Is the end nigh for the Euro? [vol. 3]

[stongle]

Interesting article on BBG this morning on countercyclical Equity / Capital Buffers for banks. And possibly that Carney has it wrong. Whilst conventional wisdom would have it that lowering capital requirements in stressed times increases lending (on ramp to real economy for QE), the banks may not have stored up enough buffer in the good times (too much dividend etc). In short better capitalised banks are more stable through good & stressed times (better wholesale borrow rates - which kinda makes sense). If we have this problem I do chuckle (a small bit) inside when I think of Eurozone banks.

There is so much data out there, theory & hyperbole etc out there; maybe its all a wheeze by brokers to create volatility. Or maybe Carney is saying something to the UK government (in the manner of Bricktop) - "If I throw a dog a bone, I don't want to know if it tastes good or not" - this is your mess.

[Digga]

Steffan said:

If the EU were capable of resolving any of these deeply serious fundmental challenges then they would never have got to this perilous position! But they have and we are where we are. QE is not going to assist the EU in this, since confidence in the institutions within the Svereign states are now visibly failing! Hence the worries of the Italian Banks, Deutshebank etc.

This is the nail hit on the head.

The principal thrust of the EU and EC has been political and social, the economics and finances have, to varying degrees, been misunderstood or fudged since the outset. You can only fk about like this for so long.

[LongQ]

stongle said:

There is so much data out there, theory & hyperbole etc out there; maybe its all a wheeze by brokers to create volatility.

One of the more interesting aspects of "big data" seems to be knowing what to do with it (and what the results mean) once one has collected it.

It's a bit like winning a huge lottery. More dosh than one could sensibly spend in a lifetime even when managed badly but people still seem readily able to make a hash of their supposed good fortune.

The same with a huge amount of data. Very easy to make a complete hash of attempts to understand it - or even to know whether what has been collected has any utility. However, once collect people will feel they have to do something with it. The more "activist" leaning "data scientists" will realise that they can probably do whatever they want with the analysis, add a few pretty but dodgily applied colours to some graphs and persuade anyone (especially "lawmakers") to believe anything they say. They know that few people - possibly none - will have the access or interest to check their "results". Better still, if they tell no one how they got their results they will be almost unassailable.

[stongle]

Bit like how the big consultancies sell services to banks and finance houses. Lots of pretty colours then they offload the spotty grads I mean consultants at a bag of sand per day. For some reason banks and finance house feel the need to spend on blurb and tosh to legitimise decsisions - or maybe worse they don't know how to make decision any more....

I reckon somewhere in the archives of the EC there is a MS PowerPoint presentation of the Euro, done in colour with animations. it would look pretty wow to anyone used to an actual ledger or vax terminal, shame the contents were b*llox.

[emicen]

Shorting bans on 3 Italian companies this morning including 2 banks. In the case of Monte dei Paschi, that's the 4th time a ban on shorting it has been placed this year.

[maffski]

Digga said:

This is the nail hit on the head.

The principal thrust of the EU and EC has been political and social, the economics and finances have, to varying degrees, been misunderstood or fudged since the outset. You can only fk about like this for so long.

I think it's more than just misunderstood. To my eyes it looks like they believe everything is subservient to political will. It's like the response to brexit 'We'll move the city to Frankfurt' - as if the 'city' is a) something that actually exists and b) about to act in any way other than towards 'it's' own benefit.

[Digga]

maffski said:

Digga said:

This is the nail hit on the head.

The principal thrust of the EU and EC has been political and social, the economics and finances have, to varying degrees, been misunderstood or fudged since the outset. You can only fk about like this for so long.

I think it's more than just misunderstood. To my eyes it looks like they believe everything is subservient to political will. It's like the response to brexit 'We'll move the city to Frankfurt' - as if the 'city' is a) something that actually exists and b) about to act in any way other than towards 'it's' own benefit.

I agree - it does seem that there's a mindset that 'enough dogma' will trump anything.

[LongQ]

stongle said:

Bit like how the big consultancies sell services to banks and finance houses. Lots of pretty colours then they offload the spotty grads I mean consultants at a bag of sand per day. For some reason banks and finance house feel the need to spend on blurb and tosh to legitimise decsisions - or maybe worse they don't know how to make decision any more....

It's a 2 way trade. The consultancies support the senior people and find them lucrative positions when required. In return the senior people ensure that the consultancies and the audit arms are given contracts against which the money "generating" activities of the bank can provide cash that the consultancies (and auditors) would be unable to tap into.

