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Anniversary of the Lehman collapse! WRONG ANNIVERSARY!

SEATTLE GRAFFITTI

a blueprint of crisis

INTRODUCTION

This seems to be a moment of reflection, 9/11 will 'until the end' do that for me, at this time of year. But I don't believe that the anniversary of the Lehman collapse is the right anniversary to ruminate on the catastrophe in financial markets. Right time of year maybe, just wrong year! For anyone who has had 'line of sight' on credit markets and the other related markets for as many years as I have, the game was up in September 2007! The anniversary is the boxing gloves between Bear Stearns, Merrill Lynch and Paribas in August 2007. From then on it was a one-way trip, the scariest moment being the concerted action of the central banks on 12th December 2007 and again on Christmas Eve. Mostly the news media was reporting nothing at that time, it was only screen-staring nerds like me who could see what was going on. The Lehman event is only the public 'tip of the iceberg'. It had all gone horribly wrong a year earlier. 

As part of some advisory work at the time I prepared a diary of the cataclysmic events of the period of late summer / fall through to year end of 2007; the events in the global credit markets and markets for bank-equity I mean. This diary is almost daily, it illustrates just how precipitously quickly contagion flows through the banking system globally from credit markets concerned about assets to inter-bank liquidity and ultimate reckoning. 

I am re-posting this here in the hope it may be useful.

Round Tripping or How the Banks are currently reporting profits and paying bonuses

round trippingThe banks are making profits. They are not lending to you and me - so how are they doing it? They are making enough of the stuff now to be able to stand against the moral opprobrium of not only the whole of the UK population but arguably all of the ordinary people of Western Europe and the United States in demanding the right to pay huge bonuses based upon these profits.

Yield curve spot rate, spread between the 10-year and 3-month maturity

ECB 10 year 3mth spreadDataset name Financial market data - yield curve
Frequency Business
Reference area Euro area (changing composition)
Currency Euro
Financial market provider ECB
Financial market instrument Government bond, nominal, all triple A issuer companies
Financial market provider identifier Svensson model, continuous compounding, yield error minimisation
Financial market data type Yield curve spot rate, spread between the 10-year and 3-month maturity

Euro Yield Curve Government bond, nominal, all triple A issuer companies Svensson model, continuous compounding, yield error min

Euro Yield Curve Government bond, nominal, all triple A issuer companies Svensson model, continuous compounding, yield error min

Byzantine Generals

Liquidity Risk The Interbank Market and Game Theory

Interbank markets may fail to allocate liquidity efficiently due to: asymmetric information about the quality of banks’ assets, banks’ free-riding on each other’s liquidity or on central bank liquidity; or as a consequence of predatory behaviour forcing ineffiient liquidation of bank assets. These are the (reasonably) well understood features of the "Game Theory" of the global interbank market.

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