Why Europe needs the City's financial weapons of mass
destruction ... There is very little chance of a market-led recovery
taking hold in Europe without a revival in securitised lending to
give it legs. America's sub-prime lending boom led to the banking
crisis, yet securitisation is poised to make a comeback ... They were
the "financial weapons of mass destruction" which blew up
the world economy, yet perhaps surprisingly, they are poised to make
a comeback – and what's more, it is with the active encouragement
of Europe's new generation of central bank governors. – UK
Telegraph
Dominant Social Theme: Wall Street does God's
work after all.
Free-Market Analysis: So Europe's central bankers
have decided that the only way to revitalize the European economy –
especially Southern Europe – is via securitization of assets.
This we learn from Jeremy Warner, assistant editor of
The
Daily Telegraph, and author of the article excerpted above. Is
it possible that Mr. Warner did not think up this thesis all by
himself?
Is it possible that it was, ahem ... suggested to him?
As we have reported regularly, those charged with maintaining
economic order are bound and determined to continue to support –
and expand – the current stock market boom.
And so ... enter securitization. Of course, this financial
strategy is widely held to have aggravated the 2008 financial crisis.
But no matter. Five years is long enough. There is a market to
stimulate and securitization provides the wherewithal.
Perhaps this is the reason we are now treated to a securitization
"white paper" by Europe's
central
banking crowd. (See below.) And an article, as well.
Perhaps the groundwork is being laid.
Directed
history is about to welcome asset securitization back
into the fold of reputable financial strategies.
You see, the problem is (according to the bankers) that credit
from banks is not being extended. To some degree, reportedly,
perpetually dampened interest rates are crowding out securitization.
This issue of low rates is obviously a big deal to central
bankers. We wrote about it recently here:
IMF
Misleads on Interest Rates – And So Does the Media
The idea would be that securitization can take the place of low
interest rates. The ECB wants banks to increase lending while
reducing leverage. If banks can bundle their loans via
securitization, they can move those loans off the books.
Once the loans are off the books, the bank will have additional
capital available for lending. Or so the thinking goes.
Here's more:
Could we so soon have forgotten the
damage that these fiendishly complex instruments inflicted on the
world? How could we be even thinking about inviting them back into
the fold?
Well we are, and the reasons for it
are sounder than you might think. Indeed, I would go further, and say
that there is in fact very little chance of a broadly based,
market-led recovery taking hold in Europe without a revival in
securitised lending to give it legs.
... In the run-up to the crisis [of
2008], securitisation was one of the main mechanisms by which banks
expanded their balance sheets and facilitated abundant credit. New
lending, whether for mortgages, credit cards, car loans, commercial
property or even straight SME finance, would be routinely packaged up
and sold off to investors, thereby freeing up capital for yet more
lending.
... The reality was that the risks
were becoming progressively concentrated, through securities trading
operations, on bank balance sheets, or in vehicles connected to
banks, so that when the sub-prime crisis hit, and many "asset-backed
securities" were found to be worthless, they undermined
confidence in the entire banking system.
Why on earth would you want to
bring back such collective madness? Some of the answers to this
question are provided in a newly published joint paper by the Bank of
England and the European Central Bank, a front runner to a more
detailed consultation due to be issued next month on how to remove
some of the blockages to a resurgent securitisation market.
Amusingly, the paper regurgitates
many of the arguments in favour of securitisation that ahead of the
crisis had lulled banking regulators into thinking it not just safe
but, positively beneficial. The following sentence could have come
straight from the mouth of Alan Greenspan circa 2006; a revival in
asset-backed securities (ABS) issuance "could translate into a
diversified funding source for banks and potentially transfer credit
risk to non-bank financial institutions, thereby providing capital
relief that could be used to generate new lending to the real
economy".
But my intention is not to mock;
rather, it is to praise. There is nothing wrong with securitisation
per se, provided it is kept simple and transparent, and the wretched
credit rating agencies are kept well away from the game, so that
investors themselves can make up their minds about the risk, rather
than abdicating responsibility to corrupted outside analysts.
The article concludes by pointing out that Europe "desperately
needs new sources of market-based finance" and must re-adopt the
securitization schemes of the City's "Anglo-Saxon alchemists."
The article even presents securitization as a political football.
Central bankers "get it" while Brussels does not. In other
words, Brussels is inclined toward strict regulation of securitized
products while the banking community understands that the free market
of financial instruments – maligned as they are – has a place as
well.
Should we be worried about increased securitization? Not according
to the article: "Properly contained, these 'financial weapons of
mass destruction' are key to unlocking renewed growth and a well
functioning economy."
This is where we depart from the article's analysis. The problem
of modern Western economies is that they are central bank driven. Any
single financial strategy is bound to blow up sooner or later because
central-bank money printing inevitably creates great booms and busts.
During the "boom" period, economies expand dramatically
and it seems that currency available to entrepreneurs and even
average workers is inexhaustible.
During the "bust" period the reverse is true. Suddenly,
companies are going bankrupt, employment is diminishing, stock
markets are swooning and bankers are discovering that their balance
sheets are hollowed out.
Depending on the size of the market distortion, the gradual
realignment of the economy can take months or years.
The current economic crisis has been going on for at least a
half-decade or more because there is a consensus among bankers and
politicians that those firms – financial and industrial – that
need to go bust ... won't.
The "crony
capitalism"
that has led to this state of affairs is responsible for the endless
Great Recession as well. Money circulates only reluctantly because
people don't know where to invest. Large companies and banks may yet
be secretly bankrupt. No one knows.
The modern central-bank run
business
cycle also makes regulation irrelevant because whatever
regulations are passed during a bust – not that they would be
effective anyway in the long term – are unwound toward the top of
the boom.
There are arguments by the "national socialist" wing of
the alternative media claiming that central banks are not responsible
for money creation and that it is the "private sector" via
commercial banking that creates most money via lending.
But this is fairly nonsensical. There were around five central
banks at the end of the 19th century and today, some 100 years later,
there are about 150, including 70 or so that are under the direction
of the BIS. It is central banks that provide the command-and-control
mechanism for monetary creation. Central banks these days set the
parameters for commercial bank loans. Not enough "capital"
(central bank electronic digits) and no loans can occur.
It is central banks that set the pace when it comes to money
creation via absurdly low interest rates that are maintained in order
to stimulate another bubble. And we can gauge the desperation of the
central banking crowd by their determination to bring back "private
market" securitization.
The "free-market" that such securitization is supposed
to stimulate remains both moribund and farcical. And if it were
somehow stimulated by securitization the result would inevitably be
the same boom-and-bust that occurred throughout the latter half of
the 20th century.
Nonetheless, we anticipate these sorts of strategies will be
tried. The globalist crowd is determined to further inflate equity
markets for a variety of reasons, as we have long pointed out. The
Wall Street Party that we have exhaustively analyzed is not a
marketplace evolution but a massive manipulation that includes
fiscal, monetary and regulatory elements.
In pursuit of this "party" internationalist bankers are
now, once again, floating securitization as methodology of credit
expansion.
They are wedded to an excessively expansionist stock market for a
variety of reasons – as we have previously reported. These sorts of
proposals are not random suggestions. If the globalists have anything
to do with it, markets will continue to be pumped incessantly.
