimer la situation d'Etats...

 

En dégradant vendredi 5 juillet la note de la dette publique américaine, passée de AAA à AA+, Standard & Poor's a provoqué la crainte, voire la panique, d’un krach et alimenté les crispations contre les agences de notation. De plus en plus de voix s'élèvent contre ce qui apparaît comme une forme de dictature de ces institutions.

 

Le siège de Standard & Poor's à New York (©AFP)
08.08.2011

Par Laure Constantinesco et Baptiste Charbonnel


Si les agences de notation ne font pas la crise, elles l'alimentent. Les notes qu'elles attribuent sont censées n'être que des « opinions » , mais elle sont en fait des ressorts prépondérants dans le comportement des investisseurs. Et le climat d'angoisse qui règne sur les marchés encourage des réactions disproportionnées au moindre frémissement de Moody's, S&P ou Fitch. Mi-juillet, la dégradation des notes de la Grèce (par Fitch), du Portugal et de l'Irlande (par Moody’s) l’ont illustré. Le vent de panique qui a soufflé sur les marchés et sur les pays du G20 le week end des 6 et 7 août 2011, après l’annonce par S&P de la dégradation de la note de la dette publique américaine, en a été une nouvelle illustration.

 

Ces répercussions peuvent sembler disproportionnées lorsqu'elles sont comparées à la crédibilité limitée des agences.

 

L’économiste Paul Krugman, prix Nobel d’économie en 2008, affirme dans un éditorial paru le 8 août dans le New York Times qu'elles ne sont pas fiables . « Lorsqu’elles ont dégradé la note de pays qui avaient la confiance des investisseurs, comme c’est la cas des Etats-Unis aujourd’hui, les agences se sont systématiquement trompées. Prenons, par exemple, le Japon, dont S&P avait rabaissé la note en 2002. Neuf années plus tard, le Japon peut toujours emprunter à des taux avantageux. Il n’y a donc aucune raison de prendre au sérieux la baisse de la note des Etats-Unis. Elle vient des dernières personnes à qui l’on puisse faire confiance ».

 

La résonance d’une dégradation va bien au-delà des cercles économiques. Elles ont beau s’en défendre, les agences de notation ont un rôle politique. Et dans ce domaine aussi elles sont attaquées.

 

Le président de l'exécutif communautaire, José Manuel Barroso, a accusé les trois agences d'encourager la spéculation au sein de la zone euro et a dit qu'il était souhaitable de les rendre responsables devant les juridictions civiles et de les mettre en concurrence avec une nouvelle agence européenne (06/07/2011).

 

Pour Jean-Claude Trichet, le président de la Banque Centrale Européenne, « une petite structure oligopolistique » des agences de notation financières n’est « pas souhaitable » (07/07/2011).

 

Pier Carlo Padoan, secrétaire général adjoint et chef économiste de l’OCDE, est plus sévère : pour lui les agences de notation « aggravent la crise » en produisant des « prophéties » qui s’ « auto-réalisent ». « Ce n’est pas vrai qu’elles transmettent des informations : elles expriment des jugements, entraînant une accélération de tendances déjà à l’œuvre. C’est comme pousser quelqu’un qui est au bord d’un ravin » (La Stampa, 07/07/2011).

 

Enfin Christine Lagarde, fraîchement élue aux manettes du Fonds Monétaire International, déclarait dans une conférence de presse le 11 juillet que les agences « jouaient un rôle », sous-entendu excessif.

 

Ce n'est pas la première fois que les agences de notation sont montrées du doigt : début 2010 lors des crises grecques puis irlandaise, mais surtout en 2008, au moment de la crise des subprimes, où elles avaient été accusées de laxisme envers certains établissements financiers. De fait, aucune de ces agences n'avait su anticiper la toxicité de certaines produits financiers et l'écroulement de ce système financier.

 

Bernard Maris, économiste, rappellait en 2010 dans Marianne que Moody's n'avait pas non plus vu venir le scandale Enron en 2001 : « Le cabinet d’expert comptable Arthur Andersen, avait maquillé les comptes, l’agence de notation Moody’s n’avait rien vu, et surtout avait attendu 6 mois avant de dégrader la note d’Enron, alors qu’Enron était de fait en faillite.»

 

Le problème réside certainement dans un conflit d'intérêts : les trois agences de notation sont rémunérées non pas par les investisseurs mais par les émetteurs de produits. « Les agences de notation sont, comment dire... payées, mais aussi cajolées, influencées par ceux qu’elles notent bien, ou par ceux qui ont intérêt à ce qu’elles notent mal, ce qui pose un petit problème » explique encore Bernard Maris.

 

Réformes et supervision

 

En 2003, l’Organisation internationale des autorités de régulation des marchés financiers (OICV) avait rédigé un code de conduite (PDF) auquel les agences se soumettaient sur une base volontaire.

 

Jusqu’à la crise des subprimes les agences de notation n’étaient pas supervisées et n’encouraient pas de responsabilité en cas de mauvaise performance. Depuis 2008, l’encadrement des agences a fait l’objet de réformes.

 

En Europe, une instance de régulation européenne a été créée le 1er janvier 2011, l’Autorité européenne des marchés financiers (AEMF). Elle a pour mission de superviser les agences de notation en Europe, et peut aller jusqu'à leur retirer leur licence en cas de non respect des règles. Les agences ne peuvent pas fournir de conseils et doivent rendre publics les modèles, les méthodes et les principales hypothèses sur lesquelles elles fondent leurs notations, respecter des règles de transparence. En fait ces nouvelles règles reprennent pour l’essentiel celles définies dans le code de l’OICV tout en leur donnant un caractère juridiquement contraignant.

 

Durcir les règles qui encadrent les agences

 

Michel Barnier, le commissaire européen chargé des marchés financiers, a donné le 11 juillet dernier plusieurs pistes pour contrer le poids grandissant des agences de notation :

 

- ne plus autoriser l’évaluation par les agences des pays faisant l’objet d’un plan d’aide internationale - Ce qui pose un problème juridique d’après Nicolas Véron du Think Tank Bruegel : comment interdire à un acteur économique d’émettre une opinion sans tomber dans le déni d’opinion ?

 

- autoriser les investisseurs à poursuivre devant les tribunaux civils les agences de notation en cas de négligence

 

- exiger des agences qu’elles informent les États « au préalable » de toute dégradation, « pour permettre une vérification des données utilisées », et qu’elles publient « obligatoirement » leurs analyses sous-tendant les modifications de note (ce qui n’a pas été le cas pour le Portugal la semaine dernière)

 

- « mettre en réseau plusieurs agences de taille petite ou moyenne » pour faire contrepoids aux agences actuelles

 

Vers une nouvelle agence européenne ?

 

Une autre solution serait de créer une agence de notation indépendante.

 

La commissaire européenne à la justice Viviane Reding s'est montrée très claire dans le quotidien allemand Die Welt lundi 11 juillet: « Je vois deux possibilités : ou les Etats du G20 décident de démanteler les trois agences. Les Etats-Unis seraient alors obligés de les transformer en six sociétés. Ou des concurrents européens et asiatiques sont créés ». La première option semble peu vraisemblable, mais la seconde est défendue par plusieurs responsables européens.

 

Le ministre allemand des Affaires étrangères Guido Westerwelle ou encore le commissaire européen chargé des marchés financiers Michel Barnier soutiennent depuis longtemps cette idée d’une agence de notation européenne.

 

Le cabinet de consultants allemand Roland Berger a entamé l'année dernière des discussions en vue de la création d'une agence européenne indépendante basée à Francfort. Le Parlement européen a voté en juin une résolution en ce sens. La gauche du Parlement européen s'est au contraire prononcée pour la mise en place d'une agence publique.

 

Mais si elle voit le jour, cette agence de notation européenne arrivera-t-elle à se faire une place aux côtés des trois grandes agences et à assoir sa crédibilité face aux investisseurs ? Rien n'est moins sûr.

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Le Mécanisme européen de stabilité va-t-il rassurer les marchés?

Le Mécanisme européen de stabilité va-t-il rassurer les marchés? | Banking, Finance, Capital Markets | Scoop.it
L'union européenne se dote aujourd'hui d'une nouvelle institution : le Mécanisme européen de stabilité (MES).S'appuyant sur un fonds commun de créances entre les Etats signataires pouvant aller jusqu'à 700 milliards d'euros, il prévoit d'offrir une aide d'urgence aux Etats de la zone euro en difficulté économique.

 

01.07.2012

Par Anna Ravix

 

Le mécanisme européen de stabilité ne devait pas voir le jour avant juin 2013. Face à la défiance des marchés vis à vis de la zone euro, les 17 Etats qui ont adopté la monnaie unique ont décidé de mettre en vigueur le MES dès ce 1er juillet. Un moyen pour eux de prévenir le risque que le Fonds européen de stabilité financière (FESF), créé dans l’urgence en 2010 pour une durée de trois ans ne se retrouve pas a cours de liquidité avant la mise en place d’un système pérenne.

 

Le MES, c’est ainsi la pérennisation du FESF, en plus d’être sa version améliorée. D’abord, son statut juridique change radicalement : alors que le FESF est une entreprise privée détenue par les membres de la zone euro, le MES est une organisation intergouvernementale créée par un traité, une sorte de « FMI européen ».

 

Ensuite, le MES détient un capital propre : 80 milliards de « capital payé » (que les Etats signataires devront verser au pot commun avant 2014), plus 620 milliards de « capital garanti » (les Etats signataires ne le fournissent pas d’entrée mais s’engagent à le reverser au MES si besoin). Le FESF, lui, fonctionne différemment : ce sont les Etats de la zone euro qui garantissent ses prêts, en accroissant systématiquement leur propre dette et en soumettant le fonds à leur propre notation.

 

Par ailleurs, le MES sera en charge d’analyser la soutenabilité de la dette des Etats auxquels il prêtera de l’argent. Il pourra ainsi se prononcer sur les conditions de ce prêt alors que le FESF faisait appel à l’assistance technique du FMI. Cette assistance pourra d’ailleurs être apportée au MES, en plus de sa propre analyse.

 

Contrairement au FESF, le MES s’est doté du statut de « créancier préféré », à l’instar du FMI. Pour les actionnaires que sont le pays de la zone euro, l’avantage est d’avoir un mécanisme d’aide qui sera toujours remboursé en priorité. Mais ce statut est théorique, en pratique, l’histoire est toute autre. François-Xavier Chauchat, le chef économiste Europe de GaveKal (société mondiale de recherche en investissements) et accessoirement professeur à l’université Paris-Dauphine émet quelques doutes sur ce statut : « on a vu avec la restructuration de la dette grecque, que seuls les investisseurs privés ont eu une restructuration, mais ni la BCE, ni les prêts officiels des pays européens n’ont été restructurés. Enfin, pas encore en tout cas… »

 

Enfin, alors que le FESF avait besoin de l’unanimité des 17 Etats de la zone euro, le MES fonctionne différemment, avec la règle des 85% de majorité. Une décision peut ainsi être prise si elle réunit 85% des parts détenues dans le capital du MES. Avec 27,15% pour l’Allemagne, 20,39% pour la France et 17, 92% pour l’Italie, ces trois pays sont les seuls a détenir un droit de veto de facto.

