Today’s quote squares nicely with something I had mentioned yesterday, that the rescue plan “could be looked at as awful news — more economies and banks in such dire straights as to need yet another central bank bailout, moral hazard notwithstanding.”

It is unusual to have our quote come not from the body of an article, but from the headline, via this Telegraph article:  “Central Banks do not take this kind of action unless something is up.”

Here’s the Telegraph:

“Three years to the day since Lehman Brothers went under, taking the global economy with it, the Bank of England and its counterparts in America, Europe, Japan and Switzerland went and put on a proper show…There’s a difference too, this time around. The central bankers have learnt one lesson. Back in 2008, they waited for Lehman to collapse before they turned on the financial gushers. At least this time they’ve acted before liquidity dries up and the whole global banking system gums up.

Even so, it’s hard to see their intervention as offering anything but short-term respite. That’s because the real problem in the eurozone is not banking liquidity, but sovereign solvency.”

Think about that. Consider the TARP rescue, how Bernanke and Paulson had to scare the congressmen to death to get them to take action. Now consider that in light of what must be going on behind the scenes to get this announcement of 5 Central Banks coordinated intervention.

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Source:
Financial crisis: central banks do not take this kind of action unless something is up
Alistair Osborne, Business Editor
Telegraph 11:00PM BST 15 Sep 2011   
http://www.telegraph.co.uk/finance/financialcrisis/8767072/Financial-crisis-central-banks-do-not-take-this-kind-of-action-unless-something-is-up.html

Category: Bailouts, Federal Reserve, Really, really bad calls

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15 Responses to “QOTD: What Coordinated Central Bank Action Means . . .”

  1. lunartop says:

    My guess is they’re sh*ting bricks. Excuse my French.

  2. buddhabucks says:

    I get the sense of desperation on the part of BOA. First the Buffet deal, then selling assets in China, now 30,000 lay offs. It must be really really ugly, and I can’t believe it’s only BOA.

  3. Petey Wheatstraw says:

    Of course, the “liquidity” is, as it can only be, denominated in dollars. This is going to be fun for the bulls, for a while. After the cure starts killing the patient, not so much.

  4. Moss says:

    This was the next step in the endless pursuit of preserving the status quo.
    Necessary but not adequate (as PIMCO would say) to that end.
    Moral hazard is now part of that policy and has little if any weight on what the banksters will do.
    This is about survival, preserving the ‘system’ in this case the Euro.
    Kick the can down the road until the can itself has lost its composition.

    It was a move of desperation, shock and awe to some extent which surprised the markets.
    Unlimited cheap $$ usurped the natural market market forces which were gaining momentum.
    The first salvo was the SNB peg to the Euro. It follows the game plan that we have seen since the Lehman collapse. So the lesson the banksters have learned from Lehman is to be preemptive when the stresses become high. Who really knows what cascading effect a default of Greece will have? I imagine the untold derivatives on the Sovereign and European banks bonds would be AIG squared.

    Nothing has really changed so the responses will be the same except now they are coordinated. The banksters will fight fire with fire to protect their interests and those of the inept political class who hold power.

  5. dead hobo says:

    Why does it take the combines resources of 5 central banks to guarantee liquidity for a few billion in bad Greek debt going bust? What else is out there?

    Oh. I know. These banks will eventually print money to recapitalize all banks that go under due to Greece and any other country defaulting on their debt. The central bank consortium will fill the role that I speculated the Chinese would fill in European bank recapitalization. The central banks will be the stockholders of a new issue. Money printing wins again. Greek default doesn’t matter anymore.

  6. b_thunder says:

    Second mega-bailout in 3 years?
    How many time, how often from now on will the CBs resort to the mega-bailouts?

    Surely, the Mega-banks feel that other than NY AG Schneiderman, there’s nothing that will ever keep them from taking more and more obscene risks?

    Does anyone think it’s interesting that the last time a “rogue trader” was “discovered” by a mega-bank, the night before the story hit the wires The Bernank cut rates by 0.75%? (that alone should have been enough reason to demand his resignation due to incompetence or corruption), now we hear about the latest bailout only hours before UBS disclose another “rogue trader”?

    If the system is so freaking “fragile” that it collapses every 3 years, then it has to be DISMANTLED, not bailed out.

  7. dead hobo says:

    Re how the banks recapitalize:

    After default the banks will need to recapitalize, as I wrote earlier. Either the Chinese will step in and buy the crippled money center banks banks.

    Or the central bank consortium just created will print money and buy the new stock.

    Or, the third option is nationalization via money printed by the consortium and loaned to EU countries at 0% for the purpose of recapitalization and nationalization. Don’t you just love financial innovation. PS. Greek debt is a safe buy now.

  8. dead hobo says:

    1 more thing, then done:

    Before any bank can be recapitalized directly or indirectly via money printing by the consortium, it will have to look like the only option available in a crisis atmosphere. A big crisis, I imagine. Assuming earnings aren’t heading towards the sewer, then this crisis will be semi manufactured by allowing bad shit to happen and this ill be the buying opportunity of the decade. But the fucking dip during the dip.

  9. http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=The+Federal+Reserve+is+a+Private+Bank

    “Coordinated Central Bank Action Means..”

    “…This was the next step in the endless pursuit of preserving the status quo…”–Moss, above

    Only, it’s their “Status” that is being “Quo’d”, at everyone else’s Expense..

    it’d be amusing, if it were a parlor Trick, but, alas..

  10. codepoet says:

    Bailout means “the market will not be allowed to function as it should”. I.E. the DIS-integration of financial and economic systems will be undertaken in an “orderly” manner by the Institutions so as to restore “order”.

