(Crazy) economy news

[Jimbuna]

More than likely

[Skybird]

https://www.wsj.com/articles/jpmorga...ublic-4f9eeb76

Eleven banks have deposited $30 billion in First Republic Bank, according to a joint statement from the heads of the Treasury, Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the federal officials said.

Hm, I would call it different. Act of despair, maybe? They desperately try to contain a possible meltdown.

[Skybird]

https://www.wsj.com/articles/jpmorga...ublic-4f9eeb76

Eleven banks have deposited $30 billion in First Republic Bank, according to a joint statement from the heads of the Treasury, Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the federal officials said.

Hm, I would call it different. Act of despair, maybe? They desperately try to contain a possible meltdown.

Meanwhile the ECB raises the base interest by 0.5% to 3.5%.

[Skybird]

The central banks were surprised by the high inflation. They acted too late, with not unexpected consequences for the markets – analyzes former ECB chief economist Jürgen Stark in a guest article.


https://www-faz-net.translate.goog/a..._x_tr_pto=wapp

[Skybird]

Frankfurter Allgemeine Zeitung:
------------------------------------
Many central banks are buying gold again. This bodes ill.

The world's central banks bought a net 1136 tons of gold last year. According to the World Gold Council, the last time European central banks purchased gold on a large scale was in 1967. At the time, the devaluation of the British pound and deficits in the U.S. balance of payments heralded the end of the international monetary system, dubbed "Bretton Woods" after a small town in the mountains of New Hampshire. Is the sharp increase in official gold purchases now again a portent that an international order is breaking down?

The Bretton Woods system was based on the fact that national currencies were tied to the value of gold via the dollar. This tie was severed when, in 1971, U.S. President Richard Nixon abandoned the promise made to other countries since 1934 to exchange $35 for a troy ounce of gold. That was the end of the gold standard, which had governed the world economy since about 1880. Put simply, from now on the value of money was no longer backed by central banks' gold reserves, but solely by the central bankers' promise to keep the value of money stable.

The end of the international gold standard also meant a move away from fixed exchange rates. In Europe, a precursor to monetary union developed to prevent large exchange rate fluctuations. The rest of the world moved in principle to flexible exchange rates, in which some countries intervened sometimes more, sometimes less.

The change in the monetary policy framework after the collapse of Bretton Woods had a decisive impact on the need for gold and for reserve assets as a whole. The move to flexible exchange rates called into question the level of total foreign exchange reserves because, at least in principle, there was now no need to defend exchange rates. And because central banks no longer guaranteed gold cover, gold reserves actually became superfluous.

But the central banks did not want to keep their hands off gold. In memory of the economist Fritz Machlup, one can justify this with the theory that bears the cumbersome name "Mrs. Machlup's Wardrobe Theory of Foreign Reserves." According to this theory, Mrs. Machlup is not concerned with having enough clothes to wear. Her sole concern is that new clothes are always being added. By analogy, Machlup suspected central bankers of having a penchant for having more and more. He saw foreign exchange reserves as more of a desire than a necessity.

With or without Mrs. Machlup, it took about two decades after the fall of the gold standard for central banks to start divesting themselves of their gold bullion. This coincided with the fall of the Iron Curtain and the end of the East-West conflict. It seems reasonable to assume that gold was given special importance as a currency hedge or emergency reserve during the Cold War.

However, this beautiful theory is disturbed by the fact that the central banks of Canada, Australia and Belgium, which were among the first to sell gold, were truly not in the forefront of the Cold War.

Shortly before the turn of the millennium, economists Michael Bordo and Barry Eichengreen classified the gold reserves of central banks as a barbaric relic of the past and did not see a bright future for them. They found some evidence in their historical research that pointed to less rather than more gold in reserves. Less inflation, flexible exchange rates and fewer capital controls were associated with fewer gold reserves in the study. Tradition and inertia working in favor of gold would lose weight, Bordo and Eichengreen speculated.

They were right about that - until the financial crisis of 2008/9. Since then, central banks as a whole began to stockpile gold bullion again. Today, central bankers' gold reserves are once again higher than at the turn of the millennium. Eichengreen already asks with co-authors in a new study just published whether gold is no longer a barbaric relic after all. A clear answer they remain guilty.