 

Le MES va-t-il suffire à rassurer les marchés ?

 

Pour François-Xavier Chauchat, ce qui rassurerait à coup sûr les marchés, c’est la mutualisation de la dette. Mais ce n'est pas l'objectif du MES, qui propose de faire des avances à un pays dont on affirme que la crise est « temporaire ». Ce mécanisme, à l’instar du FMI, s’occupe à la fois de résoudre les crises de liquidité (quand un Etat ne peut plus se financer), grâce à ses 800 milliards de capital propre, et cherche à garantir la solvabilité d’un Etat. C’est à dire des réformes de structure, à long terme, pour que le pays puisse retrouver un chemin de croissance qui lui permet d’être solvable. En résumé, toutes les réformes que l’on demande aux Grecs ou aux Portugais d’appliquer. Mais les marchés peuvent avoir une vision complètement différente du MES ou du FMI sur la soutenabilité, c’est d’ailleurs ce qui se passe aujourd’hui.

 

Ainsi, malgré la batterie de mesures lancées par l’UE pour venir en aide à la Grèce, le marché ne croit pas que la Grèce va pouvoir rembourser sa dette. « Ce qui va rassurer les marchés dépend de leur confiance dans ce mécanisme, à la fois son montant, son fonctionnement (s’il est flexible ou pas) et ses analyses de la soutenabilité (les moins politiques possibles) » affirme F.-X. Chauchat, qui est convaincu que « la seule manière d'obtenir une confiance totale des marchés c‘est une mutualisation de la dette et un gouvernement fédéral européen, mais ça pour l’instant, c’est de la politique-fiction. »
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FRB: Federal Reserve announces extensions of and modifications to a number of its liquidity programs

June 25, 2009

 

The Federal Reserve on Thursday announced extensions of and modifications to a number of its liquidity programs. Conditions in financial markets have improved in recent months, but market functioning in many areas remains impaired and seems likely to be strained for some time. As a consequence, to promote financial stability and support the flow of credit to households and businesses, the Federal Reserve is extending a number of facilities through early 2010. At the same time, in light of the improvement in financial conditions and reduced usage of some facilities, the Federal Reserve is trimming the size and changing the terms of some facilities.

 

Specifically, the Board of Governors approved extension through February 1, 2010, of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF). The expiration date for the Term Asset-Backed Securities Loan Facility (TALF) currently remains set at December 31, 2009. The Term Auction Facility (TAF) does not have a fixed expiration date.

 

The extension of the TSLF also required the approval of the Federal Open Market Committee (FOMC), as that facility is established under the joint authority of the Board and the FOMC.

 

In addition, the temporary reciprocal currency arrangements (swap lines) between the Federal Reserve and other central banks have been extended to February 1. The Federal Reserve action to extend the swap lines was taken by the FOMC.

 

The Federal Reserve also announced changes to certain liquidity programs in light of the improvement in financial conditions and the associated reduction in usage of some facilities. Specifically, the Federal Reserve trimmed the size of upcoming TAF auctions, because the amount of credit extended under that facility has been well below the offered amount. In view of very weak demand at TSLF Schedule 1 auctions and TSLF Options Program auctions over recent months, auctions under these programs will be suspended. The frequency of Schedule 2 TSLF auctions will be reduced to one every four weeks and the offered amount will be reduced. The authorization for the Money Market Investor Funding Facility (MMIFF) was not extended, and an additional administrative criterion was established for use of the AMLF. If necessary in view of evolving market conditions, the Federal Reserve will increase the size of TAF auctions and resume TSLF operations that have been suspended.

 

The Board and the FOMC will continue to monitor closely the condition of financial markets and the need for and effectiveness of the Federal Reserve's special liquidity facilities and arrangements. Should the recent improvements in market conditions continue, the Board and the FOMC currently anticipate that a number of these facilities may not need to be extended beyond February 1. However, if financial stresses do not moderate as expected, the Board and the FOMC are prepared to extend the terms of some or all of the facilities as needed to promote financial stability and economic growth. The public will receive timely notice of planned extensions, discontinuations, or modifications of Federal Reserve programs.

 

TAF and Swap Lines

 

In recent months, conditions in wholesale funding markets have improved, and partly as a result, usage of the TAF and the dollar facilities provided by foreign central banks has declined notably. For some time, amounts bid at TAF auctions have fallen short of the amounts auctioned. In view of the decreasing need for TAF funding, the Board has reduced the amounts auctioned at the biweekly auctions of TAF funds from $150 billion to $125 billion, effective with the auction to be held on July 13. The Federal Reserve anticipates that, if market conditions continue to improve in coming months, TAF funding will be reduced gradually further.

 

The extension of the dollar liquidity swap arrangements through February 1 currently applies to the swap lines between the Federal Reserve and each of the following central banks: the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, Norges Bank, the Monetary Authority of Singapore, Sveriges Riksbank, and the Swiss National Bank. The extension of the foreign currency swap arrangements currently applies to the swap lines between the Federal Reserve and the Bank of England, the European Central Bank, and the Swiss National Bank. The Bank of Japan will consider extensions of the dollar liquidity swap and the foreign-currency liquidity swap arrangements with the Federal Reserve and will announce its decision following its next Monetary Policy Meeting.

 

TSLF and PDCF

 

The Federal Reserve extended the TSLF, with certain modifications, and the PDCF through February 1.

 

In view of the considerable progress to date in deleveraging by primary dealers and dealers' improved access to funding in the market for repurchase agreements, activity at the TSLF has fallen notably. In response, the Board and the FOMC approved certain modifications to the TSLF. In particular, TSLF auctions backed by Schedule 1 collateral (Treasury, agency debt, and agency-guaranteed mortgage-backed securities) will be suspended, effective July 1. Also, the Federal Reserve suspended the TSLF Options Program (TOP), effective with maturity of outstanding June TOP options. TSLF auctions backed by Schedule 2 collateral (Schedule 1 collateral and investment-grade corporate, municipal, mortgage-backed, and asset-backed securities) will now be conducted every four weeks, rather than every two weeks, and the total amount offered under the TSLF will be reduced to $75 billion. The Federal Reserve anticipates that the amounts auctioned under the TSLF will be scaled back further over time as permitted by market conditions. However, the Federal Reserve is prepared to resume Schedule 1 TSLF operations and TOP auctions and to increase the frequency and size of Schedule 2 auctions if warranted by evolving market conditions.

 

Although the amount outstanding under the PDCF is currently zero, the Board believes it appropriate to continue to provide the PDCF as a backstop liquidity facility for primary dealers in the near term, while financial market conditions remain somewhat fragile.

 

AMLF, CPFF, and MMIFF

 

The Board extended the authorizations for the AMLF and the CPFF through February 1, 2010. The authorization for the MMIFF, which expires on October 30, 2009, was not extended.

 

Usage of the AMLF has declined considerably as market conditions have improved. Nonetheless, in view of the continued fragility in market conditions, the Board judged it appropriate to extend the authorization for the AMLF. To help ensure that the AMLF is used for its intended purpose of providing a temporary liquidity backstop to money market mutual funds (MMMFs), the Federal Reserve established a redemption threshold whereby a MMMF would have to experience material outflows--defined as at least 5 percent of net assets in a single day or at least 10 percent of net assets within the prior five business days--before it can sell asset-backed commercial paper (ABCP) that would be eligible collateral for AMLF loans to depository institutions and bank holding companies. Any eligible ABCP purchased from a MMMF that has experienced redemptions at these thresholds could be pledged to AMLF at any time within the five business days following the date that the threshold level of redemptions was reached.

 

The Board similarly judged that market conditions warranted the extension of the CPFF through February 1 in order to help ensure the access of U.S. businesses to short-term funding. Interest rates posted on the CPFF are at levels that are increasingly unattractive for many borrowers as market conditions improve, and accordingly usage of the CPFF is declining fairly steadily. In these circumstances, the Board judged that modifications to the CPFF were not necessary at this time.

 

Given the overall improvement in market conditions and the continued availability of the AMLF and the CPFF, the Board believed that it was not necessary to extend the authorization for the MMIFF.

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FRB: Federal Reserve announces the creation of the Money Market Investor Funding Facility (MMIFF)--October 21, 2008

Release Date: October 21, 2008


The Federal Reserve Board on Tuesday announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors.

 

Under the MMIFF, authorized by the Board under section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of New York (FRBNY) will provide senior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors. Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less. Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.

The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs. By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments. Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households.

 

The attached term sheet describes the basic terms and operational details of the facility.

 

The MMIFF complements the previously announced Commercial Paper Funding Facility (CPFF), which on October 27, 2008, will begin funding purchases of highly rated, U.S.-dollar denominated, three-month, unsecured and asset-backed commercial paper issued by U.S. issuers, as well as the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), announced on September 19, 2008, which extends loans to banking organizations to purchase asset backed commercial paper from money market mutual funds. The AMLF, CPFF, and MMIFF are all intended to improve liquidity in short-term debt markets and thereby increase the availability of credit.

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The Fed's Emergency Liquidity Facilities: Why They Were Necessary

President's Message

By James Bullard

 

As the lender of last resort, a central bank typically lends extensively—though at a penalty rate—during a crisis. The Federal Reserve took such actions to stabilize the financial system and avoid further stress during the financial crisis that began in early August 2007. The Fed created a number of temporary liquidity programs in 2007 and 2008 to provide sound institutions with necessary access to credit.1

 

Initially, the Fed encouraged depository institutions to come to the discount window for funding. On Aug. 17, 2007, the Fed decided to reduce the spread between the primary credit rate and the target federal funds rate to 50 basis points. The loan maturity was also extended from overnight to a maximum of 30 days. Despite the narrower spread and longer maturity, relatively few institutions came to the discount window out of concern that borrowing from the discount window might be perceived as a sign of financial weakness.

 

With the financial crisis intensifying, the Fed created the Term Auction Facility (TAF) in December 2007 so that institutions could purchase funds in the open market without going to the discount window, thus circumventing the stigma. Under TAF, the Fed auctioned a fixed amount of term funds on a biweekly basis; these loans had a maximum maturity of 84 days. For the first auction, the total dollar amount of bids was more than triple the dollar amount of loans accepted. The overwhelming demand for the TAF loans provides evidence that stigma associated with discount-window borrowing mattered during the crisis.

 

U.S. financial markets were further stressed by problems in short-term dollar funding markets. In response the Fed established dollar liquidity swap lines with some foreign central banks. Under this program, a foreign central bank sold its currency to the U.S. in exchange for dollars and then lent the dollars to its own institutions. At most three months later, the currencies were swapped back, with the foreign central bank paying interest to the Fed. The program helped ease strains in these dollar funding markets during the crisis and was reinstituted in May 2010 to help address renewed problems in European markets.

 

TAF and the currency swap program gave depository institutions a much-needed source of short-term liquidity. In addition, the Fed created programs in March 2008 to provide primary security dealers with short-term credit. Under the Primary Dealer Credit Facility, primary dealers obtained overnight collateralized loans at the primary credit rate. The Term Securities Lending Facility (TSLF) allowed primary dealers to borrow Treasury securities for 28 days in exchange for other eligible, less-liquid securities. A few months later, the Fed established the TSLF Options Program to offer extra liquidity (for up to two weeks) during periods of elevated financial stress, such as end-of-quarter periods. TSLF loans and TSLF options were both awarded through auctions.

