The 'Contagion' scenario

[kevsta]

Something which is puzzling me.... How can there be a bank run, when people are mostly using plastic card ? I

the general public depositor is not really their problem so much, after all they can always shut the door and turn the ATMs off if they had to, it's electronic transfers by institutional money that do the real damage, massive amounts moved in minutes.

and its been going on for approaching a year now, anyone only thinking of doing something about it now really is the "dumb money" - Reggie has been laying this out for so long now it should really be common knowledge

http://boombustblog.com/the-anatomy-of-a-european-bank-run-look-at-this-bank-before-the-run-occurs

http://boombustblog.com/Asset/Liability-Funding-Mismatches-The-Fuel-Behind-Institutional-Runs-on-the-Bank-Comes-To-Europe-Lehman-Style.html

 

[Francesca R]

Something which is puzzling me.... How can there be a bank run, when people are mostly using plastic card ?

The plastic card is not really relevant. Depositors still have a net positive balance with every bank. Even with (often reviled here) fractional reserve requirements (whereby banks fund the majority of their balance sheet lending by borrowing wholesale--or these days--increasingly from central banks) they must still maintain a deposit base plus their own equity capital to stay in business. Central bank liquidity programmes can't substitute for this. So if retail starts redeeming its deposits--however it does it (and people do obtain physical cash if they are worried that cheques or balances somewhere else are in danger of default)--then exactly the same kind of bank run that happened in "Mary Poppins" and "It's a Wonderful Life" still happens today.

The UK witnessed a couple of days of that in Sept 2007 before the then Labour government broke the contagion with a nation-wide deposit guarantee.

That is a bit more difficult if markets are also fearful of the solvency of the sovereign at the same time--hence talk of a Euro-wide deposit guarantee scheme, which is a(nother) move towards fiscal union.

 

[Muldur]

The worst-case scenario is that the ECB keeps refusing to provide monetary financing to countries like Spain. Spain defaults on its debts, then banks all over Europe need bailouts. The ECB refuses to help them, so there's a run on the banks. Banks stop lending to anyone and the entire European financial system seizes up like we saw in the US after the Lehman bankruptcy. This plunges Europe into a deep depression and the eurozone breaks up.

In the scenario you propose, outside of Europe, there would be a general panic about sovereign debt of any kind, which could tank the US right along with Europe.

 

[sam84]

interesting/scary presentation:
http://www.scribd.com/doc/95493792/The-End-Game

 

[not_so_new]

interesting/scary presentation:
http://www.scribd.com/doc/95493792/The-End-Game

Things in Europe are bad (potentially really bad)... but this is the second thread where you have posted this... I wish you would stop. This is nothing but FUD

 

[sam84]

I apologise, I just posted in these 2 threads as I thought it was relevant. Also to get oppinions on it as I just did from you, thank you. I won't post it again.

 

[Democracy Simulator]

Interesting to see that Angela Merkel seems to be firming up her stance against Eurobonds:

GERMAN CHANCELLOR Angela Merkel has delivered her most strident rejection yet of eurobonds, saying she would agree to jointly issued euro zone debt “under no circumstances”.

Merkel also said:

“It is wrong to react to the debt crisis with new debt.”

http://www.irishtimes.com/newspaper/finance/2012/0604/1224317204670.html

This can't be very encouraging for all those clamouring for a massive bailout.

 

[Muldur]

Things in Europe are bad (potentially really bad)... but this is the second thread where you have posted this... I wish you would stop. This is nothing but FUD

A little over the top maybe, but the fundamental facts and analysis presented are simply not debatable. We are in WAY over our heads in funky financials, and the world economic system IS out of kilter on a basic level.

Will it get as bad as "everbody grab your guns and canned beans and run for the hills"? It's not impossible as a worst case scenario. I'd like to think that we could stop it from getting THAT bad with the right interventions.

 

[sam84]

A little over the top maybe, but the fundamental facts and analysis presented are simply not debatable. We are in WAY over our heads in funky financials, and the world economic system IS out of kilter on a basic level.

Will it get as bad as "everbody grab your guns and canned beans and run for the hills"? It's not impossible as a worst case scenario. I'd like to think that we could stop it from getting THAT bad with the right interventions.

