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Central Banks Delay of Game. Five (point eight) Yards

Interest-Rates / Eurozone Debt Crisis Apr 02, 2013 - 11:00 AM GMT

By: John_Mauldin

Interest-Rates

Grant Williams : Section 6 of the NFL official rulebook contains five articles, all of which deal with infringements that result in a 'delay of game' penalty.

It appears as though the powers that be frown upon the idea of players wasting time in the hope that they can hasten the sound of the whistle whilst holding an advantage.


Based upon the seemingly petty nature of many of the designated infractions, it would appear that not only has this been going on for quite some time, but that the players and officials are locked in a never-ending battle to identify new ways to delay the game — the players to delay the game and the officials to punish their ingenuity.

The list of 'Other Delay Of Game Fouls' (which is contained in Article 5, for those of you keeping score at home) reads as follows:

Article 5

Other examples of action or inaction that are to be construed as delay of the game include, but are not limited to, the following:

(a) a player unnecessarily remains on a dead ball or on a runner who has been downed;

(b) the snapper repeatedly snaps the ball after the neutral zone is established and before the Referee can assume his position (see 7-6-3-c);

(c) undue delay by either team in assembling after a timeout;

(d) a defensive player aligned in a stationary position within one yard of the line of scrimmage makes quick and abrupt actions that are not a part of normal defensive player movement and are an obvious attempt to cause an offensive player(s) to foul (false start). (The Referee shall blow his whistle immediately.);

(e) spiking or throwing the ball in the field of play after a down has ended, except after a score;

The penalty for delay of game is the loss of five yards to the offending team.

In the arena of international finance, the tables have been turned spectacularly, and it is the officials who are desperately trying to find ingenious new ways to delay the game whilst clinging to the most slender of advantages, as all around them players are penalized indiscriminately.

From the onset of the financial crisis that still besets us (since whenever that may have been — it's all getting very hazy), the first response of policymakers and central bankers has been the same: guarantee deposits to stop capital flight leading to bank runs. Case in point, Ireland:

(FT, September 2008): Ireland’s government on Tuesday unveiled a wide-ranging guarantee arrangement to safeguard the deposits and debts at six financial institutions in response to turmoil in the financial markets.

The scheme, which guarantees an estimated €400bn (£315bn, $567bn) of liabilities, covers retail, commercial and inter-bank deposits as well as covered bonds, senior debt and dated subordinated debt.

Most depositors were already covered by an existing deposit insurance scheme for up to €100,000. But Tuesday’s initiative was primarily aimed at easing the banks’ short-term funding, which had seized up in recent days.

Ireland's deposit guarantee, it was announced, would expire in September 2010, at which point all would be well and the panic would be over. Of course, the strong rally in Irish banks on the day the plan to guarantee deposits was announced faded quickly when somebody bothered to do some rudimentary arithmetic, and the guarantee had to be extended. Fast-forward to last Thursday:

(Irish Independent, March 28, 2013): The government guarantee on bank deposits above €100,000 finally comes to an end today, despite the nervousness over the Cyprus crisis....

The guarantee failed in its fundamental objective of restoring stability to the banking system. After an initial positive response, investors and lenders quickly realised that the Irish State could not cover the total €440bn liability.

Deposits flooded out of the system and the European Central Bank insisted on a bailout to allay fears of imminent bankruptcy, while it pumped in emergency loans to the banks.

Those loans have also declined sharply in recent years but remain at around €50bn. AIB at least is still unable to fully finance its operations in the market and the confusion over Cyprus will not help the restoration of normality.

Yes folks, Ireland bankrupted itself overnight with one stupid decision. They clearly thought that a proclamation from the government that all would be well was going to be more than enough to calm things down and that people would go about their business safe in the knowledge that the Taioseach and the geniuses in the Oireachtas had everything under control.

Funnily enough, things didn't work out that way, and the reason for that was something that one would have thought would be fairly obvious to all concerned: the maths didn't add up.

To continue reading this article from Things That Make You Go Hmmm… – a free weekly newsletter by Grant Williams, a highly respected financial expert and current portfolio and strategy advisor at Vulpes Investment Management in Singapore – please click here.

John Mauldin

subscribers@MauldinEconomics.com

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