Did Mario Draghi Leak The Goldman Memo On Next ECB Steps

Tyler Durden's picture

Just a few hours before someone (cough Draghi cough) leaked the details of the sterilized - though unlimited, peripheral spread-reducing - though not capped or fundamentally-based, SMP 2.0, Goldman Sachs released their 'view' of what Super-Mario will do. Rather unsurprisingly, almost verbatim, the rumors fit that 'guess' rather well as the chaps at Goldman fully expected demanded this 'compromise' solution. They also expect no rate cut - since economic data is not a broadly dismal and falling as it was - but do expect further non-standard measures including collateral-easing (which has been pre-announced to some extent in the 'credit-easing' camp).


From 4:26ET this morning...

Goldman Sachs, ECB preview: Spelling out the detail

Bottom line: The main focus of this Thursday’s ECB meeting will be a further clarification of the modalities of the sovereign debt purchases President Draghi announced at the August meeting. We do not expect an announcement of a specific yield or spread target or cap for rates. Rather, we think the Governing Council will signal its intention to steer short-dated government debt towards levels it deems as consistent with fundamentals and which does not reflect a conversion risk. This range, however, is unlikely to be specified further – not least because the candidate countries for support have yet to make their requests to the EFSF and accept the implied conditionality, which Mr. Draghi has identified as a precondition for sovereign purchases. This will leave the ECB with considerable tactical room for manoeuvre. We also expect a further loosening of collateral requirements.


The economic situation – not improving, but also not worsening


Our own Current Activity Indicator, which uses a broader range of monthly indicators, has also moved broadly sideways, although it signals a slightly more pronounced decline in activity than the composite PMI (-0.2%qoq). Thus, the economic situation, when compared to August seems not to have changed in a significant way.

Because of this we also think that the Governing Council will stick to its medium term forecast of a very gradual recovery with downside risks dominating


The Flash estimate for Euro area inflation stood at 2.6%yoy in August after +2.4%yoy in July.


We think that neither the economic nor inflation outlook has changed to an extent that would merit, in the eyes of the Governing Council, a further rate cut. In fact, we expect policy rates to be kept on hold for the foreseeable future.


Spelling out the details of SMP 2.0

The main focus of this Thursday’s press conference will be a clarification of the modalities under which the ECB would be willing to intervene again in short-dated sovereign debt markets. In August the Governing Council declared that it “may undertake outright open market operations of a size adequate to reach its objective.” As we have explained in more detail here there are different degrees of market interventions that are in principle consistent with this announcement. Outright caps of yields or spreads would be obviously at one of the spectrum, while occasional interventions to dent spikes would be at the other end.

Several statements from Governing Council members over the last couple of weeks, in particular a very critical interview from Bundesbank head Weidmann, have shown that there is no consensus within the Governing Council what the appropriate degree of intervention is. While the decision itself is a simply majority vote we doubt that, at least at this stage, the concerns of those that are more sceptical on renewed interventions, will be simply ignored.

We therefore foresee a “compromise” in the form of a statement that the ECB will intervene, unlimited if needed, in markets in order to keep yields in a range that is deemed as consistent with fundamentals and that, in particular no longer reflects “risk premia that are related to fears of the reversibility of the euro”. The exact range, we think, will not be announced in order to give the ECB a high degree of freedom in its interventions. This freedom is also needed given the conditionality under which these interventions are taking place. Note in that respect, such intervention could also take place in countries already under a programme such as Portugal and Ireland (for more see here).

One important aspect for market participants is the question of a possibility seniority of the ECB relative to private investors. President Draghi declared in August that ”the concerns of private investors about seniority will be addressed”. One complicating factor thereby is that the ECB cannot simply participate in voluntary debt restructuring schemes as this could be seen as a form of direct government financing (losses incurred as a result of a default are a different matter). Guarantees for the ECB via EFSF/ESM would be one possibility to overcome this problem, though given the financial limits of these facilities, investors could doubt how credible these guarantees are once the ECB were to start buying significant amounts of sovereign debt. We see no easy way out of this problem and expect for the time being simply a declaration saying that the ECB will be pari passu leaving open the question what would happen in case of a “voluntary” debt restructuring.

Further non-standard measures

Beyond the clarification (to some degree at least) of the new bond purchasing program we also expect the Governing Council to announce other non-standard measures as already indicated at the August meeting (“Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission”).

In reaction to its review of the Eurosystem collateral framework, we expect the Governing Council to announce measures that it will (1) address the availability of collateral; and (2) reduce haircuts. In the case of sovereign debt, we see it as likely that the ECB will abolish the rating requirement from CRAs altogether, favouring an internal rating process so as to eliminate the ‘cliff risk’ and pro-cyclicality created by prospective downgrades.

A reduction in haircuts would specifically help peripheral banks that are dependent on ECB funding and for which the existing haircuts make it economically difficult to refinance some of their less liquid assets sitting on their balance sheet. The next natural step in that direction would be the outright purchase of bank debt. This would, depending on the size of the program, allow peripheral banks to tap the market for unsecured debt again. While we do not expect any specific announcement this Thursday on this front, we see the possibility that the Governing Council will give hints that it is contemplating this option and/or of buying corporate debt outright.