It seems to be an extension of the "Old Boy" network. Or the football coach who takes his team with him from club to club.

By placing a "trusted" person in a senior position (and making it clear that can be repeated so long as things work out) there is mutual benefit. Add in the modern move towards having so many "stakeholders" that it is rare for responsibility to land in any individual's lap and you have decision making safety all round. It's never anyone's fault when thing go wrong, although all will claim success on their CV if something works out fairly well, or at least appears to in the short term.

Long term may not matter much - people will move before problems become catastrophes.

I suspect it has always been thus but these days is perhaps somewhat more institutionalised than previously and perhaps, in the digital age, more exposed to scrutiny that can be both accurate and inaccurate in its conclusions. But who can tell?

[anonymous-user]

stongle said:

fblm said:

Presumably this is already priced in though no?

Not sure it is, the accounting standard changes are so bloody complex it's difficult to pluck numbers unlike Leverage Ratio. Worst case estimates are a 33% increase in capital to cover LLP (which increase to the total notional rather 12mth expected loss).

With these types of changes hitting banks or utilititisation of them, it's difficult to see how monetary policy and QE could ever work in the Eurozone as the correct pricing of risk will run into the hundreds of bps.

Thanks!

[Digga]

LongQ said:

stongle said:

Bit like how the big consultancies sell services to banks and finance houses. Lots of pretty colours then they offload the spotty grads I mean consultants at a bag of sand per day. For some reason banks and finance house feel the need to spend on blurb and tosh to legitimise decsisions - or maybe worse they don't know how to make decision any more....

It's a 2 way trade. The consultancies support the senior people and find them lucrative positions when required. In return the senior people ensure that the consultancies and the audit arms are given contracts against which the money "generating" activities of the bank can provide cash that the consultancies (and auditors) would be unable to tap into.

It seems to be an extension of the "Old Boy" network. Or the football coach who takes his team with him from club to club.

By placing a "trusted" person in a senior position (and making it clear that can be repeated so long as things work out) there is mutual benefit. Add in the modern move towards having so many "stakeholders" that it is rare for responsibility to land in any individual's lap and you have decision making safety all round. It's never anyone's fault when thing go wrong, although all will claim success on their CV if something works out fairly well, or at least appears to in the short term.

Long term may not matter much - people will move before problems become catastrophes.

I suspect it has always been thus but these days is perhaps somewhat more institutionalised than previously and perhaps, in the digital age, more exposed to scrutiny that can be both accurate and inaccurate in its conclusions. But who can tell?

I have an uncle who's semi-retired but still earning a decent 6-figure salary as a freelance consultant. The money is there, as is the will to sub-contract awkward decisions.

Depending on the client, his actual role may be anything from acting as a psychiatrist for senior execs, to being 'the bad guy' in a staff rationalisation program.

[LongQ]

Digga said:

LongQ said:

stongle said:

Bit like how the big consultancies sell services to banks and finance houses. Lots of pretty colours then they offload the spotty grads I mean consultants at a bag of sand per day. For some reason banks and finance house feel the need to spend on blurb and tosh to legitimise decsisions - or maybe worse they don't know how to make decision any more....

It's a 2 way trade. The consultancies support the senior people and find them lucrative positions when required. In return the senior people ensure that the consultancies and the audit arms are given contracts against which the money "generating" activities of the bank can provide cash that the consultancies (and auditors) would be unable to tap into.

It seems to be an extension of the "Old Boy" network. Or the football coach who takes his team with him from club to club.

By placing a "trusted" person in a senior position (and making it clear that can be repeated so long as things work out) there is mutual benefit. Add in the modern move towards having so many "stakeholders" that it is rare for responsibility to land in any individual's lap and you have decision making safety all round. It's never anyone's fault when thing go wrong, although all will claim success on their CV if something works out fairly well, or at least appears to in the short term.

Long term may not matter much - people will move before problems become catastrophes.

I suspect it has always been thus but these days is perhaps somewhat more institutionalised than previously and perhaps, in the digital age, more exposed to scrutiny that can be both accurate and inaccurate in its conclusions. But who can tell?

I have an uncle who's semi-retired but still earning a decent 6-figure salary as a freelance consultant. The money is there, as is the will to sub-contract awkward decisions.

