DRAGHI SIDES WITH THE HEEL-DIGGING BANKSTERS

Capital/Liquidity ratios of 3% emerge triumphant

By John Ward: Further to this morning’s post (below - things do seem to be speeding up at last) you may recall I mentioned how the ECB thought that ‘a strict definition of bad debt could threaten banks in countries hit hardest by Europe’s debt crisis’. Just to enlarge on this a little, bad debt of the kind we’re talking about is rancid bordering on toxic: it ain’t never going to get paid back, and everyone knows this to be the case. What we’re witnessing here is Mario Draghi doing his Orwellian Ministry of Truth shtick, whereby something with blue paint on it marked Unfit for Human Consumption will be regraded as Quite Possibly Alright.
I now bring you news that this is to be extended to include Transatlantic banks as well. The US Federal Reserve, BoE, ECB and others agreed last weekend that the biggest trans-Atlantic banks’ capital ratios should stay at 3% (or about 35:1) indefinitely. This ratio is woefully insufficient, well below the 12% suggested two years ago, and miles below my own belief that it should be 16% at least until all the worms have crawled out of the cans being kicked down the road.
The 3% ‘rule’ (it’s really the world’s shortest suicide note) destroyed Lehman and Bear Stearns, and would have collapsed all the others without TARP, FDIC, and Fed bailouts. So why was it left untouched?
Because of what’s been described as “ferocious resistance” by the banks to the idea of raising the ratio even to 6%. The decision was hailed by ECB head Mario Draghi as a major step forward for bank recovery, aka an easy way for every bank to pass the stress tests and then reassure the markets.

At each stage of “reform” since 2008, banking lobbyists have successfully overturned every attempt at, um, reform. Banking reform stands, in terms of the safety features suggested – breakup, ringfence, debt-to-liquidity relationships, capital-to-liquidity ratios, you name it – precisely where it stood five years ago. So we are left wondering what the term ‘regulator’ means in 2014….rent boy perhaps? I have eight teeth less than six months ago, and I can bite better than these gumboys.
The most succinct take on this I’ve seen this week is at the Larouchepac site, and a heavily flourished hat-tip goes to US Slogger Gene Schenk for pointing me at it.
There is, however, just one final question: if the banks are just as vulnerable, amoral and frontally-lobed as they were in 2008, are we the taxpayers any more liable to mopping up the diarrhorea they leave behind the next time silly little boys in romper suits play with the mains electricity? And natch, the answer given to us by the truth-benders is “Of course not! Creditors will have to pay this time, not taxpayers!”
It’s obscenely patronising double-talk like this that really does make me want to man a barricade and throw custard pies at the likes of George Osborne. To stand up before a House of Commons half-full of soi disant socialists (while the statement is going out live to 40 million UK adults) and without a murmur of Opposition get away with calling the same person two things – and somehow pretend they’re separate – requires the kind of neck not even Churchill could’ve envisaged. Much as I’d like to wring the Draper’s worthless Cervicalgia, I won’t because I know only too well what the dangers of exposure to asbestos are. So for the time being, custard pies are my weapon of choice.

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Start the day with a little madness implant.

By John Ward: Further to yesterday’s piece on the Five Money-Death Reasons, I thought it might be interesting to add some more to the empirical evidence of a flawed strategy. After roughly four years of QE in the United States, money velocity now stands at a 60-year low. A strengthening economy would have rising velocity. There is no appetite for credit among the squeezed middle of consumers, because they have wised up to the unaffordability of debt.

As the website sober look noted yesterday, “The Fed bought bonds off commercial banks in the hope that these banks would lend the said money to the public. Unfortunately, bank loan growth has been tepid, and trending down of late. That’s indicative of weak demand for debt from consumers.”
It certainly isn’t indicative of recovery….and nor were December’s employment-creation figures – which were half those expected. “Bad weather” said analysts, omitting to remember that December contains Christmas, when jobs are supposed to go up really rather a lot.
October’s Fed minutes show pretty clearly that even the hawks were starting to wonder whether the QE cost-benefit analysis made any kind of sense at all. Given the negligible effect on both lending and spending, they should really have had second thoughts after QE1. Many observers have in turn pointed out that yet more easy money went into commodity speculation that didn’t do anyone much good. And is there any benefit at all in the stock market being overvalued by at least 40%? Common sense says no: nice for the time being, but conducive to a broader panic when it inevitably corrects.
The notion that QE has worked and the US is in real recovery must be one of the madder assertions of economic history. In 2010, QE monetised the entire US deficit for the year. Little of any benefit happened. By the end of Summer 2012, the Fed held just over $2trillion in purchased bonds. Even less was happening. A third round of quantitative easing, “QE3″, was announced on 13 September 2012. In an 11–1 vote, the Federal Reserve decided to launch a new $40 billion per month bout, and this was then more than doubled to $85billion in December of that year. As a result of QEs, the Fed’s balance sheet has more than quadrupled, to $4 trillion. That’s equivalent to 80% of the entire world’s gold stock, and made it the most massive economic stimulus program in world history….but each time, the discernible effect has been reduced.
But if it is thus the maddest economic stimulus program in world history as well as the biggest, there’s plenty of other bits of news around to suggest our species is mad in multivariate ways.
Britain said on Monday it planned to give the United States specialist equipment and training to help it destroy Syria’s chemical weapons arsenal more quickly. Defence Minister Philip Hammond said in a written statement to Parliament today that the UK will gift equipment to the United States worth around £2.5m that would allow the chemicals to be processed at a higher rate. WhyTF does America need a gift from us? And has anyone actually seen these weapons?
The European Central Bank is concerned that national differences in how bad debt is classified could cripple its probe into the health of euro-area banks, according to an internal ECB document. Using a strict definition of bad debt, says the ECB, could threaten banks in countries hit hardest by Europe’s debt crisis. Call me wacky, but didn’t a patently lax method of defining bad debt play a featuring role in getting us to where we are today?
British Police have been forced to issue a statement stating that dialling 999 does not boost your mobile phone’s battery life, after the myth resulted in numerous nuisance calls. Said Bedfordshire Police in a statement to ITV: This myth has been circulating for some time now and we are not the only force to have suffered from these false calls. The only way to boost a mobile phone battery is to use a charger. Geddaway.
In America yesterday, the S&P 500 fell 1.3% to 1,818.97, the lowest level since Dec. 20. Companies from Microsoft to Exxon and Walt Disney dropped more than 2%, with all 10 main industries in the S&P 500 declining. “Sentiment is extremely optimistic and that’s a negative for stocks,” Bruce Bittles, chief investment strategist at RW Baird & Co. Is it just me, or do you get the feeling that Mr Bittles would see a collapse as a minor correction, and then a new rally as an unstoppable surge?
Euro banknotes will remain paper, the European Central Bank said yesterday, choosing to fight counterfeiting with new security measures, but resisting a move to plastic money. The ECB’s Executive Board member Yves Mersch told a press conference. “With 15 billion Euro banknotes in circulation, the number of fakes remains very low in percentage terms”. I couldn’t possibly comment on why that is, but questions like “Why counterfeit a fake?” spring to  mind.
And finally (as news anchors used to say) Philadelphia police are hunting for a man who drives around without any trousers on and offers women money to watch him masturbate with slices of cheese. In the US they’re calling him the Swiss Cheese pervert.
I thought I’d heard of every pervy turn-on, but this dairy-based variant is new to me. I have but one questions: how do we know the Cheese is Swiss?

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