Another credit crunch looms

The threads holding up the balance sheets of the banks are growing perilously thin.

The finance sector is signalling alarm, and our politicians are once again asleep at the wheel. Another "credit crunch" may be looming. The most significant evidence emerged from the ECB's second Long Term Refinancing Operation (LTRO) on Thursday last week.

The LTRO is simply language intended to disguise the "printing of money" by the ECB for lending to private European banks at a very low rate of interest - 1 per cent. (In fact, the money is not even printed: it is created by entering digits into an ECB computer, and then transferring hundreds of billions of euros as 'bank money' to private banks.)

The fact that British banks rushed to drink from this punch bowl, tells you something about the state of their balance sheets.

For reasons that I suspect are largely ideological, the British government and HM Opposition refuse to face the reality that our private banking system and large parts of the corporate and household sectors are effectively bankrupt. Given this context - and the grave threat posed by an insolvent private finance sector - the joint and somewhat myopic focus by all political parties on the public debt is surely irrational.

Many households, firms and banks in the private sector are only kept from liquidation by a) "forbearance" - bankers hanging on in the hope that e.g. defaulting mortgage debtors will eventually repay; and b) injections of 'liquidity' by publicly-backed central banks.

But the threads of forbearance and liquidity holding up the balance sheets of the private banking system are growing perilously thin.

The ECB is by law (the Lisbon Treaty) prevented from making low-cost finance directly available to sovereign governments of the Eurozone. Whereas the Bank of England has effectively financed the government's deficit by buying government bonds at very low rates of interest from private banks, Greece and Portugal cannot rely on the ECB to purchase their bonds at low rates. Instead they have to turn to private bankers/financiers - who charge much higher rates of interest. (Readers are free to speculate as to who may have had a hand in drafting the Lisbon Treaty and the ECB's mandate.)

To avert Armageddon in the global financial system last December, the ECB turned the cheap money spigot on - in the vain hope that private banks would lend on low-cost ECB loans to governments. And that they would do so at a rate of interest a little nearer to the 1 per cent the ECB had charged them.

So much for wishful thinking.

This onlending - borrowing cheap and lending dear - is called 'the carry trade', and extremely profitable it is too. Take Portuguese 10-year bonds: private banks are using their 1 per cenr ECB loans to buy these at 14 per cent - a nice, effortless little earner. The case of Greece is of course, worse: the rate of interest the 'carry trade' extracts from Greece for short-term loans is frankly, criminal. Indeed the ECB's easy, cheap money can be said to be helping bankrupt the very governments it purports to help in its roundabout way.

But I digress. Last week big banks as well as many small banks, rushed to suck on the teat of cheap central bank funding. Our very own Lloyds Bank, already largely government-owned, borrowed €13.6bn from the ECB while Barclays, which claims it never relied on public funds, borrowed €8.2bn; RBS borrowed €18bn. In total 800 European banks rushed for help from the ECB.

This is a worrying development.

But even more disturbing are signs that banks no longer lend to each other. Just as the credit crunch of August, 2007 was heralded by a freezing up of inter-bank-lending, so history appears to be repeating itself. According to the FT, banks deposited a record €777bn overnight with the ECB last week, up nearly two thirds from the previous day.

In other words, banks were borrowing from the ECB at 1 per cent and then re-depositing funds with the ECB for less - 25 per cent.

Banks could earn a great deal more in the inter-bank market - but that market scares the hell out of them. They know a lot more about their fellow bankers' solvency than our politicians do. Which is why they are parking their (our) money with a bank that cannot go bust: the taxpayer-backed ECB.

Given that our politicians are looking the other way, this should scare us too.

Ann Pettifor is director of PRIME - Policy Research in Macroeconomics.

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The Tinder dating app isn't just about sex – it's about friendship, too. And sex

The lines between sex, love and friendship are blurrier than ever, as I found out quickly while using the app.

The first time I met someone using Tinder, the free dating app that requires users to swipe left for “no” and right for “yes” before enabling new “matches” to chat, it was an unqualified success. I should probably qualify that. I was newly single after five years in a committed relationship and wasn’t looking for anything more than fun, friendship and, well, who knows. A few weeks earlier I had tried to give my number to a girl in a cinema café in Brixton. I wrote it on a postcard I’d been using as a bookmark. She said she had a boyfriend, but wanted to keep the postcard. I had no date and I lost my page.

