ANON – The ECB is simply saving the banking system by restoring trust. How? By acting as a universal banking intermediary.
Banks have stopped borrowing and lending each other, which is essential for the financial system to work.
So, the ECB simply steps in, and provides both the liquidity and the platform to park that liquidity. Rather than banks lending each other directly, they do it through the ECB-route.
Simple, efficient. It’s not actually printing money, it’s keeping the markets liquid.
ECB is not only lender of last resort, but also deposit of last resort.
ANON -Here comes the printing of worthless money without limit.
The idea that there is some sort of real collateral offered in return for this money by worthless bits of paper (IOUs aka bonds) saying that banks or governments will somehow pay the ECB back is the illusory smokescreen for this exercise.
ANON – A lot of recent proposals and actions by the EU and ECB really amount to numbers games. They tried to leverage the EFSF from E200bn to E1trn, then they gave out E0.5trn for three years at 1%, and now the proposal is to relax the rules on the quality of collateral Banks can deposit with the ECB.
But I think that international investors will be taking the ten year, rather than the six month view. They won’t be asking if this bit of paper can be turned into that bit of paper. Instead, they will be asking if Europe has spent the past couple of decades borrowing a standard of living it didn’t earn, whether it is basically competitive in World markets, and if not, whether it can fix that.
We saw this kind of thing in the UK. Maggie didn’t succeed through complicated technical tricks with the debt. She started off a long and often painful process of changing the basic UK economic model away from centrally guided, union dominated, and feather-bedded enterprises towards much leaner and more efficient free market enterprises and a more flexible labour market.
In a sense, the people on the UK left who still loathe Maggie are expressing a similar philosophy to those who insist that the EU is perfectly fine in its current low-growth, social market, form.
It’s a philosophy that says you should determine the level of social benefits first, and then decide how to earn or borrow the money to pay for them afterwards.
ANON – A good idea! Forcing comprehensive bank insolvency by restricting liquidity throws the baby out with the bath water. Ever more intense credit crunches will “do away” with debt all right, but at what cost? The debt has been incurred; now it must be managed, not destroyed. It is the politicians who must control deficit financing, but this must be done gradually, skillfully, so exisiting debt can be serviced while economies grow and repair themselves.
ANON – How can an outstanding loan you can’t afford to pay off be used as collateral for yet another loan?
ANON – what is being proposed is a form of securitisation, in this case commercial banks being allowed to borrow against loans already outstanding to it’s customers – i.e. borrowing against assets that bank owns. Clearly though the ECB will need to make sure that these loans are performing satisfactorily, and will need to build in a good margin between their face value, and what it will lend against them.