Financial Crisis

The IMF and the Collateral Crunch

[N.B.:  This post, while intended to stand on its own, should be understood as part of a sustained analysis that we have been carrying on over a series of posts.  Readers who find themselves baffled by this post may want to start with earlier posts in the thread:  specifically here, and here.] Read more

Posted by Perry G. Mehrling at 11:31 am

Is there an ECB?

The ECB has always been the protagonist of the eurozone crisis story. At times it has seemed the arch-villain, coldly standing on principle even as the financial system crumbles around it. At other times it has seemed the hero in waiting, ready to step in at the eleventh hour to bring a moral-hazard-free end to the turmoil with its unlimited balance sheet.

What is becoming increasingly clear, however, is that the plot is taking a twist. The question is no longer whether the ECB is villain or hero, but whether it exists at all. (And today's collateral eligibility expansion doesn't resolve the question.) Let me explain. Read more

Posted by Daniel H. Neilson at 12:29 am

First the ECB, then the IMF, Part One

The fact of the matter is that European bank funding markets are collapsing onto the ECB balance sheet.  Forget about the €200 billion of outright peripheral bond purchases--small potatoes.   National central bank exposures, through the TARGET clearing system, now exceed €400 billion, and private bank exposures, through discount lending and deposit facilities, are the same order of magnitude.  

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Posted by Perry G. Mehrling at 12:50 pm

What a liquidity crisis looks like

Bloomberg's reporters continue their diligent work looking back on the Fed's lending in the subprime crisis. Matt Yglesias, Yves Smith, Paul Krugman, and others have picked up the story. Meanwhile, the world looks ahead to the next development in the eurozone crisis. To read these crises correctly, liquidity should be front and center. It is missing in Bloomberg's work, and it is missing in European policymaking. Read more

Posted by Daniel H. Neilson at 3:44 pm

Financial (De)Globalization and the European Experiment

Europe is embarked on a grand experiment, managing modern financial crisis without a dealer of last resort, so refusing to follow the lead of the 2008 Fed.  The scientist in me thrills at this opportunity to gather new data from unexplored territory; the citizen in me quails at the brinksmanship, what Martin Wolf has called "just in time, just enough". Read more

Posted by Perry G. Mehrling at 9:03 pm

Liquidity, Public and Private

A week ago, Mark Carney, chairman of the Financial Stability Board, warned of emerging global consequences of the escalating eurozone crisis.  The problem, he said, is contraction of global liquidity.

What he is worried about, apparently, is disruption of the global funding system as continental European banks retrench.  In normal times, these global banks serve as funding intermediaries, gathering short term funds from all ends of the earth at one price, and lending them on to other ends of the earth at a slightly higher price.  Trouble for these banks means trouble for global credit markets.

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Posted by Perry G. Mehrling at 7:43 am

Euro Summit Statement Explained

Okay, so here is the statement, but what does it mean?  Felix Salmon offers an unnamed advisor's flowchart.  Let's see if Money View thinking can do better.

Words are of limited help here (unless perhaps you are a Munchau!).  What is important is to understand the balance sheet relationships, and that takes a video.

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Posted by Perry G. Mehrling at 3:06 pm

Margin Call--"Mama there's wolves in the house"

Jack Bauer comes to Wall Street, in the person of Sam Rogers, played by Kevin Spacey.  The thriller frame is achieved by compressing the slow motion train wreck of 2008 into only 24 hours.  (The time acceleration of the opening Manhattan shot foreshadows this compression, even as it pays homage to the opening shot of Inside Job.)  See reviews here and here. Read more

Posted by Perry G. Mehrling at 12:32 am

China's Ministry of Railways debt: Three ways out of the mess

A huge debt of RMB 2.1 trillion (330 billion USD) as well as serious funding problems—how will the Ministry of Railways handle it? Or more precisely, how will the behind-the-scenes decision-maker, China’s central government deal with this issue? We think there are three ways out of the debt mess.

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Posted by China Seminar at 2:35 pm

China Ministry of Railways Debt

On September 21, almost two months after the July 23 Wenzhou high-speed train crash, the announcement of an investigation progress was eventually placed on Xinhua.net. However, neither the cause of the accident nor a timetable to make that public was revealed. Aside from the crash details, there’s one more thing that Chinese government anxiously wants to hide from the public eye: the debt issue of Ministry of Railways (MoR).

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Posted by China Seminar at 2:26 pm