tag:blogger.com,1999:blog-6704573462403312459.post8440332694106604185..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: Don't shackle Target2JP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-6704573462403312459.post-5760633826427532482013-03-28T11:26:40.074-04:002013-03-28T11:26:40.074-04:00You don't understand the real issue for deposi...You don't understand the real issue for depositors & creditors. If your account is located in Netherland, Germany, Austria in a too big to fail bank implicitely backstopped by the local government you'll have a better treatment. This holds true even if you are a senior creditor. So it's very rational to reshuffle your portfolio and move your money in a country where you could hope to be bailed out. Obviously this could sound like a self fulfilling prophecy, but it's a fact some states could support their financial system some states couln't: credit market is already balkanised in the EZ.<br />While you may assume Mrs Merkel won't let Deutsche Bank to fail *whatever it takes*, the same isn't true for peripheral banks: there you know your money will be at the mercy of what Eurokrats.<br />Silvano IHChttps://www.blogger.com/profile/14598186392285368223noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-56808049417743086212013-03-27T12:23:33.367-04:002013-03-27T12:23:33.367-04:00Had a similar question. Why does the Cypriot gove...Had a similar question. Why does the Cypriot government fear bank runs? It must not be a liquidity issue. They must be thinking of devaluing or the rest of the Cypriot banking system must be more insolvent than publicly acknowledged. Perhaps the system is stuffed with underwater vacation real estate loans that will only worsen with the coming depression, and in that case the only solution is devalue/exit to save the tourism industry.jt26noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-17051775060668092612013-03-26T20:36:10.176-04:002013-03-26T20:36:10.176-04:00Hi Will.
If they're that close to the limit,...Hi Will. <br /><br />If they're that close to the limit, I guess the ECB will just have to widen the range of collateral they accept and apply appropriate discounts. This famous line from Bank of England Director Harman on the crisis of 1825 comes to mind:<br /><br />"We lent it [pounds] by every possible means and in modes we had never adopted before; we took in stock on security, we purchased Exchequer bills, we made advances on Exchequer bills, we not only discounted outright, but we made advances on the deposit of bills of exchange to an immense amount in short, by every possible means consistent with the safety of the Bank, and we were not on some occasions over-nice. Seeing the dreadful state in which the public were, we rendered every assistance in our power."<br /><br />Here's another quote from <a href="http://t.co/lRrPJg8Bo0" rel="nofollow">a new blog</a> that I recently discovered:<br /><br />"If you can get accurate prices and take an appropriate haircut...then you can Repo anything"<br /><br />The ECB should start accepting with haircuts stocks of olive oil, Cypriot farmland, you name it. I'm exaggerating obviously, but you get where I'm coming from. There's always good collateral out there somewhere, and if there isn't, haircut it till it is.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-52420831889088190322013-03-26T20:27:05.851-04:002013-03-26T20:27:05.851-04:00Diego, if the Chuck Norris effect isn't the ri...Diego, if the Chuck Norris effect isn't the right analogy, then call it the Moses effect. As long as an infinitely powerful being ensures that there is always a passage from A to B, then large groups of people will never flee from A to B based on expectations of that passage closing. Capital controls interfere with the Moses effect... the possibility that they might be implemented would create the very flight that Moses is designed to prevent. <br /><br />Europe really needs the Moses effect on its side, at least till it's more well-integrated.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-51225387072521015082013-03-26T20:10:00.398-04:002013-03-26T20:10:00.398-04:00Interesting scheme there with bitcoin and capital ...Interesting scheme there with bitcoin and capital controls. Thanks for sharing.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-78100426429107975022013-03-26T19:09:31.761-04:002013-03-26T19:09:31.761-04:00JP - one comment: if Cyprus has reached the limit ...JP - one comment: if Cyprus has reached the limit on their allowed ELA (its hard to know for sure but they are likely close) then even if there were no capital controls Cypriots would have a very hard time sending out deposits. Cypriot banks would either fail because they couldn't access reserves or would have to pay high interbank rates from Euro banks outside Cyprus to facilitate their customers' requests (perhaps leading them to fail quickly). The banks could also sell their highly illiquid (most assets are bank loans) assets to fund withdrawals but this would also create a bad dynamic. Thus providing more ELA is also likely to be necessary to prevent more bank closures. The ECB has said they do not object to ELA continuing in Cyprus but I doubt they will provide more. <br /><br />So even if there were no capital controls Cypriots might have a hard time sending their deposits elsewhere via the Target2 system.Willhttps://www.blogger.com/profile/16540332226903940164noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-35326940114645826502013-03-26T19:09:06.750-04:002013-03-26T19:09:06.750-04:00This comment has been removed by the author.Willhttps://www.blogger.com/profile/16540332226903940164noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-58813350414840223542013-03-26T17:36:31.111-04:002013-03-26T17:36:31.111-04:00Chuck requires an asymmetric payoff to work. In o...Chuck requires an asymmetric payoff to work. In other words, the payoff from heeding his threat is much greater than that of ignoring it. This does not apply in the case of bank deposits. <br /><br />Take a Cyrpus deposit holder. The potential cost of ignoring Chuck's threat of unlimited ELA funding is a wire transfer and some time filling out applications for a German bank deposit. The potential cost of heeding the threat is 40%+ should the Cyprus bank experience a future haircut, devaluation, or capital control.<br /><br />Separately, Target2 poses enormous moral hazard for Germany, and Cyprus is a great example. The country emerges from its "bail out" with a defunct offshore banking system, an overvalued currency, and a crippling austerity. The Cypriot PM, realizing this, has every incentive to default/exit the Euro AFTER the ECB finances a bank run with further ELA assistance, and the EU contributes its 10b Euro loan. Its risky to make an unsecured loan to someone that has every incentive to declare bankruptcy as soon as they cash the check.<br /><br />Diego Espinosanoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-5200204473509998182013-03-26T16:17:59.694-04:002013-03-26T16:17:59.694-04:00I blogged on the idea of Bitcoin-assisted arbitrag...I blogged on the idea of Bitcoin-assisted arbitrage (not as eloquently as you):<br />http://anticollectivist.wordpress.com/2013/03/24/bitcoin-and-euro-banknote-arbitrage/<br />And<br />http://anticollectivist.wordpress.com/2013/03/26/bitcoin-and-cyprus-capital-controls/<br />In the first post I identify potential for profitability that results from the controls and in the second I reach essentially the same conclusion as you with regard to the self-reinforcing effect of such controls. Anonymousnoreply@blogger.com