Good morning
Merry Christmas.
And this is my 300th post!!
The headlines:
- The Fed is flummoxed.
Link: that is no surprise.
The Federal Reserve has expressed “disappointment” that the near-zero cost of mortgages has not led “to more savings on home loans”. Which is to say – they’re not sure why quantitative easing hasn’t worked yet.
Ben Bernanke has called it “unfortunate” and organised a workshop to look at the issue.
An observation: the Fed relies on the banks to “transmit” any of the easing on to the consumer. It’s a gentlemanly agreement along the lines of “look, what we’ll do is buy-back your mortgage-backed securities at a good price, thereby reducing the interest rate; and we’d like you to pass that on to the American consumer by giving them home loans at a similarly low rate. Cool? Let’s shake on it, dawg”.
If I were a bank, I’d be saying: “let me get this straight – you want to give me a good price for my products; and in return, you want me to commit to “paying” better prices to my customers by offering them lower rates? And there’s no contract? DONE.”
Because the banks get a better margin. And suddenly come off all coy about giving out new loans: “protecting their risk exposures” and avoiding taking on new staff in a recession, etc.
In the normal course of events, the Fed would be relying on the competition between the banks to drive the rates down. But we are not in normal events; there are fewer banks than there were before; and, well, what’s a little collusion between friends*.
OR: here’s a thought. Whenever we think “banks” in American terms, we think of Wall Street. But that’s not really the full picture, is it? Most of America would have borrowed from small and medium-sized finance providers, who did not get the bailouts**. And another thought: the borrowers would have borrowed on the back of their “collateral” (being their houses) – which are averagely sitting at about two-thirds of their pre-crisis value…
That’s hardly the recipe for stimulated lending. In fact: it shows that the issue is a structural one.
Bernanke remains optimistic that it’ll all eventually filter through. Comforting, I’m sure.
*Exhibit A: Libor. Also: guys that get sued together, stick together.
**And these little firms, in turn, would have sold their mortgage books on to the big banks to repackage as Mortgage-Backed Securities. No more.
- An IMF report on Greek taxes.
Link: “you need to write this stuff off”.
The IMF/EU have written a report on Greece and said that she should write-off part of €53 billion in overdue taxes because she can only hope to recover about 20% of it. Tops.
And that the Greek tax collectors should focus on the 1,500 largest debtors.
It makes sense: you prioritise in a crisis. Spending equal amounts of time on a debtor worth €200 and a debtor worth €200 million is not an efficient use of one’s time. But bureaucracies – they’re not really committed to efficiency.
I have a good Greek friend that works with tax. She thinks that they should fire the whole tax department in Greece and outsource tax collection to the Germans. And why not? Greece needs some tax collectors that don’t mind being shunned for doing their jobs.
You know – because they’d already be shunned for being German.
That’s all for now.
Have a good day. And may there be cranberry sauce.