 

Later in 2008, the Fed created programs to ease the liquidity problems of other markets and institutions. The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility helped to stabilize money market mutual funds that held illiquid asset-backed commercial paper; without help, the money funds had difficulty meeting investors' demands for redemptions. The Commercial Paper Funding Facility was designed to increase liquidity in the commercial paper market—a primary source of funding for businesses—and to provide assurances that eligible commercial paper issuers would be able to repay their investors. Finally, the Term Asset-Backed Securities Loan Facility was created to stabilize the asset-backed securities market, thus addressing the credit needs of households and small businesses.

 

In implementing the above liquidity programs, the Fed followed standard risk-management practices to the extent possible. Only sound institutions with good collateral met the eligibility requirements to borrow under these programs. In addition, the institutions could borrow only a fraction of their collateral, with the fraction depending on the particular collateral. As a result, the Fed did not lose any money on programs that have already closed.

During the financial crisis, the Fed also provided liquidity to systemically important financial institutions—those considered "too big to fail." In March 2008, the New York Fed provided short-term credit to Bear Stearns through JPMorgan Chase Bank, which the company repaid. Shortly thereafter, the New York Fed provided credit to the newly created Maiden Lane LLC for purchasing a portion of Bear Stearns' mortgage assets; this loan enabled JPMorgan to acquire the remainder of Bear Stearns, avoiding bankruptcy of the latter. In September 2008, the New York Fed provided credit to the American International Group (AIG) to prevent its disorderly failure. A few months later, two newly created LLCs received loans from the New York Fed to purchase certain assets and debt obligations from AIG.These were some of the most controversial decisions made during the entire financial crisis.

 

Overall, the emergency liquidity programs proved to be successful at improving the functioning of financial markets. Most of the programs were closed naturally as the financial crisis subsided because the borrowers found better terms in the private sector. The Federal Reserve Board recently released detailed information regarding these emergency liquidity programs. Their size and variety demonstrate how flexible and powerful the lender-of-last-resort function can be during a crisis.

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Arthur Laffer Profile - CNBC

Arthur Laffer Profile
Dr. Arthur Laffer
Chairman
Laffer Associates

 

Arthur B. Laffer is the founder and chairman of Laffer Associates, an economic research firm that provides global investment-research services to institutional asset managers, pension funds, financial institutions, and corporations. Since its inception in 1979, the firm’s research has focused on the interconnecting macroeconomic, political and demographic changes affecting global financial markets.

 

Dr. Laffer’s economic acumen and influence in triggering a world-wide tax-cutting movement in the 1980s have earned him the distinction in many publications as "The Father of Supply-Side Economics." One of his earliest successes in shaping public policy was his involvement in Proposition 13, the groundbreaking California initiative that drastically cut property taxes in the state in 1978.

 

Years of experience and success in advising on a governmental level have distinguished Dr. Laffer in the business community as well. He currently sits on the board of directors of several public companies, which include: MPS Group Inc. (MPS) and Oxigene Inc. (OXGN). He also sits on the board of directors or board of advisors of a number of private companies including: Nicholas Applegate Institutional Funds, Retirement Capital Group, Pillar Data Systems, LifePics, Jovian Holdings, Roth Capital, Atrevida Partners, Health Edge Partners, First Q Capital, The Mayfair Group, and Endovascular Instruments. In the past, he has served on the board of directors of: Veolia Environnement, Provide Commerce, Neff Corporation, Petco, Clarcor and Amplicon Financial.

Dr. Laffer is a founding member of the Congressional Policy Advisory Board, a select group of advisors who assist in shaping legislative policies for the 105th, 106th and 107th United States Congress.

 

Dr. Laffer was a member of President Reagan’s Economic Policy Advisory Board for both of his two terms (1981-1989). He was a member of the Executive Committee of the Reagan/Bush Finance Committee in 1984 and was a founding member of the Reagan Executive Advisory Committee for the presidential race of 1980. He also advised Prime Minister Margaret Thatcher on fiscal policy in the United Kingdom during the 1980s.

 

He was formerly the Distinguished University Professor at Pepperdine University and a member of the Pepperdine Board of Directors. He also held the status as the Charles B. Thornton Professor of Business Economics at the University of Southern California from 1976 to 1984. He was an Associate Professor of Business Economics at the University of Chicago from 1970 to 1976 and a member of the Chicago faculty from 1967 through 1976.

During the years 1972 to 1977, Dr. Laffer was a consultant to Secretary of the Treasury William Simon, Secretary of Defense Don Rumsfeld and Secretary of the Treasury George Shultz. He was the first to hold the title of Chief Economist at the Office of Management and Budget (OMB) under Mr. Shultz from October 1970 to July 1972.

 

Dr. Laffer has been widely acknowledged for his economic achievements. Recently he was noted in Time Magazine’s March 29, 1999, cover story "The Century’s Greatest Minds" for inventing the Laffer Curve, which it deemed one of "a few of the advances that powered this extraordinary century". He was listed in "A Dozen Who Shaped the '80s," in the Los Angeles Times on Jan. 1, 1990, and in "A Gallery of the Greatest People Who Influenced Our Daily Business," in the Wall Street Journal on June 23, 1989. His creation of the Laffer Curve was deemed a "memorable event" in financial history by the Institutional Investor in its July 1992 Silver Anniversary issue, "The Heroes, Villains, Triumphs, Failures and Other Memorable Events."

 

The awards that Dr. Laffer has received for his economic work include: two Graham and Dodd Awards from the Financial Analyst Federation for outstanding feature articles published in the Financial Analysts Journal; the Distinguished Service Award by the National Association of Investment Clubs; the Adam Smith Award for his insights and contributions to the Wealth of Nations; and the Daniel Webster Award for public speaking by the International Platform Association. Dr. Laffer also earned the Father of the Year award from the West Coast Father’s Day Committee in 1983.

 

Dr. Laffer received a B.A. in economics from Yale University in 1963.

He received a MBA and a Ph.D. in economics from Stanford University in 1965 and 1972 respectively.

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Monetary policy: Costs and intentions

Monetary policy: Costs and intentions | Banking, Finance, Capital Markets | Scoop.it

Sep 7th 2012 by A.C.S | New York

 

MONETARY policy has become a tricky business. Since the traditional Fed policy tool, the Fed funds rate target, can’t go much lower, the Fed has turned to less conventional methods, such as buying long-term Treasuries. Mike Woodford’s latest paper casts doubt on how effective this has been in practice. And it even questions the theoretical justification.

 

There are two separate questions: what should the Fed do, and what can it do? John Cochrane and Mike Woodford each have interesting things to say about how limited Fed policy is right now. They advocate communicating clear and credible goals for both the short and medium term. Beyond that, they suggest, not much more can be done. But even if the Fed could do more, should it do so?

 

Suppose the Fed lowered rates further. In simple Keynesian models lower interest rates decrease the cost of investment and the opportunity cost of consumption among other things, thereby boosting aggregate demand. But in reality things are more complicated. Historically, the Fed has not had much control over interest rates other than the Fed funds rate, so it may not have much impact on corporate borrowing. Now the Fed is using less traditional tools. Will that impact interest rates that determine investment? Perhaps, but it’s hard to know for certain. Mike Woodford believes the different bond markets are segmented which suggests QE won't do much.

 

But we do know there are costs to keeping the entire yield curve so low for so long. I am not sure which judge and jury decided that a low rate policy doesn't punish savers but that verdict does not ring true to me. Baby boomers are just now approaching retirement. Now is precisely when they should be moving out of riskier stocks and into treasury bonds (of all durations). The low yield on bonds will depress the investment income of soon-to-be retirees. This could actually depress their consumption. Depending on the size of this income effect and the size of this cohort, the low-rate policy could potentially lower aggregate demand.

 

True if lower rates achieve growth that’s good for everyone and yields will rise. But that also means bond prices will fall, which kills savers invested in bond funds or pension funds maintaining a particular duration.

 

The idea may be to drive down returns on low risk assets and push people into riskier assets. But is that sensible for people about to retire? It is normally considered good practice to steer retirees away from riskier assets as they approach retirement.

 

Another alternative (which may or may not be feasible) is increasing inflation, or the inflation target. An argument for higher expected inflation is that it lowers real yields which should induce more borrowing and encourage investors to buy riskier assets. But as I mentioned earlier, the benefits of lowering rates are uncertain. And of course, higher inflation is bad for retirees on fixed incomes. It sometimes feels like Fed doves really hate old people.

 

I am not suggesting the Fed increase rates any time soon. But right now, lots of people are discussing the intentions behind certain Fed policies and not nearly enough thought is being paid to their potential costs. Productive discussion considers both.

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The ECB's new bond purchase programme: Not too little, possibly too late

The ECB's new bond purchase programme: Not too little, possibly too late | Banking, Finance, Capital Markets | Scoop.it

Sep 6th 2012, 15:23 by G.I. | WASHINGTON

 

SINCE the euro crisis erupted, the European Central Bank has been torn between its legal and philosophical aversion to financing governments and its duty as lender of last resort. Today, it appears to have reconciled the two, erring on the side of the latter.

 

At the end of its governing council meeting today, the ECB announced the much-anticipated details of how it would resume intervening in the region’s government bond markets. Using its newly christened Outright Monetary Transactions (OMT), it will buy sovereign bonds of one- to three-year maturity, provided the issuing country has agreed to a fiscal adjustment programme with either the European Financial Stability Facility, or its successor, the European Stability Mechanism.

 

Mario Draghi, the ECB president justified the programme as a necessary adjunct to monetary policy, because the ECB’s ability to set interest rates for the euro zone as a whole has broken down over fears that some countries may leave the single currency. He never used the words "lender of last resort", a role the ECB readily accepts for banks but not for governments. Nonetheless, that is the de facto purpose. The purchases will act as “an effective back stop to remove tail risks from the euro area,” Mr Draghi told reporters. “Bond markets are distorted ... in all directions.” The new purchases will restore “monetary policy transmission and recreate the singleness of the monetary area.”

 

The broad outlines were as expected, and the underlying details were reassuring.

 

First, the ECB laid out two ways countries' bonds would qualify for ECB buying: if the country enters a full macroeconomic adjustment programme, as Portugal, Greece and Ireland have; or a less stringent “precautionary programme,” essentially a line of credit to countries with sound policies experiencing temporary shocks. This is important: the latter offers Spain and Italy a less treacherous way to access the ECB’s balance sheet. As Mohamed El-Erian of Pimco has observed, entry into a full adjustment programme signals the end of access to private capital markets. That creates an enormous incentive to wait until it’s almost too late.

 

Second, the ECB made clear OMT purchases were, theoretically, unlimited, ie they have no “ex ante quantitative limits". Mr Draghi said they would end when the goals are achieved or the recipient countries stop complying with their conditions.

 

The ECB had always insisted purchases under its previous Securities Market Programme, (SMP) were temporary. The effect on yields was thus fleeting; investors could not be sure that Europe could or would commit the money necessary to meet the potentially enormous financing needs of every country at risk. Since the ECB can simply print the money it uses to buy bonds, its resources are theoretically unlimited. (It will "sterilize" the impact of its bond purchases on the money supply, but that should pose no constraint on how much it buys.)

