A Thinly Veiled Bail

ilene's picture

A Thinly Veiled Bail

By Ilene at Phil's Stock World, with Lee Adler of the Wall Street Examiner (many thanks to Lee!)

The ECB is borrowing U.S. Dollars from the Fed to bailout European banks. And that is in addition to the Long Term Refinancing Operation (LTRO)

However, the "borrowing" is not called "borrowing."  It's called a "temporary U.S. dollar liquidity swap arrangement."  Yet it is really borrowing because it's going massively in one direction for the purpose of giving the ECB Dollars to lend to European banks, so the ECB can avoid lending more Euros. The ECB doesn't want to tarnish its "inflation fighting" reputation and further devalue the Euro. Instead, the Fed is taking billions of Euros as collateral for the Dollar swap.  

As Gerald P. O'Driscoll Jr., former vice president and economic advisor at the Federal Reserve Bank of Dallas, and senior fellow at the Cato Institute, wrote in the WSJ (The Federal Reserve's Covert Bailout of Europe): 

"The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities."

U.S. Banks and financial institutions do not want to lend European Banks more Dollars, and it would look bad for the Fed to do this unpopular lending directly, so the Fed has found an indirect route.  

"The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan."

In exchange for Euros as collateral, the ECB gets non-technically loaned Dollars which it then lends to European banks. The additional Dollars flowing to the EU banks enable the ECB not to release more Euros to the EU banks and into circulation. According to O'Driscoll, this "Byzantine financial arrangement" was designed perfectly to confuse people. 

"The Fed's support is in addition to the ECB's €489 billion ($638 billion) low-interest loans to 523 euro-zone banks last week. And if 2008 is any guide, the dollar swaps will again balloon to supplement the ECB's euro lending...

"The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed's reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed's Swap Operations report, and the ECB website.)

"No matter the legalistic interpretation, the Fed is, working through the ECB, bailing out European banks and, indirectly, spendthrift European governments. It is difficult to count the number of things wrong with this arrangement." (The Federal Reserve's Covert Bailout of Europe)

Mr. O'Driscoll argued that the Fed has no authority to bailout Europe. (Although lack of authority has not stopped the Fed from acting in the past.) Bernanke met with Republican senators on Dec. 14 to discuss the crisis in Europe. According to Sen. Lindsey Graham, Bernanke told reporters that the Fed did not have "the intention or the authority" to bailout Europe. Nevertheless, the week Bernanke claimed he was not going to conduct an EU bailout "the size of the swap lines to the ECB ballooned by around $52 billion." 

O'Driscoll also argued that swap arrangements "foster the moral hazards and distortions" resulting from government intervention in the credit markets. "Allowing the ECB to do the initial credit allocation—to favored banks and then, some hope, through further lending to spendthrift EU governments—does not make the problem better." Moreover, this is another example of the Fed's lack of transparency. Non-transparency is a consistent theme of the Fed, in spite of Bernanke's promises to provide more openness. Bernanke's statement just two weeks ago that the Fed had no intention of bailing out Europe is consistent with a long history of secrecy and deceptive behavior. 

Distinguishing between the swaps (camouflaged loans from the Fed to the ECB) and the LTRO (loans from the ECB to EU banks), Lee Adler explained, 

"The USD swaps totaled almost 84 billion so far, while the ECB lent a net of $289 billion in the LTRO last week after rollovers.

"All central banks create money. That is their function. How they do it, whether by direct lending to government through direct purchase of government debt, or through lending to private institutions or purchasing private debt is a matter of a nuanced difference regarding the conduits through which the money flows into the financial system, the markets, and the economy. It’s a question of targeting.

"The biggest difference between the Fed and the ECB is that the ECB has always lent to all the European banks. Until 2007, the Fed only conducted operations with Primary Dealers. From 2007 to 2010 the Fed had direct operations with a variety of financial institutions. Since QE2, the Fed has gone back to dealing only with the PDs."

Apparently not anymore. The Fed is now using currency swaps to lend to the ECB which is taking the Dollars and lending them to European banks in exchange for a new, and more broadly defined types of collateral. As discussed in this week's Stock World Weekly, Money for Nothing and Your Debt for Free, the ECB's latest LTRO "is making it possible for eurozone member states to sell assets such as government buildings to banks, whereupon the banks turn the properties into asset-backed securities which are then pledged as collateral for borrowing from the ECB... Russ Winter observed, the ECB just was handed a gigantic can of worms. The ECB balance sheet is now up to $3.5 trillion USD...

