Short-Term Loan Tsunami Could Break Global Banking "System"

July 20, 2010 - PRLog -- Put bluntly, the more money bankers have, the less there is for everyone else –

which is tragic not only in terms of the human suffering and misery caused by the lack of an even minimal standard of living,

but also because it creates stagnation and fear among the very people whom society needs most to empower,

since it is they who will move things forward for everyone else.

If we don’t insist on this kind of transparency and basic justice,

we run the very real risk of creating economic systems – at both national and global levels –

that rewards the most cunning and devious, rather than the most ingenious and inventive.

And that is not only a tragedy in itself,

it also leads to precisely the kind of insane situation in which the world is going to find itself in the next two years,

as so-called leaders / bankers / regulators et al try to deal with the tsunami of

“short-term” banking obligations that are about to come crashing over our heads between now and 2012.

The European Central Bank, the Bank of England and the International Monetary Fund

have all recently warned of a looming crunch.

Their concern is that banks hungry for refinancing will compete with governments —

which also must roll over huge sums —

for the bond market’s favor.

As a result, credit for business and consumers could become more costly and scarce,

with unpleasant consequences for economic growth.

“There is a cliff we are racing toward — it’s huge,”

said Richard Barwell, an economist at Royal Bank of Scotland and formerly a senior economist at the Bank of England, Britain’s central bank.

“No one seems to be talking about it that much.”

But, he added, “it’s of first-order importance for lending and output.”

Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012,

according to estimates by the Bank for International Settlements.

About $2.6 trillion of the liabilities are in Europe.

U.S. banks must refinance about $1.3 trillion through 2012.

While that sum is nothing to scoff at, analysts seem most concerned about Europe

because the banking system there is already weighed down by the sovereign debt crisis.

How banks will come up with the money is an open question.

With investors worried about government over-indebtedness in Greece, Spain, Ireland and other parts of Europe,

many banks have been reluctant or unable to sell bonds,

which they typically use to raise money that they lend on to businesses and households.

The financing crunch has its origins in a worldwide trend for banks to borrow money for shorter periods.

The practice of short-term borrowing and long-term lending

contributed to the near-collapse of the world financial system

in Black September 2008, when short-term financing dried up.

Banks suddenly found themselves starved for cash,

and some would have collapsed without central bank support.

Government bank guarantees extended in response to the crisis

also inadvertently encouraged short-term lending.

The guarantees were typically only for several years,

and banks issued bonds to match.

Other banks took advantage of the gap between short-term and long-term rates,

borrowing cheaply from money markets or central banks and

lending to their customers at higher, long-term rates.

A study in November by Moody’s Investors Service found that

new bond issues by banks during the past five years matured in an average of 4.7 years —

the shortest average in 30 years ...

To read more at http://www.economywatch.com’, go to: http://www.economywatch.com/economy-business-and-finance-...

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