 

Third, the ECB will not insist on senior credit status; it will rank “pari passu” with other holders of the same bonds, meaning in the event of a default it will not insist on being paid in full ahead of others. Without that proviso, official intervention threatened to accelerate the flight of private capital. Mr Draghi noted, however, that this did not apply to the bonds previously purchased under the SMP.

 

The one major omission was detailed criteria under which the ECB would intervene. There will be no explicit cap on yields or spreads. Mr Draghi said the ECB will examine a variety of indicators, including yield levels, yield spreads, credit default swaps, liquidity conditions, and volatility.

 

This is good enough, for now. Yields on Spain’s 10-year government bonds dropped to 6.09% from 6.41% on Wednesday; on Italy's, to 5.36% from 5.51%. Stockmarkets rallied. Neither Italy nor Spain have yet said they would seek aid, preferring to await the details of the ECB's programme. Barclays said it expects Spain to sign a memorandum of understanding with the European finance ministers in early October, while Ireland could actually qualify even sooner, assuming it regains access to the bond market.

 

I suspect, however, that in coming weeks, the limitations of what the ECB has done will set in. Mr Draghi has probably succeeded in taking a full blown crisis in Italy or Spain off the table, but not in restoring financial conditions that will get the region growing briskly again.

 

Today Eurostat said GDP in the euro area fell 0.2% in the second quarter from the first, and 0.5% from a year earlier, confirming the region is in recession. Weak purchasing managers’ indices for August suggest the recession has persisted into the third quarter. Today, the ECB sharply downgraded its growth projection for the region, to between -0.6% and -0.2% for 2012 and between -0.4% and 1.4% for 2013.

 

This is due in great part to the credit crunch now enveloping so many countries. ECB data published on September 3rd showed a sharp rise in borrowing rates for companies and households in Italy and Spain, and a sharp drop in Germany, where, Barclays notes, rates on home loans are now at a record low. This is not just due to banks' higher borrowing costs, but because of an outflow of deposits which is squeezing lending capacity; loan volumes are contracting. In Spain, private capital equal to a staggering 50% of GDP flowed out in the second quarter, according to Nomura.

 

Some, but not all, of this will be ameliorated by the ECB’s actions. JP Morgan reckons two-year yields would be 2% in Italy instead of 2.9% without convertibility risk, and 1.7% in Spain instead of 3.7%. It is almost certainly too optimistic to expect all of that premium to evaporate. Mr Draghi said only some of the widening in spreads was due to convertibility risk; some, he said, was due, fundamentally, to the weak state of those countries’ finances. Those countries will have to stick closely to the path of austerity, and until they are finished, they can expect tougher borrowing conditions than northern Europe.

 

Despite Mr Draghi’s efforts to portray the purchases as purely within the ECB's monetary responsibilities, there is no denying that they wander far from the ECB's original mandate. That's why the vote was not unanimous. Mr Draghi did not name the lone dissenter, but it was almost certainly Jens Weidmann, president of Germany’s Bundesbank. Though still passionately opposed to the ECB’s bond purchases, Mr Weidmann seems to have made up his mind that he can achieve more as a vocal dissenter inside the ECB than by resigning, as his predecessor Axel Weber did.

 

If only to avoid making Germany and Mr Weidmann even more unhappy, the ECB will not aim to give peripheral countries the same borrowing rates as the northerners. As a result, its actions as lender of last resort will not miraculously restore the potency of its monetary policy. As the experience in both America and Britain shows, even a central bank that has interpreted its lender of last resort role quite broadly and implemented ultra-easy monetary policy can only do so much to counteract the vice of deleveraging, austerity and external weakness. This will be even more so in Europe where the ECB shows no interest in unorthodox monetary policy.

 

The ECB seems to have acted in time to save the euro. Whether it has acted in time to save the euro economy remains to be seen.

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Monetary policy: On gold and golden ages

Monetary policy: On gold and golden ages | Banking, Finance, Capital Markets | Scoop.it
Sep 11th 2012, 16:20 by R.A. | WASHINGTON

 

APPARENTLY, while I was out on paternity leave, the Republican Party flirted with adding a return to a gold standard to its official platform, thereby touching off an online debate on the merits of such a standard. Belatedly, I'd like to offer a few thoughts.

 

First, this is a solution in search of a problem. One big reason to tie money to a commodity standard would be to limit its growth in order to protect against runaway inflation. But we have learned that in most situations central banks are more than capable of controlling inflation on their own, and markets show no sign of a fear of looming high inflation. What's more, history demonstrates that when push really comes to shove governments will just jettison the commodity standard and print money as necessary.

 

Alternatively, a gold standard can make up a key part of a fixed-exchange-rate regime, as it did in the classical gold era that persisted from the 1870s through 1914. An important question, however, is just why one would want a fixed-exchange-rate regime. In the absence of strong international cooperation, such systems tend to break down quickly. When they don't break down, they can prove disastrous, as the interwar gold standard and the euro area demonstrate. And floating exchange rates actually seem to work just fine—better, many argue, than fixed rates.

 

But perhaps there's something else special about a gold standard. My colleague points out that the era of the classical gold standard was one of the brightest of the modern economic era. And Tyler Cowen writes:

 

Dare anyone critical of the gold standard bring themselves to utter these (roughly true) words?: “For the Western world, the gold standard era, defined say as 1815-1913, was arguably the greatest period of human advance ever, at least in matters of economics, culture, and technology.” Chunks of the post-WWII era contend for this designation, but still this sentence is not a crazy one.

 

Several points. First, there is plenty of room within a brilliant century for a handful of economic disasters. There is no question that this period had its share of macroeconomic troubles, and that the gold standard also exacted signficant distributional costs that shouldn't be ignored. Not for nothing did William Jennings Bryan have a following. Moreover, this period is merely an entry in the ledger, on the other side of which must sit an interwar period strongly shaped by the commitment to gold. If you want to credit gold with a key role in the creation of the modern economy you must also admit that it very nearly destroyed it.

 

Second, the gold constraint functions differently under different economic circumstances. Gold defenders like to point out that deflation was common in the 19th century, yet no Depression resulted. That's not quite right; there were some nasty business cycle swings in the 19th century. Perhaps more important, deflation was often the result of extremely rapid growth in economic potential. It was an era more like the American economy of the late 1990s than the American economy of the 1930s or the Japanese economy of the late 1990s. If a supply surge leads to falling prices, gold-standard monetary policy is less likely to be destructive. If falling prices are due to collapsing demand, however, the gold constraint on reflation may prove deadly. An enormous risk of a gold standard is that the economy might fall into a low-demand trap. Of course, that also seems to be a risk of certain inflation targeting regimes.

But here's one last thing to consider. The classical gold era was above all an age of inflation volatility. Prices could tumble if growth surged or they could soar with the discovery of new gold. Inflation volatility is costly; it forces firms to change prices often, and individuals must constantly think in real terms. That's not how things work today, for the most part. Given low and stable inflation, the price is the price is the price. That's convenient when making everyday purchase decisions, and it also means that firms and workers feel much more comfortable agreeing long contracts or setting prices infrequently.

 

The flipside of that comfort, however, is a much less price-flexible economy. Or, as Larry Ball, Greg Mankiw, and David Romer put it in a 1988 paper:

 

[T]he real effects of nominal shocks are smaller when average inflation is higher. Higher average inflation erodes the frictions that cause nonneutralities, for example by causing more frequent wage and price adjustments.


So perhaps there was something useful about gold after all. Of course, there is a way to preserve a healthy level of inflation volatility while also avoiding dangerous collapses in demand: nominal GDP targeting. We can do better than gold—much better—by simply observing that the gold standard functioned best when mimicking good monetary policy, defined as demand stabilisation, and by working to stick to that.

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Republicans eye return to gold standard - FT.com

Republicans eye return to gold standard - FT.com | Banking, Finance, Capital Markets | Scoop.it

August 23, 2012 | By Robin Harding and Anna Fifield 

 

The gold standard has returned to mainstream US politics for the first time in 30 years, with a “gold commission” set to become part of official Republican party policy.

 

The gold standard has returned to mainstream US politics for the first time in 30 years, with a “gold commission” set to become part of official Republican party policy.


Drafts of the party platform, which it will adopt at a convention in Tampa Bay, Florida, next week, call for an audit of Federal Reserve monetary policy and a commission to look at restoring the link between the dollar and gold.

 

The move shows how five years of easy monetary policy – and the efforts of libertarian congressman Ron Paul – have made the once-fringe idea of returning to gold-as-money a legitimate part of Republican debate.


Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of the platform committee, said the issues were not adopted merely to placate Mr Paul and the delegates that he picked up during his campaign for the party’s nomination. “These were adopted because they are things that Republicans agree on,” Ms Blackburn told the Financial Times. “The House recently passed a bill on this, and this is something that we think needs to be done.”


The proposal is reminiscent of the Gold Commission created by former president Ronald Reagan in 1981, 10 years after Richard Nixon broke the link between gold and the dollar during the 1971 oil crisis. That commission ultimately supported the status quo. “There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity,” said Sean Fieler, chairman of the American Principles Project, a conservative group that has pushed for a return to the gold standard.

 

A commission would have no power except to make recommendations, but Mr Fieler said it would provide a chance to educate politicians and the public about the merits of a return to gold. “We’re not going to go from a standing start to the gold standard,” he said.


The Republican platform in 1980 referred to “restoration of a dependable monetary standard”, while the 1984 platform said that “the gold standard may be a useful mechanism”. More recent platforms did not mention it.


Any commission on a return to the gold standard would have to address a host of theoretical, empirical and practical issues.
Inflation has remained under control in recent years, despite claims that expansion of the Fed’s balance sheet would lead to runaway price rises, while gold has been highly volatile. The price of the metal is up by more than 500 per cent in dollar terms over the past decade.


A return to a fixed money supply would also remove the central bank’s ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment over time.


On the campaign trail in New Mexico on Thursday, Republican presidential hopeful Mitt Romney said it was “a real achievable objective” for the US to reach energy independence by 2020, touting his plan to open a stretch of the south-east coast for oil development and speed up drilling on federal lands.

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Les Bourses européennes pénalisées par les matières premières et l'inflation

Les Bourses européennes pénalisées par les matières premières et l'inflation | Banking, Finance, Capital Markets | Scoop.it

10 juin 2008

 

Les Bourses européennes ont terminé en baisse mardi, dans le sillage des places asiatiques, toujours pénalisées par la volatilité des matières premières et l'incertitude sur la réponse des banques centrales aux risques d'inflation.


Wall Street quant à elle évoluait sur une note contrastée mardi en mi-séance, partagée entre la bonne tenue des valeurs financières et les craintes sur une possible hausse des taux d'intérêt américains pour juguler l'inflation.


M. Bernanke a averti qu'un dérapage de l'inflation risquerait de déstabiliser la croissance.


L'Eurostoxx 50 a reculé de 0,56%.


