The Lemon Fool

The FT has had several articles (behind a paywall) about the italian banks and the referendum on Sunday but the markets don't seem too concerned about this:

Eight Italian banks risk collapse in the coming months if the nation votes "no" to, or against, constitutional changes proposed by Prime Minister Matteo Renzi in Sunday's nationwide referendum.

http://uk.businessinsider.com/italy-ban ... ?r=US&IR=T

Do people think that it won't happen, or that the ECB will come to the rescue

Just interested

The general feeling in Italy is Renzi is not going to resign therefore there is no major issue as its his resignation that causes the problem.

Starting to get worried:

European stocks hit by tumbling Italian banks' shares

http://www.channelnewsasia.com/news/bus ... 25946.html

I just get the feeling that the slightest push will hit Italian and German banks so hard that it will be 2008 all over again!

You must remember the media sells/encourages you to read by painting the worst case scenarios in most cases.
In this case if Italy votes against Renzi in the referendum, which looks likely, what will fundamentally change? Renzi will not stand down it would appear if by some bizarre reason he does the coalition will just put forward another candidate no election will take place so there is no problem. This is Italian politics, politicians have no morals about keeping their word or even telling the truth, look at Berlosconi’s long reign. Add in since the polls all point to a No vote why has the market reaction not been more pointed.

Not wrong to be concerned.
The banking system is not in great shape.
RBS, Barclays, news this morning they failed the latest stress tests.
The means by which banks used to make profits, PPI, overdraft charges, merchant banking, reasonable interest rates, are closed to them. At the same time they are supposed to lend more to sustain the fairy tale that we can afford to live as we do, plus 'grow the economy', oh and pay dividends. And pay fines.
And UK credit card debt is once again very high. There will soon be a need to raise central interest rates, so defaults will rise.
Chinese consumer debt is high.
German banks not great.

If you hold a lot of bank debt, as I do, there are many reasons to worry that the whole house of cards could once again come down.

V8

You are determined to worry aren’t you?
RBS failed, surprise surprise, on all points, Barclays failed on one but the PRA said no new capital plan was required as they had already announced a strengthening of their capital position. The tests were the hardest yet and were designed to mimic the 2008 crash. I have plenty of bank equity and bonds and I am sleeping easy. What exactly are you worried about that is worse than 2008?

What exactly are you worried about that is worse than 2008?

I'll answer on Monday 5th :

ECB's Weidmann says Italy may rescue banks: report
'FRANKFURT -- Bundesbank President Jens Weidmann is quoted as saying the Italian government could take part in bank rescues, after regulators spurned a request from Banca Monte dei Paschi di Siena SpA for an extension to its deadline to raise capital. ...
Mr. Weidmann, who sits on the ECB's 25-member governing council, in quoted in the interview as saying the state could intervene to protect investors "for political reasons".'
http://www.marketwatch.com/story/ecbs-w ... st=markets

Wow. So for 'political reasons', like say 'for the good of the euro', or perhaps 'because Germany have ordered that we do this' the taxpayers [via the government] can be forced to bail out failing institutions.

DiamondEcho wrote:Wow. So for 'political reasons', like say 'for the good of the euro', or perhaps 'because Germany have ordered that we do this' the taxpayers [via the government] can be forced to bail out failing institutions.

Where on earth did this concept of "forced to bail out" come from? The article stated the opposite in fact: that it would be impossible for the state to intervene unless the bank's investors were first forced to take losses. In the end though, a state bailout is entirely optional as far as I can see.

Have you misunderstood something fundamental here perhaps?


GS

GoSeigen wrote:

DiamondEcho wrote:Wow. So for 'political reasons', like say 'for the good of the euro', or perhaps 'because Germany have ordered that we do this' the taxpayers [via the government] can be forced to bail out failing institutions.

Where on earth did this concept of "forced to bail out" come from? The article stated the opposite in fact: that it would be impossible for the state to intervene unless the bank's investors were first forced to take losses. In the end though, a state bailout is entirely optional as far as I can see.
Have you misunderstood something fundamental here perhaps? GS

Perhaps it depends upon how you perceive 'government funds', 'government spending' and so on. From my perspective one way or another the bill lands at the tax-payers door. Hence for example 'QE' is simply deferred future taxation, rather than free-money magic'ed up from nowhere. What other source do you consider the funds will ultimately come from?

DiamondEcho wrote:'QE' is simply deferred future taxation, rather than free-money magic'ed up from nowhere. What other source do you consider the funds will ultimately come from?

No, I disagree. QE is a direct, immediate and unavoidable tax on money (whether physical cash or virtual savings in the bank). It works by diluting all the existing cash in the country, and giving the govt the surplus.

Imagine you start with a barrel of wine, and add a pint of water. You now have just >1 barrel of watered down wine, of which the original owners keep their barrel and the govt keeps the new pint. As long as you keep watering it down slowly enough, the original owners never notice that you are siphoning some off (regardless of whether we are talking about wine, or the value of money).

That's where the free money is magic'ed up from.

gryff

gryffron wrote: QE is a direct, immediate and unavoidable tax on money (whether physical cash or virtual savings in the bank). It works by diluting all the existing cash in the country, and giving the govt the surplus.

And who owns the money, if not the citizens? Because the government don't, instead they spend it 'on behalf of the taxpayers'. So the citizens pay, via the government, by having their assets diluted in worth.

gryffron wrote:Imagine you start with a barrel of wine, and add a pint of water. You now have just >1 barrel of watered down wine, of which the original owners keep their barrel and the govt keeps the new pint. As long as you keep watering it down slowly enough, the original owners never notice that you are siphoning some off (regardless of whether we are talking about wine, or the value of money).

Well precisely, the citizen's assets are diluted in value, and the government scoop off their cut, at the citizens' cost. But then your illustration relies upon 'the citizens not noticing', which is sadly also my point; the citizenry pays and the government relies upon them not noticing.

And hence what you see in Italy. Germany has green-lighted the Italian government pulling this trick on it's citizens; how very convenient for them.

DiamondEcho wrote:

GoSeigen wrote:

DiamondEcho wrote: What other source do you consider the funds will ultimately come from?

From bondholders taking losses, new private-sector investors injecting equity or the bank being allowed to fold or be purchased by a competitor.

None of these result in the government/taxpayers being forced to rescue the bank in any ordinary sense of the words "forced", "government" and "taxpayers".

In the end the government may choose to intervene. We'll see.

GS

Still hoping for a private bail out for Monte dei Paschi di Siena with Quatar committing a €1bn

https://www.theguardian.com/business/20 ... scue-banks

Who in their right mind would invest in a bank like this in a country where the banks and the country itself are broke