Depending on the client, his actual role may be anything from acting as a psychiatrist for senior execs, to being 'the bad guy' in a staff rationalisation program.

A circle of risk aversion with the option to bring in a shield who can take the flack (and move on) for the nasty stuff.

Not uncommon over the years but it just seems to be getting especially prevalent in the past couple of decades.

[Digga]

Nice fallback for execs to have decisions rubber stamped by 'experts' should the need arise for them to be second guessed. As you say, it also covers for those who don't have the minerals to stand up and make big changes when they are required. Sometimes, this can bring better results in the longer term, where staff changes are concerned for example, but it smacks too of people being paid to do a job and having other people help them to do it - hugely inefficient.

There are also some scarily delusions execs out there too - huge personality disorders, toxic interpersonal skill (at best), carrying serious baggage.

[Mr Whippy]

LongQ said:

The same with a huge amount of data. Very easy to make a complete hash of attempts to understand it - or even to know whether what has been collected has any utility. However, once collect people will feel they have to do something with it. The more "activist" leaning "data scientists" will realise that they can probably do whatever they want with the analysis, add a few pretty but dodgily applied colours to some graphs and persuade anyone (especially "lawmakers") to believe anything they say. They know that few people - possibly none - will have the access or interest to check their "results". Better still, if they tell no one how they got their results they will be almost unassailable.

Just look at the data and processing power that goes into scientific analysis of a fairly well understood system like weather.

Yet the last 4 days the weather here has been nothing like the forecast said, despite every effort to be as accurate as possible, with no obvious signs of a desire to bias what the outcome may be.


Even the best actuaries doing stochastic analysis for years into the future for the purposes of pensions and buying annuities have massive error ranges... and they even ignore big forcings like wars, natural disasters, economic crashes etc, which we know do happen regularly.


I think the big issue with big data is that if it's too insightful of observed behaviour, and you try benefit from the knowledge by acting within that system, then the expected outcome will change.

Hmmmm

[Digga]

Mr Whippy said:

I think the big issue with big data is that if it's too insightful of observed behaviour, and you try benefit from the knowledge by acting within that system, then the expected outcome will change.

Hmmmm

Like the QE equities connundrum; bad news = more QE = higher share prices.

[Mr Whippy]

Digga said:

Mr Whippy said:

I think the big issue with big data is that if it's too insightful of observed behaviour, and you try benefit from the knowledge by acting within that system, then the expected outcome will change.

Hmmmm

Like the QE equities connundrum; bad news = more QE = higher share prices.

The dangerous thing is that all the money added to the system will be realised in a crash.

QE tries to avert crashes, but like I mentioned above, even the most sensible actuarial models for long-term projections omit reasonable and historically likely events that could trigger a realisation of the debts/made up money.


It's either gonna crash and burn, or it's gonna crash and an almighty bail-in/socialisation of wealth/debt will occur and suddenly you have a socialist EU.

[Sam All]

Digga said:

Mr Whippy said:

I think the big issue with big data is that if it's too insightful of observed behaviour, and you try benefit from the knowledge by acting within that system, then the expected outcome will change.

Hmmmm

Like the QE equities connundrum; bad news = more QE = higher share prices.

QE, low interest rates often because the economy cannot withstand contraction/higher rates - are stock prices too far ahead at this stage of the game, or the only game in town?

[Mr Whippy]

When the system finally wants to unravel we'll find out.

Either it'll unravel and the market will do natural price discovery... ooor, the amount of money made into existence to cover the debt to stop the great unravelling will tell us how far ahead the markets were.


Should be a fun time for those holding stocks or fiat currencies anyhoo

[Jos Notstoppen]

My first post on this thread, it has been very interesting reading so far. Lots of things that are not really reported.

A question though, how will the USA elections play a part?

Can see a Trump win hasten the end to the Euro or am I wrong?

[LongQ]

Mr Whippy said:

Should be a fun time for those holding stocks or fiat currencies anyhoo

So that's anyone with a pension fund for a start?

Which is why UK Govt. has been forcing the pension concept on all and sundry?

If the crash does not happen they end up with trapped funds that they can "Brown" off for whatever purpose suits them at the time?

[Axionknight]

LongQ said:

So that's anyone with a pension fund for a start?

Which is why UK Govt. has been forcing the pension concpet on ev

I assumed that was a precursor to means testing of the state pension in a few years time, even those with a meagre private pension will have their state pension reduced me thinks.