That is the contradiction. I used a play on wordsOriginally Posted by anthonykay
Can you explain the physics of this, Oracle?
Banks are supposed to hold rock solid A grade investments as collateral, against a multiplier on savings and loans.
They also have to be liquid investments to allow them to fund withdrawals on request. It is in essence a contradiction.
Ask the italian banks, whose debt pile is propped up by dodgy italian government junk bonds. The banks have to keep buying more junk, to ensure there is a market in junk, so they can claim the junk bonds are saleable, and to push up the price so the collateral is maintained. It does not take the brain of britain to see something smells....
People point at banana curves as stupid EU laws: which EU usea distraction from the real stupidity of many laws, including in this caseallowing italian banks to prop up the house of cards on italian bonds. When we leave the EU, the UK banks will need more capital because they are no longer allowed to use this stupidity as a form of collateral!
One of the errors made by regulators was allowing mortgage bonds to be classed as A grade.
It is a house of cards.
