20120701-181354.jpgGood morning

The headlines:

  1. Quantifying the Libor exposure.

    Link: No one has any idea.

    Everyone’s going “who next?” rather than “when this baby blows – how much liability are we talking here?”

    Which is really just avoiding the thorny mathematical problem. We move from the criminal question (“did you try move the market rate?”) to the civil question (“did you actually manage to move it?”).

    The suggestion is that the banks may argue that these are derivative positions, and therefore this should be settled on a net exposure basis. Which is ridiculous – the party that ended up worse off will sue; the counter-party that benefited will be sitting back smugly and untouchable.

    Let’s try anyway do a worst-case scenario assessment.

    The FSA report says Barclays submitted 5.30% where it should have submitted 5.60%*. The market of Libor-based assets is worth 360 trillion dollars. Let’s say everyone misstated the same. Libor is 0.003% different to what it should have been. That’s an annualised difference of about $1 trillion. Over three years, let’s say $3.5 trillion**.

    But given that the panel making bids consists of 16 banks, and in the process, the top 4 and bottom 4 bids are disregarded, this means that only about 8 banks are liable for any day’s trade. So split that $3.5 trillion 8 ways and you get a theoretical maximum exposure.

    Which is about $438 billion. Is that too high?

    Absolutely. But it’s fun to give it a try.

    *Assuming that the FSA got that figure right. Also – it must have been on one bid on one type of maturity denominated in one currency at one point in time. But let’s just assume that this is the average misstatement by banks in general on maturities in general denominated in whatever currency over the entire time-frame.

    ***About equal to annual government spending by the US government.

  2. ECB cuts rates.

    Link: The record low includes 0% now.

    Overnight deposit rates have been cut to 0%, and the lending rate is down to 0.75%. That’s low. In fact – that’s like Japanese low.

    In Draghi’s words, the “downside risks are now materialising”.

    I think that’s ecopolitical speak for “it hitteth the fan, y’all”.

  3. China also cuts benchmark interest rates.

    Link: second time in a month.

    Months of nothing, and now it pours.

    Lots of analysts are surprised in an “it-all-happened-so-much-sooner-than-I-expected” sort of way. Which makes it’s sound like they’re engaged and “definitely not having a baby but the wedding’s on Saturday”.

    The baby is meant to be in the new data that the Chinese officials are looking at.

  4. VW’s found a tax loophole.

    Link: 1 share saves $1.1 billion.

    It’s something to do with their purchase of Porsche. If they pay the purchase price of €4.46 billion, and buy 1 share, then the deal is a restructuring not a takeover and saves €900 million in tax.

    The plan was developed by a tax guy at Ernst & Young – so he should definitely earn like a giant bonus portion of that €900 million saving. Fair’s fair.

    I mean – the politicians have lost no time in complaining that the taxpayers have “been had”. I hope they lose their funding at the next election. I mean – politicians made the law that is being used to circumvent the tax.

  5. Amazon said to be planning a smartphone.

    Link: they are not serious.

    Firstly, much like the Facebook phone, I think that new entrants are too late.

    But mostly: patent infringement. I mean, Apple versus Google versus Samsung versus HTC versus Chinese Ripoff Manufacturers is a technological cliché.

    And now Amazon wants to enter the fray? I wish them all the best with that.

That’s all for now.

Have a good day.