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"Unleash The Toxic Sludge" - Europe's Latest Brilliant Idea To Fight Deflation

Tyler Durden's picture




 

By now all of our readers, if not so much the ECB (even though we know they read us religiously too), are aware that the biggest problem in Europe is the continent's moribund, and record low, credit creation courtesy of a clogged monetary transmission pipeline which has resulted in a -2% "growth" in loans to the private sector, which as monetarists (and certainly Austrians) everywhere know is the necessary (if not sufficient) condition to stimulate inflation in a continent drowning in deflation.

 

This is also why, as we reported first back in October, rumors have been swirling that the ECB itself is now contemplating launching QE, although judging by the amount of endless chatter in recent weeks by both Draghi and Weidmann, it is becoming increasingly evident that Europe will do nothing and is hoping that merely jawboning will launch inflation as happened after Draghi's summer of 2012 "whatever it takes" speech. How ironic that two years later, Draghi will do "whatever it takes" to crush the Euro... except actually do anything.

And confirming that the ECB will almost guaranteed not do QE, is the latest report from the FT that "European regulators are preparing to get their hands dirty by easing rules on an asset class once labelled toxic sludge, in a bid to boost lending to credit-starved small businesses in the region." Translated - Europe is about to literally "unleash" the toxic sludge, i.e., all the worst of the worst debt that was the reason why Europe is in a 6 year-old depression, and hope and pray it somehow fixes itself.

From the FT:

The European market for securitisation has all but closed for business since the crisis, when the practice of slicing and dicing of loans into packages known as asset-backed securities was blamed for letting problems in the market for US subprime housing loans spread through the global financial system.

 

The EU is now seeking to revive the moribund market, an objective which is shared by the European Central Bank. Mario Draghi, ECB president, has hinted that were there sufficient liquidity in the market for asset-backed securities, the ECB would be prepared to buy them to counter the rising risk of deflation.

 

“We think that a revitalisation of a certain type of [asset-backed security], a so-called plain vanilla [asset-backed security], capable of packaging together loans, bank loans, capable of being rated, priced and traded, would be a very important instrument for revitalising credit flows and for our own monetary policy,” Mr Draghi said last month.

 

Michel Barnier, the EU commissioner responsible for financial services, will make it easier for insurers, one of the industry’s biggest potential customers, to hold these assets by easing capital rules on their holdings of relatively safe forms of these securities.

 

A revised draft of technical rules to implement Solvency II, the law governing the European insurance industry, seen by the Financial Times, reveals officials are planning to halve the capital requirements on securitisations deemed to be of high enough quality. 

 

Under the changes, the capital requirements on the safest securitisations would be sliced in half from 4.3 per cent to 2.1 per cent.

 

The move is part of a broader set of measures to support financing to the bloc’s businesses, which rely on bank lending far more than their US counterparts. A pledge to rebuild a European market for the repackaging of loans is set to feature in an update on the European Commission’s green paper on the future of finance, due to be unveiled on Thursday.

Sigh. What else can one possibly add here but...

 

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Wed, 03/26/2014 - 15:33 | 4595117 Herd Redirectio...
Herd Redirection Committee's picture

At least Europe will get some Teenage Mutant Ninja Turtles out of the deal.

Wed, 03/26/2014 - 15:42 | 4595170 disabledvet
disabledvet's picture

I think ZIRP was "Spawned" actually. How about some Killer Tomato's instead? "The Critics Notebook is open today" and I'm really not in the mood to do anything but slice and dice. Yes, critics can be moody too. The food is good.

Service okay too.

Not Five Stars fer sure...but I hear that's in the works.

Wed, 03/26/2014 - 16:12 | 4595382 Boris Alatovkrap
Boris Alatovkrap's picture

Economic is science of explain tomorrow why prediction of yesterday is not materialize today.