Source: Goldman Sachs

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Gene Parmesan's picture

Not worsening? For whom?

BaBaBouy's picture



SACKS Calling The Shots In EU...

{And Everywhere Else...}

MillionDollarBonus_'s picture

It is important that top tier financial institutions like Goldman Sachs, and not just political leaders, are involved in the process of making political decisions and disseminating political knowledge to the investment community. It is also important that investors stop criticizing every financial institution for influencing global politics. We need to ensure that financial institutions are not left on the side-lines when important decisions are being made in Europe or in congress, as their professional input is very much needed, especially during global financial crises when the balance sheets of these very institutions are at risk. 

Dr. No's picture

Dude, dont you ever get tired?

gojam's picture

He's a Goldman chatbot. ;-)

GetZeeGold's picture



We've never had to change his batteries.


BaBaBouy's picture

MD... You forgot to mention That Blankfine is doing Gods work, and that he should be paid not $20 Million a Year, butt $2 Billion per year.


HOW Could you forget???

AlaricBalth's picture

Don't you know, GS is doing Gods work and MDB is his Benny Hinn.


Edit: BaBaBouy - Got in there while I was typing.

teahouse's picture


if sarcasm... certaily we might even make the effort to understand sarcasm...

but if  not...get real

FubarNation's picture

For Christ sake get with the QE program MDB and change your name to TDB.  It might earn you a little more street cred here.

falak pema's picture

Kissingerian logic of geopolitical magnitude on a financial plane. lets hope it rains Jovian deluge in Spain. 

'Cos oligarchical fiat piss squirted in hubristic delusion, conceived as mighty rain after Draghi's thunderbolt, will not do the trick. 

You can hear the God's laffing up on Olympus about the top tier tear jerker from their tiny toots peckers.


Zero Govt's picture

progressive MDB supports the link between "top tier" bankers making Govt decisions with politicians. The strong links between debt-spending socialists (the bankers sales force) and bwankers is clear throughout our era dating back to Trotsky

in fact you'll find a long list of closet Marxists, sorry progressives, on most big banks board of directors and non-Execs throughout the US, Europe and Britain

socialists sell the debt spending, bankers rake it in, society pays the price

Govt is a front for economic theft

Stop Paying Your Taxes  ...close down the bankers offices

lemarche's picture

Insider trading what?

Winston Churchill's picture

I'm truly shocked.

Just as I was when the sun rose this morning.

jtmo3's picture

Someone remind me again, why these pieces of paper have any value? Must have alzheimers cause I just can't seem to remember.

peekcrackers's picture

Goldman fully expected demanded this 'compromise' solution.

Time to pay the Vig !  Loyd wants his Juice

dingoj's picture

It's all going according to The Plan. Sleaze, scum and greaseball stratagems have taken over democracy. Brace yourselves for the worst, people, you're on the front line and the Squid has already got a tentacle in your pocket.

Zero Govt's picture

democracy is just a word but it cons half the population into believing enough to vote

the actual wheels of democracy are so broken, rotten and rusted you'd get closer to the moon in an icecream van than democracy in your lifetime

Goldman Sucks seems to have full access to all levels of Govt however, strange given their pathetic record of rotten deals, fraud finance and economic destruction in their rear-view mirror

rsnoble's picture

I've been saying for sometime that when you're talking global collapse that TPTB will do ANYTHING to keep a grip on all us slaves.

So therefore............it's impossible for anyone to predict exactly what will happen when using such archaic things as laws (lol) because everytime you think you got these slime balls nailed down they change the rules.

It will work until it doesn't anymore.

FieldingMellish's picture

Surely its the other way around. Goldman leaked their memo to Draghi. We know who pulls the strings.

yogibear's picture

Mario Draghi is a Goldman Sachs soldier in a ECB suit.  Shouldn't be a surprise that Goldman Sachs is calling the shots for everyone in Europe. 

How do the Europeans feel their being governed by Goldman Sachs?

No Euros please we're British's picture

I guess the same as the US? But there's no way that GS could get into the BOE ,,,,,,,,,,,,,,oh wait

silver surfer's picture

ECB will print and lie until they are ready to Bail in bad banks in 2018. I am sure GS will be positioned to profit handsomely when the time come to sort out the bad apples!


4.4.18. Entry into force:

"The provisions on the bail-in tool are subject to a longer transposition period and should be applied as from 1 January 2018. That date takes into account the observed maturity cycles of existing debt, the need to avoid deleveraging and the need for institutions to implement new capital requirements by 2018."

cwilli01's picture

So, without having the ability to print money, how many bonds can they actually buy?

El Hosel's picture

They can have Bernanke do the printing, its all smoke and mirrors... One Country's smoke is anothers mirror, nobody in their right mind believes in this crap.

dcb's picture

It's not leaking when you ask old friends for advice

loveyajimbo's picture

End the Fed.  End the Goldman.  End the JP Morgan.  End the Roberts Court.  End the NAACP.  End the ACLU.  End benefits to illegals.  End foreign aid.  End the lobbyists.  End the lives of the corrupt in Government.

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