Discover and read the best of Twitter Threads about #shadowmoney
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forget about SBV liabilities for a second, the real bailout story is the regime-change in the Fed's treatment of collateral:
par value goes against every risk management commandment of the past 30 years.
it turbocharges the monetary power of collateral
par value goes against every risk management commandment of the past 30 years.
it turbocharges the monetary power of collateral
with 1990s shift in open market operations from outright purchases (of sovereign bonds) to repo loans against collateral (sovereign or other), central banks adopted 'modern' collateral valuation:
- collateral at market price rather than par
- haircut on market price
- collateral at market price rather than par
- haircut on market price
the logic was intuitive (and pleased German lawyers/monetarists greatly):
central banks' collateral framework must be conservative - with strict focus on high haircuts and collateral quality - to minimise moral hazard
central banks' collateral framework must be conservative - with strict focus on high haircuts and collateral quality - to minimise moral hazard
Mario Draghi is an elegant man: no jabs at JC Trichet for that legacy of 'very conservative central bank' that eroded credibility of ECB as firefighter ft.com/content/b59a4a…
he is also an optimist: the sovereignists may have lost the battle for the euro, but it is unclear who won it.
That battle is not only fought on the monetary front, and he knows it well when he calls for supranational fiscal policies.
That battle is not only fought on the monetary front, and he knows it well when he calls for supranational fiscal policies.
full transcript far more fascinating because it brings macro-finance into standard narrative of nation states w different current account deficits and public debt levels (that FT piece doesnt really challenge) ecb.europa.eu/press/inter/da…
Ha! I fervently believe in #shadowmoney :)
I also fervently believe I will finish a book on #shadowmoney. Don't know which is more religious.
I see a theme emerging here
