Last week the ECB convened an emergency meeting in order to discuss the widening yield gap between the weaker and stronger members of the Eurozone. There is nothing new about this. By all accounts they kicked the subject about and then did very little. In particular however they were looking at the increasing differential between German and Italian yields. The problem is that bond holders are once more getting jittery about Italy’s ability to repay its debts. The same goes for Greece, Spain, Portugal, Cyprus etc. for the life of me I cannot understand why they are worried now. None of these countries are ever going to repay their debts. The best you can hope for is for it all to be rolled over at somewhat increased rates in perpetuity. Or you could try and sell the worthless paper to the ECB before the yields make the economies concerned completely unviable overwhelming their ability to pay. Until all this debt can be mutualized this will keep coming back. Mind you don’t think the Germans will like where mutualization would lead them. They have long memories where inflation is concerned.
The compulsory requirement is intended as a response to the news that some bank employees were using encrypted software to have a chat. JP Morgan was fined $ 200 million by regulators last year for failing to keep records of their employees conversations on private mobile devices. I find it astonishing that regulators can insist on this type of thing. Don’t employees have a right to privacy of any kind. Moves like this are the kind of thing that I would expect Putin to use. If regulators are indeed this paranoid then I suggest that they subject themselves to a mental health check up. As for the employers. They should be ashamed of themselves and should have pushed back on draconian interventions like this. Regulators are not the Stasi? Or perhaps they are. I am glad to be clear of people like this.
Further to the ECB’s travails mentioned above today’s Telegraph points out the rating agency S&P is warning that higher rates may lead to the Italy entering a downward debt spiral. At the same time both Equities and Fixed Income are falling like stones perhaps putting an end to the 60/40 so called risk averse strategy favoured by so many investment houses. For lenders higher rates will be a nightmare as creditors have to make a judgement on pulling the rug from borrowers that are overwhelmed by higher rates. The tide is going out rapidly and we are about to see who has been skinny dipping. Innovative strategies are going to come to the forefront shorting overvaliued equities might become more commonplace. Does the market have the expertise to deal with this in the least painful manner? We’ll soon see.
Howard Tolman is a well-known banker, technologist and entrepreneur in London, We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information. For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.