Sunday, September 9, 2012

Bad but no bank

more coins © fintag

News comments:
Sterilisation? Super Mario should be sterilised.

The ECB's sterilised swap for bank deposits and the purchase of sovereign debt is more market distorting nonsense. Given Mario doesn't really run a bank, there is little it can do except move the goalposts while the Germans opine.

Now I quite like his conditionality idea of buying sovereign debt with conditions and being subordinated but I cannot imagine any government wanting to take Mario's money under some nasty fiscal sovereignty handover to an unelected bad bank. If the ECB is only buying the debt on the secondary market, how is it going to enforce its conditions anyway? A bit like me saying I will only buy the new iApple if they stop using child labour. Or you refusing to open a Santander account unless they get rid of that continually smiling and chirpy Lewis Hamilton [Ed: Have you seen his girlfriend?].

Under normal circumstances a lender would want some collateral as a hedge against default or lack of servicing but it seems the ECB are following Bernanke's famous "Cash for Crap" malarkey and will take anything. Spanish real estate? A charge on Greek pensions? The Colosseum?

The biggest fear is the ECB will turn into a student loan fund or worse a Freddie Mac and Fannie Mae. Hoovering up junk bonds using clean bank deposits.

These bank deposits would normally be lent to the real world but lending is risky so it will find its new home in the risk free ECB honey pot. Out of action. More credit crunch. Market distortion.

The ECB will soon have lots of bad debt and these banks will eventually realise the Euro cause is lost and pull their deposits when the CRAs rate the ECB as junk. So who will bail out the ECB?

A short term fudge and a long term nightmare.

Today's shorts:
Fintag's crap picture (spiegel)

4th Richest man hedges his tax bets (wsj)

Hedge funds start to manage risk (hedgeweek)

Today's longs:
iPhone 5 to distract us all (marketwatch)



Richardlogo said...

you have a typo in the wsj link, should be: