There is a rumour going around that this weekend the ECB will announce a new loan facility of €600B to bail out the banks again.
The rumour says the ECB will provide 1 year loans to 1100 banks at 1%. If it were true, and I don’t think it is, but if it were then the markets would rally on Monday’s open.
This would, in my estimation be aimed quite largely at saving the Spanish Caja’s more than anything else. But it wouldn’t hurt the rest of them. It would of course hurt the euro and the ECB in the longer term. But nobody seems to care much about that these days.
Half hour later – GIVEN THIS ONE MORE THOUGHT.
This could make some sort of sense for the ECB. Rather than be seen to be pressured into the ‘nuclear option’ of buying up bonds direct from all governments, a ‘loan facility’ for banks (not their governments) might steady fears of collapses of fragile banks. It would have the merit of not being seen to rescue debtor nations direct but safeguard their banking sectors. That’s the best spin I can put on this rumour.
Of course it is bailing out the nations’ debts because what the ECB would accept as collateral would be the debts of the nations held by the banks. But at least it looks a little less naked. It would also still hurt the ECB’s credibility and balance sheet.
But of very bad options it would be better than some alternatives.
It might even allow events to unfold in Greece and allow the ECB to deflect calls for it to save the day. It can say – no we are doing a different job of containing things looking forward. Interesting strategy if that is what happens.
I still think it is only the best out of the bad options. I still prefer to se the banks bad debts cleared from the system. But then that’s just me.
Just a clipping from yesterday's many staements, rather an interesting one in the same vein as the above mentioned rumours:
Economics professor Joachim Starbatty told reporters outside the Federal Constitutional Court in Karlsruhe that the rescue package breaks the "no bailout-clause" in the Maastricht Treaty.
"The EU is on a way to a liability union which will turn into an inflation union….This isn't a rescue for Greece, this is help for the banks, where the money will go immediately."
The "loan facility" to all banks and accepting sovereign's debt as collateral
is a discreet step to a debt union. As noticed before,people don't take to the streets to protest against the quality of collateral held by ECB.
Evertybody decides to shoulder each others debts together via the ECB and save all the banks – can any member go against this? The big nations with big banks with even bigger needs will be tided over for a year, and who knows what miracle may happen to save evereybody's asses come next year.
Yes it can work prsented as "easing liquidity" just like in the first round.
Then what happens, you think? The european national debts all finally wheeled to the ECB vaults and the banks stuffed with cheap cash to burn for 1 year. They have the means to blow another "bubble".
When will, finally, the chicken come home to roast? When will finally the solvency issue be faced. That must happen at some point, but then maybe we already have etablished contacts with extreterrestrials central bank and interstellar "loan facilities".
Morning Lars,
I agree completely with the comment that the EU is on its way to becoming a liability or debt union.
How will it in? I believe, as I have from the start, that it will end in a massive wave of bank insolvency.
The banks claim it is a mere liquidity shortfall. That is and always was a lie. They have a problem with liquidity because they won't lend to each other for the simple reason that they know they are all insolvent.
What they are all counting as assets, is debt backed paper which is largely worthless.
We would have faced a wave of bank collapses. Now, we have tied our central banks and nations to this wreak and will go down with them.
A point of interest for you. Since putting this post up, after reading it on one of the Forex boards I have had a half dozen trading houses and two law firms from NY, Chicago, Dubai and Saudi all log on to take a look.
The investing community is desperate to find out anything they can.
Several Trillion in direct bail-out, insuring bad debts, bad banks, and zero rate loans and what has this policy achieved after a year?
Every day that the financial markets do not recover and continue to suck the life blood of the economy and the nations, is a surer and surer signal that death is getting nearer.
If you keep giving a patient larger and larger doses of stronger and stronger antibiotics and after months they are still thin and weak and still coughing up puss, what do you do? Say to the world, "Hey its fine. They're going to be swell after just a couple more mega-doses? Or do you move them to the palliative care ward?
The banks are riddled with debts they refuse to clear. They will not accept that they were wrong and they and their investors must suffer their losses.
They are trying to cough their sickness down our throats. WE MUST NOT LET THEM.