Financial crisis: central banks do not take this kind of action unless something is up

Friday, September 16, 2011
By Paul Martin

Well, bang goes the theory that third anniversaries are generally quiet affairs. You know — nice meal out but no need for a big do. Not if you’re a central banker, apparently.

By Alistair Osborne
15 Sep 2011

Three years to the day since Lehman Brothers went under, taking the global economy with it, the Bank of England and its counterparts in America, Europe, Japan and Switzerland went and put on a proper show.
Their promise to lend truckloads of dollars to any bank finding itself a bit short of the greenback may have calmed the febrile markets – for one day at least. But that sort of pre-emptive action can’t help but give you the jitters.
Central banks don’t do that sort of thing unless something is up; and something is most certainly up. In the eurozone, an unfolding Greek tragedy is careering towards its final, brutal act. And, in our joined-up, global economy that spells trouble everywhere, with the odds shortening by the day on a return to recession.
So, are the central banks signalling Credit Crunch Mk 2 and a rerun of all those hilarious jokes (What’s the difference between an investment banker and a large pizza? A pizza can feed a family of four)? Well, yes and no. They could be signalling something worse.
Just like three years ago, the central banks are addressing liquidity problems. This time, how to fill a dollar funding gap in Europe’s banks. Many are struggling to borrow the dollars they need for the international business transactions generally conducted in the US currency. The reason? US funds are so freaked out at the goings-on in the eurozone that they’re refusing to lend to European banks on fears they won’t get their money back.

The Rest…HERE

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