La Bourse de Paris a fini en recul, le CAC 40 cédant 0,80% au terme d'une séance nerveuse, les investisseurs traditionnels se heurtant aux incertitudes sur les décisions des banques centrales, la santé des banques et la hausse des matières premières.
L'indice vedette a abandonné 38,30 points à 4.761,08 points, dans un volume de transactions étoffé de 6,1 milliards d'euros. Il a déjà perdu 5,05% depuis le début du mois, entamé au-dessus des 5.000 points.


La place parisienne, descendue jusqu'à 4.732,57 points dans la matinée, a limité ses pertes "après l'annonce d'un apport important de liquidités par la Banque centrale européenne", qui lancera jeudi une opération portant sur 50 milliards d'euros, a expliqué à l'AFP un vendeur d'actions parisien.


Certaines valeurs bancaires, sous pression depuis le début du mois, ont également bénéficié "de rumeurs selon lesquelles les +hedge funds+ (fonds spéculatifs, ndlr) prennent de gros tickets pour se repositionner sur les financières", a ajouté cette même source.


La Bourse de Londres a terminé en baisse, l'indice Footsie-100 des principales valeurs de la place cédant 50,30 points, soit 0,86% par rapport à la clôture de lundi, à 5.827,30 points.


Les constructeurs immobiliers ont été les plus touchés, après la publication de chiffres de l'association des experts immobiliers (RICS) montrant que la quantité de transactions achevées en mai était à son plus bas niveau depuis 30 ans, même si leur moral est un peu meilleur que le mois dernier.


Les banques ont continué à mal se porter, les ivestisseurs continuant à s'interroger sur la direction à venir des taux d'intérêt.
La plus forte hausse de la journée a été celle de la pétrolière opérant en Inde Cairn Energy, en hausse de 3,92% à 3.474 pence.
Toujours dans le secteur des ressources naturelles, Eurasian Natural Resources, une minière kazakhe dans laquelle son compatriote et concurrent Kazakhmys a annoncé avoir porté sa participation de 14,59% à 22,24%, a gagné 2,87% à 1.363 pence. Kazakhmys a gagné 2,27% à 1.664 pence.


Francfort n'a pas échappé à la morosité ambiante et aux inquiétudes de Wall Street après les propos tenus par le président de la Réserve fédérale américaine (Fed) sur l'inflation.


L'indice Dax des trente valeurs vedettes a lâché 0,65% à 6.771,10 points et le MDax (valeurs moyennes) 0,72% à 9.499,20 points.
Les valeurs bancaires ont continué à souffrir de nouvelles inquiétudes liées à la crise financière. Deutsche Bank a perdu 1,49% à 61,94 euros, Commerzbank 0,57% à 19,29 euros et Postbank 1,57% à 60,20 euros.


Madrid a fini en baisse de 0,54% à 12.755,2 points (indice Ibex-35) essentiellement en raison d'un fort recul des valeurs de la construction et des services déprimées par le ralentissement économique plus brutal que prévu en Espagne.


Le marché craint en outre un effet négatif de la grève des transporteurs, entamée lundi en Espagne, sur l'activité des industries et de certaines entreprises de services.


Sacyr (BTP) finit en baisse de 4,05% à 15,40 euros et Abertis (infrastructures, autoroutes) décline de 3,84% à 17,76 euros.
Les banques seules tirent leur épingle du jeu, avec par exemple une hausse de 1,55% à 12,46 euros pour Santander.


La Bourse suisse a clôturé en baisse de 0,57%, l'indice SMI des 20 valeurs vedettes terminant à 7.284,21 points. UBS, qui a plongé au cours des dernières séances à ses plus bas niveaux depuis cinq ans, a repris un peu de poil de la bête avec un gain de 2,85% à 24,5 francs suisses.


La première banque suisse a conclu lundi la période de souscription de sa seconde augmentation de capital.


Le chimiste Clariant, pénalisé par la hausse du prix du pétrole, a essuyé la plus forte baisse du SMI, avec un recul de 2,99% à 11,69.
Amsterdam a terminé en baisse de 1,20%, l'indice AEX des principales valeurs clôturant à 464,19 points.


Comme lundi, la bancaire belgo-néerlandaise Fortis a connu une forte baisse, de 3,83% à 13,81 euros, en tête des reculs.
A l'inverse, le groupe d'édition Reed Elsevier a progressé de 2,27% à 11,69 euros, plus forte hausse de la journée.


A Milan, l'indice SP/Mib a abandonné 1,19% à 31.343 points.
Les craintes de ralentissement économique pesaient sur les groupes de grande consommation comme Parmalat, qui a cédé 3,07% à 1,64 euro, et Autogrill (restauration) qui a abandonné 3,44% à 8,57 euros.


Mediaset a abandonné 1,85% à 4,77 euros après que Citigroup eut abaissé sa recommandation sur le titre en raison des répercussions attendues sur les recettes publicitaires de la morosité du contexte économique.

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Chute d'un hidalgo de la finance

Chute d'un hidalgo de la finance | Banking, Finance, Capital Markets | Scoop.it
Par Faure Michel, publié le 20/01/1994

 

A la tête de la quatrième banque espagnole depuis 1987, Mario Conde était devenu le symbole de la réussite et de l'argent facile. Jusqu'à ce qu'on découvre un trou de 20 milliards de francs et sa gestion pour le moins personnelle. Aujourd'hui, pour le conquistador démis de ses fonctions, comme pour tout le pays, gravement secoué par la crise, la fiesta est finie.

Nez aquilin, oeil de velours et poil lustré, Mario Conde était - en parler à l'imparfait, ces jours-ci, s'impose à Madrid - le plus beau des banquiers hidalgos. Surnommé "El Gallego gominado", le Galicien gominé, ce quadragénaire emblématique des années fastes de l'Espagne, avec sa silhouette de matador drapé de flanelle anglaise et sa coiffure de "señorito", est devenu, en quelques jours, le symbole d'une époque révolue. Ce conquistador de l'establishment, reçu premier au difficile concours d' "abogado del Estato" (analogue à notre inspection des Finances), avait pris d'assaut les forteresses de l'aristocratie des affaires avec une audace déconcertante. Il s'était constitué un petit pactole en revendant à la multinationale Montedison un laboratoire pharmaceutique qu'il avait redressé et avait enlevé, en décembre 1987, à l'âge de 39 ans, la présidence d'une banque prestigieuse mais endormie, le Banco español de credito, alias Banesto, la quatrième banque du pays, désormais bien connue des amateurs de cyclisme, puisqu'elle parraine l'équipe de Miguel Indurain. A travers le holding de Banesto, il a dominé pendant six ans le paysage industriel du pays.

 

Le groupe, sous sa direction, a accumulé les participations dans les assurances, la communication, la métallurgie, l'immobilier, la construction. Mais, aujourd'hui, le beau Mario Conde est tombé de son piédestal. Il est un prince de la finance déchu.


PAS LE COEUR À RIRE


Sa chute a été brutale, et le pays secoué: avec elle, les Espagnols ont bien compris qu'une page de leur histoire était tournée. "La fin d'une époque, la mort d'un mythe", titrait le magazine "Tiempo". Elle est intervenue à la fin d'une année sombre, marquée par une récession profonde - que n'a pas pu enrayer une dévaluation de la peseta - et par un chômage qui atteint maintenant 24% des actifs, une année de gueule de bois après la fiesta insouciante que fut, outre-Pyrénées, 1992. La crise de Banesto a éclaté le 28 décembre 1993, jour des Saints-Innocents, équivalent espagnol du 1er avril. Hélas! ce n'était pas une blague, et personne n'avait le coeur à rire.


Le matin, alors que les rumeurs d'une tempête bancaire imminente couraient dans Madrid et que les cours s'effondraient à la "Bolsa", le président de la Bourse madrilène suspendait la cotation. Quelques heures plus tard, la Banque d'Espagne mettait Banesto sous tutelle, limogeant son conseil d'administration, que présidait Conde et où siégeait le plus prestigieux associé de celui-ci, Roberto Mendoza, l'un des vice-présidents de la grande banque américaine JP Morgan, qui détient toujours, à travers son fonds d'investissement Corsair, 8% de Banesto et se trouve fort embarrassée d'être dans pareille galère. Le gouverneur de la Banque d'Espagne, Luis Angel Rojo, désigna un administrateur provisoire en la personne d'un banquier sans charisme, certes, mais à la réputation solide de redresseur d'affaires, Alfredo Saenz. Ce vice-président de la banque basque Banco Bilbao Viscaya (BBV), âgé de 51 ans, a désormais la tâche ingrate de restaurer la confiance des investisseurs dans le système financier espagnol, sacrément ébranlé par l'affaire, et de combler le trou de Banesto, qu'il évalue à 503 milliards de pesetas, soit environ 20 milliards de francs.


Rojo et Saenz, après avoir sonné l'alarme et appelé les banques du pays à la rescousse, se sont empressés de calmer le jeu, lançant des "messages de tranquillité" à destination des actionnaires et des déposants en réaffirmant la garantie des dépôts, afin d'éviter une panique dont on a senti, dès le 29 décembre, les premiers frémissements. Des milliers d'épargnants sont venus aux nouvelles au siège et dans les 2 800 agences de la banque et auraient retiré l'équivalent de 6 milliards de francs en trois jours, soit 8% des dépôts. Rojo a justifié sa décision par l'urgence, évoquant le "risque gravissime sur le système financier espagnol" que posaient la sous-capitalisation, le manque de réserves et les prêts non solvables de Banesto. Il a accusé l'ancienne direction de mauvaise gestion, d' "artifices comptables" et d'une accumulation inquiétante de créances impayées ou douteuses, citant, notamment, "la forte expansion du secteur crédit de l'établissement entre 1988 et 1991 - de 109% - alors que débutait la récession de l'économie mondiale".


Du jour au lendemain, l'idole des jeunes diplômés espagnols - blazers sombres, coiffures laquées et sourires de conquistador, qui voulaient, à l'instar du beau Conde, faire du business facile et se bâtir vite une petite fortune - est devenue la caricature du parvenu, spéculateur amoral et fauteur de troubles. "Personne ne l'aime plus, affirme la romancière Carmen Rico-Godoy. Tout le monde est touché par le chômage et pense que c'est à cause de gens comme lui que nous sommes dans cette situation."

 

Effectivement, il a été lâché par tout le monde - par l'establishment, qui le hait, par la classe politique dans son ensemble, qui le craint, et par l'opinion, ainsi que le soulignent les sondages. Et les grands bavards devant l'Eternel que sont les Madrilènes le débinent à tous les comptoirs des bistrots de la ville avec la même ardeur qu'ils l'encensaient naguère.


Le 12 janvier, dans un grand hôtel de Madrid, Conde a rompu le silence qu'il maintenait depuis le 28 décembre pour dénoncer, devant 300 journalistes et une foule de photographes engagés dans une homérique bousculade, la mise sous tutelle de sa banque. "Nous avions des problèmes, admit-il, mais nous avions aussi des solutions." Ces problèmes, en réalité, étaient connus depuis octobre 1992, après qu'un premier audit, réalisé à la demande de la banque centrale, eut révélé une surévaluation des actifs de 159 milliards de pesetas. Banesto avait cru, alors, trouver une issue à ses difficultés de liquidités grâce à un plan d'augmentation de capital réalisé avec JP Morgan, qui avait permis, en deux étapes, de lever 710 millions de dollars.

