Thanks for the links. Plenty of bedtime reading for me, again!

– Hawkeye (the forensic statistician)

The country’s foreign lenders have made disbursement conditional on the government’s adoption of new measures that will target the collection of at least 1.7 billion euros. Without the sixth tranche, the public purse will be 1.5 billion euros short on October 17.

The prospect of a freeze in payments appeared even more serious on Thursday, after Greek commercial banks failed to cover the sum of 300 million euros of supplementary, noncompetitive bids for Tuesday’s auction of T-bills, providing only 155 million. The shortfall is interpreted as a clear message by banks to the government that they are unwilling to fund future issues of T-bills.

The gravity of the situation is indicated by the fact that the government has frozen all disbursements apart from salaries and pensions.”

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_08/09/2011_405503 .

“Many people think that European banks are more fragile than American banks, so the problem could start in Europe, then spill over to the United States. There is a very easy path from US money market mutual fund holdings of Eurobank assets to a global financial crisis.

That is $3 trillion of extremely short term liabilities that are like deposits but not insured. Last time the US government extended the guarantee to all of them; Dodd-Frank [the US financial reform bill brought in last year] outlaws such intervention. So appearance of a problem among Eurobanks could bring down that whole market—about twice the size of the US subprime mortgages that brought on the global financial crisis last time.”

Wray was writing in May this year, and if things carry on the way they’ve started in the European (and especially French) financial markets, we could be reaching the end of the beginning. It would be an irony of world-historic proportions if a measure aimed at preventing a recurrence of the last global financial crisis was the trigger for the next one.

Yes, Randall Wray points to securitisation as the main problem.

Good piece here from Wray on the causes of the GFC and the reforms needed to prevent them in future.

http://www.mecpoc.org/wp-content/uploads/downloads/2011/09/Wray-paper.pdf

At the time of writing, BNP Paribas is down 13.26%, SocGen, Credit Agricole and AXA all down 9-10%. In Germany, Deutsche Bank is down 8.9%.

I would hardly disagree, but it’s useful to be reminded – thanks. The ring-fencing of retail and investment banks has been presented as some sort of panacea, which clearly it’s not.

Indeed, it’s been persuasively argued from the Right that government guarantees for retail banks will only encourage them to take more risks (see Andrew Lilico’s comments on the earlier interim report from the Independent Commission on Banking, http://conservativehome.blogs.com/platform/2011/04/the-vickers-report-some-useful-ideas-but-many-lacunae.html ).

This, like the Telegraph articles, is part of a broader phenomenon of incisive critique from the Right which John Harris highlighted in an article in Saturday’s Guardian:

Now we have to rely on the right to fight the feral rich

Let’s hear it for Charles Moore, the Spectator and FT. Their attacks on the feral elite contrast with a virtually silent Labour

(http://www.guardian.co.uk/commentisfree/2011/sep/09/right-feral-rich-silent-labour )

One good thing about this is that it suggests there may be (some) common ground on this issue, which will be badly needed if it’s ever going to find a political solution.

The Halligan article is a good start, but I’m constantly surprised that so many so called expert commentators still don’t understand how modern banking works!

The co-mingling of banking activities will remain in situ as long as the practice of Securitisation is in place! Repeal of Glass-Steagal was just an acknowledgement of its futility in the face of the more profound de-regulations which permitted secondary market trading of retail loans. The umbilical link between retail and investment banking was a de facto consequence of this de-regulation regardless of any formal institutional amalgamation:

“The important shift in modern banking is not the emergence of the universal banks per se, but the fragmentation of the loan process, i.e. the principle of Securitisation……evidence collected and published on the cusp of the crisis in 2008 demonstrates that securitised loans severely underperformed!

At the time of the crisis in 2007/2008 both Northern Rock & Lehman Bros already sat either side of the notional banking firewall. This argument has been used to dismiss the potential effectiveness of such a compulsory demarcation. Such a split would indeed be little more than a Potemkin firewall; a flimsy masquerade that would provide no genuine safeguards at all. But this should not be concluded at the expense of ignoring a more fundamental point. These two fragile institutions shared in common a heavy reliance on Securitisation. Much of the debate about the market structure of banking seems to ignore this crucial issue, yet it seems certain that this was the underlying cause of their financial distress.”

Potemkin Firewalls

http://www.telegraph.co.uk/finance/comment/liamhalligan/8754561/Nothing-less-than-the-total-separation-of-retail-and-investment-banks-will-do.html .

“The core function of a financial services industry is to link savers with investors and creditors with borrowers. What we’ve created in the West, instead, is a group of institutions that comprise a financial oligarchy – that has us, and seemingly our leaders, over a barrel.”