The increase in gold reserves since the financial crisis has been fed by two developments. Central banks in the countries of North America and Western Europe, which the International Monetary Fund classifies as "progressive," largely stopped selling gold after the financial crisis. Developing and emerging economies, however, bought significantly more.

Eichengreen and his co-authors find evidence that developing and emerging economies in particular respond to greater economic policy uncertainty by holding more gold reserves. "Progressive" countries are more likely to respond to geopolitical risks, but this effect is less pronounced.

The largest gold buyers include Russia, China, Turkey and India. Russia, a gold producer, is of particular importance. China, for example, bought a lot of gold, but kept gold's share of its foreign reserves below 5 percent. Russia, on the other hand, has drastically increased the share of gold in its reserves to more than 20 percent since the global financial crisis.

This is likely explained by the fact that Russia has been subject to economic and financial sanctions imposed by the West since its occupation of Crimea in 2014. In any case, Eichengreen and his colleagues show a fairly close correlation between sanctions and gold reserves in their study. Developing and emerging countries that are subject to sanctions by America, the European Union, the United Kingdom and Japan react by increasing their gold reserves. In this way, they are trying to avoid the financial blockade of foreign exchange reserves. As early as 2021, Russia announced that it had now brought its gold reserves home in their entirety and that no more bars were stored abroad.

Against this background, the large gold purchases by central banks last year look like a gloomy omen. Already in Bordo and Eichengreen, we read that before World War I, Germany and quite a number of other countries began to exchange their foreign exchange reserves for gold.


Serena Arslanalp, Barry Eichengreen, and Chima Simpson-Bell (2023): Gold as International Reserves: A Barbarous Relic No More? IMF Working Paper WP/23/14.Michael D. Bordo, Barry Eichengreen (1998): The Rise and Fall of a Barbarous Relic: The Role of Gold in the International Monetary System. NBER Working Paper No. 6436.Fritz Machlup (1966): The Need for Monetary Reserves. Reprints in International Finance No. 5, Princeton University.
---------------------------

[Jimbuna]

Switzerland's biggest bank, UBS, is in advanced talks to buy all or part of its troubled rival Credit Suisse.

An emergency $54bn (£44.5bn) lifeline from the Swiss National Bank has not resolved the issue.
https://www.bbc.co.uk/news/business-65004605

[Skybird]

Deal is done on Credit Suisse.


If it shows anything than how dangerous and critical and unstable the situation is - not just in Switzterland, but internationally. Of course they dont say that so clearly. But I do. We balance on a razorblade.



https://www.dw.com/en/ubs-and-swiss-...ver/a-65041855


And there are more banks in troubles. People are not totally stupid, they withdraw confidence from the (broken) system. Political measures, not just on the banks but also against citizens, will become more disinihibited.

[em2nought]

They better drill baby drill, pipeline baby pipeline, and border baby border before it's too late to rescue woke world.
Close to 190 banks could face Silicon Valley Bank's fate, according to a new study
https://www.usatoday.com/story/money...l/11504269002/

[Catfish]

Originally Posted by Skybird

Deal is done on Credit Suisse.
https://www.dw.com/en/ubs-and-swiss-...ver/a-65041855

Off topic here, after DW (Deutsche Welle) did so well in reporting about the Ukraine war and making the idiotic behaviour of the german government obvious, it will now be downsized, 200 DW employees fired.

And there are more banks in troubles. People are not totally stupid, they withdraw confidence from the (broken) system. Political measures, not just on the banks but also against citizens, will become more disinihibited.

What exactly is broken now that was not already broken in the past 30 or 100 years?
Whenever people in masses begin to withdraw money, due to misinformation, real crises or just panic, any bank will be bankrupt, that's called capitalism

ECB or whatever interventions are not what is intended in competition, but with millions of people losing all their money overnight this intervention is probably justified.
If they draw some conclusions and change the system within reasonable time, that is ..

[Jimbuna]

Originally Posted by Catfish

Off topic here, after DW (Deutsche Welle) did so well in reporting about the Ukraine war and making the idiotic behaviour of the german government obvious, it will now be downsized, 200 DW employees fired.


What exactly is broken now that was not already broken in the past 30 or 100 years?
Whenever people in masses begin to withdraw money, due to misinformation, real crises or just panic, any bank will be bankrupt, that's called capitalism

ECB or whatever interventions are not what is intended in competition, but with millions of people losing all their money overnight this intervention is probably justified.
If they draw some conclusions and change the system within reasonable time, that is ..

