The Conservative Cave
Current Events => Economics => Topic started by: BlueStateSaint on June 01, 2012, 04:18:30 AM
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Oh boy!
Time Bomb? Banks Pressured to Buy Government Debt
Published: Thursday, 31 May 2012 | 2:42 PM ET
By: Jeff Cox
CNBC.com Senior Writer
US and European regulators are essentially forcing banks to buy up their own government's debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says.
Regulators are allowing banks to escape counting their country's debt against capital requirements and loosening other rules to create a steady market for government bonds, the study says.
While that helps governments issue more and more debt, the strategy could ultimately explode if the governments are unable to make the bond payments, leaving the banks with billions of toxic debt, says Citigroup strategist Hans Lorenzen.
"Captive bank demand can buy time and can help keep domestic yields low," Lorenzen wrote in an analysis for clients. "However, the distortions that build up over time can sow the seeds of an even bigger crisis, if the time bought isn't used very prudently."
"Specifically," Lorenzen adds, "having banks loaded up with domestic sovereign debt will only increase the domestic fallout if the sovereign ultimately reneges on its obligations."
The rest is here: http://www.cnbc.com/id/47633576
Damned if you do, damned if you don't . . . :o We're going full throttle into the iceberg field.
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The government is going down and taking the banks and your money with them.