tag:blogger.com,1999:blog-7530776363222965313.post3153756864643333213..comments2023-10-07T13:16:34.756+02:00Comments on Simon Thorpe's Ideas on the Economy: EUREKA!Simon Thorpehttp://www.blogger.com/profile/02605233720415886802noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-7530776363222965313.post-75085364453170811572012-01-07T20:30:57.759+01:002012-01-07T20:30:57.759+01:00Your right that the "price stability" th...Your right that the "price stability" thing is unbelievable. When you print 479 billion and add it to the economy, then it produces inflation. It could be house price inflation if the money is used to fuel a housing bubble, or inflation in the cost of raw materials, food stuffs etc. So, the strategy that Draghi has used is directly the oppsite of what he is supposed to be doing as head of the ECB.Simon Thorpehttps://www.blogger.com/profile/02605233720415886802noreply@blogger.comtag:blogger.com,1999:blog-7530776363222965313.post-73875342851493432052012-01-07T19:13:59.764+01:002012-01-07T19:13:59.764+01:00Aside from the cynicism of Mr. Draghi and his refe...Aside from the cynicism of Mr. Draghi and his referral to Treaties; "… to maintain price stability" (I earn almost the same now as 10 years ago when they invented the Euro and everything I have to buy costs me 4 times as much) - laws are under constant revision and we the people demand such laws are rewritten for our benefit not those strangling the world.Simon Thorpehttps://www.blogger.com/profile/02605233720415886802noreply@blogger.comtag:blogger.com,1999:blog-7530776363222965313.post-57343358158259617572012-01-06T13:36:25.419+01:002012-01-06T13:36:25.419+01:00Even if Greece creates its ICAS, it still has to d...Even if Greece creates its ICAS, it still has to do the step A (Transform the physical asset in a financial asset); ECB accepts only financial assets as collateral. This is something which is in the pipeline since some time (for example: http://www.greekpropertyexchange.com/news_detail.php?id=116 or http://www.lesechos.fr/economie-politique/monde/actu/reuters_00412705-grece-les-biens-de-l-etat-pourraient-garantir-la-dette-presse-269327.php). That would reduce the interest rates significantly (they mention 4% in the above article) but with the risk to lose the underlying physical assets if the debts are not paid in time (Greece could not ask anymore any "voluntary" debt reduction of 50% has they are doing now).<br /><br />They are ways to solve the problem but they will take time and involve risks.<br /><br />There Ain't No Such Thing As A Free Lunch: http://www.investopedia.com/terms/t/tanstaafl.asp#axzz1igGsRRaYSimon Thorpehttps://www.blogger.com/profile/02605233720415886802noreply@blogger.comtag:blogger.com,1999:blog-7530776363222965313.post-77061785299670709982012-01-05T19:30:41.279+01:002012-01-05T19:30:41.279+01:00Citoyen Naif
I just had a look at the different r...Citoyen Naif<br /><br />I just had a look at the different rating mechanisms on the site you mention. It includes ratings done by ICAS (In house credit assessment agencies) that are run by at least four central banks - Banco de Espana, Banque de France, Central Bank of Ireland, Deutsches Bundesbank, Osterreichische Nationalbank. If they can't say that Government Buildings are good collateral, then I don't know who can. Sure, the Greeks would need to have their own I guess.Simon Thorpehttps://www.blogger.com/profile/02605233720415886802noreply@blogger.comtag:blogger.com,1999:blog-7530776363222965313.post-17091981680759755742012-01-05T19:17:28.578+01:002012-01-05T19:17:28.578+01:00Sounds like the markets have rigged things in thei...Sounds like the markets have rigged things in their favour. I can certainly believe that. If the ratings agencies have the opportunity, they'll no doubt say that government buildings are bad collateral, and that CDOs are much better. The 99% will have to declare war on this nonsense.<br /><br />If you have a look at some of my other ideas here, you'll see that I would impose an FTT in all countries that use ECB money. This could return the system to sanity in a few years under controlled conditions. The rate would be automatically varied to guarantee that the money is returned at a constant rate. Try this one for example http://simonthorpesideas.blogspot.com/2011/11/solution-to-greek-debt-crisis.htmlSimon Thorpehttps://www.blogger.com/profile/02605233720415886802noreply@blogger.comtag:blogger.com,1999:blog-7530776363222965313.post-46602985661288044582012-01-05T18:00:59.762+01:002012-01-05T18:00:59.762+01:00Dear Simon,