Wed, 03/26/2014 - 18:25 | 4595649 BigJim
BigJim's picture

 Michel Barnier, the EU commissioner responsible for financial services, will make it easier for insurers, one of the industry’s biggest potential customers, to hold these assets by easing capital rules on their holdings of relatively safe forms of these securities.

'Relatively' safe? Relative to what? Gelignite? 

Wed, 03/26/2014 - 15:59 | 4595287 RafterManFMJ
RafterManFMJ's picture

You cannot polish a turd. - Cherokee saying.

Wed, 03/26/2014 - 16:10 | 4595371 Boris Alatovkrap
Boris Alatovkrap's picture

You can fill sausage with turd and no one is noticing if enough garlic - Polish saying.

Wed, 03/26/2014 - 16:17 | 4595413 RafterManFMJ
RafterManFMJ's picture

No damn wonder my Polish aunt always sniffs the sausages!

Wed, 03/26/2014 - 17:06 | 4595640 Steve in Greensboro
Steve in Greensboro's picture

Moron: IQ: 51-70

Imbecile: IQ 26-50

Keynesian: IQ 0-25

Wed, 03/26/2014 - 17:45 | 4595820 SAT 800
SAT 800's picture

Ah, I see. Then you would have an "Alatovkrapwurst"; nein ?

Wed, 03/26/2014 - 18:28 | 4596034 Boris Alatovkrap
Boris Alatovkrap's picture

Nein!

Wed, 03/26/2014 - 16:33 | 4595504 CrimsonAvenger
CrimsonAvenger's picture

Actually you can - https://www.youtube.com/watch?v=yiJ9fy1qSFI. But in the end it's still a turd.

Wed, 03/26/2014 - 19:47 | 4596415 CPL
CPL's picture

They'll turn their own homes in Europe into a toxic dump before admitting they need to get back to the table and sort their shit out.  That's completely insane, the bunch of them should be committed to for being a public hazard due to mental health conditions.

All it would take is a doctors note, delivered to the local police district to process the public medical order.  Or am I incorrect that public safety is a principal concern of the local medical and local law enforcement officials in Europe and the doctor's note superseeds all public office when a public concern.

...If you can't arrest them, put them in the nuthatch on the municipal level.

Think of it this way.  If some loon ran into a mall and started saying that they were going to start dumping hazardous waste in the water, the likelihood of that person making it out of the mall with a cost-benefit is about...zero.  And more than likely go for a tour in one of the numerous, over crowded and underfunded prisons or state mental health facilities.

Historically the idea putting of crazy leaders in the nuthatch isn't new.  It's been done often enough that it's comedy now.  During the Roman empire, they had established mental health facilities, because seeing the mentally ill made them uncomfortable, so they had to be put somewhere.  Usually in horribly underfunded and absolutely disgusting in terms of hygiene facilities.  If you had the misfortune to be afflicted with mental health issues, it was practically a death sentence.  Either the patients or conditions would kill you. 

Using the idea of chucking political colleagues in the loonie bin was common practice to proclaim "how mad so and so" was, arrange a kangaroo court and throw the political eyesores in with the real crazies.  The irony is the people thrown in the nuthatches were usually the ones that begged to under fund them...and usually died terribly in them.  Today I doubt that would be the case in Europe, it would help avoid the idea of throwing violent coups and containing loons from turning Europe into a wasteland.

Wed, 03/26/2014 - 15:35 | 4595127 Four chan
Four chan's picture

and zirp was born.

 

Wed, 03/26/2014 - 15:44 | 4595187 Dollarmedes
Dollarmedes's picture

Why not? Reducing credit standards has worked out so well everywhere else!

Wed, 03/26/2014 - 15:50 | 4595140 ebworthen
ebworthen's picture

There's a Kraken in there somewhere.

Love the bearded potato quote/demotivator poster.

http://www.despair.com/economics.html

(link opens in new window/tab)

Wed, 03/26/2014 - 15:40 | 4595155 i_call_you_my_base
i_call_you_my_base's picture

Quick, put a bow at that pile a feces.

