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Why Draghi's ABS "Stimulus" Plan Won't Help Europe's Economy
Simply put, the reason why Mario Draghi's impressively-pitched ABS 'stimulus' QE-lite plan won't help can be summed up in 2 words "unencumbered assets." There is simply a lack of the right quality collateral, that has not already been swapped with the ECB (or delevered off balance sheets), for this to make a difference. However, as Bloomberg reports, the plan will not even get that far.. because the market for these assets is incapable of supporting this size of buying. As one major ABS asset manager notes, it takes him about three months to buy 1 billion euros of these securities, "the number that's circulating the market is 500 billion euros, but where is he going to get it from?" Add to that the report from Die Welt that The ECB lacks sufficient expertise for ABS purchases, and as another major European ABS manager concludes, "I don't see either a capital relief for banks or the banks giving more credit to the real economy." Still, it's fun to believe Draghi's promises, right?
Draghi's biggest problem...
Europe's problem has always been a simple one: very few unencumbered assets left to lend against pic.twitter.com/rBP6g2o84t
— zerohedge (@zerohedge) September 5, 2014
But as Bloomberg reports, there are other issues to deal with...
The European Central Bank president’s plans are being greeted with skepticism by investors who have seen the 1.2 trillion-euro market contract more than 40 percent since 2010 as regulators cracked down on the debt blamed for deepening the financial crisis. The securities are also typically bought by pension funds, insurers and banks who hold them until maturity.
As head of ABS at Aegon Asset Management, which oversees 240 billion euros ($311 billion), Meijer says it takes him about three months to buy 1 billion euros of securities.
“The number that’s circulating the market is 500 billion euros, but where is he going to get it from?” said Meijer, who is based in The Hague. “Existing bonds are unavailable so he might have to ask banks to create new ones.”
...
“The news is clearly positive but the ECB will have to be careful not to alienate the existing investor base in ABS,” said Patrick Janssen, a fund manager at London-based M&G Investments, which oversees 21 billion euros of ABS. “There is a risk of us being crowded out.”
Policy makers are running out of options to stimulate Europe’s economy.
European ABS sales fell to about 74 billion euros last year from 325 billion euros in 2007, an almost 80 percent decline, according to JPMorgan Chase & Co. Citigroup Inc. estimated earlier this year that there are only about 13 billion euros of public bonds outstanding that are backed by loans to small-to-medium sized companies, the part of the market that the ECB has sought to revive.
And as Die Welt reports,
- *ECB LACKS CAPACITY TO CONDUCT ABS PURCHASES: DIE WELT
- *ECB DOESN'T HAVE SUFFICIENT EXPERIENCE FOR ABS PURCHASES: WELT
- *ECB PLANS TO HIRE BANKS, OTHERS TO IMPLEMENT ABS PROGRAM: WELT
- *ECB MAY USE EXTERNAL COMPANY FOR SOME ABS PURCHASES: DIE WELT
Great - so ECB can't do it - so put the biggest asset-holders in charge of buying their own stuff with European taxpayer money?
* * *
We leave it to Bloomberg to conclude...
The ECB initially plans to target the most senior and least-risky segment of the secured bond market. The central bank would only consider buying lower portions, such as the so-called mezzanine part, if governments provide a guarantee, Draghi said.
The ECB needs to buy the junior portions of the securities to have the desired effect, said Robert Wakiyama, who manages the $1.4 billion Credit Suisse Lux Global Securitized Bond Fund (CSSIFAB) from Zurich. That’s because banks and insurance companies that buy the bonds have to hold more capital to insure against losses on the junior portions of the securities.
“Buying senior ABS bonds is not the solution in our view as it doesn’t take the risk from the banks’ balance sheet,” Wakiyama said. “With the current regulation, banks have to retain the most junior part. As long as the ECB isn’t participating in those bonds, I don’t see either a capital relief for banks or the banks giving more credit to the real economy.”
* * *
So apart from a lack of assets, lack of liquidity, concerns over crowding out, and knowing that the transmission channels to the econonmy will remain clogged since ECB is only buying the seniors... this is a great idea, right?
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Off-topic....
I have a pop-up ad with hot Chinese girls with big tits for sale (errr, I mean to date). How long before Chinese sites have pop-up ads of American girls for sale...?
Chinese girls with big tits? Are you sure the pictures are not sumo wrestlers?
Chrome + adblock pro
They might have to wipe out much of the Red States before the cloud over "White Slavery" is turned to "Poor, Unethical, Risque, promiscuous, and unwanted".
