The European Central Bank is breathing a sigh of relief as it managed to take back 442 billion euros in emergency loans lent to banks a year ago without blowing a hole in money markets.
After financial firms slashed hundreds of thousands of jobs in 2007 and 2008, the bloodletting slowed in 2009 as major banks rebounded from the financial crisis. Even though firms like Goldman Sachs Group Inc and JPMorgan Chase & Co reported billions of dollars in profit, they still did not announce major hiring initiatives.
In an unfortunate turn of phrase at the height of his country’s current debt crisis, Greek Finance Minister George Papaconstantinou on Monday compared his government’s Herculean task in slashing deficits and debts as akin to changing the course of the Titanic. Sadly, we all know where the great “unsinkable” ended up almost a century ago and I’m sure, given the chance, Mr Papaconstantinou would have chosen another metaphor. But if the Greek economy (or perhaps the euro zone at large?) is to be cast as the Titanic, then what is its potential iceberg?
European Central Bank President Jean-Claude Trichet signalled on Thursday that the days of 12-month loans to banks will come to an end soon and that will be the start of a gradual exit from unlimited liquidity injections.***”The market, as far as I see, it is not expecting that we will prolong (our) one-year operation, I will say nothing to dispel this present sentiment of the market,” Trichet said in a news conference after the 16-country bloc’s central bank kept rates at 1 percent. “The enhanced credit support … was not for eternity,” he added.******The ECB started the 12-month cash injections to help the ailing banking sector back into form, and banks reacted with joy, snapping up nearly half a trillion euros of cheap money in the first such operation in June.******But Trichet also had soothing words for banks addicted to cheap money. The ECB would keep interbank interest rates well below the main refinancing rate, he said. But it seems banks will have to learn to play again with each other rather than relying only on the ECB’s largesse.******And before signing off, Trichet also had words of advice for the media. “This is exactly the same language as we always have utilised. Everybody knows that, so no news there.”******That advice seemed fall on deaf ears, as most media, including Reuters, would make a lot of hay out of his words on 12-month liquidity injections and keep it the centrepiece of their coverage.
MacroScope is pleased to post the following from guest blogger James Carrick. Carrick is economist at UK fund firm Legal & General Investment Management. He says here old patterns of lending are unlikely to return and that this means slow growth in developed countries.
Bankers worried about losing their bonuses might be well advised to consider a cost-benefit analysis of the contribution of their public sector colleagues.