Wednesday, November 30, 2011
Need a reason to explain the massive central bank intervention from China, to Japan, Switzerland, the ECB, England and all the way to the US? Forbes may have one explanation: “It appears that a big European bank got close to failure last night. European banks, especially French banks, rely heavily on funding in the wholesale money markets. It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue.” Granted the post is rather weak on factual backing and is mostly speculative, but it would certainly make sense. That said, it harkens back to our original question: just how bad was the situation if the global central banking cabal had to intervene all over again, and just what was not being told to the general public? Lastly, and most important, slapping liquidity bandaids on solvency gangrenes does nothing but buy a few days at most. Furthermore, we now expect the stigmata associated with borrowing from the Fed to haunt each and every European bank as vigilantes will now use the weekly ECB update on borrowings from the Fed as a signal to hone in on this and that weak Italian and French, pardon, European bank.
These are the type of actions that were being taken during the financial crisis in 2008. Now most knowledgeable experts agree that not rescuing Lehman Brothers was a mistake. The authorities are not about to make the same mistake again. The only explanation for the massive action is that central banks were concerned about a pending failure that is not publically known. The readers may want to make their own judgment from the following excerpts from a statement by the Federal Reserve.
These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.
h/t Maurice Pomery
This article was posted: Wednesday, November 30, 2011 at 9:32 am