Decides to weigh in after seeing depth of Greek, eurobanking problems
After the squadrons of Central Bank Brylcreem Boys vowed to bomb the eurobanking system and ClubMeds with money yesterday, Tim Geithner’s office began leaking that he too would be joining in the daring raids. Designed to pump liquidity into a system currently suffering a cross between catatonia and constipation, the urgency behind Geithner’s decision is, say Washington sources, based on him now having the full picture in relation to eurobanking fragility.
Tim was allegedly tipped over the edge by the somewhat predictable German response to Manuelo Barroso’s surreal (and hopefully final) plea for eurobonds to be created. German Chancellor Angela Merkel again bluntly rejected such bonds as a solution to the crisis on Thursday, saying that “collectivising debts” would not solve the problem. What Geli means is, it won’t solve her problem of being the only one likely to be left guaranteeing the bonds.
However, the media thus far (with the honourable exception of James Kirkup in the Telegraph) seem to be suffering an ongoing wrong end of the telescope problem in their coverage of this. The general view, in fact, appears to be that the money-fest is something we should be celebrating. ‘Mood improves as euro tensions ease’ said the FT. ‘European stocks rise as tensions ease’ says the Journal. I’m glad all these people are having their tensions eased, but here at Sloggers’ Roost it feels rather as if the can is now pretty near the edge of the cliff.
Said my Washington source late last night BST, “About the only thing that’s working well now is that Geithner and Lagarde are close. I guess she gave him the full strength on French banks. Now he’s scared, so he’s going to Poland”.
IMF Boss Christine Lagarde herself was coy about Greek progress yesterday evening. She told reporters the Athens government had ‘partially implemented’ reforms under its EU/IMF bailout programme but ‘must make more progress’ to secure release of the next 8 billion euros in emergency loans. It remains impossible to get a straight answer out of any European politician or bureaucrat about the legal situation now between the Troika and Greece: what didn’t happen last week has become an unsubject to such an extent, it feels truly Orwellian.
As always, The Slog returns to what real people are doing rather than what the frightened rabbits are saying. Here’s what I see as something of a pointer: Goldman Sachs confirmed yesterday it is to shut its Global Alpha fund, after clients pulled money from the quantitative trading pool that was once the firm’s largest hedge fund. In 2007-08 – after going like a storm – the Alpha Fund lost two fifths of its value due to bad bets on currencies, equities and bonds worldwide. Once bitten, twice shy as they say. Goldman (and its clients) clearly know what’s coming.
Meanwhile, suspicions persist about Kweku Adoboli’s real role in a UBS ‘rogue’ trading episode, especially considering the general opinion that the Swiss bank was already faltering badly. These may be overtaken about fears for the institution itself in the coming days. Said an insider yesterday, “This is the very last thing we needed or wanted. Our people have been through enough.” The FT felt that the discovery of fraud ‘could rip through the bank’s fragile customer base, dealing a another heavy blow to a group whose reputation among corporate and private banking clients had only just begun to recover’. But others remain sceptical about whether Adoboli really acted alone:
“I just can’t understand how this could have happened,” said one banker engaged in related investment banking, “It’s just too big a number. It must be a ‘Kerviel’ event where they thought there was a hedge to those transactions”. Many observers are asking how, after so many lessons were thought to have been learned, a bank of the size of UBS could not have assured itself as to the hedge. Others still find it even odder that UBS didn’t discover the mess at all: Adoboli told the bank of the problem himself.