Tuesday, February 3, 2009

Germany's bad bank model - Taking shape?

You will by now heard about the BAD BANK or the AGGREGATOR BANK of US that would take the bad illiquid toxic assets on to its own balance sheets to bring in much needed confidence in the financial system in the country.
Now Business week carries an article where they mention the silent developments taking place in the strongest of European economies - Germany.

DB which lost $5.2bn in 2008, is supposedly leading the developments shaping the BAD BANK model for the nation. Last Monday Hugo Bänziger, the chief risk officer at Deutsche Bank, appeared before members of the conservative Christian Democratic Union's (CDU's) finance committee to promote the potential benefits of a "bad bank."

But this bad bank may not be a single outpost of all the financial toxic assets/ liabilities like that in US but might be a series a privately held banks in Germany. Another critical difference is the risks taking would be that of the shareholders in these institutions and not that of the government. But where ever the need of liquidity will be felt - government would suply that into the system.
Thus increasingly, we are seeing an era come into being where we have the governments having greater control over our lives and through the corporations that run the economy and thus us.

In the meantime, German government is discreetly planning to nationalize Hypo real estate, a measure which would be raised a lot of outcry few months back.
And mind you folks this is something that would occur in future as a common occurence....


Britain on the brink of collapse?

Off-lately, the voices on the collapse of the British Sterling's future impending doom have gone through the roof.... Since, currency strenght represents the strenght of the economy, hence a doomed Sterling is representative of the doomed UK economy which produces few tangibles apart from limited crude production in the coming times of inflationary (Not now, but in coming times HYPER INFLATIONARY HOLOCAUST) is not far away....

Britain came very close to collapse recently as revealed by one of the government ministers ---- Have a look at the article below ----
A Rabbit In Every Hat
I’d like everyone to take note of this revelation published in the UK’s Daily Mail one week ago:
Revealed: Day the banks were just three hours from collapse
By Glen OwenLast updated at 11:21 PM on 24th January 2009
Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's Ministers has revealed.
City Minister Paul Myners disclosed that on Friday, October 10, the country was 'very close' to a complete banking collapse after 'major depositors' attempted to withdraw their money en masse.
The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals.
Only frantic behind-the-scenes efforts averted financial meltdown.
If the moves had failed, Mr Brown would have been forced to announce that the Government was nationalising the entire financial system and guaranteeing all deposits.
But 60-year-old Lord Myners was accused last night of being 'completely irresponsible' for admitting the scale of the crisis while the recession was still deepening and major institutions such as Barclays remain under intense pressure.
The build-up to 'Black Friday' started on Monday, October 6, when the FTSE 100 dropped by nearly eight per cent as bad news on the economy started to multiply.
The following day, Chancellor Alistair Darling began all-night talks ahead of an announcement on the Wednesday that billions of pounds of taxpayers' money would be used to pour liquidity into the system.
Source: Rob Kirby
If this is the situation in Britain, then I would ask how is US placed right now?

Till then cheers

Deflation Vs Inflation debate

For a well versed or well read person, these days and the investors all around the world - one question might be rendering their nights sleepless till the d-day arrives.

For the issue right now with the major developed economies is the debt deflation occuring, enabling the Fed and other major central banks to inflate the economy through various fiscal and monetary tools in their arsenal. The activity would go as along as the deflationary concerns are abound in the market - also giving Fed and other central banks an excuse to let their printing binge go on.

Let us see the events unfolding in the Fiat currency economies.

Your monetary theory states that the inflation/ deflation depends on the following three factors

  1. Money supply into the economy

  2. Money velocity into the economy

  3. Output of the economy

Thus, right now the velocity surely has reduced, due to the risk aversion entering the system, people hoarding money onto their Dollars and UST bills. In addition with all the unprecedented losses having taken place in the past year, Fed is providing money to the banking and financial industry to TRY to make them solvent. The estimates range from $3.6 trillion (Nouriel Roubini) to Goldman Sachs coming out with $4 trillion