Wednesday, November 23, 2011

The Barbarians are Behind the Gates

As one might expect:
U.S. money market funds, which are key providers of liquidity to banks and have been pulling back from the euro zone since May, cut their exposure to European banks by a further 9 percent in October, according to ratings agency Fitch.
But here is the interesting part on their counterparties’ fate. The ECB is curtailing bond sales to European banks. This is the precise opposite of what one does to bolster the banks, and seems somewhat fishy. Do they want banks to increase their appetite for Member-State bonds that the ECB are being coy about backing up through repurchases?
The ECB's weekly, limit-free handout of funding underscored the widespread problems, with 178 banks requesting 247 billion euros, the highest amount since mid-2009.
Despite that, they say that the ECB ‘floodgates are open’.

Not quite it looks like they’re holding back for what they suspect will be the worse to come.
"The reality is it's hard to see investors get any confidence (before the end of the year), as the sovereign crisis is out of control. Confidence has disappeared from the banks as they are a conduit for the sovereigns," a senior debt market banker said.

The strangest part of the story is that it reacting to what have been announced to be to repurchasing and bailout rules so far: bondholders, those banks bullied into putting depositors’ money into buying BAD sovereign debt have been told that in a ‘haircut’ scenario, that they will be paid AFTER governments holding other governments’ debt.

Now imagine the scenario: the public gets 50 cents on the Euro for their government bonds, and this send whatever liquid assets still inside Fortress Europe abroad. Recession looks more like influenza than a short case of the sniffles.

THEN the ECB will have put governments into a position where recapitalization of the banks that have had their depositors’ funds lost to bad government debt have to then pay for the socialization as well.

And to think that until just a few weeks ago, Trichet was aimlessly fighting non-existent inflation and beavering away on his price-stability mandate.

The world will catch this cold, all because of European governments’ social “largesse” and “generosity” that put marooned them in this cycle of borrowing. The reaction of the economically illiterate European population will be, as usual “Gimme-gimme-gimme! Me-me-me!” and unable to think anything up for themselves, pick up the work “bankseters” as a fixation for their blame. What they need to do is turn their attention to governments who sang “I’m just a girl who can’t say no” who spent those staggering borrowed sums despite collecting more than half of all GDP in taxes.

Now that population who has been paying for those punitive taxes and had their banks used as “an additional revenue stream” will have the restoration of the system thrust upon them too. It seems that there has never been a better time to be on the dole.