 

Une troisième étape, de 400 millions de dollars, était prévue pour le deuxième trimestre de cette année. La banque centrale, jugeant la mesure insuffisante face à la détérioration de Banesto, n'a pas voulu attendre. C'est cette précipitation que dénonce aujourd'hui Conde. "La situation de Banesto, le jour du 28 décembre, déclare-t-il, particulièrement en termes de liquidités, de solvabilité et de stabilité, ne nécessitait aucune intervention." Il a contesté que le trou de la banque fût de 500 milliards de pesetas, affirmant que la troisième tranche d'augmentation de capital avec la Morgan et la vente de 25% de la banque portugaise Totta y Açores auraient permis à Banesto de recouvrer une santé financière. Il a annoncé un recours administratif contre la décision de la banque centrale, mais écarté toute action judiciaire, sous le prétexte, qui n'a convaincu personne, de "préserver l'image de notre pays et le prestige de nos institutions". En réalité, c'est à lui que la justice pourrait bientôt s'intéresser, puisqu'une enquête a été ouverte pour déterminer l'existence de responsabilités pénales dans la crise de Banesto.

 

Chacun s'interroge, notamment, sur l'éventualité de délits d'initié dans les ventes massives du titre peu avant le 28 décembre, et tous les Espagnols se demandent comment Conde a pu accumuler si vite une extraordinaire fortune, évaluée à quelque 30 milliards de pesetas. On lui connaît non seulement l'un des plus beaux yachts d'Espagne, mais aussi des propriétés du côté de Séville, à Madrid et en Amérique latine. "Ce qu'il faut bien comprendre, c'est que Mario Conde est une formidable machine à faire du fric à titre personnel", explique un homme d'affaires français qui a pu observer, de l'intérieur, les méthodes de gestion de l'ancien président de Banesto et l'accuse de ne respecter "ni ce qu'il dit, ni ce qu'il écrit, ni ce qu'il signe".

 

Conde s'est contenté d'affirmer que l'essentiel de son patrimoine restait lié à Banesto, dont il détient toujours 4% du capital. A ce titre, il est, comme les 235 000 autres actionnaires de la banque, directement menacé par l'éventualité d'une opération "accordéon", qui consisterait, pour réévaluer l'institution, à apurer les comptes en réduisant à zéro la valeur des actions de Banesto.


La chute de Conde arrange beaucoup de monde. Felipe Gonzalez, d'abord, président du gouvernement espagnol, qui n'a jamais vu d'un bon oeil l'alliance contre nature que le banquier avait nouée avec son rival au sein du Parti socialiste, Alfonso Guerra, dans sa conquête des médias. José Maria Aznar, ensuite, leader un peu falot de la droite, qui avait de sérieuses raisons de prendre Conde - lequel n'en finissait pas de défendre, dans de grands discours, la "société civile" - pour un dangereux rival potentiel. Et les moralistes, enfin, comme le chroniqueur José Luis Roig, qui dénonçait naguère les "amants du brillant et de la brillantine", ou comme le journaliste Luis Diaz Guëll, directeur du magazine économique "Dinero", qui estime que désormais va renaître en Espagne, après les illusions de l'artificiel et de la rapidité, un sentiment oublié: "Le culte du travail bien fait".

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« La crise de l’euro était programmée » : entretien avec l'économiste Jean-Luc Gréau

« La crise de l’euro était programmée » : entretien avec l'économiste Jean-Luc Gréau | Banking, Finance, Capital Markets | Scoop.it
La monnaie unique européenne vit-elle ses derniers instants ? Et que se passerait-il vraiment si la zone euro éclatait ? Voici les réponses de l'économiste français Jean-Luc Gréau. Membre de la fondation Res Publica, il se définit comme étant de « tradition libérale de droite », et milite pour un protectionnisme européen.

 

25.07.2011
Propos recueillis par Laure Constantinesco


Inimaginable il y a encore un an, la question de la sortie de l’euro pour certains pays membres de la zone est aujourd’hui posée par certains économistes européens et américains. Pourquoi ?

La succession de crises de la dette publique dans les pays dits périphériques de la zone a créé une situation nouvelle. Jusqu’à l’automne 2008, souvenons-nous en, tous les Trésors publics de la zone pouvaient trouver à emprunter à un taux favorable, quasiment égal à celui du Trésor allemand.

 

La grande récession occidentale survenue à ce moment a créé le doute sur la solvabilité des emprunteurs. Le fait d’appartenir à la zone apparaissait auparavant comme une garantie suffisante. Si l’on peut dire, la « bonne » monnaie d’emprunt faisait le bon emprunteur.

 

Mais la fragilité de plusieurs pays emprunteurs une fois révélée par la crise, les agences de notation, longtemps très bienveillantes, se sont mises à dégrader la notation de différents pays, cinq à ce jour : Grèce, Irlande, Portugal, Espagne, Italie.

 

Les agences de notation et les prêteurs du marché du crédit ont pris conscience de l’hétérogénéité de la zone euro : qu’y a-t-il de commun entre l’économie grecque et l’allemande, la portugaise et l’autrichienne, l’irlandaise et la néerlandaise ?

 

Ces acteurs économiques ont vu l’envolée parallèle des dettes publiques en zone euro, à la faveur de la crise, saisissante pour des pays comme l’Irlande et l’Espagne, qui figuraient parmi les meilleurs élèves de la classe « euro » en termes de dette publique.

 

Certains économistes imputent la débâcle à l’insuffisante compétitivité des pays concernés. Ils en concluent à la nécessité d’une sortie de l’euro, synonyme de dévaluation monétaire, qui corrigerait au moins une partie des écarts de compétitivité.

 

Mais une telle sortie est-elle seulement possible d’un point de vue politique ?

 

C’est en quelque sorte la question préalable. Lors d’un colloque de la Fondation Res Publica, tenu à Paris au printemps 2007,il y a déjà quatre ans, j’avais dit que cette sortie « techniquement possible » ne l’était pas « politiquement ». Car l’euro est plus que l’euro, c’est le symbole idéologique de ce qu’on appelle la « construction européenne ».[Lire ici une intervention similaire de J-L Gréau dans un colloque de la fondation en février 2008, NDLR]

 

J’avais déjà diagnostiqué que la zone euro, victime des forces centrifuges liées à la concurrence des pays asiatiques, était affectée de divergences de plus en plus accusées entre ses économies membres, divergences qui posaient une question de fond sur la viabilité et la pérennité de la zone : d’où la nécessité de travailler sur l’hypothèse d’une sortie de la zone euro pour différents pays. Toutefois, j’étais dans l’obligation de conclure que la force du symbole empêchait les politiques de lancer la question dans le débat public, à moins d’accepter la marginalisation, voire la dénonciation par la classe politique et la corporation médiatique.

Nous en sommes toujours là, malgré la gravité des évènements survenus depuis la crise grecque, rendue publique en février 2010. Les sommets politiques à répétition cherchent à éviter un effritement de la zone euro. Car les dirigeants de la zone pressentent que l’effritement pourrait déboucher sur un éclatement pur et simple.

 

Imaginons toutefois qu’un pays quelconque décide d’abandonner la zone euro. Comment devrait-il s’y prendre techniquement ?

 

D’abord, la nouvelle monnaie nationale devrait être lancée avec une unité de compte nominalement égale à l’euro. Prenons l’exemple d’une nouvelle drachme : celle-ci aurait, dans la circulation intérieure, la valeur de l’euro. Ceci, afin de ne pas déboussoler les acheteurs et les vendeurs, les prêteurs et les emprunteurs sur le marché intérieur, c’est le premier point, et, afin de permettre le retrait, en quelques mois, des anciens billets et pièces en euros, c’est le deuxième point.

 

Ensuite, la devise nouvellement créée flotterait librement sur le marché des changes, tout comme présentement la livre sterling, la couronne danoise et la couronne suédoise. La nouvelle monnaie serait sans aucun doute affectée d’une forte dépréciation, comparable à la dépréciation du baht thaïlandais ou du won coréen lors de la crise asiatique de 1997. Au bout d’un temps déterminé, les autorités politiques du pays revenu à la souveraineté monétaire auraient la faculté d’amarrer la devise nationale à l’euro, pour lui donner le maximum de crédibilité.

 

Enfin, une décision doublement technique et politique s’imposerait : un défaut partiel des emprunteurs privés et publics du pays, endettés dans une monnaie désormais fortement réévaluée par rapport à leur propre monnaie. C’est la solution retenue par l’Argentine en 2001, sous la pression de la nécessité. Il va de soi que ce défaut partiel entraînerait de lourdes pertes chez les créanciers qui sont, pour l’essentiel, les banques des grands pays de la zone euro, prêteurs imprudents qui croyaient et croient encore à la solvabilité contrainte de leurs débiteurs.

 

Qu’y aurait-il à gagner dans cette opération ? Qu’y aurait-il à perdre ?

 

Dévaluer sa monnaie est le moyen par lequel on dévalue son travail et sa production. Autant la décision est amère, autant elle peut s’imposer par pure nécessité pratique. Les entreprises du pays sorti de la zone pourraient tenter de retrouver le chemin de la compétitivité perdue. Une nouvelle stratégie économique devrait être mise en place, fondée sur la diversification du tissu économique. Voilà les perspectives plus heureuses qu’offrirait la dévaluation.

 

En revanche, les emprunteurs du pays, qu’il s’agisse de l’Etat, des entreprises ou des banques, perdraient la faculté de s’endetter en s’appuyant sur une monnaie « noble » comme l’euro.

 

Mais vous et moi, nous avons déjà pu observer que l’euro a cessé de jouer son rôle de garant depuis dix-huit mois et qu’il y a donc de moins à moins à craindre de passer à une nouvelle monnaie, plus en ligne avec la compétitivité réelle du pays.

 

En fait, et c’est là une vérité qui vaut aussi bien pour les pays comme les pays périphériques que pour les autres, comme la France, encore préservée, la crise de l’euro résonne comme un appel explicite à s’appuyer désormais autant que faire se peut sur l’épargne locale, qui est dans les mains des particuliers, plutôt que sur le crédit de banques dirigées par des « aventuristes ». La plus grande réforme à introduire consiste à ôter aux financiers le privilège abusif qu’ils se sont octroyés depuis trente ans, en accaparant l’épargne privée.

 

Enfin, le passage à une nouvelle monnaie nationale donnerait la faculté à la banque centrale correspondante de soutenir les cours de la dette publique et d’octroyer à l’Etat des avances pour le financement des infrastructures jugées indispensables, du double point de vue économique et écologique.

 

A titre personnel, un tel scénario de « sortie de l'euro » vous semble-t-il envisageable ?

 

La monnaie représente un instrument décisif mais délicat de la prospérité des économies et du bonheur matériel des peuples. Il fallait éviter d’en jouer comme d’un symbole politique, qui devait conduire à l’unité de l’Europe, de gré ou de force. Il fallait, si l’on s’engageait dans cette voie, prendre à tout le moins deux précautions majeures.

 

Première précaution : protéger la nouvelle zone euro de la concurrence déloyale des pays à bas coût du travail et de la matière grise. Or, c’est l’option contraire qui a été retenue : mener de front la mondialisation commerciale et l’unification monétaire.