Pretty much how I see it

[Skybird]

The Neue Zürcher Zeitung - a SWISS paper:
----------------------------------------

A zombie is gone, but a monster is born

The state should never again have to prop up an ailing bank, it was said 15 years ago after the financial crisis. Now the emergency has arrived - and yet Credit Suisse must not go under. On the contrary, its takeover will make UBS all the more "too big to fail".
dit Suisse has wrought.

"As Friedrich Dürrenmatt said in his "The Physicists," "A story is finished when it has taken its worst possible turn. Watching the implosion of Credit Suisse in recent days, months, even years, one is reminded of this dictum. "The accident is at first improbable, then becomes more and more probable as time goes on, until it becomes a reality," Dürrenmatt said of his play.

Just months ago, no one thought the failure of Credit Suisse was possible. An accident, however, it is not. In 2007, the Swiss bank had a stock market value of 100 billion francs; last Friday, 7 billion of that was still left - the same amount as the Vaud Cantonal Bank. Thus, a huge destruction of value has taken place, caused by managers who negligently underestimated risks and helpless board members who too often failed to control the bank.

Credit Suisse's hubris consisted in believing that it was on the safe side after the financial crisis because - unlike UBS - it had survived the crisis without state aid. CS believed that it had found a lucrative niche in investment banking in particular, but its risk management was completely inadequate, as the accumulation of billions in losses shows.

Credit Suisse gambled away its trust, no one was willing to stand by it, and only a few, sometimes lukewarm, expressions of solidarity came from the business community. Last week, therefore, the only thing left to do was to play the end game. The decisive factor was not the lack of communication by the government or the SNB. Rather, the SNB did what one would expect from a lender of last resort in such a crisis: it rushed to the bank's aid with a huge injection of liquidity. But the fire could no longer be extinguished.

"Capitalism without bankruptcy is like religion without sin. It doesn't work," said economist Allan Meltzer. In other words: If a company does not have a functioning business model, it must be able to go bankrupt. This is probably true of Credit Suisse, as the destruction of value and the outcry from customers and creditors show, even if it has recently taken on panic-like characteristics.

Instead of winding up the company, it is now being absorbed by UBS. After all, CS shareholders are bleeding and will receive less than half of Friday's share price. But one might ask on the one hand: Why are there still 3 billion francs to be distributed to them at all? Because the federal government is simultaneously granting UBS guarantees for possible losses of 9 billion francs and such for certain liquidity assistance.

On the other hand, the shareholders have to swallow the merger simply because it has to happen quickly. They are deprived of their usual right to have a say. This is an alarming encroachment on their property rights. And what kind of signal is that sending to the market when UBS shareholders may not even want the deal?

Switzerland has spent more than a decade since the financial crisis working out rules to ensure that a bailout with risks to taxpayers would not happen again ("too big to fail" rules). These plans would provide that Swiss business, with its systemically important components such as payments, can be carved out and continue to operate.

The Financial Market Authority would also have broad powers to restructure a bank under such circumstances. But at the press conference, it was said that these regulations would not be applicable at all to such a case, in which confidence would be lost. So has there been years of misguided planning? Is "too big to fail" as virulent as it was 15 years ago?
"Too big to fail" rules as a farce?

The fact that the SNB and the financial supervisory authority pushed for the takeover of Credit Suisse by UBS had to do, on the one hand, with the fear of a Monday stock market panic. On the other hand, there was international pressure from Washington and London.

Switzerland has now gotten rid of a zombie bank, but will wake up on Monday with a monster UBS. "Monster" because its new balance sheet total will be almost twice the size of Swiss economic output. The new UBS is thus all the more too big to be allowed to go under - "too big to fail" is thus back with full force.

The takeover of CS by UBS would probably not have been without alternative. One possibility besides the "too big to fail" regime: The state could have - and it is hard for a liberal to write this - made an offer for the bank itself right away, also at a fraction of the share price. It could then have privatized the bank or parts of it again as soon as possible, which would have prevented UBS from becoming a giant.

Would these variants have scared investors and the whole financial system so much more than what has now been agreed? Nobody knows. Just last week, bank supervisors and central banks were saying with conviction that the current turmoil was not comparable to 2008 because the banks were much more robust than they were then. This is now proving to be optimism of convenience, if the comments of those involved are to be believed.


