Counterparties: Meet the new European bank run

May 21, 2012

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If you’re a European politician, there is no bank run in the euro zone. It may be more accurate, as Mohamed El-Erian says, to call this a slower “jog” rather than a full-on run, but it’s getting increasingly hard to ignore charts like these which Felix found last week.

Gavyn Davies has an equally disturbing chart looking at cross-border flows in the euro zone. The trend is stark: The ECB’s interventions have not stopped depositors from moving their money to Germany en masse. This slow-motion bank run, Davies writes, is particularly tricky to stop because it isn’t just about worries of bank failures. It’s about fears that the euro will crumble altogether, leaving Europeans holding their own country’s devalued currency.

The euro zone crisis, Jeffrey Sachs writes, is now a very immediate banking crisis; Greece, like Spain, is mainly suffering from “chronic lack of working capital.” Adam Posen thinks Europe’s problem isn’t Greece, it’s undercapitalized banks.

All of this comes as we learn that Europe’s “growth agenda” isn’t set to arrive until June. And European officials have for the first time publicly confirmed that they’re making contingency plans for a Greek exit from the euro zone, which could include a debt time-out for Spain and Italy. Here’s the WSJ:

The euro zone’s financial “firewall” may need to be boosted to reassure markets that neither Spain nor Italy would be allowed to default on their debt during any market panic that might follow an eventual Greek exit, they said. The bloc’s bailout fund has unused lending capacity of €500 billion ($635 billion), only enough to finance Spain and Italy, widely seen as the next two dominoes that could fall in the euro-zone crisis, for a few months.

And on to today’s links:

Must Read
The fire retardant industry’s decades-long campaign of deception about cancerous materials – Chicago Tribune
David Grann’s latest: The American who fought for Castro – The New Yorker

Remuneration
CEO pay finally beginning to be “highly correlated with performance” – WSJ

EU Mess
A friendly reminder that Greeks do not want to leave the euro zone – FT Alphaville

JPMorgan
“JPMorgan’s total loan base remains lower today than it was in 2008″ – Felix
Dimon forgot that a “CEO is only as successful as his lieutenants are powerful and independent” – Epicurean Dealmaker
Why the debate over JPMorgan’s “portfolio hedging” is a complete sideshow – Economics Of Contempt
JPMorgan’s ex-risk manager had a tiny problem with money-losing trades, with sanctions at previous job – Bloomberg

Startups
Why Silicon Valley is relatively bad at creating jobs – The Economist
Stanford’s cozy relationship with Silicon Valley – The New Yorker

Growth Industries
America has 5% of the world’s population and 25% of the world’s prison inmates – The Economist
The world’s most humane prison, where every cell has a flat screen and a private shower – The Guardian

Inefficient Markets
Rising prices, not increasing consumption, are driving America’s soaring healthcare costs – Academy Health

Facebook
15 charts that track Facebook’s first day of trading in incredible detail – Zero Hedge
“The World’s Simplest Stock Valuation Method” suggests Facebook is worth about $33 a share – Crossing Wall Street
Silicon Valley can do a lot better than Facebook – Tech Crunch

Old Normal
Turn of the century banks provided private “stocking rooms” to female customers – Liberty Street Economics

Compelling
Strengthen Social Security and Medicare by raising the eligibility age … for the rich – NYT

Right On
The Atavist scores seed funding from Eric Schmidt, Peter Thiel, Andreessen – NYT

Ugh
Free checking is officially a thing of the past at Wells Fargo – Huffington Post

Charts
The end of the world’s fish supply – WashPo

Politicking
Congress now speaks at a 10th grade level, down a full grade in 7 years – Sunlight Foundation

More From Felix Salmon
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Comments
5 comments so far

Note: Felix ‘found’ that chart because I sent it to him:

https://twitter.com/#!/ckmaresca/statuse s/202692908707610627

Chris.

Posted by ckm5 | Report as abusive

I’ve been thinking about penning this comment for a while but have held back because of the adage don’t say anything if you don’t have anything nice to say but I’ve found the revised counterparties to be slightly underwhelming. I appreciate the work that you’re doing Ryan but NYT/Economist/Bloomberg/FT/FT Alphaville. I would surmise that most of the readers who follow Felix’s blog already consume a lot of those sites’ information.

It would be nice if more less mainstream links were added at the end of each day. And The New Yorker story about Stanford came out weeks ago, I’m not sure why it’s more relevant today than when it first came out?

Posted by GregHao | Report as abusive

Counterparties is my PM coffee break. So good.

I still get coffee though.

Posted by HuckleberryHart | Report as abusive

With the threat of runs on European banks plus a nicely declining inflationary expectation as measured by TIPS v Treasury yields (not hard to achieve when you are the major player in the market) , Bernanke has all the arguments he requires to announce an extension of Twist or indeed QE3. He knows this is essential given that his argument that it is Fed ownership of a stock of bonds rather than the Fed buying a flow which influences bond yields is nonsense (as pointed out by Pimco).

The problem is that further monetary activity does little to resolve the fundamental economic problem which requires fiscal action. In the long run it may even be harmful. Further Federal Reserve monetary action supporting bond yields may set the scene for the mother of all bond market collapses if the economy recovers and bond yields start rising.

Posted by Spinoza500 | Report as abusive

Ken Auletta’s NEW YORKER piece presents a glib misrepresentation about Stanford, in which the representative student there is walking around trying to market his/her ‘app’ to a lecturing Silicon Valley venture capitalist. Here are a couple from a long list of inaccuracies: (1) He gives the impression most engineering students are computer science majors (a quick glance at the data shows that this is woefully wrong); (2) The implication that the world-class humanities departments there somehow suffer from the two-way street relationship between the university and Silicon Valley.

Posted by uprof | Report as abusive
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