....and the LBP in all of this?

Danny Z

Danny Z

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Youssef beik Karam


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Not even. He was always being urged by the French ambassador who represented Napoleon who craved imperial reach around the world. And his revolutions didn’t work because the Europeans didn’t agree for him to form an independent government so they were also letting khorshid get a free hand on squashing his revolts.
 
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  • Aoune32!

    Aoune32!

    Well-Known Member
    Something i dont understand. The banks are making huge profits every year. the central bank keeps on giving the gov money how are they broke?
     
    Aoune32!

    Aoune32!

    Well-Known Member
    what is the official interest rate for home loans in lebanon??
     
    Leb_Rebel

    Leb_Rebel

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    Something i dont understand. The banks are making huge profits every year. the central bank keeps on giving the gov money how are they broke?
    They are losing money on traditional means : Credits, loans, insurance.
    They are winning money because they give money to BDL who gives them crazy interest rates.

    Except the interests that BDL gives in USD depletes the USD thats in BDLs' possession and in Lebanon in general because we can't print more USD. Lebanon relied on deposits from outside Lebanon in USD.

    BDL in turn was lending money to the state who was wasting it so that money is gone.

    That was Riad's way to take USD and increase his reserves to maintain the peg.
     
    Leb_Rebel

    Leb_Rebel

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    At the root of the economic grievances fueling Lebanon’s mass protests lies what looks like a regulated Ponzi scheme. The problem will not be solved by a change of government—even with a cabinet of experts—or by injections of capital from friendly Arab states: it will require tougher measures, including a compulsory haircut for many of the country’s richest citizens.



    For decades, Lebanon depended on remittances to sustain its economy and the lira peg. Fixed at 1507.5 lira to the U.S. dollar since 1997, the peg resulted in an overvalued currency, relative to the country’s productivity. This gave the Lebanese a higher income and standard of living than in any neighboring Arab country, allowing them to spend on travel, cars, clothes, and gadgets.



    During the 2008 credit crisis, Lebanon had a reverse capital flight to its perceived safety. Rich Lebanese expats stopped trusting foreign banks and moved their money home, helping to create a balance-of-payment surplus of $20 billion between 2006 and 2010. This surplus was squandered on real-estate development and government waste, resulting in a bubble, the remnants of which can today be seen in the shiny, vacant towers dotting the Beirut skyline.



    Starting in 2011, the surplus morphed into a persistent annual deficit. It wasn’t until 2016 that the Banque du Liban recognized the danger signs. The central bank initiated a series of so-called “financial engineering” transactions, which were equivalent to swapping lira for fresh (that is, attracted from overseas) dollars at exorbitant interest rates reaching 14-30%.



    Most of the lira thus printed by BDL was recognized as revenue, giving banks record profits, despite a stagnant economy. The two top banks alone made over $1 billion in 2016 in these artificial profits; the bonuses paid to senior managers were in real cash.

    The interest owed to earlier depositors was sourced from new investors. Neither local nor foreign analysts picked up on this, even though the mechanism was suspiciously similar to what an infamous Italian immigrantdid in Boston a century ago. All employed Lebanese have benefited from this particular variant of the Ponzi scheme: the dollar peg meant that their salaries are worth more than in a floating-currency regime.

    Due to the crowding-out effect, the main losers are the youth, among whom the unemployment rate is almost 40%. In the Lebanese paradigm, unemployed youth are expected to emigrate, find jobs elsewhere and transmit remittances—in effect, to continue funding the scheme. But this has become increasingly difficult as job opportunities overseas have dwindled.

    Most analysts have been too distracted with traditional metrics, such as government debt worth nearly $90 billion, and have neglecting the fact that BDL has borrowed $110 billion from Lebanese banks—out of $170 billion in total deposits. Half the dollar deposits in Lebanese banks are now with BDL, with the rest in lira. There is just no way for BDL to return this money.

    Meanwhile, the astronomically high interest rates have created a cohort of millionaires and decamillionaires. But their account values are just computer entries, produced by compounded rates of return with no productive investment yielding real returns on the other side. Which is why, as bank deposits increased artificially, real liquidity shrank.