I agree and hope you're right about interventions.
But whenever I try to speak to friends or family about this kind of stuff it makes me realise how difficult that is going to be (they are truly oblivious to any problems)

 

[not_so_new]

I apologise, I just posted in these 2 threads as I thought it was relevant. Also to get oppinions on it as I just did from you, thank you. I won't post it again.

Sorry, I shouldn't have come down so hard on you, I apologize.

I just think there are always gloom and doom types out there and your link feels a lot like that to me.

Not saying we don't face some significant challenges (putting it mildly) on the horizon because we do. I am just saying that I don't think the sky is falling either.

Sorry again, welcome to the board.

 

[not_so_new]

I agree and hope you're right about interventions.
But whenever I try to speak to friends or family about this kind of stuff it makes me realise how difficult that is going to be (they are truly oblivious to any problems)

Now THAT I agree with. I don't think the average citizen understands what is going on. This isn't a problem IN America at this point so most people over here are completely clueless to what is going down the pike. We live in a global economy now and that has ramifications.

 

[sam84]

Sorry, I shouldn't have come down so hard on you, I apologize.

I just think there are always gloom and doom types out there and your link feels a lot like that to me.

Not saying we don't face some significant challenges (putting it mildly) on the horizon because we do. I am just saying that I don't think the sky is falling either.

Sorry again, welcome to the board.

No problem. No need to appologise you were right, I put the link up without any disclaimer or comment on it myself (I agree its a very simplistic doom gloom outlook and there are very unpredictable factors not mentioned)

 

[sam84]

Now THAT I agree with. I don't think the average citizen understands what is going on. This isn't a problem IN America at this point so most people over here are completely clueless to what is going down the pike. We live in a global economy now and that has ramifications.

I can imagine, I'm in the uk and it seems the average citizen doesn't really get it. The US media is mostly reporting a "recovery" still right?

 

[not_so_new]

I can imagine, I'm in the uk and it seems the average citizen doesn't really get it. The US media is mostly reporting a "recovery" still right?

Well.... not so much. A lot of the media never really picked up on the recovery side of things (fear mongering sells so much better after all).

They are reporting the problems in Europe without a doubt. When I mention it to people here they are aware of the problem but it's not something being talked about much.

My sample size is waaaaaay too small to count for anything but I think there is a general feeling that things are starting to look up after a few years and a lot of people see a bumpy road ahead. I would generally say this is short sighted but in this case I have to think there is a little Economic Downturn Overload Syndrome at play here. The news on the economy has been bad for years, things are just starting to round the corner and now we might be heading for another rough spot.

I just don't know how much "negative" people have the stomach for right now if you know what I mean so I think many folks that I talk to just don't want to think about it.

 

[Puppycow]

http://www.washingtonpost.com/opinions/euro-zone-on-the-brink/2012/06/04/gJQAiUOVDV_story.html

 

[kevsta]

http://www.scribd.com/Achtung-Baby-Germany-is-Riskier-Than-You-Think

 

[kevsta]

heh, sometimes a 20 second video (with no speaking) is worth a thousand words

 

[Johny2x4]

heh, sometimes a 20 second video (with no speaking) is worth a thousand words

I think we should invent a new fallacy "argument ad youtubem".

 

[kevsta]

peak printing approaches..

Why does it have to be "on a level never seen before"?

If the ECB followed the Fed's example, they could probably bail out the banking system by printing money (TARP was actually a Treasury program, but the FED had its own bailout facility too).

oh they will, even Reuters are starting to sound like goldbugs now

http://www.reuters.com/article/2012/06/13/us-economy-qe-idUSBRE85C07220120613

(Reuters) - Many more years of money printing from the world's big four central banks now looks destined to add to the $6 trillion already created since 2008

What's for sure is that quantitative easing, whereby the "Big Four" central banks have for four years effectively created new money by expanding their balance sheets and buying mostly government bonds from their banks, is back on the agenda for all their upcoming policy meetings.

ut after four years in which, according to HSBC, the balance sheets of the Big Four have collectively more than tripled to $9 trillion and still not generated self-sustaining recoveries, the question is how long this can keep going on without creating bigger problems for the future.

For a start, there is no quick solution to the problem of mountainous indebtedness.

Recapitalizing banks; stabilizing housing and mortgage markets responsible for deteriorating loan quality; further deep integration of euro fiscal links to support the shared currency; and capping government debt piles in the United States, Japan and Britain will - even for optimists - take many years.

On top of that the rich economies face gale force headwinds over the next decade from ageing and retiring populations.