Tuesday, January 24, 2012

Banks orgasm over ECB cash

Orgasm © fintag

News comments:
The ECB as new lender of last resort is causing us all to scratch our heads.

Risky banks can now borrow dirt cheap money with crap-for-collateral. Risky sovereign states can now sell their high yielding govt debt to their risky banks who are awash with cheap cash. Banks get a margin, and governments get to see another day. The ECB is like a drug dealer handing out below market rate drugs or high class hookers for dollar a trick rates. The banks are addicted; sovereign debt yields are falling; liquidity is restored. The ECB is buying up government junk that it is indirectly guaranteeing and so enjoying its yields.

The ECB is risk free. The responsible banks are being forced to lend overnight to the ECB because capital adequacy is turning the only tier 1 asset to ECB debt / LTRO.

This is win-win-win all round. The Euro survives, Governments survive and the banks get to orgasm on easy profits. But how long can this go on for for it is the tax payer who is funding all this? (felixsalmon)

One thing is sure. Cash=Bonuses. Just as the UK and US helped prop up the bank's bonus pools with its QE, the ECB is doing the same but in more spectacular style. No wonder bankers are expecting huge bonuses in the next 5 years.

What is very clever about this scheme is the ECB has the banks and the governments by the short and curlys. The EU has at last got full control of the European banking system and can enforce any rules it wants. So that means another winner - the regulators. Regulation means jobs means socialism means the end of capitalism.

So please explain how this can continue? Will the IMF offer even cheaper debt? Will China muscle in and grab some of this cheap debt too? Will the US banks starting shouting "trade war"? Will this be the beginning of hyper inflation? Will the ECB steal the banks profits? I wish I knew. This is all so unprecedented.

My head is scratched and now I am bald.

Today's shorts:
Siemens turns into RIM (cityam)

Will Harry Rednapp do a Diamond Back? (hedgeweek)

Today's longs:
Food is the growth stock for 2012 (cityam)

Mitt Romney enjoys capitalism (the rest of the little people suffer from incomeism) (bloomberg)

ECB looks to save Portugal (wsj)

ECB to become the new IMF.


farmland investment said...

This whole LTRO is just QE by another name. Banks borrow dirt cheap, buy sovereigns at higher yields, rebuild their balance sheets with the spread and the governments get funded, with yields driven down. Deviously brilliant in a way, since they don't have to officially call it QE. US FED did something similar. And for the rent-seeking EU bureaucrats living off the productive parts of the economy, well, they get to keep the whole sham rolling along, pensions expense accounts and all. No wonder Fintag you gave this one a good rant.