My Tinder date was a master’s student from Valencia called Anna (her name wasn’t really Anna, of course, I’m not a sociopath). When I arrived at the appointed meeting place, she told me I was far more handsome IRL (“in real life”) than my pictures suggested. I was flattered and full of praise for the directness of continental Europeans but also thought sadly to myself: “If only the same could be said about you.”

Anna and I became friends, at least for a while. The date wasn’t a success in the traditional sense of leading us into a contract based on exclusivity, an accumulating cache of resentments and a mortgage, but it had put me back in the game (an appropriate metaphor – people speak regularly of “playing” with the app).

According to Sean Rad, the co-founder who launched Tinder in late 2012, the service was invented for people like me. “It was really a way to overcome my own problems,” he told the editor of Cosmopolitan at an event in London last month. “It was weird to me, to start a conversation [with a stranger]. Once I had an introduction I was fine, but it’s that first step. It’s difficult for a lot of people.” After just one outing, I’d learned two fundamental lessons about the world of online dating: pretty much everyone has at least one decent picture of themselves, and meeting women using a so-called hook-up app is seldom straightforwardly about sex.

Although sometimes it is. My second Tinder date took place in Vienna. I met Louisa (ditto, name) outside some notable church or other one evening while visiting on holiday (Tinder tourism being, in my view, a far more compelling way to get to know a place than a cumbersome Lonely Planet guide). We drank cocktails by the Danube and rambled across the city before making the romantic decision to stay awake all night, as she had to leave early the next day to go hiking with friends. It was just like the Richard Linklater movie Before Sunrise – something I said out loud more than a few times as the Aperol Spritzes took their toll.

When we met up in London a few months later, Louisa and I decided to skip the second part of Linklater’s beautiful triptych and fast-track our relationship straight to the third, Before Midnight, which takes place 18 years after the protagonists’ first meet in Vienna, and have begun to discover that they hate each others’ guts.

Which is one of the many hazards of the swiping life: unlike with older, web-based platforms such as Match.com or OkCupid, which require a substantial written profile, Tinder users know relatively little about their prospective mates. All that’s necessary is a Facebook account and a single photograph. University, occupation, a short bio and mutual Facebook “likes” are optional (my bio is made up entirely of emojis: the pizza slice, the dancing lady, the stack of books).

Worse still, you will see people you know on Tinder – that includes colleagues, neighbours and exes – and they will see you. Far more people swipe out of boredom or curiosity than are ever likely to want to meet up, in part because swiping is so brain-corrosively addictive.

While the company is cagey about its user data, we know that Tinder has been downloaded over 100 million times and has produced upwards of 11 billion matches – though the number of people who have made contact will be far lower. It may sound like a lot but the Tinder user-base remains stuck at around the 50 million mark: a self-selecting coterie of mainly urban, reasonably affluent, generally white men and women, mostly aged between 18 and 34.

A new generation of apps – such as Hey! Vina and Skout – is seeking to capitalise on Tinder’s reputation as a portal for sleaze, a charge Sean Rad was keen to deny at the London event. Tinder is working on a new iteration, Tinder Social, for groups of friends who want to hang out with other groups on a night out, rather than dating. This makes sense for a relatively fresh business determined to keep on growing: more people are in relationships than out of them, after all.

After two years of using Tinder, off and on, last weekend I deleted the app. I had been visiting a friend in Sweden, and took it pretty badly when a Tinder date invited me to a terrible nightclub, only to take a few looks at me and bolt without even bothering to fabricate an excuse. But on the plane back to London the next day, a strange thing happened. Before takeoff, the woman sitting beside me started crying. I assumed something bad had happened but she explained that she was terrified of flying. Almost as terrified, it turned out, as I am. We wound up holding hands through a horrific patch of mid-air turbulence, exchanged anecdotes to distract ourselves and even, when we were safely in sight of the ground, a kiss.

She’s in my phone, but as a contact on Facebook rather than an avatar on a dating app. I’ll probably never see her again but who knows. People connect in strange new ways all the time. The lines between sex, love and friendship are blurrier than ever, but you can be sure that if you look closely at the lines, you’ll almost certainly notice the pixels.

Philip Maughan is Assistant Editor at the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad