Friday, February 21, 2014


He Who Knows All Things called last night.

"You're very quiet, it's been a quiet week."

"Funny week.  Quiet but a lot going on that I don't write about.  Politics Over Here, Riots in Venezulu, riots in the Ukraine, when the Rat's away in Sochi, the Pussy riots in Moscow, riots in Thailand, floods in Blighty, the continuing slaughter of Syrians  and no rain in California thus forcing The Leader to fly out there to explain global warming and it's supposed consequences which are immediately debunked by the N.Y. Times of all people, whilst spewing God knows how many pollutants from the four GE's hung on Air Force One."

"There, you just wrote half a Blog.  You can do it if you put your mind to it."

"Yeah, but it depresses me.  I've been depressed ever since Agent David left NCSI."

"Ah, yes.  A true cause of depression for aging males in this country but you have a duty to perform.  Your audience awaits."

And so audience, we shall try beginning with the Fed earlier this week announcing all by their lonesome that they will impose upon foreign institutions operating in the U.S. the same capital standards applied to U.S. institutions ending unilaterally an arrangement which had been in place for pretty much 30 years which could be explained as, "I look after mine, you look after yours."

It had worked pretty well, bed-rocked on the principal that only those institutions deemed capable and professional would be allowed to do business Over Here with the primary oversight being done by the home country regulators.  The same M.O. worked for our institutions operating Over There.
But now, the business conducted is to require separate capitalization and not be piggy-backed on home-country capital.  The foreigners screamed like stuck pigs claiming that the new approach will make their institutions non-competitive and they are right but only until their government regulators get around to passing legislation specifically aimed at U.S. institutions to "level the playing field" so to speak.  Politicians all-around will be happy.  But of course, as we have said time and time again, it wasn't the lack of capital that almost ended the world in 2008 but the lack of liquidity (as it always is) and this solves nothing.  Then again, whilst a pain in the bum all-around it doesn't do much harm: problem is it does no good.  When everybody is running for the hills no one stops to look to see if a bank has 5% primary capital or 15%.  The high percentage is still about 85% short.  Adios, Amigos.

What surprised me , however, was the claim that this was done without the afore-knowledge of the other major central banks in the world.  Very odd.  Usually in the past such actions were discussed well before hand and decided in places like Basel.  Ms. Yellen is well-versed in these activities so I asked myself, "Self, why the change?"  And is occurring too many times as of late, Self said, "Beats the hell out of me."  Now in the past what came out of these little tea dances was perhaps not particularly useful or even particularly clever but at least it was cordial.  In my view, it would be a shame if this action signals a change in approach.

And speaking of the Fed, it today released a huge stack on minutes from the Bad Times right after Lehman went down the gurgle tube.  Seems that everybody was asking everybody else what the hell was going on and getting back the same answer that Self gave to me.  I'm sure that there will be criticisms flying all over the place but unless you have been involved in one of these things you have no idea how difficult it is to really get a handle on what's going on.  There may have been a lot of mistakes made in monetary policy going into this thing and regulatory non-performance of many kinds (why bail out Bear and tank Lehman?) but a remarkable job was done in the end…not perfect but remarkable none-the-less.  I just wish that what we should have learned from that debacle was being applied to prevent future events but unfortunately politics trumps all.  If you question this, check out the WSJ yesterday on the subject of worry in the sovereign bond markets.  Yogi's back.  It's deja vu all over again.  Maybe.

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