Saturday, January 17, 2015
The Financial System Broke Last WeekSubmitted by Phoenix Capital Research on 01/17/2015 15:16 -0500
Global Central banks’ reputations are on borrowed time.
ALL of the so called, “economic recovery” that began in 2009 has been based on the Central Banks’ abilities to rein in the collapse.
The first round of interventions (2007-early 2009) was performed in the name of saving the system. The second round (2010-2012) was done because it was generally believed that the first round hadn’t completed the task of getting the world back to recovery.
However, from 2012 onward, everything changed. At that point the Central Banks went “all in” on the Keynesian lunacy that they’d been employing since 2008. We no longer had QE plans with definitive deadlines. Instead phrases like “open-ended” and doing “whatever it takes” began to emanate from Central Bankers’ mouths.
However, the insanity was in fact greater than this. It is one thing to bluff your way through the weakest recovery in 80+ years with empty promises; but it’s another thing entirely to roll the dice on your entire country’s solvency just to see what happens.
In 2013, the Bank of Japan launched a single QE program equal to 25% of Japan’s GDP. This was unheard of in the history of the world. Never before had a country spent so much money relative to its size so rapidly… and with so little results: a few quarters of increased economic growth while household spending collapsed and misery rose alongside inflation.
This was the beginning of the end. Japan nearly broke its bond market launching this program (the circuit breakers tripped multiple times in that first week). However it wasn’t until late 2014 that things truly became completely and utterly broken.
We are, of course, referring to the Bank of Japan’s decision to increase its already far too big QE program, not because doing so would benefit the country, but because it would bring economists’ forecast inline with governor Kuroda’s intended inflation numbers.
This was the “Rubicon” moment: the instant at which Central Banks gave up pretending that their actions or policies were aimed at anything resembling public good or stability. It was now about forcing reality to match Central Bankers’ theories and forecasts. If reality didn’t react as intended, it wasn’t because the theories were misguided… it was because Central Bankers simply hadn’t left the paperweight on the “print” button long enough.
At this point the current financial system was irrevocably broken. We simply had yet to feel it.
That is, until, last week, when the Swiss National Bank lost control, breaking a promise, and a currency peg, losing an amount of money equal to somewhere between 10% and 15% of Swiss GDP in a single day, and showing, once and for all, that there are problems so big that even the ability to print money can’t fix them.
Please let this sink in: a Central bank lost control last week. This will not be a one-off event. With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.
The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.
More here: http://www.zerohedge.com/news/2015-01-17/financial-system-broke-last-week
The Greek Bank Run Spreads To All Four Largest BanksSubmitted by Tyler Durden on 01/16/2015 21:27 -0500
While moments ago Greece was downgraded by that paragon of analytical and timing virtue, Fitch, to a negative outlook from stable, that is largely meaningless for a nation, devoid of tax revenues and increasingly deposits, which is suddenly imploding at an ever-faster motion.
What is relevant is that following yesterday's report that two Greek banks had suffered sufficiently material deposit withdrawals to force them to apply for the unpopular and highly stigmatizing Emergency Liquidity Assistance program with the ECB, now the other two of Greece's largest banks have also succumbed to reserve depletion after the Greek bank run appears to have gone viral. As Greek Capital.gr reports, now all four Greek banks have requested ELA assistance from the same ECB president who earlier today is said to have unceremoniously kicked out Greece from the ECB's QE program.
As a reminder, this is what we learned yesterday via Kathimerini:
And now this, from Capital.gr, google translated:Two Greek systemic banks reportedly submitted the first requests to the Bank of Greece for cash via the emergency liquidity assistance (ELA) system on Thursday, in response to the pressing liquidity conditions resulting from the growing outflow of deposits as well as the acquisition of treasury bills forced onto them by the state.
Banks usually resort to ELA when they face a cash crunch and do not have adequate collateral to draw liquidity from the European Central Bank, their main funding tool. ELA is particularly costly as it carries an interest rate of 1.55 percent, against just 0.05 percent for ECB funding.
The requests by the two lenders will be discussed by the ECB next Wednesday.
More here.All four banks in request precautionary ELA
People at the Bank of Greece confirmed that it has submitted a request from the four banks to provide liquidity through the ELA and the Bank of Greece, in the prescribed procedure, has informed the European Central Bank. Not specified amount of requests.
