Paragraphs to ponder

by on December 14, 2011 at 9:48 pm in Economics, Law | Permalink

Signs of financial repression in the eurozone are already widespread. Greece this week sold six-month bills at auction at a yield of 4.95 per cent, more than 1.5 percentage points lower than Italy recently sold similar bills. But in the secondary markets, the only yields that Bloomberg quotes for Greek short-dated paper are 330 per cent for one-year bills.

Here is much more, excellent analysis throughout.

1 Steve Sailer December 15, 2011 at 12:45 am

For those of us without a Financial Times subscription, what is “financial repression?”

2 Yancey Ward December 15, 2011 at 12:49 am

Forcing one to lend at a loss.

3 John Thacker December 15, 2011 at 1:39 am

Forcing one to lend to the government at a loss. I don’t think I’ve heard the term used for things like combination of usury laws plus fair housing regulations (without getting into any argument about the relative size of those.)

4 John Thacker December 15, 2011 at 1:38 am

Forcing one to finance government debt rather than what would happen in a deregulated market. Can be direct (through things like reserve requirements that specifically mandate government debt) or more indirect (capital controls that prevent money from leaving the country, inevitably resulting in more government debt.)

5 Andrew' December 15, 2011 at 7:38 am

Something to do with the Eurogenous zone.

6 jk December 15, 2011 at 8:34 am

I’ve found that if I wanted to read a FT article, I just copy the title of the article and google it and then it links to the full article. If the FT people are reading this, I am just kidding.

7 Alex Godofsky December 15, 2011 at 1:29 am

330 per cent

For those of us without a Financial Times subscription, is that a typo? Please say it’s a typo.

8 Meets December 15, 2011 at 3:07 am

It’s not a typo.

9 Very Serious Sam December 15, 2011 at 5:55 am

No it isn’t. See all the rates here:

10 Silas Barta December 15, 2011 at 2:07 pm

So, wait, according to the link, Greece can borrow for 10 years at 35%, but must pay 330% to borrow for just one year?

A lot of people are REALLY bad at arbitrage.

11 Marked to Market December 15, 2011 at 9:54 am

It’s not a typo, but I’m not sure I agree with it. I see bids at yields lower than that for 1 year zeros in the market. Admittedly that may have changed.

12 john haskell December 15, 2011 at 4:58 am

The midpoint on the bid/ask for the March 2012 bond is 45. So you would more than double your money over the next three months if you get paid in full. That BTW is a lot better than 330% for a year.

13 [Insert here] delenda est December 15, 2011 at 5:49 am

Do those banks have shareholders or are they already irrelevant as the banks have nil real NTA?

14 Jeff Boyd December 15, 2011 at 9:08 am

Could the new Greek debt yielding under 5% be that it is superior in some fashion to the other debt that is yielding 330%? In other words, if the higher yielding debt is subject to the proposed haircut but newer debt is not? I don’t know that this is the case but one thing I do know is that the folks going around saying that the banks are going to be used to finance the debt are being disingenuous unless they (1) talk about who is buying the debt, it might be Japanese banks for all we know and (2) the capital constraints that the banks face; in other words if they have already been told they are short of capital exactly how can they buy more government debt unless it is favored from a regulatory perspective and the European Banking Authority simply isn’t doing this right now.

15 5_minute_macro December 15, 2011 at 10:30 am

Bills are to be excluded from the private sector haircut. The rationale for this, I believe, is that Greek banks need them for liquid asset requirements.

16 Crenellations December 15, 2011 at 12:39 pm

This is very medieval. Banker pogroms are right around the corner.

17 The PolyCapitalist December 15, 2011 at 1:37 pm

One small correction to the article, which states: “financial repression” – the term coined by Carmen Reinhart’

McKinnon and Shaw originally coined the term, not Carmen. More on financial repression here:

and a piece I previously wrote about this topic here:

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