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
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
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
until yesterday, in my 15 years of researching central banks collateral I have never heard one single central banker contesting this common wisdom: never, ever par value
we in Europe know painfully well how systemic haircuts can be - both for banks and for the sovereign issuers of bond collateral.
ECB used 50% haircuts on Greek sovereign bonds as a fiscal disciplinary device
imagine, for a second, that Trichet told every Greek bank tapping its LOLR in 2011 that it could get par value for its Greek government bond collateral, instead of 50% of market value.
the Euroarea would be in a very different place right now
had ECB done what Fed did yesterday, farewell my scholarship on #shadowmoney examining how pro-cyclical collateral treatment forced central banks to reinforce LOLR with market-maker of last resort
it is not yet clear to me whether the Bank Term Funding Program will mark collateral to market daily - in which case, this is a partial regime change, but wow.
Dan is right - this is a subsidy, this is why I called it the real bailout
the Fed's new collateral regime:
- all collateral owned before March 12 eligible
- fixed 1yOIS+10bp interest rate
- banks can unwind at any time without penalty (hi my mortgage lender)
Nothing on:
- collateral valuation
- no 25bn limit!
the US Treasury providing a USD 25bn 'credit protection' to the Fed is not the same as the Fed limiting the BTFP at 25bn.
It's just a 'hush the Germans' handwave.
increasingly convinced that Fed wouldnt accept par value for collateral on day 1 of BTFP loan, then mark to market on day 2 - it would automatically exacerbate bank funding pressures
So either Fed suspended collateral valuation permanently or reduced mark-to-market frequency
but then what would be the new frequency if not daily?
do you mark to market once a month and abandon the 'par value' collateral regime? any frequency threatens cliff effects
as @alexandrascaggs points out, some stressed US bank may not have enough BTFP eligible collateral - but am unclear what's the overall par value size of the eligible universe
@Lagarde you know what #CreditSuisse is really asking is Buy the Fu... Papers (especially since SNB accepts foreign collateral too - EUR, USD, GBP, everything HQLA)
why would you sell securities you can monetise at the Fed for par value?
Two amazing Global South progressives and a Nobel prize winner walk into an Oxfam panel on post-neoliberalism
Stiglitz: w neoliberalism, the growth of financial markets changed the political game tremendously
Lula 's special advisor @AAbdenur - clear mismatch - Global North openly exposing industrial policy but pushing IMF/World Bank to continue with austerity and partnerships for hyper-financialisation
missing from this @FT account of the rapid rise of infrastructure as an asset class is the sustained effort that G20 governments have put into derisking infrastructure assets for institutional capital - this is the derisking state in action #WallStreetConsensus
@FT with @BJMbraun we've termed this a weak derisking macrofinancial regime - a set of policies (as in the G20 Infrastructure as an Asset Class agenda, or World Bank Maximising Finance for Development) that seeks to mobilise private capital into infrastructure osf.io/preprints/soca…
BlackRock 's recent acquisition of GIP is a bet that governments - under ideological or real constraints on fiscal space - will not pursue public infrastrucuture projects but instead continue to derisk private capital
I did not expect this, but Rachel Reeves' Mais lecture is a lot more interesting - and dare I say, promising - than either the commentariat focused on fiscal rules or the past weeks of 'maxxed credit cards' would have us believe
some parts are taking a direct swipe at us advocates of Big (Green) State, but it's a careful articulation of the alternative rather than the empty austerity ideology of 'maxxed out credit cards'
1. We're getting climate politics back at the Bank of England.
Remember, under Carney, it became a world leader in climate policy making, not the greenwashed US Fed version of 'disclosure'/single materiality that Bailey prefers.
it is a strategic and tactical mistake for progressives to centre the superrich in climate politics.
Tactics - global tax system is organised to enable rampant tax avoidance + evasion for both high net worth individuals & corporations.
Recent efforts to reform have been far less successful than we'd have expected a decade after Piketty made inequality politically salient at global level. Fighting for global solutions around taxes is important, but shouldnt be the key front.
Global South voices - here the President of Colombia - read in the European/US support of the genocide in Gaza a blueprint, an experiment for ecofascism that 'treats us as disposable lives'.
'we are heading to barbary. Humanity, especially in the South, depends on the road we choose to address the climate crisis produced by the Global North. Gaza is the first experiment to treat us as disposable lives.'
Clearer European minds anticipated this response to von der Leyen - but the damage is done
the @ecb hiked rates to highest level ever today, but this matter less.
@Lagarde promised European Parliament to return ECB to Paris climate commitments but still nothing!
in a new report we show it can do Green Unwinding @AuroreLalucq @henrikehahn greenpeace.de/publikationen/…
we are in the middle of a climate emergency, and the @ecb has stepped back from cleaning its portfolio of dirty bonds -
for no other reason except the (imagined) danger that @lagarde may be seen as 'Mme Climate' instead of fighting inflation.
but fighting inflation & pursuing its 'within mandate' climate rules are not at odds with each other - the opposite.
Mme @lagarde should remind her PR team that subsidising fossil capital, as ECB continues to do via its portfolio of corporate bonds, amplifies supply pressures