Comments on: Europe’s liquidity crisis A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: traduceri daneza Mon, 29 Sep 2014 13:58:13 +0000 The new Zune browser is surprisingly good, but not as good as the iPod’s. It works well, but isn’t as fast as Safari, and has a clunkier interface. If you occasionally plan on using the web browser that’s not an issue, but if you’re planning to browse the web alot from your PMP then the iPod’s larger screen and better browser may be important.

By: walt9316 Tue, 15 Nov 2011 15:31:05 +0000 Spare me the details: how can I make a profit from it? Looking back, fear of “inevitable” inflation kept me from some insured CDs that I wish I had now.

By: ChrisJCook Tue, 15 Nov 2011 02:00:56 +0000 I would argue that perpetual annuities are credit instruments and not debt instruments, since there is no obligation to repay principal, although there may be the right.

For example a small rump of 2.5% redeemable UK Consolidated Stock (Consols) still exists, and I would argue that these perpetual annuities are akin to a 2.5% redeemable preference share in UK Plc. There’s certainly no debt obligation.

In fact, the name ‘stock’ derives from the old tally stick system of government funding. When the government borrowed, a tally stick was split as evidence of the debt owed by the government as the ‘foil’ holder to the creditor as holder of the ‘stock’.

Whoever held stock could present it in payment of taxes and this reduced the amount of money/credit in circulation in a not dissimilar way to using an Air Mile against air travel.

By: Bernanke Mon, 14 Nov 2011 23:22:40 +0000 Volatility of treasury yields looks high because yields are at record lows. Hell, when 10 year rates are at 2%, any move looks huge. If you measure it in DV01, it’s not that high.

By: bardluippold Mon, 14 Nov 2011 20:36:01 +0000 It is not just the euro zone that currently is in the midst of a liquidity crisis. US bond markets are experiencing record low liquidity as well. I sat in on a luncheon last Wednesday with Dan Fuss of Loomis Sayles Bond at the Seattle CFA Society, who said that Loomis’ internal liquidity scores for investment grade, high yield and treasuries were all at very low levels. Indeed, if we look at treasury liquidity through the lens of volatility, treasury liquidity is currently the worst it has ever been. From 1962 to 2008, the annualized six month standard deviation of 10yr treasury yields only seldom popped above 15% of the average yield during the period. It is currently at 27%, even with its previous record high volatility in late 2008/early 2009. As Mark Gongloff recently wrote on the WSJ blog (paraphrasing the Bank of Canada governor), “liquidity is the Kaiser Soze of the global financial system.”

By: Kamekon Mon, 14 Nov 2011 17:55:06 +0000 I am also puzzled by your statement that “the ECB isn’t stepping in to solve the problem” (of banks not lending to each other).

Uh? As today’s NYT puts it, fairly accurately in my opinion:

“Since the beginning of the financial crisis, the E.C.B. has been lending euro area banks as much money as they want, trying to maintain the liquidity that is the lifeblood of the global financial system.” ( ss/global/as-european-nations-teeter-onl y-lenders-get-central-banks-help.html?_r =1 )

And there is the ECB itself:

“The ECB normally aims to satisfy the liquidity needs of the banking system via its open market operations.” ( n.html )

The provision of liquidity is normally done via the NCBs, but that doesn’t change a thing, it’s still the Eurosystem. Finally, although it’s true that the Eurosystem’s primary objective is maintaining price stability, that of course is not its only objective or task, as the Eurosystem/ECB Statute clearly shows: ute_from_c_11520080509en02010328.pdf .

I would have thought that you are aware of at least the gist of all this, but could you then explain what you mean by the ECB not stepping in etc.? (And where do you think the banks are hoarding their cash?)

By: Kamekon Mon, 14 Nov 2011 17:17:52 +0000 If you believe David Rule, writing in April 2008 (as ISLA CEO; he since moved to the FSA), there was no interbank money market – represented by Libor, Euribor etc -to speak of then (pre-Lehman) and several years before that and it had little to do with funding problems:

“(…) for a couple of reasons three-month Libor may not now be the best measure of short-term interest rates.

First, it is no longer a good proxy for marginal bank financing costs. A Libor-contributing bank submits the rate at which it believes it could borrow funds, were it to do so by asking for and then accepting interbank offers in ‘reasonable market size’’. However, the interbank market for unsecured three-month deposits has been thin for a number of years.

Only unsophisticated banks place deposits with their competitors at maturities beyond one week. Liquidity management and credit limits deter banks from tying up their funds in this way. Rather the interbank deposit market is overwhelmingly overnight.

At longer maturities, banks borrow unsecured primarily by issuing securities to non-bank investors.” 0652-11dd-802c-0000779fd2ac.html#axzz1dc UxGXqK

Which raises the question: what does Euribor actually measure?

By: ottorock Mon, 14 Nov 2011 16:54:10 +0000 Hey Salmon, remember that tennis court cartoon you featured back in the dark days of 2008? Same thing.

Great post, by the way. Fits in with Warren Buffett’s call this morning too (see Harrison’s credit writedowns for the video)