“Illustrating the nature of this circular transaction, Bloomberg reports that Unicredit and Intesa, two insolvent Italian banks are using “state guaranteed bonds” as $52 billion collateral to throw at the ECB. So rather than even using actual Italian sovereigns, the ECB accepts something more nebulous down the food chain...”

Here's a chart Lee sent me from the ECB's website showing the expansion of assets on the ECB's balance sheet. The numbers on the y-axis are in millions, so the assets are rapidly approaching 2.75 trillion Euros (around 3.5 trillion Dollars).

Lee's chart of ECB's assets

Lee concluded, "The Fed has opened an unlimited credit line with the ECB and other central banks for which it has so far lent billions of Dollars, with Euros as collateral. The Fed is bailing out European banks; that's not in dispute. The ECB is the guarantor and the conduit, but the banks are the recipients of the bailout, and the Fed's balance sheet is expanding as a result of the loans to the ECB."

Stay tuned. Lee is going to describe how the US Government bond market collapses, and thus, the world ends, shortly.

Get regular updates on the US housing market, and stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market…stay ahead of the herd. Click this link to try WSE’s Professional Edition risk free for 30 days! 

Pic credit: Banksy

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sgt_doom's picture

"..temporary U.S. dollar liquidity swap arrangement.."

Same thing between 2007-2009, when Treasury guy Kreuger recently stated for the records that $13 trillion in wealth was lost to the American majority during that period, a liquidity swap arrangement (loans & credit) was extended by the Fed to to tune of $11 trillion to $12 trillion --- add to that the $1 trillion TARP bailout ($750 billion, plus expenses, never fully repaid, and billions written off for AIG) = $13 trillion.

Makes sense, credit stopped on one end, and started on the other.....

Joebloinvestor's picture

You know it is a fucking lie and a SCAM when they start mentioning "sterilization".


Like that makes it all OK.

PulauHantu29's picture

2012, more Dismal looking then I thought it would be...sad.

Sunshine n Lollipops's picture

"This is simply not logical, captain."

"Damn your oversize Vulcan brain Spock! Mr. Sulu, set the printers to warp 9 and prepare to fire on my signal!"

JW n FL's picture



Platinum $1,300's!

Silver $27's!!

Gold $1,500's!!!

Buy Low!

Sell High!!

Amish Hacker's picture

So the Federal Reserve is going to be the pivot man in this circle jerk? Maybe "circular firing squad" would be a better metaphor.

Long-John-Silver's picture

This is an ongoing murder, suicide event.

xcehn's picture

No difference between these machinations and those of other organised crime rings.  All in the family.

JW n FL's picture



The ECB is borrowing U.S. Dollars from the Fed to bailout European banks. And that is in addition to the Long Term Refinancing Operation (LTRO).

However, the "borrowing" is not called "borrowing." It's called a "temporary U.S. dollar liquidity swap arrangement." Yet it is really borrowing because it's going massively in one direction for the purpose of giving the ECB Dollars to lend to European banks, so the ECB can avoid lending more Euros. The ECB doesn't want to tarnish its "inflation fighting" reputation and further devalue the Euro. Instead, the Fed is taking billions of Euros as collateral for the Dollar swap.

You really have to Love her.. she just makes you want to when she writes like this!


The Four Companies That Control the 147 Companies That Own Everything

There may be 147 companies in the world that own everything, as colleague Bruce Upbin points out and they are dominated by investment companies as Eric Savitz rightly points out. But it’s not you and I who really control those companies, even though much of our money is in them. Given the nature of how money is invested, there are four companies in the shadows that really control those companies that own everything.

Before I reveal them, some light math:

According to the 2011 annual factbook from the Investment Company Institute, there is $24.7 trillion in all the mutual funds in the world (a little less than half from the US). Based on data from the ICI, $1.24 trillion of this is directly invested in index funds, plus another $992 billion in assets beyond that $24.7 trillion in Exchange Traded Funds, which aren’t mutual funds but are index funds. That means the bulk of that money is in “active” managed funds or fund of funds.


ilene's picture

Thanks, that's an interesting topic. Eric's argument was the worst, kind of like equating the right to vote to having meaningful control of the country. ("The 147 Companies That Run The World? They're You.")

But anyway. 

sgt_doom's picture

Thanks for the links, I gave up on Forbes quite some time ago, but afraid I'll have to disagree with his conclusion:  those people who meet with David Rockefeller and Henry Kissinger every year at the Bilderberg forums really appear to have control over the senior capital pools.

