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Time Bomb? Banks Pressured to Buy Government Debt
CNBC ^ | 05/31/12 | Jeff Cox

Posted on 06/01/2012 7:54:12 AM PDT by TigerLikesRooster

Time Bomb? Banks Pressured to Buy Government Debt

CNBC, NETNET, NET NET, EUROPE DEBT, GREEK DEBT, EUROPEAN DEBT CRISIS, ECB, EUROPEAN CENTRAL BANK

Posted By: Jeff Cox | CNBC.com Senior Writer

CNBC.com | 31 May 2012 | 02:42 PM ET

US and European regulators are essentially forcing banks to buy up their own government's debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says.

Regulators are allowing banks to escape counting their country's debt against capital requirements and loosening other rules to create a steady market for government bonds, the study says.

While that helps governments issue more and more debt, the strategy could ultimately explode if the governments are unable to make the bond payments, leaving the banks with billions of toxic debt, says Citigroup strategist Hans Lorenzen.

"Captive bank demand can buy time and can help keep domestic yields low," Lorenzen wrote in an analysis for clients. "However, the distortions that build up over time can sow the seeds of an even bigger crisis, if the time bought isn't used very prudently."

"Specifically," Lorenzen adds, "having banks loaded up with domestic sovereign debt will only increase the domestic fallout if the sovereign ultimately reneges on its obligations."

(Excerpt) Read more at cnbc.com ...


TOPICS: Business/Economy; Front Page News; Germany; Government; News/Current Events; Russia; United Kingdom
KEYWORDS: bank; benbernanke; bomb; bond; debt; economy; europeanunion; france; germany; greece; russia; timgeithner; unitedkingdom; wallstreet

1 posted on 06/01/2012 7:54:25 AM PDT by TigerLikesRooster
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To: TigerLikesRooster; PAR35; AndyJackson; Thane_Banquo; nicksaunt; MadLibDisease; happygrl; ...

P!


2 posted on 06/01/2012 7:56:35 AM PDT by TigerLikesRooster (The way to crush the bourgeois is to grind them between the millstones of taxation and inflation)
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To: TigerLikesRooster

giving the politicians someone else to blame when the shiite hits the fan...


3 posted on 06/01/2012 7:58:15 AM PDT by Buckeye McFrog
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To: TigerLikesRooster
Time Bomb? Banks Pressured to Buy Government Debt

Let me get this straight: The government needs money to bail out the fat cat bankers, so they "pressure" the bankers into buying the debt, so they have money and are able to bail out the bankers.

Good thing most of the creeps in DC are "the best and the brightest" from Ivy League schools, because for a simple guy like me, this whole scenario looks mighty shaky [and no doubt shady]. /sarc

4 posted on 06/01/2012 8:01:54 AM PDT by The Sons of Liberty (Sworn to Defend The Constitution Against ALL Enemies, Foreign and Domestic. So Help Me GOD!)
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To: TigerLikesRooster

If the banks loan all their money to the government, what’s left for private sector investment?


5 posted on 06/01/2012 8:03:53 AM PDT by tacticalogic ("Oh, bother!" said Pooh, as he chambered his last round.)
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To: TigerLikesRooster
The Brazil Principle...........look up the late 1970's / early 1980's bank loans to Brazil.

Basically when you as a small customer have a loan with a bank and cannot pay, well the bank takes the collateral and sues for the balance. But when you are a massive customer who has very large loans (I call them bank killers) that many times are shared with other banks to spread the load, well when this large customer says they are not going to pay guess what............either the loans gets renegotiated to the terms the large customer demands or the bank is killed!

Want a current example, look at Greece and the 'haircut' the bond holders took..........then the haircut was renegotiated!

So now we have Obama getting the banks in line with no lifeboat!

6 posted on 06/01/2012 8:11:17 AM PDT by Lockbox
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To: TigerLikesRooster

Sell the banks.


7 posted on 06/01/2012 8:36:31 AM PDT by Brilliant
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To: TigerLikesRooster
US and European regulators are essentially forcing banks to buy up their own government's debt—a move that could end up making the debt crisis even worse...

Ummm, we're buying our own debt too...