To the question of why Capital.gr requested liquidity through "national" ELA and not by the ECB, despite what has been interrupted and remains active financing from Frankfurt, no details were given. Note that all four Greek systemic banks open until February 28 the ECB funding to guarantee Greek government securities.
The provision of liquidity by ELA is significantly "more expensive" than the ECB, which remains less than 0.5%. The difference between the two mechanisms is that in the case of ELA guarantees can use banks are almost all assets of the loan portfolio, while the ECB needed Greek government securities.
It should however be noted that banks also have bonds of the EFSF by the recapitalization which of course no bank wants to "spend" in moments of uncertainty, preferring to exploit even at higher cost securities loans can not use EDU easy neither the ECB nor the capital market.
Earlier, the Bank of Greece rounds had confirmed the information that already two Greek banks have resorted precautionary liquidity in ELA. The representative of the National Bank, Dimitris Spyropoulos, speaking at Capital.gr said earlier that the National Bank has not had recourse to ELA and does not plan to appeal.
The request of the Greek banks will be discussed next Thursday on the ECB Governing Council in Frankfurt. Information indicates that one of the banks turned to the ELA not participated in the auction of Treasury bills held Tuesday.
Meanwhile, according to a report in Bloomberg, the Alpha Bank has submitted a request to the Bank of Greece for stimulating fluid through the ELA, the agent to invoke bank executive.
The request was a precautionary measure, and the bank does not expect that you will need to use the funds of ELA on time, said earlier in the official Bloomberg. According to the same publication and Eurobank submitted a request for precautionary line of the ELA.
According to a publication of Dow Jones Newswires, representative of Alpha Bank said the bank wanted the funding as a precautionary measure and does not intend to use it. "We are just superstitious, and be on the safe side. It is the general situation in Greece. There are many cash withdrawals, "said spokesman of Alpha Bank to Dow Jones Newswires.
|RIA Novosti/Vladimir Fedorenko|
Duma moves to outlaw ‘undesirable’ foreign groups
Published time: January 15, 2015 11:03
The State Duma Committee for Constitutional Law is putting forward a bill which would allow the authorities to ban the activities of foreign or international groups that are recognized as “posing a threat to the nation’s security or defense ability.
The head of the committee, MP Vladimir Pligin (United Russia) told the TASS news agency that it would recommend the legislature hold the first hearing on the motion on January 20.
The initiative, dubbed by the mass media as the “Undesirable Groups Bill” was drafted in late November last year by two opposition lawmakers, Aleksandr Tarnavskiy from the leftist party Fair Russia and Anton Ishchenko of the nationalist Liberal-Democratic Party of Russia.
“Today we live in a period when some foreign organizations behave not in the best way. The reasons may vary, some act on requests of intelligence services, others have different motives. Sometimes it is even economic, they create problems for Russia in order to cheaply purchase Russian assets,” MP Tarnavskiy said as he presented the bill to the parliamentary committee. “The main objective of the motion is to demonstrate the existence of groups that are unfriendly to Russia,” he added.
However, the lawmaker refused to give any examples, saying that he hoped that the new bill would have a preventive effect.
The main idea behind the bill is that the Prosecutor General’s Office together with the Justice Ministry and Interior Ministry should create an official list of “undesirable foreign organizations” and outlaw their activities in the country.
The main criteria for putting an organization, which can be a foreign or international NGO as well as a company on the list is, “the threat to the defense capability or security of the Russian State,” or “the threat to public order and people’s health.”
After the group is recognized as “undesirable”, the authorities would freeze its accounts in Russian banks and impound any property on Russian territory. The organization would also be banned from opening offices, branches or affiliate companies in Russia, and barred from collecting donations or distributing propaganda. The bill also stipulates that individual foreign members of the banned groups would be banned from entering the country.
The bill suggests that Russian citizens found guilty of assisting undesirable foreign organizations could be punished with fines of between 10,000 and 100,000 rubles ($160 - $1600 at current rate).Repeated offenses could carry criminal responsibility with a maximum of 8 years in prison. However, anyone who voluntarily quits working for an undesirable foreign organization must not be criminally prosecuted, the draft reads.
The bill on “undesirable groups” is in line with the “Foreign Agents Law” introduced in late 2012. According to this act, all NGOs who receive funding from abroad, and that are even partially engaged in political activities, must register as foreign agents or risk substantial fines. In November last year the “Foreign Agents Law” was expanded with a bill that makes it illegal for Russian political parties to receive sponsorship, or enter any business deals with NGOs with “foreign agent” status.