tag:blogger.com,1999:blog-9101138902612942654.post7784533919897876822..comments2023-12-16T10:54:29.282+00:00Comments on Jagjit Chadha's Macro View Point: “Countries Don’t Go Out of Business...”Jagjit S. Chadhahttp://www.blogger.com/profile/13367902255368088660noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-9101138902612942654.post-69367562275586724862008-10-08T22:30:00.000+01:002008-10-08T22:30:00.000+01:00We should make a distinction to answer to your que...We should make a distinction to answer to your question. The crisis affected mostly mortgage backed security issuers such as Northern Rock and HBOS. The financial institutions-mostly deposit banks- which are not issue mbs are not heavily affected by the crisis.<BR/>Money injections and comprehensive deposit guarantees are not working as we are watching the situation. These policies are not providing confidence to market participants.<BR/>If somebody wants to do something, they should find a way to deal with the illiquid mortgage backed securities. <BR/>The system is trying to increase its liabilities but what about buyers? Who will buy these shares when the downward trend of the market continues? In my opinion, this solution does not properly address the main problem.NightBluehttps://www.blogger.com/profile/02390467361684632008noreply@blogger.comtag:blogger.com,1999:blog-9101138902612942654.post-38262889328258053942008-10-08T20:42:00.000+01:002008-10-08T20:42:00.000+01:00This comment has been removed by the author.Matthew Wilkinsonhttps://www.blogger.com/profile/08835829938113138008noreply@blogger.comtag:blogger.com,1999:blog-9101138902612942654.post-83785273758788324952008-10-08T20:33:00.000+01:002008-10-08T20:33:00.000+01:00It is sobering to read about Iceland's troubles, h...It is sobering to read about Iceland's troubles, here is the Prime Ministers address to his people ( http://eng.forsaetisraduneyti.is/news-and-articles/nr/3035 ). What upset me greatly to read was that Icelands banks had very little involvement with American sub-prime mortgages. It is actually a problem, as you quite rightly point out Jagjit, that Icelands GNP is considerably less than the liabilties of their banks. It is more of a problem of the globalisation and access to foreign money markets. Maybe there needs to be tougher regulation on banks like these for capitalisation? <BR/><BR/>" I will present immediately a bill to parliament which will allow the exchequer to address the current situation on the financial markets. I have spoken to the opposition parties and received assurance that the bill will be passed today. I would like to thank them for their cooperation.<BR/><BR/>By making these changes in legislation we will adapt the banking system to Icelandic circumstances and rebuild the trust of foreign operators in Icelandic banking and financial operations. If the bill is passed today it can be assumed that the measures will come immediately into force." (from the Prime Ministers address).<BR/><BR/>We can only hope that the fear and panic about the banking system in Iceland doesn't result in chaos.<BR/><BR/>From (http://fastcase.blogspot.com/2008/10/iceland-may-go-bankrupt.html) <BR/><BR/>"Their currency, the krona, has dropped 45% against the euro and according to their prime minister; Geir Haarde, the country may be on the verge of a "national bankruptcy." "<BR/><BR/>Now, as your graph points out, the UK is the 4th one down, with the Swiss coming after Iceland. That is shocking! Considering the Swiss GDP $255.5 billion (2006 est.) (purchasing power parity), and the UK GDP: $1.93 trillion (2006 est.) (purchasing power parity). <BR/><BR/>Having read:<BR/><BR/>http://news.bbc.co.uk/1/hi/business/7658277.stm<BR/><BR/>You can really appreciate the gravity of the sums of money being pumped into UK banks, and for good reasons as you show!Matthew Wilkinsonhttps://www.blogger.com/profile/08835829938113138008noreply@blogger.comtag:blogger.com,1999:blog-9101138902612942654.post-76735832532064506662008-10-08T12:03:00.000+01:002008-10-08T12:03:00.000+01:00On the other hand, we may analyse the responses to...On the other hand, we may analyse the responses to the crisis in the light of these informations provided by you.<BR/><BR/>When the crisis was trigerred last august, to decrease the interest rate was the first long term solution of the FED to the crisis the first response of the FED to the crisis was to decrease the interest rates (the injection of $300 billion into the financial markets in the first days of the crisis is not considered here as a solution because it was sudden and temporary response to the crisis).<BR/><BR/>Later on, ongoing situation in the markets depicted that the crisis did not cease, on the contrary, it deepened. Then the second level of intervention in the turmoil was released. This time, the FED began to fund the market in an aim to improve liquidity. As it can bee seen from the latest financial developments, providing liquidity could not offset the deterioration in the off-balance items of the system. Inherently, a few questions arise among these circumstances; if it is only liquidity crisis, why money injection does not work?<BR/><BR/>One possible answer is there is such a big pool that the sum of money provided to markets is so small comparing to the size of this pool or assets. The answer directly addresses to your findings. Assets of the system are such a big that the monetary size of interventions remains insignificant.<BR/><BR/>The other possible answer addresses the latest $700 billion bailout plan. The policymakers of the US – FED and Treausry- have finally realized that the monetary policy is not going to stop the crisis. The FED used the most effective tools to recover markets but the tools did not work. The system can not convert toxic assets into liquid assets. Before the crisis, these securities were traded among the system as means of payment. But after the meltdown in the housing sector, these securities have lost their value. Thus, the deterioration in the value makes these assests illiquid since nobody wants to buy them.<BR/><BR/>On the other hand, most depository banks are not heavily affected by the crisis. These banks should have some liquid assets. Some of these banks have already takeover some mortage lender institutions but generally, the institutions who have money prefer the strategy `wait and see`. Consequently, the`wait and see` strategy makes the markets illiquid and creates a crisis of confidence. In the case of this crisis the effect of lack of confidence outweighs the effect of lack of liquidity though money pumping does not work efficiently.<BR/><BR/>Ultimately, the fiscal intervention is inevitable to exceed the crisis of confidence. If the treasury cleans these assets, the confidence can return to the market sentiment. <BR/><BR/>The third round of the crisis begins. All the toxic assets of the system will be takeover by the treasury. I wonder the results.NightBluehttps://www.blogger.com/profile/02390467361684632008noreply@blogger.com