A Union of transfers and not a transfer union
Pablo Diaz de Rábago
June 20, 2012
Why don’t we push for a direct transfer of the difference between funding rates in euro? It would work as follows: for new issues difference between mean rates and actual rates would be put into a pool or withdrawn from a pool. This commitment would work for a year with possible further extensions.
1.- This is a limited transfer.
2.- It solves the efficacy issue on Euroland’s periphery monetary policy.
3.- It could be withdrawn the moment “things” converge.
4.- IF ECB buys into it, it could be a win-win since ECB could put mean rates where Germany is now.”
Man gave name to all the animals
Pablo Diaz de Rábago
24 de mayo, 2012
“Man gave names to all the animals, in the beginning, long time ago”.
The Euro animal’s name, is fifteen (15) percent of GDP per annum, which is lost because of lack of efficiency in Monetary Policy. The number comes from applying risk premia spreads to total debt (public plus private) in the economies.
It is not a zero sum game. The money is lost. With this money, Italy and Spain would converge immediately. Investment would flow back to two countries devastated because of a design flaw in the currency union.
It can be done only in three ways (i) Simple Eurobonds and a common budget and full democratic union (ii) Sinking Fund with supra 60% over GDP Eurobonds with no common budget and no full democratic union (gosh, it starts being übercomplicated!) or (iii) opening taps at ECB with CLEAR EXPLICIT risk premium targets (say .5% to 1% above BUND) for the full yield curve up to 10-20 yrs. and kick the ball further.
Leaders should meet again in Versailles and not commit the same mistake twice. They already have taken five years to choose and in the meantime the periphery is dying a very painful death.
Basta!
State Serfs of Spain, UNITE!
Pablo Díaz de Rábago
November 25, 2009
If the government were to truly recover its social (I still believe that “socialist” comes from “social” and not from that Marxist’s utopia, and so do voters) it would recognize that the current system
(i) alienates the youth (you only need to look at young unemployment figures) and at best provides young with 6-month “rubbish contracts” (a modern equivalent to serfdom) which immediately disappear when output declines.
(ii) Creates a bourgeois unionized class comprised mainly of workers in the public sector and in monopolies and oligopolies, with no real interest in the State Serfs.
(iii) Works against nature by making Labor regulation rigid and costly, and thus fosters unemployment. (more…)
Free Federal Reserve Credit Cards for all (dilute and win)
Pablo Díaz de Rábago
February 10, 2009
The new US government is on the verge of defining priorities in the use of the remainder of the TARP moneys and has to make a hard choice, i.e. what should deflate and what should not.
In an “Alice in Wonderland” kind of nightmare, we are standing before the apex of the debt super-cycle and our pumping machine has to decide the characters that need to be reflated to life first, since all of them are badly punctured.
The obvious ones are the banks since they seem to be (of have been) the agents for money creation. Inflate the banks and the rest of the world will be reflated, or so the saying goes.
Well, in this world of turmoil, the only thing we know for sure is that banks are not in any position to commit the same mistakes and are not reflating further. Moreover, since the size of the banking industry is one-fifth of the financial assets, they alone will not bring the zombie back to life.
Well, then reflate the companies then. But as we have seen, companies are also in no mood to help since theirs is the most volatile of economies, similar to the flowers of a too exhuberant plant that has suddenly withered with the lack of water. At the most the water will keep companies barely alive through the cycle, which is no small achievement.
Only one other option for reflation is left: the king of aggregate demand, the consumer. One idea would be to mail to every person a Federal Reserve Bank credit card with a large balance of money (either long-term credit or even free money) that would vanish if not used within each and every month. This mechanism, coupled together with a decision of G20 economies to set a say 5-year 5% inflation target to be revised in 2015 to go back to the 2% long term trend would generate a 30% nominal “free” cushion of government debt (diluted with inflation) and help dilute the debt bubble whilst sustaining present economic activity.
Re-rate and Insure
Pablo Díaz de Rábago
November 10, 2008
The US should re-rate Mortgage Backed Securities (MBS) based on real ability to service debts, then insure them with a bottom price (found in reverse auctions) only if sold from depositary to non-depositary institutions.
Key to finding a new price for Mortgage-backed securities is the ability of the system to value the myriad of variables that affect MBS. Since the value rests in a plurality of factors (CDS, tranches, income of debtors, etc…) my approach would be the following:
1.- Have rating agencies review ratings for the “barehouse” MBS (i.e. pre-CDS or other credit enhancement) with a new set of parameters which are set objectively, are based on real ability to service mortgages and not on house prices, and can be processed quickly. This review should be carried out following a Pareto structure systematic.
2.- New “barehouse” ratings should be issued by rating agencies. The ratings should be reviewed periodically every few months.
Once all this ratings are set, I would “reverse-auction” the ratings to come to market prices as fast as possible.
Those market prices should be set as a “guaranteed floor” for the rated instruments. These “guaranteed floors” would be issued only to non-depositary institutions and for a limited period of time (say five years) to be used in the purchase of MBS held by depositary institutions.
Then, TARP would need to be used again to recapitalize the banking industry.
Five steps to solve the financial crisis
Pablo Diaz de Rábago
October 7, 2004
1.- Deposit stability. Via increased State guarantee schemes (will take 1 minute).
2.- Liquidity boost. Via TARP or BCE discount window or mix (will take 1-3 months). Lower interest rates, check weekly Monetary Supply and Credit Growth numbers. Reflate!
3.- Orderly recap. Assign the losses and recapitalize (will take 3 years). Moderate and manage the process (from now on only driven by government rescue and resale) by limiting capital erosion (do not eliminate mark-to-market but laminate effects over asset maturity)
4.- Consolidating champions. Avoid, to the extent possible, regional monopolies and political mingling (will take 1 year).
5.- More aggressive global wage inflation (decoupled from housing meltdown impact) to avoid wage deflation. Use liquidity, tax-withholding, – rates or even regulation.
6.- Do not worry about creating another housing asset bubble. With the panic, crunch and fall in prices, it will not happen for another generation.
Can Europe take steps 2, 3, 4 and 5?
Whilst 3 and 4 will happen in the market (except for political filibustering), 2 is essential to keep the system going and will have to be put in place. 5 will probably come naturally with a return to real economic growth in a couple of years.
Can Europe risk losing non-EMU or marginal economies? Look at the interbank positions and see that the money at risk is global.