This morning, a group of central banks, including the Fed, announced coordinated action to ease the cost of currency swap lines in Europe.
Essentially, these are facilities that allow local banks to borrow in dollars or yen or what have you from their central bank, with the ECB getting the money from the central bank that controls the currency in question.
While this is billed as a coordinated global action, this is really about dollars, and the Fed. No other currency is seeing that much excess demand.
This is a band-aid. It's a good band-aid. But making it easier for local banks to borrow in dollars does not, in the end, fix any of the problems with the euro-zone. It just delays the rate at which the current sovereign crisis turns into a banking crisis. RBC analyst Mark Cloherty sums it up in a research note this morning:
Note that it is now cheaper for foreign banks to borrow dollars from their local banks than it is for US banks to borrow dollars from the Fed, so we could see a 25bp cut in the discount window in the coming days to level the playing field.
Again, we look at this facility as eliminating the liquidity element of LIBOR (banks don't need to be as afraid of lending term because they know they have a backstop liquidity source that won't be that expensive, which means the money market curve stays flatter) rather than thinking that LIBOR will move all the way to the new ceiling. So we think LIBOR can still creep a bit higher than spot, but it will be difficult to get higher than 60bp.
In addition, the other central banks are setting up bilateral lines (sterling for Euros, etc) , although we don't expect those facilities to be used in anywhere near the size of the dollar facilities so we don't expect any significant impact.
This is a very big deal if you are trading Eurodollar contracts as the Fed was more aggressive (we thought they would go to OIS+75bps rather than OIS+50bps), but it doesn't change any of the fundamental issues in Europe. The major help to risk assets is that those investors no longer will need to see LIBOR rise relentlessly (and it should make year-end a little less messy), but we don't think this is a real game-changer.
And the fact that it was necessary (and provided such a big boost to markets) supports Karl Smith's argument that the ECB has lost control over local monetary policy:
Based on entirely different indicators this looks to be the point where the ECB's control over Eurozone monetary policy began to come unmoored. At the crux of the problem seems to be the inability to arbitrage away differences in funding costs between institutions and countries because of malfunctioning in the European Repo market. This malfunctioning appears to be down right mechanical with trades regularly not settling on time, collateral not being delivered, awkward interventions by local regulatory agencies and a host of other deep, deep problems.
I don't have it all sorted out but its not clear that there is a fully functioning money market in Europe right now. Well informed opinion suggests that there is literally a shortage of know-how on the ground. That is to say, some large banks or brokers cannot trade in certain types of paper because they don't have anyone on staff who knows all of the relevant institutional details.
As he notes in a later post, "How long ago was China's primary focus curbing inflation and re-balancing the export driven economy. Was that two months?"
This post originally appeared at The Atlantic.
From TheAtlantic - shaping the national debate on the most critical issues of our times, from politics, business, and the economy, to technology, arts, and culture.
Making It In the Art World, New Approaches to Galleries, Shows, and Raising Money, a new book by Brainard Carey, was released last week by Allworth Press in both paperback and Kindle editions.
“This book is for the professional artist or the artist who wants to learn to be a professional,” Brainard Carey states in his introduction. Although that may sound like the beginning of a conventional how to book, just a few sentences further on Carey congratulates artists for being innovators in a world that values creativity, urging artist to bypass the traditional gallery system for more unconventional methods of getting their art to market. According to Carey, there is a burgeoning DIY movement going on that also pertains to visual artists doing it all themselves--their own marketing, promoting, and selling directly to the public.
Carey asks the question, “what if you could create a way of working with money that was as creative as making art? “
He then examines some of the creative ways that artists have sold their work and managed their art careers on their on terms.
Carey’s paradigm shift infuses his own brand of enthusiasm and methods of idea development with a tone that challenges artists to come up with their own new ways of earning money from their creativity. For artists already working outside the system and engaged in self-promotion and marketing, Carey presents “tools to pursue your dreams” — several chapters of practicable ideas containing real life steps to finding a patron, proposing an exhibit to a curator, and how the right winning attitude can make things happen.
Other “tools” contained in the 217 pages of Making It In the Art World include sample letters, a “workbook” portions of each chapter, and techniques on time management that Carey refers to as “the golden key” that will unlock possibilities.
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