we provide liquidity for the markets. pffft
Banks are supposed to provide loans.
That's capital for the running of the productive economy.
Not Facebook. Manufacturing.
I'm not talking about stock brokers.
They're supposed to buy and sell shares
and government debt.
That provides some liquidity for the markets.
Now that banks and brokers have merged, neither of them
is doing their job.
They're investing in pseudo-financial products like CDSs
and derivatives, which are more like gambling because there's
no money on the side to cover losses.
So, if an idiot like me can understand this, you're
at the Rockefeller-and-the-shoe-shine-boy
moment. This time, there are no more fools to go around.
In fact, if pension funds and cities are doing anything
on the markets now, they're suing JPM and others
for robbing them.
Let's see if the US government allows this to go forward.
The danger is that , if the law begins to be applied,
the banks which are holding up this charade of a
world economy may go broke, meaning a
CRISIS OF LIQUIDITY
Indeed, banks do not provide liquidity for the markets.
Governments provide liquidity for the banks, by giving
them free money, for those banks to, in turn, lend it
back to governments, giving them liquidity.
That's the only thing that banks and governments have learned
from the crisis of 2008. Keep open any and all possible
blockages to liquidity, or else we're all f$%^&kked.
IshitUnot: zerohedge
Liquidity Isn't Capital
Submitted by Tyler Durden on 04/16/2012 10:51 -0400
At the start of April, ECB's Draghi noted, "let's keep in mind that it [the LTRO] is not capital", adding that "if a bank does not have capital, it would be better to raise it now". Given the rapidly fading glow of LTRO's liquidity flush, the seemingly 'wasted' ammunition that Spanish and Italian banks have fired at the sovereign bond bears and the complete and utter lack of capital raising that has occurred, perhaps it is no wonder that credit spreads on the major European financials have exploded back to near their wides once again (LTRO-encumbrance aside). As Barclays notes today, the major financials alone look set to need over EUR120 billion in capital to bring their credit risks down to acceptable levels to be able to openly access capital markets once again. This means a median 30% of current equity market capitalization has to be raised. Just as we pointed out again and again, not only is the LTRO an encumbrance of bank balance sheets (and therefore increasingly subordinates all existing bond-holders implicitly reducing recoveries in a worst case scenario) but it delayed much-needed decision-making by giving the banks an 'out' for a few months.
The sad reality now is that liquidity is simply not capital and given the decompression in senior credit spreads, subordinated credit spreads, and the surge in LTRO stigma (as well as huge compression in equity prices), it seems the investing public is also seeing this. Either banks shrink their balance sheets dramatically (with the ensuing credit contraction driving Europe into a much deeper recession) or they raise capital, hugely diluting existing shareholders (since we can only imagine who would be willing to fund these black holes at anything like current market prices). To rub a little further salt into that wound, tomorrow will bring ECB margin calls and given the collapse in Italian and more so Spanish bond prices, there has to be some anxious margin clerks making calls right now given the ridiculously fine haircuts that were imposed on these bonds.