Wed, 03/26/2014 - 15:45 | 4595179 NoDebt
NoDebt's picture

How high's the water, Ma?

8 feet high and risin'.

Wed, 03/26/2014 - 15:46 | 4595202 ghostfaceinvestah
ghostfaceinvestah's picture

Why is deflation bad again?  I mean, for the people, not the banksters

Wed, 03/26/2014 - 15:55 | 4595255 NoDebt
NoDebt's picture

Believe me, inflation, deflation.... doesn't matter.  NOTHING is going to help "the people" from this point forward.

Deflation is great.... if you have a steady income.  Which, apparently, huge double digit percentages of people across southern Europe don't.

Wed, 03/26/2014 - 20:25 | 4596542 franciscopendergrass
franciscopendergrass's picture

Deflation and high interest rates are REALLY REALLY REALLY REALLY bad if you owe $17 trillion.  Govt's fear deflation because they don't want to owe on their debt.  Gov'ts = fucking hypocritical assholes

Wed, 03/26/2014 - 15:49 | 4595215 caShOnlY
caShOnlY's picture

Krugturd

Wed, 03/26/2014 - 15:49 | 4595217 buzzsaw99
buzzsaw99's picture

because buying those securities will help the people. lulz

Wed, 03/26/2014 - 15:54 | 4595245 ZeroPoint
ZeroPoint's picture

Can't wait for the retail brokers to start cold calling. 'Have I got a buying opportunity for you!' HAHAHAAHAHAHAHAHAHAH!!!!!

 

 

Wed, 03/26/2014 - 19:12 | 4596258 kurt
kurt's picture

I can smell the Aqua Velva now and see the sweaty grease and crotch steam. He clenches his teeth and smiles. Wait we need a brochure and a slick presentation. Offer a trip to Beautiful 29 Palms. Watch those pens! You'll have to pay for those if you give too many away. Does this bed have a vibrate function. Look centipedes.

Wed, 03/26/2014 - 16:00 | 4595290 ElvisDog
ElvisDog's picture

That plan is like trying to bail water out of the titanic. Won't work. Embrace the great re-set that is on its way like the Kraken.

Wed, 03/26/2014 - 16:00 | 4595294 Skin666
Skin666's picture

Is that true? Are all the ECB banksters reading Zero Hedge daily?

 

You can't make this shit up!!!

 

LOL

Wed, 03/26/2014 - 16:29 | 4595486 besnook
besnook's picture

this is a great examle of krugman style green shoots. if we burn everything down we'll have to rebuild it again. that means jobs for everyone!

http://rt.com/usa/houston-fire-worker-escape-video-441/

Wed, 03/26/2014 - 16:47 | 4595568 whoknoz
whoknoz's picture

"...whatever it talks..."

Wed, 03/26/2014 - 16:50 | 4595574 Al Huxley
Al Huxley's picture

Listen, for fuck's sake get it through your heads - there is no inflation - there is no deflation - everything is well, unemployment is down, the economy is robust and improving, the dollar is going up, interest rates will be rising soon, as soon as QE is unwound.  The deficit is under control and disappearing rapidly, and Amerika will soon be self-sufficient in energy.  Our valiant border guards - the heroic TSA are protecting our freedoms, and our vigilant security guardians at the NSA, are guarding our free speech and privacy from the terrorists.  We live in the best of all possible worlds, there is no need to fight deflation, or inflation, and although it may be necessary to repurpose some bank assets at some time in the future, rest assured that it will be done to support our continued progress as we march to freedom!

Wed, 03/26/2014 - 16:57 | 4595603 LawsofPhysics
LawsofPhysics's picture

yes, yes, quick we better liberate somebody quickly!

Wed, 03/26/2014 - 17:15 | 4595673 Ifigenia
Wed, 03/26/2014 - 17:35 | 4595779 caShOnlY
caShOnlY's picture

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

- Krugturd 2002

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

Wed, 03/26/2014 - 17:19 | 4595696 beavertails
beavertails's picture

Doesn't work for 99%.  Not stupid at all if you are the 1%.

