HSBC, my bank, has been acting strangely lately. I called them for some simple shuffling of funds from one place to another, and they immediately started suggesting that I move some of my funds into term deposits - that would guarantee I wouldn't be asking for my cash soon. Then, I got a letter in the post saying: "you haven't used your credit card in a long time, and it is costing you £25 a year ... are you sure you don't want to cancel it?"
This worries me. Why does HSBC, usually so keen to lend to me, need to try to make sure that 1. it can count on being able to borrow my meagre balance (that is what the term deposit is, in effect - me lending to them), and 2. that I do not even have the capacity to borrow the £3,000 they extend to me on my un-used credit card?
Is this a bank that knows that liquidity is still really hard to come by? Yes. Chasing balances the size of mine seems to me to be scraping the barrel.
There are two stories in the FT today that reinforce my fears: the big US banks have created a $75bn insurance pool to buy-up dud financial assets. The pool idea was brokered by the US Treasury - it has full state sanction, despite the endless opportunities for anti-trust infringements. One banker is quoted saying that not all the banks have come clean about the size of losses. If the liquidity crisis were over, why would banks need the pool and why would the state sanction its creation?
The second story is Wolgang Munchau's Big Picture piece: the credit bubble was created by the negative real interest rates of the early zeros (which I highlighted also, here) and that this led to a vast-scale of bad investment. Negative real interest rates, Munchau reminds us, create a literally infinite demand for projects that pay a positive return, and the new financial wizzardry was the mechanism that allowed that infinite demand to express itself. If this is the underlying reality, the unravelling of bad positions is going to keep going for a while, because ultimately, that credit thirst, led to bad investments in the real economy. With real investments, unravelling a position is not just a matter of marking an asset price to a market value: it is the messy business of changing how billions of people go about their daily lives.