JW n FL's picture



I thought that it was interesting how something we would talk about here.. has now found its way on to the pages of Forbes.

Bashing the Top 1% of the Top 1% has gone main stream!

even if they are incorrect in the assumptions.. the fact that people are openly discussing who is controlling what.. and that looking for who controls what is en vogue!

I hope everyone starts searching and sharing! we should be able to shake out what’s what fairly easily then!

what we lack in organization or lobby dollars we damn sure make up for in numbers!

that dont have a fema camp big enough for all of us!

never mind, America is a FEMA Camp.. the gated Communities are to keep the FEMA People out! LULZ!!


Merry Christmas and Happy New Year!!

JW n FL's picture



25 Giant Corporations That Paid Their CEOs More Than They Paid Uncle Sam

It might make sense for a small business to pay its top brass more than it doles out to Uncle Sam in taxes, but what if that company has tens of thousands of employees and billions of dollars in profits? Well, this is America folks. What follows is a list of 25 mega corporations that paid one guy—their CEO—more money than what they spent on their entire federal tax bills last year. The same companies averaged $1.9 billion each in profits—money that was earned, in many cases, by cutting thousands of American jobs.



10 CEOs Who Got Rich By Squeezing Workers

Corporate profits grew 38.8 percent in 2010, the biggest increase since 1950. But while CEOs earned an average of 20 percent more last year, many Americans continued to lose their jobs and benefits. The insecurity of the middle class has a lot to do with how executives are paid. Bonuses pegged to stock prices encourage CEOs to mercilessly outsource and downsize, slashing costs to boost profits. The result is that more corporate leaders are getting paid at the expense of average workers. Here are 10 of the worst offenders:




The Top 10 CEO's who Fired Workers to make the bottom line seem more profitable so that they could take home BIG Bonuses! Fire the workers! and get a pay raise for doing it! Wall Street Loves the Middle Class! Loves to sell shit to the Middle Class and Loves to Axe the Middle Class for Bonuses!




gmrpeabody's picture

You are the fastest typer I have ever known.

JW n FL's picture



I really am a hen pecker.. but I can peck fast! LULZ!

Merry Christmas and Happy New Year!!

tony bonn's picture

come on ilene and bring us the truth!

the only thing which the chairsatan introduced to the loan operation was a level of indirection as you described in the article....

lies, obfuscations, and distortions are the tools of losers and assholes....

may the new year bring total destruction to the banksters and their criminal enterprises....

ex VRWC's picture

Attack the FED in song.  Get the word out - its not important what they call their Byzantine schemes.  Its only important that we say clearly why ZIRP is evil.   Spread this around - 500 hits in two days, thanks to ZHers.  Doesn't seem like much, but this is a great start!

The ZIRP Song



Bicycle Repairman's picture

Let's get big picture here. 

The banks all over the world are connected.  After all the FED has done (and is continuing to do) to save USA banks, there is no way they will let the failure of any bank anywhere in world to drag the banking system down.  They will do whatever it takes.

Second, this market or that market implodes and the world ends.  Nope.  If any market gets out of hand it will be controlled.  If markets in general become counter-productive, then there will be a full-on command economy.  Command economy 'bad' you say?  'Bad' for whom, I say.

semperfi's picture

The bailouts will continue until morale improves.

JW n FL's picture



I Like You!

God Bless You and Yours!

blindman's picture

"the usa is greece with a printing press, no statues."
tony said that.

blindman's picture

everything hurts here.
the debts are astronomical. the fiat is related to
an expiring charter and is being devalued and stolen
by the second thanks to the fed and our political front
persons. futures are being heavily manipulated as all
prices are distorted due to no mechanisms for price discovery
due to currency manipulation as a systemic mechanism that
"integrates" europe and the usa / apparently the same thing?
when the charter is up i suspect the ptb want a prearranged
and equitable distribution of gold / pms to be in place to
form the next entry prerequisits into the global fiat currency.
a distribution that will lend an air of legitimacy to the political
trade of sovereignty for introductory market share?
1.) for now, balanced books and taxes are for the little people.
the big players are paid to operate the central planing of the
controlled demolition of the fiat. so, btfd when you see it if
you can, and if you can see it. i know cash is/will be king
but not for long. he will be murdered by the queen when she
sees what he has done to her (he) - art. or something like that?
call it experimental wor(l)d play. or virtual cave art in the open air?
nobody knows what they are doing here, they are just managing the
end game and trying to maintain a distribution that will satisfy
the various factions of the influential elite. avoiding prison and
war seems to be the order of the day. not war with the weak and poor,
war within the ranks of the rich. the main thing is to steal as much
as possible from the working and producing classes before they run out
of faith and energy and financialize their nest eggs into the coffers.
entrain the next generation within the paradigm of perpetual and infinite
debt. it won't work.....
beyond that i don't think there is any vision or plan.
mo. financiers gone wild ! how about this. people commonly complain
about government interference in their lives, and rightly so, but few
remark concerning the intrusion of financialization into their lives,
that because we have accepted the idea that money is the self serving
unelected, all powerful king. we merely exist to serve the fiat money
system? i think we have a serious problem? better days ahead if we