What is certain is that the current resolutions have strong "collateral damage" that will linger. After all, if certain companies cannot go bankrupt, this undermines support for capitalism. The bailouts during the financial crisis had already worked in this direction. CS President Axel Lehmann is right: this March 19 is a historic and sad day. It is a black day for the financial center, for many CS employees and also for confidence in the market economy.
-----------------------

Mistrust between banks is spreading, internationally the willingness to lend money to each other has significantly suffered.

Thats what served as a catalyst in 2008 to bring the crisis up to tempo.


Once again, the public is being unrestrainedly fooled through and through.

[Onkel Neal]

https://archive.ph/FqJY4#selection-133.5-133.22

Isn’t it bizarre that so many people who cause problems then turn around and become heroes fixing the same problems they created?

Between the Biden administration’s $1.9 trillion American Rescue Plan and the green-laden $738 billion Inflation Reduction Act and paying people not to work, Bidenflation is roaring. It peaked last summer at 8.5% but is still running at 6%. In December President Biden, the newly self-declared inflation warrior, said, “My goal is simple: get prices under control without choking off economic growth.” And there it is: The Biden administration is trying to slay an inflation dragon that it created.

To help fight this inflation, the Federal Reserve has raised the federal-funds rate from near zero to 4.5% to 4.75% since January 2022. This has caught a lot of banks, such as Silicon Valley Bank, holding portfolios of underwater bonds and mortgage-backed securities....

Ya know, I don't even care as long as the present administration gets inflation back to sub4%, but I won't forget.

[Skybird]

https://www.nzz.ch/meinung/die-neue-...&_x_tr_sl=auto


Hope it translates (Google).


I rate the going with the CS and UBS as a disaster that will give birth to even more dramatic desaster in the future. With total assets twice the size of Switzerland's gross national product, the new monster bank is de facto a state bank, since "too big to fail" applies to it and thus the taxpayer bears all the risks: the whole of Switzerland is now held hostage. In addition, the demands of everyday political business, its ideological delusions and dictatorial pretensions, will be carried over into the inner workings of the UBS' banking and bank management, because "the bank owes its size to the state," and politicians and ideologues will demand, as a matter of course, that the bank therefore be used to finance particular political interests. After all, a giant has been created here which, if it stumbles, will trigger a chain reaction internationally, in the course of which there will be a new banking tsunami and this time perhaps the complete destruction of the financial system: we are dealing here with a concentrated risk beyond all reason.

No wonder, then, that the USB bosses did not want this merger and had to be forced into this deal with massive government "interference" - they were left no choice, got degraded to receivers of commands. Not only does it violate free-market common sense, but it also breaks some legal rules that would actually prevent such a move in a legally binding way and did not allow it. The new monster bank was created by state decree. It could become the gravedigger of Switzerland as a banking location, and of the Eurozone. The chances of this are even quite "good". The fact that this is being accepted, shows how dramatic the situation on the financial markets really is. In addition, a wave of lawsuits is to be expected, from funds and shareholders. In fact, this has already begun with corresponding announcements.



This, combined with the gigantic money destruction programs of the EU, which wants to order the compulsory "climate-renovation" of the entire (!!!) building stock in continental Europe ad hoc, and that does everything it can to make energy as expensive and unreliable available as possible and thus to cut off the economic basis of existence, will inevitably end in a catastrophe, a complete collapse first of the social communities, where the normal middle class has its financial basis of existence ruined, then of the superior state order, which will be able to hold itself in power more and more only with increasing violence and totalitarian attitude - until it can no longer do it.


The last one turns off the light, please. If then at all one still burns.


How could we only believe thirty years ago to have "defeated" socialism...?

[Skybird]

"Dive! Dive! Dive!" Despite a financial emergency infusion from other banks for First Republic Bank, its shares have crashed by another 47% on Monday.


The total loss in value since the beginning of the year is about 90%.

[Jimbuna]

The Bank of England will "totally crash the economy" if they continue to keep interest rates at their current levels, an economist warns. On Thursday, the Bank announced that it will raise borrowing costs for an eleventh successive time to 4.25 percent from 4 percent.

https://www.msn.com/en-gb/money/othe...b7e461f9&ei=10