 

Deuxième précaution : organiser, au sein de la nouvelle zone monétaire, de dimension forcément restreinte, une harmonisation des coûts du travail, avec le concours actif des employeurs et des syndicats. Mais, ainsi qu’on l’a vu, les coûts du travail n’ont cessé de diverger entre 2001 et 2008.

 

Faute de ces deux précautions, la crise de l’euro était programmée. C’était l’objet d’un article personnel écrit en janvier 2006 : « Europe et euro : le rendez-vous manqué ».

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Le dilemme britannique

25 juin 2012

 

Principal centre financier européen sans être dans l'euro, la Grande-Bretagne est partagée sur l'union bancaire. D'un côté, ce schéma constitue un des ingrédients essentiels à la résolution de la crise actuelle qui contribue à maintenir leur pays dans la récession. Londres estime qu'« il y a une logique » à ce que la BCE soit le superviseur de l'union bancaire, l'Autorité bancaire européenne (ABE) étant une institution du marché unique à 27. De l'autre, le Royaume-Uni ne veut pas participer aux recapitalisations des banques de la zone euro. « Il ne s'agit pas d'échapper à nos responsabilités, mais nous sommes dans une devise différente, nous avons recapitalisé nos banques nous-mêmes », explique-t-on au Trésor. Le gouvernement Cameron veut aussi des garanties pour que les pays de la zone euro n'imposent pas leur vue aux autres pays de l'Union au sujet du marché unique des services financiers. Pour l'instant, cependant, la seule sauvegarde concrète est de saisir la Cour européenne de justice. C'est ce que fait le Royaume-Uni à propos de la politique de compensation, injuste selon lui, par la Banque centrale européenne (BCE).

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FRB: Federal Reserve announces changes to Money Market Investor Funding Facility (MMIFF)

January 7, 2009

 

First, the set of institutions eligible to participate in the MMIFF was expanded from U.S. money market mutual funds to also include a number of other money market investors. The newly eligible participants include U.S.-based securities-lending cash-collateral reinvestment funds, portfolios, and accounts (securities lenders); and U.S.-based investment funds that operate in a manner similar to money market mutual funds, such as certain local government investment pools, common trust funds, and collective investment funds. The possibility that the set of eligible investors would be expanded beyond money market mutual funds to include other money market investors was noted when the program was first announced on October 21, 2008.

 

Second, the Board authorized the adjustment of several of the economic parameters of the MMIFF, including the minimum yield on assets eligible to be sold to the MMIFF, to enable the program to remain a viable source of backup liquidity for money market investors even at very low levels of money market interest rates.

The Board authorized the MMIFF on October 21, 2008 under section 13(3) of the Federal Reserve Act.

 

The MMIFF became operational on November 24, 2008. The MMIFF is designed to serve as a source of liquidity to money market mutual funds and other eligible money market investment vehicles, thereby increasing their ability to meet redemption requests and their willingness to invest in money market instruments, particularly term money market instruments.

 

Under the MMIFF, the Federal Reserve Bank of New York provides a credit facility to a series of special purpose vehicles (SPVs) established by the private sector. The SPVs will purchase certain U.S. dollar-denominated, highly rated, short-term certificates of deposit, bank notes, and commercial paper from eligible money market investors.

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FRB: Federal Reserve announces extension of its existing liquidity programs

The Federal Reserve on Tuesday announced the extension through October 30, 2009, of its existing liquidity programs that were scheduled to expire on April 30, 2009. The Board of Governors and the Federal Open Market Committee (FOMC) took these actions in light of continuing substantial strains in many financial markets.

 

The Board of Governors approved the extension through October 30 of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Money Market Investor Funding Facility (MMIFF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF). The FOMC also took action to extend the TSLF, which is established under the joint authority of the Board and the FOMC.

 

In addition, to address continued pressures in global U.S. dollar funding markets, the temporary reciprocal currency arrangements (swap lines) between the Federal Reserve and other central banks have been extended to October 30. This extension currently applies to the swap lines between the Federal Reserve and each of the following central banks: the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, the Norges Bank, the Monetary Authority of Singapore, the Sveriges Riksbank, and the Swiss National Bank. The Bank of Japan will consider the extension at its next Monetary Policy Meeting. The Federal Reserve action to extend the swap lines was taken by the Federal Open Market Committee.

 

The current expiration date for the Term Asset-Backed Securities Loan Facility (TALF) remains December 31, 2009. Other Federal Reserve liquidity facilities, such as the Term Auction Facility (TAF), do not have a fixed expiration date.

 

The AMLF provides loans to depository institutions to purchase asset-backed commercial paper from money market mutual funds. The CPFF provides a liquidity backstop to U.S. issuers of commercial paper. The MMIFF supports a private-sector initiative to provide liquidity to U.S. money market investors. The PDCF provides discount window loans to primary dealers. Under the TSLF, the Federal Reserve Bank of New York auctions term loans of Treasury securities to primary dealers. The TALF will support the issuance of asset-backed securities collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration. Under the TAF, Reserve Banks auction term discount window loans to depository institutions.

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Usage of Federal Reserve Credit and Liquidity Facilities

This section of the website provides detailed information about the liquidity and credit programs and other monetary policy tools that the Federal Reserve used to respond to the financial crisis that emerged in the summer of 2007. These programs fall into three broad categories--those aimed at addressing severe liquidity strains in key financial markets, those aimed at providing credit to troubled systemically important institutions, and those aimed at fostering economic recovery by lowering longer-term interest rates.


The emergency liquidity programs that the Federal Reserve set up provided secured and mostly short-term loans. Over time, these programs helped to alleviate the strains and to restore normal functioning in a number of key financial markets, supporting the flow of credit to businesses and households. As financial markets stabilized, the Federal Reserve closed most of these programs. Indeed, many of the programs were intentionally priced to be unattractive to borrowers when markets are functioning normally and, as a result, wound down as market conditions improved. The programs achieved their intended purposes with no loss to taxpayers.

 

The Federal Reserve also provided credit to several systemically important financial institutions. These actions were taken to avoid the disorderly failure of these institutions and the potential catastrophic consequences for the U.S. financial system and economy. All extensions of credit were fully secured and are in the process of being fully repaid.

 

Finally, the Federal Reserve provided economic stimulus by lowering interest rates. Over the course of the crisis, the Federal Open Market Committee (FOMC) reduced its target for the federal funds rate to a range of 0 to 1/4 percent. With the federal funds rate at its effective lower bound, the FOMC provided further monetary policy stimulus through large-scale purchases of longer-term Treasury debt, federal agency debt, and agency mortgage-backed securities (agency MBS). These asset purchases helped to lower longer-term interest rates and generally improved conditions in private credit markets.

 

The links to the right provide detailed information about the programs that were established in response to the crisis. Details for each loan include: the borrower, the date that credit was extended, the interest rate, information about the collateral, and other relevant terms. Similar information is supplied for swap line draws and repayments. Details for each agency MBS purchase include: the counterparty to the transaction, the date of the transaction, the amount of the transaction, and the price at which each transaction was conducted. The transaction data are provided in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Federal Reserve will revise the data to ensure that they are accurate and complete.

 

No rules about executive compensation or dividend payments were applied to borrowers using Federal Reserve facilities. Executive compensation restrictions were imposed by statute on firms receiving assistance through the U.S. Treasury's Troubled Asset Relief Program (TARP). Dividend restrictions were the province of the appropriate supervisors and were imposed by the Federal Reserve on bank holding companies in that role, but not because of borrowing through the facilities discussed here.

 

Additional information about the Federal Reserve's credit and liquidity programs is available on the Credit and Liquidity Programs and the Balance Sheet section.

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The Federal Reserve's Liquidity Facilities - Federal Reserve Bank of New York

April 18, 2009

 

William C. Dudley , President and Chief Executive Officer

Remarks at the Vanderbilt University Conference on Financial Markets and Financial Policy Honoring Dewey Daane, Nashville, Tennessee

 

Thank you for having me here today. It is a great honor to be on a panel with Peter Fisher and Bill Poole. I am the neophyte here in terms of central banking experience!

 

Before I begin, let me emphasize that my comments represent my own views and opinions and do not necessarily reflect the views of the Federal Open Market Committee or of the Federal Reserve System.

 

I am going to talk today about the Fed’s provision of liquidity to banks and dealers and to market participants more generally.

 

I would break down our actions into three broad classes.

 

First, we addressed the acute seizing up of inter-bank financing markets. For banks, we introduced the Term Auction Facility in December 2007 and for the primary dealers, the Term Securities Lending Facility and Primary Dealer Credit Facility in March 2008. In addition, the Federal Reserve entered into FX swap agreements with major global central banks in order to channel dollar liquidity to banks overseas.

 

Second, we expanded our provision of short term financing beyond banks and dealers in order to alleviate constraints on highly rated corporate borrowers. The two most noteworthy examples of this are the Commercial Paper Funding Facility, which was introduced in October 2008, and the Term Asset-Backed Securities Lending Facility (announced in November 2008, but not up and running until last month.)

 

Third, once policy rates were near the zero-bound, we expanded the type of assets that the Fed purchased. In order to put downward pressure on general longer term borrowing rates, particularly mortgage rates, the Federal Reserve has purchased the debt of the GSEs, namely, Fannie Mae and Freddie Mac and the mortgage-backed-securities they issue, and, more recently, longer-term Treasuries.

 

So why has the Fed done so much in terms of special programs?

 

As I see it, there are four major reasons behind the dramatic expansion of the Fed’s liquidity programs:

 

- To provide liquidity to banks and dealers in order to slow down the deleveraging process.
- To expand the balance sheet capacity of the private sector to counteract the shrinkage underway in the non-bank financial sector.
- To restore and improve market function.
- To ease financial market conditions.


This financial crisis has been marked by the rapid deleveraging of the non-bank financial sector. This deleveraging has been driven mainly by the collapse of securitization activity, pressure on dealers to reduce leverage and the spillover of these efforts on to other financial players such as hedge funds.

 

This deleveraging process, in turn, has put intense pressure on the balance sheet capacity of the banking sector. Not only can banks no longer securitize assets as before, but assets that they thought were off their books have come back on.

 

Although the deleveraging process is inevitable following periods when the financial system has become overextended, it does matter how this deleveraging process takes place. In the current crisis, the deleveraging process at times has been very violent and dangerous, with powerful reinforcing feedback loops intensifying the process. During these episodes, bystanders who did not engage in excess may be trampled and fail. This may exacerbate the tightening in financial conditions, intensifying the constraint on credit availability and the downward pressure on economic activity.

 

For example, in March 2008, in the run-up to Bear Stearns’ demise, the deleveraging process intensified. Market volatility increased; this caused lenders to increase the haircuts they assessed against collateral to secure their lending. The higher haircuts, in turn, squeezed highly leveraged investors who were forced to sell assets. This drove down asset prices and increased price volatility further, leading to still-higher haircuts. This intensified the deleveraging process, which led to more mark-to-market losses.

