tag:blogger.com,1999:blog-4815867514277794362.post7878576961132589046..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Stress tests and sovereign solvency – part IV in the Edward Hugh tribute seriesJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-4815867514277794362.post-73030399696977381042010-07-09T08:39:11.725+10:002010-07-09T08:39:11.725+10:00http://blogs.reuters.com/great-debate/2010/07/08/s...http://blogs.reuters.com/great-debate/2010/07/08/stress-tests-and-cargo-cults/<br /><br />Hey John,<br /><br />Is it stealing when you give credit?<br /><br />chrs,<br />JimUnknownhttps://www.blogger.com/profile/12167552283314382579noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-90993111742029767842010-07-05T22:13:28.373+10:002010-07-05T22:13:28.373+10:00Certainly in Sweden, the decision to stop defendin...Certainly in Sweden, the decision to stop defending the kronor and allow it to devalue in Nov. 1992 (it ended up devaluing about 30% against the ecu) was perhaps the most critical element in rescuing the banks during that crisis by quickly returning the country on a path to growth.<br /><br />Sitting hear in the Baltics today, i see the same swedish banks parking loads of still overvalued assets into restructuring vehicles and waiting for growth to return to bail them out as in the early 1990's.<br /><br />Alas, it is not clear that there will be an upturn in Europe as in 1993 nor have the Baltics prices declined enough for the countries to regain competitiveness.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-21349363595579793442010-06-19T00:30:31.269+10:002010-06-19T00:30:31.269+10:00Would it not be smarter to decouple the strong cou...Would it not be smarter to decouple the strong countries from the Euro instead of the Club Med. Since the debt burdens are nominated in Euro and a spin off by the southern countries would inevatably lead to their insolvency. The other way around would also be painful but the appreciation of the "northern new Euro", were helpful for the exports of the south and the debt restructuring could take more time.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-45639427925093001402010-06-18T23:42:08.653+10:002010-06-18T23:42:08.653+10:00how can the US have a strong recovery if the euroz...how can the US have a strong recovery if the eurozone and asia are exporting deflation?babar ganeshhttps://www.blogger.com/profile/01898299856773302141noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-25682391113914377412010-06-18T18:31:30.983+10:002010-06-18T18:31:30.983+10:00John,
The problem with this tack is that, for all...John,<br /><br />The problem with this tack is that, for all the logical sense it might make, it is very unlikely that the late arrivals to the euro leave the EMU. 'High probability long tail' is an oxymoron. The more likely response to the possibility of sovereign defaults within the zone will be a typically clumsy, crisis-by-crisis redefinition of the place of individual states within the EMU itself.<br /><br />狂猪,<br /><br />A large portion of the bank funding problem in Spain resides in the cajas. The fundamental problem they have is that they legally can't raise money through equity sales and have to rely on deposits, covered bonds and various silly interest-bearing things they foist on the widows and orphans among their clientele. The covered is the only item of interest to institutional investors. For all they might currently be undesirable pieces of paper, most of the cajas are probably at the Spanish legal limit regarding their issuance anyway. The only paper that wants to come to market is that which needs to be rolled. the seriousness of this various from institution to institution.<br /><br />On the other hand, a very thorough consolidation of the sector is taking place under the SIP framework, rather than through outright mergers. The parent company of these new entities is, legally, a bank. The door has been opened to equity participation. Between recurring crises and the passage of time, the ideologues and self-interested that resist even the partial privatization of the cajas will find themselves defeated.<br /><br />CheersCharles Butlerhttps://www.blogger.com/profile/00486529931043507880noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-60829365293406847042010-06-18T15:13:11.699+10:002010-06-18T15:13:11.699+10:00John,
I agreed bank solvency depends on sovereig...John,<br /><br /><br />I agreed bank solvency depends on sovereign solvency. This is particularly true for banks like NBG with their significant Greek bond holding.<br /><br />However, there are multiple ways to achieve sovereign solvency - at least in the short and medium term (time horizon is important).<br /><br />1. own the printing press<br />2. sovereign bail out from euro zone, ECB and IMF<br />3. growth - listed here only for completeness<br /><br />The Greece bail out package guarantees Greece funding needs for the next 3 year. The separate $1 trillion dollar package guarantees funding needs for the other Mediterranean states. From a practical point of view, the questions are:<br /><br />1. Can the market force Greece, Portugal, Spain, etc. into sovereign default?<br /><br />With the bailout packages in place, these countries will be able to meet all their obligations. I maybe wrong, but I don't see how the market can force these countries into sovereign default. <br /><br />2. Will Greece, Portugal, Spain, etc. purposely choose sovereign default in the near term?<br /><br />Within the next 3 years, I think this is very unlikely. This is because it will hurt Greece, Portugal, Spain, etc more economically if they default. If they default, all their excess fiscal spending must come to an immediate halt. Furthermore, their banking system will collapse. Can the economic benefit of sovereign default really out weight that level of calamity?<br /><br />Ultimately, my main concern is not whether Greece defaults. My main concern is contagion. Therefore, I think time is very valuable. I don't know if Greece will default after 3 years. However, I do believe Greece defaulting after 3 years is much better than Greece defaulting tomorrow. In time, the world economy will be healthier. Also, institutions will have taking steps to better manage contagion risk. <br /><br />Having said the above, I think we should add the following step before (a) in John's list of steps to solving banking crisis.<br /><br />(0) euro zone, ECB, IMF told us sovereign solvency is guaranteed for the next 3 years. Is it correct to say this is ultimately back by the euro printing press and therefore credible?<br /><br />With this step (0), I think the stress test is meaningful. For example, I am bothered by the market punishing Spanish bank funding indiscriminately. That punishes Spain more than it deserved.<br /><br />What I am really uncertain about is the bank funding situation for Greece, Spain, and others for the next 3 years. Any thoughts on how that dynamic will play out? <br /><br />Also, John, since you don't seem to agree with my view, when do you think a sovereign default will likely happen?狂猪https://www.blogger.com/profile/16599529315620633684noreply@blogger.com