Tags: Bailouts, Banks, BIS, papers
The banking system is a machine to transform risk: people put their money into a bunch of risk-free-ish-or-so-they-think banks, and those banks lend that money to risky businesses, and the banks make money on their ability to price that risk appropriately and/or on their ability to get a government bailout when they price it inappropriately. From this description you can rough out some boundary cases – a bank that loaned money only to risk-free businesses wouldn’t make very much money or serve very much purpose, while a bank that was a massively levered conduit for moving depositor money into Ponzi schemes would also not serve much social purpose – but that leaves a broad middle ground where banks need to evaluate risk carefully enough to avoid blowing up but not so carefully that they constrain promising but risky investment.
But that middle ground is where the action is so you get papers like this one, from the Bank for International Settlements, about one flavor of lending and two flavors of banks. The lending is syndicated lending, and the banks are “bailed out banks” and “not bailed out banks,” and here are some suggestive charts:
The restrained conclusion in the BIS paper is “Although the riskiness of loan signings started diminishing across the board in 2009, we do not find consistent evidence that rescued banks reduced their risk relatively more than non rescued banks during the crisis.” And in particular, in 2010, banks that had been bailed out still had more levered, higher-yield syndicated loans than banks that had avoided a bailout. Read more »
Tags: Bailouts, cds, Spain
Did you think you could avoid it?
So the deal is this. Spain has some banks, and those banks have some loans, and those loans have some problems. And so Spain wants to bail out its banks via a thing called the Frob, which is perhaps more confidence-inspiring in Spanish than it is in English? The Frob has the small problem of not having money, and this weekend the problem was solved by Europe – I like saying “Europe” because the actual institutions in these things always seem pretty ad hoc but in this case it means mostly the European Stability Mechanism but also the European Financial Stability Facility – promising it up to €100bn.
Now one thing about Europe is that it wants its money back, so the ESM loans will likely be senior to existing Spanish government debt. In some ways this is weird – Spain is financing a subordinated investment in the financial sector of its economy with a senior lien on all of its economy, and subordinated bailouts could both create more flexibility and give Europe upside in any recovery – but in other ways, this is the way the world works. As Zero Hedge put it, “the FROB loan is effectively a priming DIP”: when you really need the money, and you can’t afford to pay for it in rate, you pay for it in seniority.
This leads, theoretically, to sadness if you are a Spanish government creditor, because now you are subordinated. On the other hand, it leads, theoretically, to happiness because Spain is now funded through means other than a bond market that may shut at any moment, so it should be able to keep afloat and service its debt, including your debt, which is what you really want. Your expected recovery on default has gone down, but so has your probability of default, so there are offsetting effects. Which effect is bigger? That does not seem susceptible to an a priori answer but as of late this morning lower recovery seems to be winning: Read more »
Tags: Bailouts, bankruptcy, Greece
If you’re into Greece you’ve probably already read all about it and if you’re not I can’t make you. But in brief: Greece is fixed and we will NEVER HEAR ABOUT ANY PROBLEMS EVER AGAIN. In less brief:
(1) Some folks stayed up all night and produced a statement.
(2) Greece’s private creditors will be offered the long-anticipated opportunity to voluntarily exchange their old bonds for new bonds, which will for the most part be the same as the old bonds except for minor differences including but not limited to a greatly extended maturity (to 2042), a 53.5% reduced face amount, and a 3.6% blended interest rate.
(3) If they don’t voluntarily exchange, which they will because – hilariously – they’ve already taken accounting writedowns (and also because I guess it’s better than a disorderly default), private holders will get CAC’ed, which may or may not be as bad as it sounds, but in any case at least CDS will pay out, unless it doesn’t.
(4) Also the public sector will do various helpful, confusing things.
(5) In exchange for this, Greece will enact horrible austerity, and because no one believes that Greece will actually do that, there will be escrow accounts and what Reuters ominously calls “permanent surveillance by an increased European presence on the ground.”
(6) Everyone is pretty sure we’ll be doing this again in six months and, look, just fair warning, I will not be writing about it then, because feh.
We haven’t had a serious international bankruptcy, which this pretty much is, since I started paying attention to the financial markets, two months ago, so I mostly think about insolvency from a US bankruptcy law perspective. One thing that happens in bankruptcy is that, like, really really roughly speaking, the creditors stop being creditors and become the owners. This isn’t always the case but the basic playbook of US bankruptcy law is: Read more »
Tags: Bailouts, Dennis Kucinich, mysteries solved, olives, sandwiches
As some of you may remember, back in fall 2008, Congressman Dennis Kucinich was not at all happy about the idea of bailing out Wall Street. “Let Wall Street bailout Wall Street,” he screeched. “The bailout bill is the dumbest thing I’ve ever seen,” he said. “Is this the United States Congress or the Board of Directors Of Goldman Sachs?” he asked, losing his shit. He was taking this thing very, very hard and some wondered if perhaps he was having some personal problems. In fact, he was.
You see, just a month after Bear Stearns went down for the dirt nap, and a few prior to Lehman biting the big one, Dennis had an unfortunate run-in with some olives. Olives that he thought were pitted, considering the sandwich on which he purchased them was represented as such. Such, however, was not the case. Those fuckers had pits in them and resulted in an unknowing Kucinich suffering serious emotional and physical distress. We know this because now, three years later, he’s suing the cafeteria that sold him the sando, for $150,000. Read more »
Tags: "many people", Bailouts, Citigroup, they wanted to go Lieutenant Dan-style, Vikram Pandit
Proving yet again that in this country, we don’t let banks fail even if they want to. Read more »
Tags: Bailouts, bonuses, explanations, greed greed and more fuckin' greed, IMF, Ireland, wankin' fuckin' bankers
Reuters reports that Ireland’s parliament has approved the 85 billion euro bailout, by a vote of 81 to 75. In related news, one Canadian posing as a Irish citizen recently offered his two cents on the situation, noting that there are four causes of Ireland’s current predicament. They are: 1) ‘greed, greed and more greed’ 2) ‘the stupid fucking government’ 3) ‘very deceitful and conniving developers’ 4) ‘wanking fucking bankers…assholes.’ Read more »
Tags: Bailouts, Bill Gross, PIMCO
Making it one of the largest borrowers of the Fed’s Term Asset-Backed-Securities Loan Facility. This calls for a mid-afternoon conga line.