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Old 11.12.2008, 10:45
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Swiss National Bank halves interest rate to 0.5%

At 09.30 this morning the Swiss National Bank's governing board announced that they were reducing the 3 mth libor target to 0.5%.

http://www.bloomberg.com/apps/news?p...KT4&refer=home

Quite historic stuff - Switzerland now has the lowest central bank rate in Europe. The central bank also said in their statement that “The Swiss economy will be heavily affected” by slowing global growth and market turmoil.

So far the franc hasn't reacted much but there is talk of the bank possibly taking the step of flooding the market with CHFs to improve export competitiveness. For anyone looking to switch CHF for GBP/USD/EUR maybe now is the right time?
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Old 11.12.2008, 11:10
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Re: Swiss National Bank halves interest rate to 0.5%

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So far the franc hasn't reacted much
That's because the rate cut didn't come as a surprise. It was expected and already priced in.
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Old 11.12.2008, 11:37
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Re: Swiss National Bank halves interest rate to 0.5%

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That's because the rate cut didn't come as a surprise. It was expected and already priced in.
Yes, I was thinking more of the tone of the commentary coming from the bank. Implicit within it were strong hints that they are looking for a correction in the valuation of the CHF.
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Old 11.12.2008, 11:44
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Re: Swiss National Bank halves interest rate to 0.5%

Where the hell am I supposed to keep my money? I thought I was being the smart one when I took a hard year to pay back all my debts some years ago, now I'm in the black my money does F all for me an will probably start losing it's value.

I don't have enough to gamble it on stocks...
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Old 11.12.2008, 13:09
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Yes, I was thinking more of the tone of the commentary coming from the bank. Implicit within it were strong hints that they are looking for a correction in the valuation of the CHF.
Their problem is that with short term interest rates now at 0.5% they've practically run out of bullets. With interest rates close to zero, they don't have any other option for stimulating the economy but intervention in foreign exchange markets to weaken the Swissie.
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Old 11.12.2008, 13:10
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Re: Swiss National Bank halves interest rate to 0.5%

On a similar vein, I remember reading this article last week in Newsweek:

http://www.newsweek.com/id/172622
It was basically commending Switzerland for it's excellent handling of the crisis. Is this relevant to this thread?
Nick.
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Old 11.12.2008, 13:43
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Re: Swiss National Bank halves interest rate to 0.5%

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On a similar vein, I remember reading this article last week in Newsweek:

http://www.newsweek.com/id/172622
It was basically commending Switzerland for it's excellent handling of the crisis. Is this relevant to this thread?
Nick.
I must admit I was a bit worried earlier in the year when Merz was asking journalists "credit crisis...what credit crisis?" But I think "Switzerland" handled itself pretty well once the sh*t hit the fan. I think UBS acted aggressively to respond to the sub prime mess in terms of owning up to the scale of the losses, taking write downs immediately and refinancing whilst the door was still open. When that wasn't enough the SNB bit the bullet with it's bail-out package which steadied the financial system. Added to that the SNB has introduced measures to tighten capital adequacy of the banks. And the SNB has got on with the job of cutting interest rates. Their problem is Switzerland is not the master of it's own destiny here and, like the rest of the world, it's inevitable that the economy is in for a real smacking. If the SNB does intervene in FX markets to manage the swiss franc lower, I'm not sure what else they could be expected to do, other than, as your article suggests, somehow persuade the cantonal banks to lend the piles of cash they're sitting on. I think I mentioned before that I remember in the Korean credit crisis a number of years ago patriotic Koreans were pulling gold fillings out of their teeth and offering them to their government. Things aren't that bad here yet.
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Old 11.12.2008, 20:09
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Re: Swiss National Bank halves interest rate to 0.5%

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I must admit I was a bit worried earlier in the year when Merz was asking journalists "credit crisis...what credit crisis?" But I think "Switzerland" handled itself pretty well once the sh*t hit the fan. I think UBS acted aggressively to respond to the sub prime mess in terms of owning up to the scale of the losses, taking write downs immediately and refinancing whilst the door was still open. When that wasn't enough the SNB bit the bullet with it's bail-out package which steadied the financial system. Added to that the SNB has introduced measures to tighten capital adequacy of the banks. And the SNB has got on with the job of cutting interest rates. Their problem is Switzerland is not the master of it's own destiny here and, like the rest of the world, it's inevitable that the economy is in for a real smacking. If the SNB does intervene in FX markets to manage the swiss franc lower, I'm not sure what else they could be expected to do, other than, as your article suggests, somehow persuade the cantonal banks to lend the piles of cash they're sitting on. I think I mentioned before that I remember in the Korean credit crisis a number of years ago patriotic Koreans were pulling gold fillings out of their teeth and offering them to their government. Things aren't that bad here yet.
I my opinion the crisis was handled in Switzerland no better than in USA, that means awfully. 60 billions CHF of taxpayer money to a bank and no
referendum in a would-be free society? well that's a fact. Using the same old gimmick, pretend to save the public and stole its money. Bailout, that's the word.

Switzerland is not really different, the same plaguing socialism combined with the power of cartels.
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Old 11.12.2008, 21:38
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Re: Swiss National Bank halves interest rate to 0.5%

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Their problem is that with short term interest rates now at 0.5% they've practically run out of bullets. With interest rates close to zero, they don't have any other option for stimulating the economy but intervention in foreign exchange markets to weaken the Swissie.
A vicious cycle of every country devaluing does not help. The currencies remain synchronized!