Wed, 03/26/2014 - 17:24 | 4595717 smacker
smacker's picture

Whenever I read quotes from our friend Mr Krugman, I cannot avoid concluding that he's a fully blown nutter.

If I wanted to nominate a pair of economic nutters to destroy the global economy, Paul Krugman & Gordoom Brown would be high on my list.

Wed, 03/26/2014 - 19:06 | 4596221 RichardParker
RichardParker's picture

Mises.org gave a pretty accurate appraisal of him when they referred to him as the humor c

olumnist for The New York Times.

Wed, 03/26/2014 - 23:28 | 4597219 TheReplacement
TheReplacement's picture

He may be a psychopath but you could have gotten rich listening to him.  What a strange world, eh?  I wonder why psycho has a "p" in it.  Why does "ch" sometimes sound like "ck" but not others?  Don't even get me started on (y).

Wed, 03/26/2014 - 17:50 | 4595841 SAT 800
SAT 800's picture

Verrry interesting. So the economic "stuff" is not moving fast enough through the plumbing, eh? Well, give it a good wallop with a big hammer; that ought to fix it. Disclosure; Yes, I am short the Euro.

Wed, 03/26/2014 - 18:13 | 4595945 Joebloinvestor
Joebloinvestor's picture

You can inflate a flat tire if you pump enough air into it fast enough.

A waste of air and you don't get anywhere, but it proves a point.

Wed, 03/26/2014 - 23:29 | 4597223 TheReplacement
TheReplacement's picture

Until you run out of either air or pump.  Both are finite.

Wed, 03/26/2014 - 19:30 | 4596325 bugs_
bugs_'s picture

Here in the Deflationists Lounge we observe that since Keynesians extending credit based on toxic financial assets has already been happening it would be morally unfair to not do so for non-financial toxic assets!

Wed, 03/26/2014 - 20:21 | 4596531 franciscopendergrass
franciscopendergrass's picture

If Krugman and Obama own a Nobel Prize then can Ron Paul get 2 Nobel Prizes in economics and peace? 

Wed, 03/26/2014 - 21:42 | 4596870 dexter_morgan
dexter_morgan's picture

In a rational world it would be that way, but not in our bizarro world.

Wed, 03/26/2014 - 21:59 | 4596931 Morla
Morla's picture

There's no "Nobel Prize" for Economics, what Krugman has is the Sveriges Riksbank Prize in Economic Sciences (in memory of Alfred Nobel).. Considering it's named after a central bank, it's a little less surprising that Krugman won it.

Wed, 03/26/2014 - 20:27 | 4596552 franciscopendergrass
franciscopendergrass's picture

Inflation = debtor's paradise.  Deflation = saver's paradise.

Wed, 03/26/2014 - 22:02 | 4596944 Morla
Morla's picture

And savings = wealth they haven't found a way to take from you yet, hence why Larry Summers wants to ban cash and establish negative interest rates on savings.

Thu, 03/27/2014 - 03:57 | 4597619 Ghordius
Ghordius's picture

deflation does not "crush the euro". I find that the author of this article is talking from both sides of his mouth

all Draghi has to do is to talk. that's his job, and up to now he's doing it brilliantly. of course, this is only possible because the FED is doing what is doing and conditioning the markets to listen every word of every national banker as if it was gospel

the real discussion in the eurozone is not about credit creation going down - this is only scary for bankers, not national bankers and the real economy. a point that seems to be lost to our American Cousins where the three are structurally interconnected in a different way. the real discussion is about gauging how small and medium biz is faring in this environment. hence those plans, which probably won't be needed

Thu, 03/27/2014 - 04:38 | 4597643 Villageidiot777
Villageidiot777's picture

Long cocaine and bitches, bitches.

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