    But…does that really work?…in the long run? If I remember my old “Money & Banking” class from 40 years ago, the nostrum was: central banks can make a difference in the short run in financial markets but ultimately cannot make a difference in the long run i.e. the market will overcome these forces. Perhaps as Bernanke asserted to Friedman, “yes, we made matters worse in the the 30′s and we won’t let it happen again”, the reality is that indeed the financial can make the fiscal the worse but can it really FIX the fiscal (i.e. the capital & income structures underlying all economic activity e.g. can Greece be saved? can Italy?, can Spain…can French or German banks?) It took a massive war, financed by…savings bonds + deficits to overcome all that and establish a completely new “order” from the Great Depression.

    Can we get to a new order without massive dis-integration, displacement of capital? If so, how…is Sweden a model? if not, then what??? No doubt, market forces can be like vultures waiting for carrion (animal spirits…what a quaint, English way of putting it) but can a (albeit, hopefully temporary) “global financial socialism” be enough? The markets appear to be saying “get the long term in order, the short term will take care of itself”…but the Institutions appear to only be able have a short-term perspective.

  11. dead hobo says:

    codepoet Says:
    September 16th, 2011 at 11:40 am

    Bailout means “the market will not be allowed to function as it should”. I.E. the DIS-integration of financial and economic systems will be undertaken in an “orderly” manner by the Institutions so as to restore “order”.

    Can we get to a new order without massive dis-integration, displacement of capital?

    reply:
    ————–
    No. Today, finance is all about the big con. It’s all about getting money from those who have it to those who properly understand financial innovation. Sovereign debt is one source of funds, but that has dried up for now. Central banks and the power to print money are not only all that is left, but also the golden fleece.

    First you need a big problem, likely created by the excess of financial innovation and prior thefts. Then you need a big scare. I mean really big. Such as the end of the world unless the bail out begins NOW!! TARP, QE1 and QE2 are examples of prior responses to the big con. If unimaginable amounts of money weren’t made available now to the creators of the last problem, the world would end immediately. A big con needs a sense of emergency and does not provide the time to think clearly by the sucker being fleeced. Money is exchanged and the sucker is grateful to the con man for help at a critical time.

    Cut to Europe. The world will end if Greece is allowed to fail. Bailouts needed now!!! Bankers need help and so do kleptocrat nations. They’re serious!!! Print like you never printed before and empty the pockets of your citizens to protect the banking system!! Everyone will die horribly if losses are taken!! Money printing doesn’t cost anything and fixes everything. Central bankers become heroes.

    In reality, if all the central bank consortium does is insure liquidity while letting failures fail, then this will deal the crooks their first loss in a decade.

  12. kaelb says:

    Haven’t the swap lines been in place since last May (2010). They were just queitly extended a few months ago. Banks could already draw 7-day dollar loans before the announcement and no one (except for a tiny $500 million) has been using the swap lines. What purpose does a 90-day loan serve other than to carry the bank past the yearend roll. At most the announcement was merely smoke and mirrors designed to convey the slightest amount of cooperation amongst the central banks. When the “high” of the new score wears off, Greece is still on the verge of default, likely to take several banks with it, and the EU is just as disfunctional as D.C.

  13. andrewp111 says:

    How about an even bigger con than you imagine. If they have a real crisis, with panicy 1933-style bank runs, cities on fire, rivers of blood in the streets and martial law, they could try to ram a new EU Federal Constitution through their Parliaments at the most opportune time. They could centralize power in a way that most EU citizens do not want. But doing this requires proper and careful preparation. Merkel and Sarkozy are not up to the job of hatching such a scheme. They need hard boiled elite Socialists like DSK to be running their governments.

    “dead hobo Says:
    ……………..No. Today, finance is all about the big con. It’s all about getting money from those who have it to those who properly understand financial innovation. ……………..First you need a big problem, likely created by the excess of financial innovation and prior thefts. Then you need a big scare. I mean really big. Such as the end of the world unless the bail out begins NOW!! TARP, QE1 and QE2 are examples of prior responses to the big con. If unimaginable amounts of money weren’t made available now to the creators of the last problem, the world would end immediately. A big con needs a sense of emergency and does not provide the time to think clearly by the sucker being fleeced. Money is exchanged and the sucker is grateful to the con man for help at a critical time.”

  14. DuchessGateau says:

    The Bernanke says these swaps are zero risk, so you can stop worrying. 2-yr Greek debt is 60%, but that’s irrelevant. See Greek debt chart here:
    http://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_091211.html

    It’s time to reconvene nobel laureate Joseph Stiglitz and Hugh Hendry, to revisit their infamous debate about the insolvent EU banking system and the cost of Greek debt! BR, you could invite them to your conference and sell extra tickets to watch the fight…
    http://www.youtube.com/watch?v=ftpUiZ6z-IU

    For now, EU bankers MUST be rescued again, whatever the United States has to do!

    In case you don’t think the U.S. is doing enough, remember they are fighting multiple wars for european oil rights in Iraq, Sudan, and Libya, and for natural gas in Afghanistan. For guys like Tony Hayward and Nat Rothschild:
    http://www.forbes.com/sites/christopherhelman/2011/09/07/in-iraq-oil-deal-tony-hayward-and-nat-rothschild-are-now-partners-with-sinopec/

    The U.S. simply must protect European aristocrats, their oil supply, their lifestyle, and their medieval political and banking system, no matter how bankrupt. If you don’t understand this, I’m not surprised, because you’re probably an American, crass and uncivilized, and I look down at you from my distant throne!