Monday, 29 September 2014

The politics of public debt - Wolfgang Streek

Just came across this paper by Wolfgang Streek, The Politics of Public Debt, finishing in a palpable sense of rage directed at the Fed:

Does this sound outlandish? Consider the current state of the distributional game in the United States, a country that, unlike Ukraine or China, is still considered a democracy by many. According to Emmanuel Saez, in 2010, the Year Two after the crisis, at a time of high unemployment and record public debt, 93% of all income gains in the US, i.e., almost the entire amount by which the national income increased , went to the top one per cent of the income distribution. What is more, the top 0.01%, about 15,000 households, received more than  a third, 37%, of those income gains (Saez, 2012).31  There is no reason not to call this an asset stripping operation of epic dimensions perpetrated by a tiny minority benefitting, among other things, from the deepest tax cuts in history. Why should the new oligarchs be interested in their countries’ future productive capacities and present democratic stability if, apparently, they can be rich without it, processing back and forth the synthetic money produced for them at no cost by a central bank for which the sky is the limit, at each stage diverting from it hefty fees and unprecedented salaries, bonuses and profits as long as it is forthcoming –  and then leave their country to its remaining devices and withdraw to some privately owned island?

Thursday, 11 September 2014

The European Repo Market, the FTT and Moscovici, new Tax Commissioner

The European repo market was last in the news when the Commission issued its FTT proposals last year in February.  France, through the voice of the new Tax Commissioner Pierre Moscovici, then Minister of Finance, immediately questioned the inclusion of the European repo market in the FTT plans:

To include such [repo] transactions will simply pose a major risk to the functioning of the credit market.

Yet it turns out that  the European repo market is European but in name.

Consider the membership of the European Repo Council (ERC), the private lobby that champions the interests of the repo market players in Europe. Of its 75 members in September 2014, 19 sit on the European Repo Committee, the governing board of the ERC.  Eleven of these – five headquartered in the EU - are on the FSB’s 2013 list of Globally Systemically Important Banks (G-SIBs). 

Table 1 Membership of the European Repo Committee, September 2014
Societe Generale (Newedge), Deutsche Bank, Unicredit
Caixabank, Bankia, Intesa Sanpaolo, Commerzbank
UBS, HSBC, Credit Suisse, Barclays

JP Morgan, Goldman Sachs, Citigroup


Nomura, Daiwa

 The ‘European’ repo market captures the systemic footprint of global banks headquartered in Europe and elsewhere. Its growth has been driven by what Haldane called the ‘collective migration’ of bank business models to interconnected, leveraged, high-yield trading activities. 

Monday, 1 September 2014

SFP vs Reverse Repos vs Fed bills

Remember the fuss around the Fed's RRP change of heart earlier this month?

According to the Treasury Borrowing Advisory Committee, the Fed could have chosen a different sterilization approach: it could have issued its own debt instruments or extended the Supplemental Financing Program, a misnomer for  the Treasury playing at central banking (issuing Tbills for sterilization purposes, for which banks pay in reserves that are held by the Treasury at the Fed).

For TBAC, a committee that brings the Treasury in dialogue with powerful market players (zerohedge calls it the Supercommittee that Really runs America), identified several criteria:

To sum up, the criteria can be grouped in:

- liquidity effects (for Tbills)
- institutional constraints (debt ceiling)
- shadow banks' access to Fed (the 'portable' reserve creation)
- theoretical (ideological) concerns with central bank independence.

Missing from that list is displacing the private repo market...