Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. While I do make mistakes, I try hard to do my analysis thoroughly, and to make sure my data are correct (old habits die hard!) Also, don't ask me why I called it "Volewica". It's too late, now.

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Friday, October 14, 2011

Thumbs Down for Bank Plan

European PMI

An intriguing article from the London Telegraph via The Age.

The message from bankers at the Association for Financial Markets in Europe (AFME) annual dinner in London this week was a concerning one. This was not because of the reference by the guest speaker, Jean-Claude Trichet, to just how close the world has come to a repeat of the Great Depression. Even the European Central Bank president would no doubt admit that’s still very much a real and present danger.

Rather, it was because there seemed to be scarcely a person in the room who thought the grand plan to recapitalise the European banking system would do the trick. Indeed, many took the same view as Josef Ackermann, chief executive of Deutsche Bank, that it’s likely to be outright counter-productive.

The overwhelming message was: We don’t need this new capital. And if regulators really are going to force us to mark sovereign debt to market and backstop capital to 9 per cent, then we’ll be doing it by shrinking the balance sheet, not by raising new equity at today’s penalty rates. Thanks very much, but no thanks.

What is needed is unlimited lending by the ECB to the banks at an interest rate way below the inflation rate until the crisis has passed.  And until we really are in crisis, that isn't going to happen.  Meanwhile, the European economy is sinking back into recession.  

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