    The real dollars in BDL reserves, plus bank deposits with custodial accounts, amount to around $40 billion: in other words, there’s only one dollar of liquidity for every $3 dollars of claims. This would normally not be a problem in fractional banking, except that all these liabilities are in a foreign currency that BDL cannot print nor generate locally.

    The good news is that almost all this debt is internal. This makes the solution quite simple: a national restructuring that equitably distributes losses, clawing back the phantom returns. Less than 1% of depositors, or 24,000 accounts, account for nearly $90 billion, with the average account worth $3.5 million. (Assuming each millionaire has three or four accounts, a common practice in Lebanon, we may be talking about no more than 6,000-8,000 account holders.)

    But the owners of these phantom-money accounts spend some of it in the real world—on a Bentley, say—which consumes BDL reserves. Similarly, any Lebanese earning in lira consumes BDL reserves every time they go on vacation to in Greece or buys an imported product.

    How to fix the problem? The central bank can start by imposing capital controls on transfers overseas and curtail cash withdrawals; some banks are already doing this, but it would be more efficient and equitable if BDL made it compulsory for all.

    Capital controls would only stanch the bleeding. Healing the wound would require more drastic measures, such as a haircut on all accounts above $1 million. (The extent of the haircut would depend on where BDL is prepared to start cutting: the larger the account, the deeper the cut can be.) This may require a ministerial decree, possibly even parliamentary approval. Legislators could call it a deferred tax, if that makes it politically more palatable.

    This will not be as catastrophic as it sounds. A Lebanese who deposited $10 million 10 years ago, at 12%, holds $31 million today. With a 50% haircut, they would have $15.5 million, a quite reasonable return of 4.5%.

    Lebanon officials may balk at trying something no other country has attempted before, but since their problem is sui generis, the solution can hardly be otherwise.

    This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
    To contact the author of this story:
    Dan Azzi at [email protected]

    To contact the editor responsible for this story:
    Bobby Ghosh at [email protected]
     
    shadow1

    shadow1

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    Orange Room Supporter
    Something i dont understand. The banks are making huge profits every year. the central bank keeps on giving the gov money how are they broke?
    In a nutshell, the answer to your question is bad debt. Banks hold it still as assets on their balance sheet. If you move it to profit and loss (where it should be) it becomes an expense, large enough to wipe out all these profits which are no more than accounting entries. fair enough when the times were good but now OS transfers have now stopped and the Ponzei scheme has run its course. The winners are the ones who got out in time and the losers are those who have ever had any faith in the country and its leaders,

    Like all institutions in the country banks are very corrupt. And now the time has come to face the music. Except this time the pain will be so large as to cause social upheaval on a scale never seen before in this country. This might even eclipse the opposition to Gebran Bassil becoming a minister so he still has a chance if you ask me, and a very good chance at that. The difference this time is will it be worth it or a move to Europe is better? IMO he will hang around. Maronites love titles. Look at the president and how hard he worked to reach Baabda. The fact that his excellency is presiding over a spent country still means a lot, even to him. Now who cares about how history may judge him. After the Taef the president's role is to manage the crisis the best way he can and that he has done brilliantly. Apres moi le deluge!
     
    Danny Z

    Danny Z

    Legendary Member
    In a nutshell, the answer to your question is bad debt. Banks hold it still as assets on their balance sheet. If you move it to profit and loss (where it should be) it becomes an expense, large enough to wipe out all these profits which are no more than accounting entries. fair enough when the times were good but now OS transfers have now stopped and the Ponzei scheme has run its course. The winners are the ones who got out in time and the losers are those who have ever had any faith in the country and its leaders,

