Opinion

Felix Salmon

Counterparties: Central banks’ uncanny timing

July 5, 2012

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How’s this for uncanny timing? Central banks in Europe, the UK and China all decided to actually do something about the slowing global economy today. As the NYT notes, these moves somewhat magically happened in the span of an hour.

ECB President Mario Draghi denied any sort of central banking master plan: “On coordination, no, there wasn’t any”. Still, the European Central Bank cut rates to a historic low of 0.75% from 1%; China cut its main interest rate by 31 basis points, to 6%; and the Bank of England announced it would buy $78 billion worth of assets. (David Keohane has the respective releases here.)

The ECB’s move gathered the most attention, if only because Spanish and Italian bonds got trounced after Draghi’s speech announcing the rate move today. Economist Dario Perkins saw the ECB’s move as mostly about optics: “It appears some ECB members wanted this trivial move to be a reward for politicians ‘doing the right thing’ at their recent summit. If that’s the case, it’s a silly, highly political way to run monetary policy.” The WSJ‘s Charles Forelle summed it up this way:

@CharlesForelle: ECB summary: Plenty of monetary-policy easing, no hint of philosophical easing. The ball is still in Germany’s court

Sober Look notes that, at least from a balance-sheet perspective, the ECB’s approach has been shifting: In just over a year, the ECB’s lending to banks has doubled as a percentage of its balance sheet.

But the most pressing issue is that the ECB’s latest actions, which also included cutting the deposit rate to zero, are well short of what’s needed. Given the worries of a global manufacturing slowdown, central banks may quickly realize that Europe’s platitudes about growth pacts and a still quite undefined banking union are not enough. Here’s Nouriel Roubini:

@Nouriel: Trifecta today of monetary easing / policy rate cuts: PBOC, BOE & now ECB. A clear sign of how weak global growth is & how worried CBs are

– Ryan McCarthy

On to today’s links:

Barclays
Bob Diamond says he felt “physically ill” after reading LIBOR-fixing emails – Guardian

Crisis Retro
The credit bubble, not the housing bubble, boosted GDP before the crisis – Tim Duy

The Good News
Healthcare spending is no longer growing like crazy (for now) – WSJ

Crisis Retro
Angelo’s many friends: Countrywide made hundreds of “VIP” loans to buy influence – House of Representatives

TBTF
“Banks Prove That They Are Not Too Big To Fail By Saying ‘We Can Fail’ On A Piece Of Paper, Moving On” - Dealbreaker

Governance Lite
Silicon Valley, where “it is not the board’s role to offer counsel or advice” – DealBook

Hackers
How Anonymous evolved into a leaderless “self-appointed immune system for the Internet” – Wired
Why the Stuxnet virus attack on Iran will come back to haunt the US government – NYT

Emerging Markets
Credit is easy to get…in Bangalore, from dentists – NYT

Apple
Get ready for a smaller, cheaper iPad in September – WSJ

Politicking
WSJ editorial page: Romney campaign “looks confused in addition to being politically dumb” – WSJ

MF Doom
Jon Corzine reportedly “haggard and unfocused”, subsisting in some sort of Hamptons exile – NY Post

Wonks
The origins of misbehavior (and not just at Barclays) – Stumbling and Mumbling
On “the handoff” from manufacturing to housing – Calculated Risk

Comments
3 comments so far | RSS Comments RSS

The correct answer for the Romney campaign was “I don’t think the American people care how many angels can dance on John Roberts’s head.”

Posted by dWj | Report as abusive
 

Looking at Diamond’s testimony in (too much) detail (suggest coffee) –

What he actually said –

This is the part that gets all the ink – “”When I read the emails from those traders I got physically ill. It is reprehensible behaviour and if you are asking me should those actions be dealt with – absolutely.”
What does this actually impart? – IMO: nothing. Whether one is utterly innocent or is ‘up to the eyebrows’ in it, one is going to feel physically sick when one discovers that incriminating evidence exists and is now out there in the open. IMO it asserts nothing about Diamond’s personal complicity/innocence, though it is obviously intended to imply innocence. And saying that those who do wrong should be “dealt with” – BFD. Likewise with this part –

“The finding of the investigation, other than the things I learnt as a witness, came to me four or five days before they were published.” This just says he learned of the FSA’s findings recently – nothing else; I have no clue what that “learnt as a witness” stuff means – do you? (If he thinks this is his ‘escape hatch’ if he’s later shown to have been in on it – IMO it’s a mistake.) The intention is obviously to create the impression of lack of knowledge of the ‘fiddling for profit’ without explicitly asserting lack of prior knowledge. IMO it may well be a clever contrivance to imply innocence, but do so in terms that don’t support “obstruction of justice” charges if complicity is later proven. (Semi-full disclosure – this technique is not unfamiliar to many experienced attorneys.)

What he didn’t say –

Like weeks now I’ve been waiting to hear Diamond use the term “rogue traders” to describe the crew that did the fiddle. Still waiting. If they really were ‘rogue’, then say it – like Barings’ said it of Leeson and his crew. If they weren’t actually ‘off the reservation without authority’, then not saying is mandatory – double-crossing them would give them the ethical green light/incentive to ‘burn’ him right back.

Along the same lines – why is it so seemingly impossible for Diamond to unequivocally state in plain language that he had no knowledge of the fiddling at the time it was occurring? If true, that would be extremely likely to get him off the hook on any kind of criminal charges. If not true, asserting it would likely put him in a cell. Draw your own conclusions from the absence of any such explicit assertion by him.

In Diamond’s defense – his boys were clipping like 1 or 2 basis points on the reports to earn some dough. Not good – but it’s just a couple bp – so what? – everybody seems to have been doing it. The BoE later wanted like hundreds of bp to serve its purposes – and Barclays’ and all the others gave it to them. So, who has the right to cast the first stone?

Posted by MrRFox | Report as abusive
 

You can cut the basis to zero and all it will do is promote deflation. Already banks are flush with money to lend. So why would they need customer deposits?

The banking multiplier is not a push function any more than any other retail distribution is. It is demand driven. As long as there are not qualified borrowers there won’t be a significant change in the multiplier.

So this move will not “stimulate” anything any more than the endless cuts in the bank rate stimulated anything. Until there are qualified borrowers we will stay in this downward spiral. D’oh.

Posted by BrPH | Report as abusive
 

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