The coming worldwide credit crunch

Looks like the markets are starting to panic about Spain and Italy now.   10 year Spanish Govt bond yields have recently topped 6% for the first time since 1997.  It's like watching a car crash in slow motion.

Welcome my friends, to the thread that never ends.

TJ 222 where are you?

TJ:

Quoting you:

"There is a big difference between being right and getting your way."

Isn't that the truth!  Or as a friend of mine puts it: "What you ask for and what you get are two entirely different things". 

Patricia

Welcome my friends, to the thread that never ends.

TJ 222 where are you?

The most informative thread on EOS by a mile.

I would guess TJ 222 is holding his breath like the rest of the financial world.  I may be what another thread calls a "doom and gloom merchant", I would rather call it being a realist.  With Ireland demoted to junk bond status and Italy in crisis, how much more of this can the Euro system take before someone admits that the Macawber axiom (Income 6p more than expenditure-happiness etc) applies today just as it did in Dickens' time.  Lending more money to someone who can't repay their existing debts (at ever greater interest rates) is just a means of embroiling the rest of the world in to a sick and failing system by spreading the pain and putting off the day when the debt must (but cannot) be repaid. We are not simply paying for the profligacy of governments in the past, but the arrogance of politicians who don't want the crash to happen on their watch. 

It's rumoured that 5-6 Spanish banks will fail the stress tests.  I guess we'll find out later this evening...

Sanchez, I''d expect you're right; I'm also hearing that there are a number of buyers ready to step in to purchase cajas under "fire-sale" terms. The owners and the government may have little option other than to go with whatever terms are on offer if that provides a route to recapitalise the system.

Barclays were sniffing around CAM Bank (rumoured to have failed the stress tests) recently, but I don't think they are going to take it any further thank god.

They're still interested - just comes down to the terms.

 Market rumours of a Greek default this w/e. Looking at the EUR vs the USD and GBP could be correct. If not its only a matter of time. I think then all the peripheral countries will be watching intently to see what happens to Greece and this could the start of a series of exits from the Euro.

As people may know the only resaon Spain is still in the game is because the ECB keeps interviening in the bond market to stop the yield on the debt going above 6%. Above 6% and the country is finished as far as the Euro is concerned. However this daft behaviour with bond purchases now puts the ECB itself in grave danger as during the Greek crisis the ECB tried this trick with Greek bonds, but got flattened by the market and is now the proud owner of a huge stack of near worthless debt, or should i say the ECB taxpayers.

Now the ECB itself is in danger of going bust with Greece and it is still repeating the trick with Spanish bonds. Of course in reality the ECB will never go bust as it can simply print money, but Germany is extreemly reluctant to go down the route after their last disasterous experience with printing money and hyperinflation.

However this is looking like the only option now to keep the Euro Titanic afloat. 

Yes and i wonder if Bennys got any more cheques left 600 billion spent and the markets still down and no more US jobs DOUBLE DIP oh yes Ithink he should go to TEXAS for a holiday OBAMA wants 300 billion MAD

Lucky we placed all those geared SHORTS

Banks in particular 2 trillion sterling in british banks and the goverment has less than 2 billion in its current account 

RBS is bust BARCLAYS on the ROPES ETC ETC

This is going to get even UGLIER

Rod

From Zero Hedge

European banks are hemorrhaging deposits as savers and money funds pile into other perceived havens such sterling, dollar and Swiss franc deposit accounts. Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months. 

A tiny fraction of these European deposits has gone into gold with the majority going into other fiat currency deposits. It is not just the saver of periphery nations who are opening non euro deposit accounts - many German savers are opening up deposit accounts in Switzerland.

I wonder how much money has been taken out of the Spanish banking system in recent months.  I've got enough euros in my account just to cover living expenses.  Most of the people I work with (including Spaniards) have dumped most of their euros as well.

It looks like the ECB is about to go nuclear and print up a fresh 1.75 trillion to bolster the EFSF and try another hopless and dangerous attempt to stop the crisis by buying more time. Most of the money in reality will go to the reckless French and other banks who gambled on the peripheral zone.

If you though the cost of living and unemployment was bad now you aint seen nothing yet.

