Skip to comments.Time Bomb? Banks Pressured to Buy Government Debt
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 debta 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 ...
giving the politicians someone else to blame when the shiite hits the fan...
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
If the banks loan all their money to the government, what’s left for private sector investment?
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!
Sell the banks.
Ummm, we're buying our own debt too...
Banks Pressured to Buy Government Debt
With all that bailout cash the government gave them!
“Never let a good crisis go to waste”
Sovereign Debt Bubble.
We have just broken the second seal.
If you owe the bank a million dollars, the bank owns you.
If you owe the bank 100 billion dollars, you own the bank.
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.
Like Social Security IOU’s, the Government got the cash and it’s long gone.
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...
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.
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.
That’s incorrect. With the Republicans in charge, all will be well. At least that what FOX news will tell us.
I wonder how many local government pension funds are invested in bonds.