Meaning the "Normalization" between USA, China, Asia, Latin America, and Europe hasn't gone far enough yet.
Probably they need huge events of naked people in public doing stupid things. Sort of like now, but bigger. Propaganda that repudiates white people as racist. Hey maybe after white people become a minority.
It will be interesting to see what putrid "assets" are stuffed into these "securities" which will have the "backing" of EU country governments (tax slaves).
Brother your tweet was way, way, way, way, WAY too logical and sound. Only thing that gains traction in this world is flying unicorns cheered on by Crameresque drivel enhanced by hopium and taxpayer QEed cocaine binges.
Help? Is that some kind of Chinese word or something?
The BIS and FED ( dark banking )has plenty of bux, euros for their sister banksters..
Yes, that might be True. Maybe the $1.8 Quadrillion of US Derivatives are freely available in Europe in large tracts as well.
"So apart from a lack of assets, lack of liquidity, concerns over crowding out, and knowing that the transmission channels to the econonmy will remain clogged since ECB is only buying the seniors... this is a great idea, right?"
Yes
Any idea not involving Federal Reserve is aces.
....because printing fiat currency leads to hyperinflation. This is inevitable.
The book of all books on prepping
http://newamerica-now.blogspot.com/2014/02/beyond-collapse.html
Ebola's death tole is now at 2100, can't we capitalise on that one?
Sell them asperine at 100 euro's a pill?
Have to wait till Goldman Sachs is positioned to profit handsomely before any help
So central banks are essentially mortgaged to the hilt, but using the public treasury.
Much like homeowners using their equity as an ATM taking out equity loans for cash.
It worked until rates went up, MBS's and CDS's collapsed, and demand for payment killed Lehman.
Brilliant. "Swing low, sweet chariot...comin' for to carry me home..."
sell the seniors to them and take payment in cash and put it in a vault somewhere. eurobonds, bunds, vhatever, don't pay jack shit anyway,
Taylor, Bean and Whitaker along with Colonial Bank have some excellent securities to sell. All unencumbered, I promise.
That reminds me... why wouldn't EU Banks just take the money and buy US Assets? What did they do with the FED Money provided after the 2008 Collapse?
We know QE & TARP just went to make the Elites more wealthy. EU Elites are our teachers and forefathers... who also failed in stewardship of their Economies and Industries.
http://research.stlouisfed.org/fred2/series/ROWFDN... ($3.16 Foreign Investment USA)
http://research.stlouisfed.org/fred2/series/GPDI ($2.69 Private Domestic Investment)
http://www.bea.gov/newsreleases/international/intinv/iip_glance.htm
http://www.bea.gov/newsreleases/international/intinv/iip_glance.htm ($26 Trillion foreign compared to $22 for US) (This is very interesting as Big Banks are growing strongly, but the number of total us banks is dramatically decreasing, like someone is gaming the system, Commercial Banks in the U.S. - FRED - St. Louis Fed)
What in fucking dogs name have Anti-lock Braking Systems got to do with saving the wankers who have banktrupted the western world?
You know when you think you are living the dream you just woke up from? You know that feeling where you wish you hadnt woke up?
We are fucking living it. Fuck this, I am back on the evo from tomorrow, glue is better than this shit.
Cunts
;-)
The idea with the ABS collateral is to stimulate bank lending. The banks will make dubious car loans which will stimulate VW/Porsche, BMWerks (lots of German financial stimulation) and less so for the Italians and French. The consumers will get their loans sold to the ECB in the end get bailed out. It looks pretty slick to me. Its just another form of Keynesian ditch digging / back-filling. They are using theeir imaginations- which is a good sign. All the while they stimulate tax revenues.
Even with unencumbered collateral, they still couldn't save anything, since, as usual, all they're doing is transferring risk from the banks to the banking system (which is the very problem they're pretending to address).
They just need to do some rehypotheticating in order to create more collateral. Everyone knows that shit works wonders with little problems like say... math.
The ECB will buy junkier paper if you and me guarantee it? While interest rates are rigged to theive my assets? A Paris Pitchfork Party is needed.
.
"lack of expertise"? What kind of skills do you need to print digital money and pay premium prices for junk?
ECB, as I believe The Fed did also, will be buying unperforming and unreported bad debt from the European banks, put this poor performing debt on their balance sheet and allow this debt to terminate on the Central Banks balance sheet.
Are any Central Banks in the developed world performing an open and official audit of their balance sheet? Hell, once you start printing anything is possible. ECB can print EUROs to make it look like the bad debt is actually performing. The Wizard of Oz is powerful as long as he can keep his efforts in the dark.