8 posted on 06/01/2012 8:40:02 AM PDT by GOPJ ( "A Dog In Every Pot" - freeper ETL)
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To: tacticalogic
If the banks loan all their money to the government, what’s left for private sector investment?

Now you're catching onto the Zero policies for destroying capitalism.
9 posted on 06/01/2012 8:43:58 AM PDT by Cheerio (Barry Hussein Soetoro-0bama=The Complete Destruction of American Capitalism)
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To: TigerLikesRooster

Banks Pressured to Buy Government Debt

With all that bailout cash the government gave them!


10 posted on 06/01/2012 8:46:07 AM PDT by djf ("There are more old drunkards than old doctors." - Benjamin Franklin)
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To: TigerLikesRooster

“Never let a good crisis go to waste”


11 posted on 06/01/2012 8:51:20 AM PDT by BenLurkin (This is not a statement of fact. It is either opinion or satire; or both)
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To: TigerLikesRooster
Sovereign Debt Bubble.

We have just broken the second seal.


12 posted on 06/01/2012 9:01:46 AM PDT by Uri’el-2012 (Psalm 119:174 I long for Your salvation, YHvH, Your law is my delight.)
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To: Lockbox

If you owe the bank a million dollars, the bank owns you.

If you owe the bank 100 billion dollars, you own the bank.


13 posted on 06/01/2012 9:03:30 AM PDT by Lurker (Violence is rarely the answer. But when it is it is the only answer.)
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To: TigerLikesRooster

Under Bush we used to have to worry about selling this dubious debt to China. Now with Baraq, Geithner, and Bernanke, we buy it ourselves.


14 posted on 06/01/2012 9:09:34 AM PDT by nascarnation
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To: TigerLikesRooster

Like Social Security IOU’s, the Government got the cash and it’s long gone.


15 posted on 06/01/2012 9:26:36 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: nascarnation
we buy it ourselves

Monetizing the DEBT will result in this.............

16 posted on 06/01/2012 9:29:08 AM PDT by Cheerio (Barry Hussein Soetoro-0bama=The Complete Destruction of American Capitalism)
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To: TigerLikesRooster

Now banks will wait for a cash loan customer, the Government, whose tax revenue collected to GDP is way down below the normal 18% historically, to pay back the debt. Plan a long wait...


17 posted on 06/01/2012 9:29:08 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: Cheerio

But, in truth, there is little demand for private capital - thanks, of course, to the failed policies of the Obama administration. But I think the buying of sovereign debt is a consequence, rather than an objective. Over-Regulation, the threat of Obamacare, and the tossing out of the legal rules that have been in place for 200 years (see Chrysler bankruptcy)have dried up the demand for private capital. Money is going begging - one of the reasons mortgage rates hit new lows last week. Even interest rates under 4% can’t convince people to take on new mortgages in this economy.


18 posted on 06/01/2012 9:36:04 AM PDT by In Maryland (Liberal logic - the ultimate oxymoron!)
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To: TigerLikesRooster

If this is carried out, it is a surefire guarantee that we will never recover from the downturn. It won’t matter who is president, speaker of the house or what party is in control.


19 posted on 06/01/2012 10:15:17 AM PDT by B4Ranch (There's Two Choices... Stand Up and Be Counted ... Or Line Up and Be Numbered .)
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To: B4Ranch

That’s incorrect. With the Republicans in charge, all will be well. At least that what FOX news will tell us.


20 posted on 06/01/2012 10:42:38 AM PDT by Wolfie
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To: Lockbox
when this large customer says they are not going to pay guess what............either the loans gets renegotiated to the terms the large customer demands or the bank is killed!

well it sure worked for Donald Trump...
21 posted on 06/01/2012 2:11:29 PM PDT by Buckeye McFrog
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To: TigerLikesRooster

I wonder how many local government pension funds are invested in bonds.


22 posted on 06/01/2012 3:42:51 PM PDT by familyop ("Wanna cigarette? You're never too young to start." --Deacon, "Waterworld")
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To: AdmSmith; AnonymousConservative; Berosus; bigheadfred; Bockscar; ColdOne; Convert from ECUSA; ...

Thanks TigerLikesRooster.


23 posted on 06/03/2012 6:05:06 AM PDT by SunkenCiv (FReepathon 2Q time -- https://secure.freerepublic.com/donate/)
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