    Like all institutions in the country banks are very corrupt. And now the time has come to face the music. Except this time the pain will be so large as to cause social upheaval on a scale never seen before in this country. This might even eclipse the opposition to Gebran Bassil becoming a minister so he still has a chance if you ask me, and a very good chance at that. The difference this time is will it be worth it or a move to Europe is better? IMO he will hang around. Maronites love titles. Look at the president and how hard he worked to reach Baabda. The fact that his excellency is presiding over a spent country still means a lot, even to him. Now who cares about how history may judge him. After the Taef the president's role is to manage the crisis the best way he can and that he has done brilliantly. Apres moi le deluge!
    So now he is responsible, all you mentioned in your post is Aoun and Bassil, and all others who created and perpetrated the ponzi scheme you omitted them.
    When you have a crisis somebody have to solve it and it starts by managing it. If you and I are not ready to do it and somebody steps in and tries why should he be accountable for what happened before him, at least he had the courage you and I did not have.
     
    shadow1

    shadow1

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    Orange Room Supporter
    So now he is responsible, all you mentioned in your post is Aoun and Bassil, and all others who created and perpetrated the ponzi scheme you omitted them.
    When you have a crisis somebody have to solve it and it starts by managing it. If you and I are not ready to do it and somebody steps in and tries why should he be accountable for what happened before him, at least he had the courage you and I did not have.
    I mention him and the president for one simple reason, I never had any expectations of any of the other leaders and I never for one sec thought of them as being non corrupt.
     
    Indie

    Indie

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    I never understood why anyone would keep their savings in Lira...even with the high interest returns. I know very little about finance, but it seemed like a risky move.

    The author of this article seems to offer good advice (but, again, I know little about finance); however, the ones with the biggest accounts are probably the very politicians who would have to enforce the cuts...on themselves and their family and friends.
     
    Leb_Rebel

    Leb_Rebel

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    Orange Room Supporter
    I never understood why anyone would keep their savings in Lira...even with the high interest returns. I know very little about finance, but it seemed like a risky move.

    The author of this article seems to offer good advice (but, again, I know little about finance); however, the ones with the biggest accounts are probably the very politicians who would have to enforce the cuts...on themselves and their family and friends.
    You said it, its more interest so it seemed more interesting on paper.
     
    Indie

    Indie

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    You said it, its more interest so it seemed more interesting on paper.
    The first question people asked should have been: "what's the catch?"

    Banks aren't NGOs. They're not going to offer more money out of generosity.
     
    The End

    The End

    First of his Name
    Orange Room Supporter
    wow. the banks are robbing people hard.
    Banks are currently paying 7% in interest for bank deposts on USD and around 9% on LBP (obviously this changes depending on the amount, wasta, etc.). That means that if they loan it out at 6%-7% they're either losing or breaking even at best.
     
    SeaAb

    SeaAb

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    Staff member
    Super Penguin
    Banks are currently paying 7% in interest for bank deposts on USD and around 9% on LBP (obviously this changes depending on the amount, wasta, etc.). That means that if they loan it out at 6%-7% they're either losing or breaking even at best.
    I got 16% on USD last month...Shakla kharyene w i will never see my money again! ?‍♂
     
    shadow1

    shadow1

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    What do you expect will happen to USD deposits in the bank?
    I cant read the future but in all honesty I cant see the banking system surviving the crisis considering that they have lent the govt so much and the govt is broke. All you really own is a number.
     
    M

    motorhead

    Member
    I got 16% on USD last month...Shakla kharyene w i will never see my money again! ?‍♂
    There's a video circulating today, sure many saw it. A man standing in Bank Audi almost having a heart attack cause he wrote a check to someone in USD and that party couldn't collect it in USD. Bank wanted to pay it in LL at 1510LL/USD.
     
    Leb_Rebel

    Leb_Rebel

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    I got 16% on USD last month...Shakla kharyene w i will never see my money again! ?‍♂
    They are making you freeze it so that you won't ask to get it back anytime soon though right ?
     
    shadow1

    shadow1

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    I got 16% on USD last month...Shakla kharyene w i will never see my money again! ?‍♂
    If you are christian, despair not for it's easier for a camel to go through the eye of the needle than for a rich man to enter the kingdom of heaven.
     
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