ZippyDooDah's picture

And yet, the dollar is strengthening against the euro.  Our fictional entity is worth more than their fictional entity.  If this is a joke, why does my brain hurt?

cranky-old-geezer's picture



Get regular updates on the US housing market, and stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market…stay ahead of the herd. Click this link to try WSE’s Professional Edition risk free for 30 days!


We get all this stuff free on ZH way longer than 30 days :)

This very subject was covered Wednesday on ZH:

Former Fed VP Accuses Bernanke Of Bailing Out Europe Via Currency Swaps


And no, these USD-for-Euro currency swaps don't seem to be having their desired effect of keeping the Euro up.  EURUSD fell overnight to 1.2860ish.

Once again Ben pisses away (American taxpayer) money trying to bail out Eurobanks.  His measly 50 bp carry trade is getting clobbered.

This may explain silver's dive off a cliff yesterday ...dropping further overnight to 26.20ish.  Eurobanks selling silver holdings trying to prevent imminent collapse?  The reason behind this sudden spike in USD-EUR currency swaps?

Is the Euro and EU gonna die this week?  Next week?  And leave Ben holding $100 billion of worthless Euros? $200 billion?  $300 billion? More?

Is this insiders getting out of Euros into Dollars before the Euro dies?  Dumping their losses on Ben (and American taxpayers)?

Seems the Fed is the bad-bank-of-last-resort where all the insiders dump their losses these days.

Bartanist's picture

All according to the BernNANK's plan. His thinking seemingly has not advanced one bit since his speech in 2002.


However, beyond this there does not appear to be more in his bag. He has been ticking his tactics off one by one.

IMO, the NANK has come to the conclusion that he is just a well kept pet and fool. But, he has no courage and is so mired in the illusionary "image" that has been ceated of him that he cannot under any circumstances change and become a "real human being".

A toad by any other name still has warts.

tradewithdave's picture

Tell me if I'm wrong, but doesn't there come a point in this "strategery" where the continued false strengthening of the dollar in this model results in the demise of the price of gold resulting in equal if not greater destruction of the Central Bank balance sheets that hold gold. 

It is fundamental to any construct to have a boundary.  In the absence of a boundary, they risk unleashing a gold freefall (not mere suppression) that manifests as their enemy that eats away at them from the inside until such time as a decision is made to throw select so-called sovereigns overboard... at which point gold snaps back quicker than Stanback.  If gold should keep falling while silver stops falling would that not be an indicator of such a condition emerging?  Then again that could be the plan all along from the viewpoint west of the Atlantic.  I can't imagine that Chairman Bernanke will be welcome in Basel if he executes on such a plan.  I also don't imagine that they would leave Cameron out of their scheme.  If such a scenario unfolds, time would seem to have run out for Merkozy. 

Dave Harrison


KickIce's picture

Not if they can get the sheeple to part with their gold.

MFL8240's picture

Nice article dave but save your rational thought for another life, this group will lie, steal, chaet, make up numbers and or anything they must to misleed and destroy this economy.  They care not about the USA, they care about power over you.

El Gordo's picture

Another dead horse for a dead cow deal.

blindman's picture

thanks.@pjb, v, etc ..
Manly Hall - Mystical Life of the American Indians
.....Goal by Festus Baise
( http://www.zerohedge.com/news/things-make-you-go-hmm-such-looking-back-k... )
images, some anyway, from " cave of forgotten dreams" werner herzog
cave people living thru ice ages marking up the walls, generations, changing.
Manly Hall - Opening the Doors to the Invisible

falak pema's picture

only the debt drowning bankers get temporary solace and subsequent definite burning in hell out of this desperate fiat press printing knee jerk.

knukles's picture

"It's not a loan, it's a fucking repo."
All syntax