Death Star Economics



Great expectations, or the state and finance

Overall, this week is about Wednesday [and Thursday]. On September 12, we’ll see the two-day FOMC meeting begin (see below), the German constitutional court ruling on the ESMDutch national elections [round 1] and Apple’s presentation of the new iPhone. Considering the current situation of the world at large, at least one of these is going to result in catastrophe. But for now, we remain stuck in act 4, falling action, the boredom before the storm.

MarketBeat kicks us off with expectations:

Economists at Goldman Sachs predict the probability is “now above 50%” that the Fed will unveil a third round of quantitative easing, or QE3, on Thursday, when the Fed’s two-day policy meeting comes to an end. Barclays expects an extension of the Fed’s low-rate policy into 2015 and a reactivation of open-ended asset purchases, which would include the buying of both U.S. Treasuries and mortgage-backed securities.

More QE “remains a close call even if the chances of it happening have increase,” wrote Barclays analyst Guillermo Felices. “If it does, we think it would weaken the U.S. dollar and support risk appetite.”

The big bailout news of the day are coming out of the US, where the taxpayer en generale, represented by the US Treasury, is reducing its stake in AIG. The American International Group had received $182bn in bailout funds back in 2008. Now $20.7bn of the share is going up for sale (According to WSJ it’s only $18bn.). The Treasury’s, pardon me, the taxpayer’s stake will be reduced to less than 20% upon completion of the divestment. read article

Some $23bn of their overall investment remains unpaid. Combined with the share offering and the valuation of the remaining stake, the US Treasury probably will eventually book a profit on its rescue of what was once the world’s largest insurer.

Volcker (US) and Vickers (UK) are getting a new friend: Erkki Liikanen. With some more effort we could have made that an alliteration, but hey. Liikanen is the governor of the Bank of Finland and the man behind the Liikannen report (Report of the European Commission’s High-level Expert Group on Bank Structural Reform BLAH), which is to be published in a month’s time. The man behind the man behind, however, is Michel Barnier, the secret puppeteer of Europe who stands behind every new and potentially ineffective piece of financial regulation that is created in Brussels. According to rumors overheard by the FT, the report will combine the UK and US approach, meaning banks will be forces to ringfence the shit out of everything and stop trading with their own money.

If we’re lucky, this will inspire an intelligent and necessary conversation about effective policy. More likely, however, is the introduction of an overly complex framework, to reach implementation five years from now, which will mostly do one thing: create a lot of opportunity for lawyers. I guess that is one way of stimulating the economy.

So long.


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5 Responses

  1. princess1960 says:

    thank you..all this information are important ..
    EU +GERMANY is in the end of road ..i think will be very difficult for the situation we are they to find some direction..we see GR is really in limit ..SP too .but not only this truble will take all the others countryes EUZ like snouball ..and than what go to happening ?i know this is the time for fact much bla bla and not reall decision ..GSOROS is absolutly right ..
    FED if this crisis is not monetary WHAT IS?
    AGI bank who have stable follow ? CITY GROUP is all the problem who follow others bank (i think)
    -ERKKI Liikanen he is right too.
    i hop with very high intelectual academic mind something will change..OR have other way who is not so happy for all of us..
    in this time TRUST is very important ..noone can take a risck
    because everything looks like building paper..
    thank you

  2. […] the Liikanen report has arrived in Brussels, where it is entirely supported by Michel Head-Overregulator Barnier. The […]

  3. […] This is angering all the anti-Keynesians who are chanting “we told you so”. Yet, the US Treasury managed to recover its bailout payments to AIG and actually sell the stake at a profit, maybe not all is lost. American public funds are going […]

  4. […] firms that received bailouts are doing even better: The US Treasury is about to sell its last chunk if AIG shares. Although the price for the offering wasn’t disclosed, it could amount to more […]

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