ECB surrenders.

The ECB surrendered its last vestige of prudence over the weekend and debased its holdings yet further. The ECB agreed to continue indefinitely to accept as collateral Greek bank debt/bonds. What this means is the ECB will loan Greek banks and anyone else’s banks brand new euros in return for almost worthless junk Greek bonds/paper that will either default in the next six months or take the better part of a decade to regain its value. This reverses a pledge made only in January that the ECB would not debase its lending rules or its credibility. It has now done both.

Those who made the decision would say, ‘this is an emergency what else can we do. If we cut Greek banks off from ECB borrowing they collapses and so does Greece. And that is true. No one else will accept the stuff for any amount that is useful’. But the consequence of the EBC accepting Greece’s junk paper is that the ECB becomes itself, a bank with worthless assets and huge unsupported lending. First the banks were in that situation. Then we saved them by moving the problem up to the level, of nations. Now they are in the same trouble and we are moving it up to Central banks. Where do we hide the problem next?

The decision was obviously made that the ECB should join the FED in becoming the liar of last resort. The last hiding place of worthless bank and now sovereign debts. Real cash given out in return for paper everyone knows is worthless. If it wasn’t it wouldn’t have to be ‘bought’ by the ECB, it would be bought and traded on the open market. But no one will trade in it, so the Central Banks step up and gobble till they bloat.

This is a bail out by another name.

The ECB has already done it for the investment banks and doesn’t even know if the stuff they paid near full price for, is worth anything at all ( see The ECB and Asset Backed Empty Promises). This just ramps up the lies and pretence to another level.

It’s the same in the US. The Fed has a balance sheet of over a Trillion. That is a Trillion dollars of stuff it ‘bought’. Most of it worth a fraction of what they bought it for. Fannie Mae and Freddie Mac just agreed to buy $125 Billion of 120 day delinquent loans that they had previously guaranteed. 120 day delinquent is banker waffle for defaulted. They are officially not yet in default and ‘may be eligible for restructuring’ but in reality 120 days without payment and you don’t some back.

Then, this morning, the Boffins at Basel, who stand firm and ready, to regulate and rule over any and all financial impropriety, whispered that it might not be prudent to bring in a bank tax just yet and that regulating the banks might risk cutting economic growth by 1%. Oh dear, Oh my. What to do? If the world could be saved by collective cringing and Uriah Heap hand-wringing, Basel would be an inspiration to us all.

Bank reform? I get wind just listening to them.

There is not going to be any bank reform. There may be some window dressing. But as the ‘recovery’ reveals itself to be more words than fact, the mantra will be don’t damage the’ fragile’ recovery. And they won’t. No matter who is elected here.

In the States the FED was told by the government it wanted to see its books: To audit its bail outs and see who, how much and when. The FED point blank refused. It went to court in order to give some legitimacy for its refusal, where it argued it should not be audited and should not have to open its books to government scrutiny. and lost TWICE. Twice it has argued twice it has lost. Once at District and once on appeal at Appelate. Next stop Supreme Court.

Going to court isn’t even about winning. Its about stalling. Like companies who are happy to keep things in court for years because its cheaper than settling and keep everything sub judice. Europe is going the same route largely at the behest, I believe, of its insolvent banks

I understand Greece needs help. But this is not the right help. Bailing banks and yoking the people to austerity programmes that will themselves kill any chance of growth and recovery for the people themselves is wrong. This solution will not be cheaper fur us. It will be far more expensive and disastrous in the end.

At some point, some of the debts have to be cleared away and someone has to take a loss. At every step it is the banks, in Greece’s case the Greek, German, French and Swiss banks who are protected, and the people foot the bill.