Bankers are blaming tensions in the repo world on the increasing cost of renting out their balance sheets.
As we’ve broken down already, leverage and liquidity requirements make it harder than in the past for banks to borrow cheaply to buy (mostly) riskless and lend those same assets on at higher rates than they have to pay to their own creditors.
Which is another way of saying…new guys in the investment scheme don’t get to accrue the same rate of return from new asset purchases the early guys do unless the assets massively outperform, and hence are much more likely to run if and when these assets are priced below par value or start to outperform. Bitcoiners will, of course, know this as “early adopter syndrome”. For everyone else it amounts to the dynamics which drive debt overhang constraints. Read more
Can you call this a shakedown? Probably not.
The Bank of England has taken another crack at estimating the cost (or value, depending on your point of view) of the implicit subsidies given by the state to various banks.
The full paper, with a much more detailed look at methodology, is here. We will just bring you a little snapshot of Noss and Sowerbutts’ work. Read more
The US ethanol industry will seek a subsidy safety net linked to oil prices after the Senate voted heavily to scrap two of the principal supports for the corn-based biofuel, suggesting the subsidies will finish by the end of the year, the FT says. The Senate voted to repeal the 45 cent per gallon tax credit for blending corn ethanol with conventional fuel and the 54 cent per gallon tariff on imports. Bloomberg reports that the recent vote signals an ill-wind for other energy subsidies, such as wind, solar, biomass and biodiesel. Commodities markets reacted to the news with corn futures for December delivery slid 2 per cent to $6.53 a bushel in Chicago, after touching $6.50, the lowest for the most-active contract since March 17.