 

The Federal Reserve’s facilities for banks and dealers have been designed, in part, to slow down the deleveraging process. The TAF, the TSLF and the PDCF have provided assurance to banks and dealers that they have a place where they can obtain funding for their less liquid collateral. As a result, they will not be forced to dump assets, further depressing market prices, increasing volatility and the upward pressure on haircuts. The deleveraging will still take place—and we have seen it—just not so quickly and violently that it would destabilize the entire financial system.

 

The second major intent of the liquidity facilities has been for the Fed to expand its balance sheet and, by doing so, offset some of shrinkage that has been occurring among non-bank financial intermediaries. The fact is the banking system is capital-constrained, with insufficient capital to expand its balance sheet fast enough to offset the shrinkage evident in the non-bank sector. Although the Federal Reserve cannot create capital for banks, it can provide funding directly to the private sector, attenuating the consequences caused by a balance-sheet-constrained banking system.

 

The CPFF and the TALF are both important in restoring the flow of credit to borrowers. The CPFF essentially jump-started the commercial paper market, which had largely shut down following the failure of Lehman Brothers in September.

 

The TALF’s purpose is to restart the securitization markets, and thereby lower the cost of borrowing to households and business. The TALF does this by providing term, non-recourse loans to investors against AAA-rated collateral. Investor demand for these loans leads to downward pressure on AAA-rated financing rates, lowering the cost of credit. Although TALF is off to a relatively slow start—hurt, in part, by the reluctance of some investors to participate because of worries about the potential implications for them of the TARP funding that is involved in the TALF program, it has helped to restart the securitization markets in the consumer asset-backed securities area and has brought down funding costs for consumer ABS issuers.

 

The third goal of these policy interventions has been to improve market function. By dramatically reducing rollover risk, the Federal Reserve’s willingness to serve as the lender or investor of last resort has helped improve market function in a broad number of areas. Rollover risk is the risk that a borrower may not be able to obtain new funding in order to repay an investor when the investor needs the funds for other uses. If rollover risk is high, the investor is going to be concerned about getting its funds back and, thus, may be unwilling to make the investment in the first place. The impact of the Fed’s intervention on rollover risk has been especially important in the triparty repo market and in the commercial paper market.

 

The triparty repo market is a market in which investors such as money market mutual funds lend funds, mostly on an overnight basis, to securities dealers, with the loans collateralized by high-quality securities. During the crisis, this market became less stable. As the financial condition of some of the major securities dealers worsened, the clearing banks became more reluctant to return the cash that the triparty repo investors had invested the prior evening. The clearing banks were worried that if a dealer were to fail, they could be stuck with a large obligation. The nervousness of the clearing banks, in turn, spilled back to the investors. If there is some chance that I might not get my cash back and instead be stuck with the collateral, do I really want to make the loan in the first place? The Primary Dealer Credit Facility essentially broke this dynamic by putting the Federal Reserve in the position of lender of last resort in the triparty repo system. With the Federal Reserve willing to lend against collateral, the clearing banks no longer have significant intraday risk exposure. The triparty repo investors have been reassured that they would be paid back. As a consequence, they were willing to keep investing.

 

The TAF and the dollar facilities offered by foreign central banks provided the same antidote to rollover risk in the interbank funding markets. Banks that were reluctant to lend to one another because of rollover risk became willing to reengage because they knew that the Federal Reserve and foreign central banks would lend against high-quality collateral.

 

By eliminating rollover risk, the CPFF also helped to restore market function in the commercial paper market. Commercial paper investors who had shunned the market returned because they were no longer worried that they could get their money back. In extremis, the Federal Reserve could purchase the commercial paper from the issuer, generating the funds to repay the private investors’ commercial paper investment.

 

The fourth and final goal of the Fed’s liquidity facilities has been to ease financial conditions. This has been particularly important in the current environment because the federal funds rate cannot be pushed below zero (the so-called zero-bound constraint). This means that with the federal funds rate having been effectively lowered as far as it can go, the Federal Reserve has had to turn to other tools such as asset purchase programs if it is to ease financial conditions further as warranted given macroeconomic conditions.

 

The Federal Reserve’s purchases of agency debt, agency MBS and longer-term Treasuries have been implemented mainly with one goal in mind—reduce longer-term private sector interest rates, and thereby provide stimulus to the U.S. economy.

 

The Federal Reserve’s Treasury purchase program is designed to hold down the level of longer-term interest rates. To the extent that a lower level of long-term Treasury rates pulls down the level of private long-term rates, then these purchases should also ease financial market conditions.

 

So how have the Fed’s facilities worked in practice?

 

In general, I think the facilities have worked quite well. In those areas where the facilities have been active, we generally have seen an improvement in market conditions.

 

But the facilities have not been a panacea for three reasons. First, the facilities cannot address the fundamental problem—the shortage of capital in the banking system. The facilities can slow down the deleveraging process, but until the banking system is viewed as being sufficiently well-capitalized and is able to expand its lending activity significantly, the limits on credit availability caused by an impaired banking system will make it more difficult to generate a sustainable economic recovery.

 

Second, there are limits on what the Fed can do legally. For example, the Fed can only lend if it is secured to its satisfaction. There has to be sufficient collateral available. The Fed cannot lend on an unsecured basis or provide guarantees. And the Fed cannot purchase assets other than Treasuries, agencies and agency MBS, and short-dated general obligations of states and municipalities.

 

Third, the effectiveness of some of the Fed facilities have been undercut by stigma—the discount window is the best example of this—or by worries about what other strings are or might be attached to the use of the facilities—the TALF comes to mind in this respect.

 

One reason why the TALF has gotten off to a relatively slow start is the reluctance of investors to participate. Issuers’ interest, not surprisingly, dwarfs investor demand at this stage of the program. Some investors are apparently reluctant not because the economics of the program are unattractive, but because of worries about what participation might lead to. The TARP loans to banks led to intense scrutiny of bank compensation practices given that TALF loans are ultimately secured by TARP funds, investor anxiety about using the program has risen.

 

My own view is that these fears are misplaced. The TARP funds in the TALF program only come in on the backend of the program when loans are put back to the Fed. The lending to investors on the front end is completely a Federal Reserve program and operation. That being said, I understand the reasons for the anxiety given the political discourse on this subject. I think it is worth emphasizing that actions that lead investors to shun taking risk, especially in this environment, are ultimately detrimental to the ability of households and businesses to secure credit at reasonable borrowing rates.

 

The Federal Reserve’s liquidity facilities and asset purchase programs have led to a substantial expansion of the Federal Reserve’s balance sheet since September 2008. Currently, the Fed’s balance sheet totals about $2.2 trillion, up from about $900 billion last fall prior to Lehman’s failure.

 

In thinking about this balance sheet expansion, I would make three broad points. First, in my mind, the goal is not the expansion of the balance sheet per se, but the objectives that I laid out earlier. In this respect, the expansion of the balance sheet differs considerably from Japan’s experience with quantitative easing. In the current circumstance, the Federal Reserve’s liquidity programs act on the asset side of the balance sheet as the Fed lends funds against less liquid collateral and expands its asset holdings via purchases of agency debt, agency MBS and Treasuries. The goals are to slow down the pace of deleveraging to reduce the risk of catastrophic failure, improve market function and ease financial market conditions.

 

In contrast, the Bank of Japan worked on the liability side of the balance. Their goal was to expand the amount of excess reserves held by the banking system so that the banks would be more willing to expand their credit provisions. Although the Fed’s activities have led to a big jump in excess reserves, this increase is incidental—a byproduct rather than goal of the asset-oriented programs.

 

Second, as a consequence of this my point, the size of the balance sheet, is not a good metric for measuring the impact of the Fed’s facilities or the amount of stimulus that the Fed is providing via these programs. For example, consider the impact of the Fed facilities on rollover risk. A Fed facility that eliminates rollover risk might not be used at all. There might be no balance sheet impact.  Nevertheless, the facility could have an important impact on market function and financial market conditions.

 

It is not possible to mechanically map the size of the balance sheet back onto the impact on financial market conditions. That is because the balance sheet size is being driven by a large number of different actions. Is a dollar of TAF lending equivalent to a dollar extended through the CPFF or to a dollar of Treasury purchases? How important is the PDCF? It backstops lots of lending, but outstanding amounts are very low. The differences between the various programs and activities mean that the balance sheet size should be interpreted in light of the impact on market function and financial market conditions, not by the impact on the size of the balance sheet.

 

The size of the balance sheet is also not a good standard because the use of the different facilities depends on the degree of impairment in market function. If market conditions were to deteriorate, I would expect that usage of the Fed’s facilities would increase and the balance sheet would grow in size. This would be appropriate. The Fed’s balance sheet would act as a shock absorber, cushioning the impact of the shift in market conditions. In such circumstances, the balance sheet would act as a counter-cyclical dampening mechanism. I would view that as a desirable outcome.

 

In contrast, if the Fed were committed to a particular balance sheet trajectory, then, as market conditions improved and financial conditions eased and usage of the Fed’s liquidity facilities diminished, the Fed would have to offset this by increasing the scope of its liquidity facilities or by expanding its asset purchase programs. It is unclear to me why the Federal Reserve would want to apply more stimulus at a time when market conditions were improving. This suggests that some variability in the trajectory of the Fed’s balance should be expected and might even be desirable. And, in fact, this is what we have seen in practice.

 

Third, I am not worried at all that the Federal Reserve’s balance sheet expansion will generate an inflation problem. It should be emphasized that the Federal Reserve has the ability to manage down the size of its balance sheet over time once financial conditions and the economy improve. Many of the liquidity facilities will shrink automatically as financial conditions normalize. With the exception of TAF loans, all of the other Fed liquidity facilities charge rates that are higher than what one would expect during more normal financial circumstances. And, if we want the TAF loans to shrink, we can either shrink the amounts on offer or raise the interest rate we charge, or both. The other assets such as Treasury securities and agency MBS can be sold or the impact on reserves be offset by repurchase operations that drain reserves from the banking system.

 

More importantly, the Federal Reserve now has the tools to allow the conduct of monetary policy to be separated from the size of the balance sheet and the amount of excess reserves in the banking system. In September 2008, the Federal Reserve gained the authority to pay interest on excess reserves. This provides a tool that allows Fed officials to tighten monetary policy and raise private sector interest rates by raising the rate paid on excess reserves.

 

Some skeptics note that when interest on excess reserves was first implemented, the federal funds rate traded somewhat below the rate on excess reserves. This has created worry in some quarters that paying interest on excess reserves might not work very well as a tool for controlling the federal funds rate.

 

On this issue, two points are warranted. First, the relatively large gap between the interest rate on excess reserves and the federal funds rate was due, in large part, to the impaired condition of the banking system, which inhibited the willingness of banks to arbitrage that gap. Because balance sheet capacity was scarce, banks were reluctant to use their balance sheets to purchase federal funds at a slight discount to the interest on excess reserves rate. As the banking system returns to health, this arbitrage is likely to become more attractive, causing the gap between the interest rate on excess reserves and the federal funds rate to narrow.

 

Second, the Federal Reserve could alter its monetary policy framework in order to increase its control of monetary policy in a large excess reserve environment. It is beyond the scope of this speech to get into the details, but we have plenty of options in devising incentives for banks to hold reserves at the Fed that would improve our ability to control the federal funds rate. The challenge will be deciding on the best option, not in finding a workable approach.

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