 More from Sky News correspondent Ed Conway (via Twitter):

• G20 now preparing itself for Greek default after October - Sky sources. Will be on Sky News imminently with more
• G20 sources: all efforts behind the scenes (by G20 members) are now going into recapitalising banks, preparing economies for default
• G20 sources: default not expected until after Cannes G20 early November. Emergency funding should still keep Greece afloat thru October
• G20 sources: No suggestion Greek default need imply country leaving the euro
• G20 sources: @ Washington summit marked difference in attitude. Confident euro members edging closer to recapitalising banks, expanding EFSF

TJ,

Are there no constraints or pre-conditions being placed upon these monies to prevent a repeat of reckless mismanagement  by the Banks? Are directives issued and effectively monitored so as to control the use and distribution of these funds?Is there any organisation as yet who have effective powers to ensure more ethical behaviour by the European (and worldwide for that matter) Banks? Do they remain unaccountable or are there behind-the-scenes reforms being negotiated as we speak? Is there any Worldwide organisation that adequately monitors the Banks and have powers to enforce accountability under these extreme circumstances? Or is this suggestion an impossible pipe dream?

Ads.  So nice to see someone with a sense of irony posting on this thread.  It was ironic wasn't it?

M.

I take that as a no then (no worldwide organisation to monitor and control)....

 It's about time that people started to demand accountability of their Banks, and no bettter time to start calling for radical reform than now!

Even that is unlikely to be enough once the bankers have taken their bonuses and the EU political leaders their brown envelopes!  Many people have tried to bring change without success and will go on doing so, but don't expect change anytime within our lifetimes.

M.

 Its a great question ads and one that is and should be asked. Not only were reckless banks largely responsible for the crisis, but last time they got bailed out, the directors in real terms were rewarded by granting themselves a continuation of bonuses that make the general public weep. I really doubt whether anything will be different this time either, the situation reeks of moral hazard. If you got rewarded for failure would you change?

The problem is that as most people now understand, the banks are the ones that call the shots, wether it be politicians or agencies set up to police them. The banks have "bought" all the support they require, much in the same way that the Mafia bought the police and judicial system in various countries in the past. In the US there is a "revolving door" between the major investment banks and the key decision makers in all the organisations that matter. Goldman Sachs has a man on virtually every Central bank that matters including the UK and Tony Blair for instance walked into a 1million "job" with JP Morgan, the minute he left power.

The SEC in the US is the organisation set up to police all aspects of financial markets, but they mysteriously have done nothing to upset the status quo.

Thanks largely to the internet however, the general public is not nearly so naieve as it once was and there is a growing wave of anger against the banks and politicians and those deemed in charge. How much longer the situation can go on is largely up to voters i feel, and how much longer they want to sit still and pick up the bill.

In this situation most of the money will go not to Greece, but to bail out the banks that made bad decisions by lending to Greece and to buy bonds of Spain and Italy to try and contain the contagion.

Of course it won't work and the end result will just be a much much larger mess, with the general public picking up the final bill in taxes and inflation and poverty. The real problem remains the one size fits all monetary policy of the EU and and the madness of trying to tie together countries as unmatched as Greece and Germany. That will remain until the Euro is allowed to collapse or Germany pulls out of the top. The fact that in Germany Merkel has been losing votes and hence power every time the people get a chance to go to the ballot box is indicating that despite the banks grip on politicians, they cannot stop the public if they get wise and get motivated to do something. Merkel is now caught between a rock and a hardplace and she tries the impossible balance of obeying her real masters and the voters that keep her in power.

The banks however are masters of offering the public new "choices" in politicians that turn out to be the left and right hand of the same body. Before he was elected Cameron promised the UK public a vote on Europe, now he is safely in power its a different matter. Obama promised hope and change, the change turned out to be much more of the same failed policies and the hope has turned to dismay.

TJ,

Thanks so much for the educative response.

It appears that we are all being compromised by a significant conflict of interests. A conflict that goes way beyond the acceptable boundaries of democracy.

 IMHO the general public should be demanding an independent Worldwide organisation be established, to monitor and control the powers of the Banks and make them far more accountable.

 I'd be interested to know your solution however.

 ads

No amount of "independent" regulation would ever work, because there are currently "independent" organisations such as the rating agencies and they just get bought. Moodys and S&P had subprime rated as AAA the day before it collapsed.

The answer is very much more simple than that - its to remove the central banks as lender of last resort. This is the biggest moral hazard in financial history. The banks need to know that if they gamble and fail, they must be allowed to go bust. Depsitors funds should be protected, but everyone else loses full stop. Faced with this firm message, the banks would not be reckless. This and the seperation of retail banking and casino banking. Retail banking should be a public service like a utility - water electric etc dull and reliable. If someone wants to do casino banking, they can do it with their own and reckless shareholders money.

The above and a regulation preventing debt growth in excess of GDP and the free markets setting the price of money would solve most of the problems.