The definition of adequate collateral...Dear Simon,<br /><br />The definition of adequate collateral is very precise (http://www.ecb.int/mopo/assets/risk/ecaf/html/index.en.html) even if probably not very good. It relies mainly on rating agencies; as such the checking was not done in 24 hours but over several years.<br /><br />To use a public building (or any physical asset) as collateral at the ECB requires two steps: A. Transform the physical asset in a financial asset (securitization) ; B. Transfer the legal ownership of the asset to the publicly-owned credit institution (the order of A and B is not important). The transfer of ownership can be done through the payment by the credit institution of the correct price for the assets (at the European level, an official call for tender is probably required). How does the credit institution get the money to buy the assets? Another way is to use the state assets as "capital in kind" for the credit institution; an important cash amount would also be required. In any way, through the securitization the legal property of the physical assets will be transfer to a third party (usually a Special Purpose Vehicle). The state will have to pay a rent for the buildings.<br /><br />All those layers will create a lot of expenses. Probably the total cost (interests, expenses, haircuts, …) will be lower than the 15% or so interests paid today, let's say it goes down to 5%. The payment of the principal is still due in three years, how will it be paid? It is because there is a serious doubt that the principal will be paid that a high interest is required. If the principal is not paid, the state would loose the ownership of its physical assets. Trying to cure the symptoms is not curing the disease.<br /><br />Your proposal is to use the current framework to obtain a result that some people do not want to put in place. The goal of my remarks is to point out that this is not as easy as you make it. To my personal opinion your proposal is infeasible in the current framework, which does not mean at all that I believe that the current framework is good.<br /><br />Regards.Simon Thorpehttps://www.blogger.com/profile/02605233720415886802noreply@blogger.comtag:blogger.com,1999:blog-7530776363222965313.post-49121595005281078212012-01-05T15:25:57.176+01:002012-01-05T15:25:57.176+01:00Hi, thanks for commenting.
The definition of adeq...Hi, thanks for commenting.<br /><br />The definition of adequate collateral seems remarkably poorly defined. Certainly, when the ECB handed out 489 billion on the 21st, it would appear that the decisions were made in 24 hours. I doubt that the seriousness of the checking was very high. <br /><br />Governments could easily say that they offer a public building (eg. the Parthenon) as collateral, or anything else. It's far more valuable that a mountain of duff CDOs or whatever other rubbish the banks have been trading for their cash.<br /><br />I agree that "on ne prête qu'aux riches". But governments are very rich in terms of the assets they have available.<br /><br />Cheers<br /><br />SimonSimon Thorpehttps://www.blogger.com/profile/02605233720415886802noreply@blogger.comtag:blogger.com,1999:blog-7530776363222965313.post-3420297699949853302012-01-05T13:39:32.217+01:002012-01-05T13:39:32.217+01:00Dear Simon,
Your idea seems interesting. A have a...Dear Simon,<br /><br />Your idea seems interesting. A have a simple question on its feasibility. The loans from the ECB are done on a collateralised basis (with ECB specific criterions). How would the publicly-owned credit institution just created buy the required collateral? Would it use the ECB loan to buy it (and be left with no money to lend to Greece, without even mentioning the haircut)? It is not sufficient to be legally allowed to borrow from the ECB, you also need the financial means to do it. <br /><br />On ne prête qu'aux riches!Simon Thorpehttps://www.blogger.com/profile/02605233720415886802noreply@blogger.com