They could try "Helicopter Ben" Bernanke's idea of flying around and dropping cash. That might persuade customers to spend and keep the economy ticking.
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Old 11.12.2008, 23:17
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Re: Swiss National Bank halves interest rate to 0.5%

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I my opinion the crisis was handled in Switzerland no better than in USA, that means awfully. 60 billions CHF of taxpayer money to a bank and no referendum in a would-be free society?
So what would you have done?
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Old 12.12.2008, 07:59
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Re: Swiss National Bank halves interest rate to 0.5%

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So what would you have done?
They should not intervene, a little of discipline is what they need. If they know they are going to be bailed out, they will do the same next time, too. Besides only big banks get protection, the small one would be allowed to fail. That's unfair. Economics and politics is always an unfortunate mix.

And if I am going to pay I prefer to be asked, otherwise I think this is called theft.
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Old 12.12.2008, 08:08
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Re: Swiss National Bank halves interest rate to 0.5%

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They should not intervene, a little of discipline is what they need. If they know they are going to be bailed out, they will do the same next time, too. Besides only big banks get protection, the small one would be allowed to fail. That's unfair. Economics and politics is always an unfortunate mix.

And if I am going to pay I prefer to be asked, otherwise I think this is called theft.
Thank God no one asked you then. Had UBS been allowed to go under, most of the payments traffic system would have seized up, and most economic actors would have been in real trouble. Further to that, capital flight out of the Swiss economy in general and Swiss banks in particular would have ensured a prompt meltdown of the economy. Finally, I think the interest rates the SNB gets on the money loaned to UBS are nowhere near market rates, and nowhere near the reflection of a socialist concept of the economy, but rather very much capitalist to the extreme.

By the way, small banks have been rescued in the past in Switzerland. Time to brush up on history?
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Old 12.12.2008, 08:44
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Re: Swiss National Bank halves interest rate to 0.5%

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Thank God no one asked you then. Had UBS been allowed to go under, most of the payments traffic system would have seized up, and most economic actors would have been in real trouble. Further to that, capital flight out of the Swiss economy in general and Swiss banks in particular would have ensured a prompt meltdown of the economy. Finally, I think the interest rates the SNB gets on the money loaned to UBS are nowhere near market rates, and nowhere near the reflection of a socialist concept of the economy, but rather very much capitalist to the extreme.

By the way, small banks have been rescued in the past in Switzerland. Time to brush up on history?
Couldn't have put it better.
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Old 12.12.2008, 11:02
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Re: Swiss National Bank halves interest rate to 0.5%

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Thank God no one asked you then. Had UBS been allowed to go under, most of the payments traffic system would have seized up, and most economic actors would have been in real trouble. Further to that, capital flight out of the Swiss economy in general and Swiss banks in particular would have ensured a prompt meltdown of the economy. Finally, I think the interest rates the SNB gets on the money loaned to UBS are nowhere near market rates, and nowhere near the reflection of a socialist concept of the economy, but rather very much capitalist to the extreme.

By the way, small banks have been rescued in the past in Switzerland. Time to brush up on history?
Do you think that UBS is the ultimate bank and there is no tomorrow? Well, I don't.
The damage has already been done, the money has left / is leaving UBS. What SNB did, was a risky enterprise. And I doubt they used their own money, they probably print it. As far as I know, they bought those UBS troubled assets for 60 billions (correct me if I am wrong) and there would no payback or interest. Maybe SNB succeeds in getting rid of part of it, that's only a probability.

The whole operation was mainly psycholgical, fear is a very powerfull emotion. If you can get the public to belive that without UBS there is no tomorrow (economy meltdown, money is leaving the country) you're succesfull. And they did it, see your own post.

Btw, the main actors of payment traffic system are SIC, commercial banks and PostFinance. Yes, it would mean that most people can make payments without UBS.
http://www.snb.ch/en/iabout/paytrans
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Old 12.12.2008, 14:15
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Re: Swiss National Bank halves interest rate to 0.5%

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Do you think that UBS is the ultimate bank and there is no tomorrow? Well, I don't.
The damage has already been done, the money has left / is leaving UBS. What SNB did, was a risky enterprise. And I doubt they used their own money, they probably print it. As far as I know, they bought those UBS troubled assets for 60 billions (correct me if I am wrong) and there would no payback or interest. Maybe SNB succeeds in getting rid of part of it, that's only a probability.

The whole operation was mainly psycholgical, fear is a very powerfull emotion. If you can get the public to belive that without UBS there is no tomorrow (economy meltdown, money is leaving the country) you're succesfull. And they did it, see your own post.

Btw, the main actors of payment traffic system are SIC, commercial banks and PostFinance. Yes, it would mean that most people can make payments without UBS.
http://www.snb.ch/en/iabout/paytrans
It's okay to have an opinion as long as it's an informed opinion. Yes these are risk investments but the SNB receives 12.5% interest on it's 6 billion preferred stock investment. It's also due interest of 250 basis points over libor on it's 54 billion investment in the bad asset fund. This loan and the interest due will be paid back from any sales from the fund and is in fact secured over the assets of the fund. Over and above this, the SNB participates in upside profits should there be any. All this falls somewhat short of theft in my book.

Regarding the rest of your comments, if you want to believe that in the event Switzerland's biggest bank failed then confidence in Switzerland's banking system wouldn't be materially impacted, the rest of the banking system would continue to operate as if nothing had happened and the contagion wouldn't spread into the broader economy, currency and labour markets, then that's up to you I guess.

Last edited by Nev; 12.12.2008 at 14:25.
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