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ECB Releases SMP2.0 Aka Outright Monetary Transactions Details
The ECB has released the details of its SMP 2.0 program, aka the OMT program, which will be pari passu, unlike the SMP 1.0. The full details are a whopping 472 words. Furthermore, we hope that it is quite clear to Greece that if the ECB has bought Greek bonds under the new SMP 2.0 program instead of SMP 1.0, its debt would now be about €100 billion less.
6 September 2012 - Technical features of Outright Monetary Transactions
As announced on 2 August 2012, the Governing Council of the European Central Bank (ECB) has today taken decisions on a number of technical features regarding the Eurosystem’s outright transactions in secondary sovereign bond markets that aim at safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy. These will be known as Outright Monetary Transactions (OMTs) and will be conducted within the following framework:
Conditionality
A necessary condition for Outright Monetary Transactions is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line), provided that they include the possibility of EFSF/ESM primary market purchases. The involvement of the IMF shall also be sought for the design of the country-specific conditionality and the monitoring of such a programme.
The Governing Council will consider Outright Monetary Transactions to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected, and terminate them once their objectives are achieved or when there is non-compliance with the macroeconomic adjustment or precautionary programme.
Following a thorough assessment, the Governing Council will decide on the start, continuation and suspension of Outright Monetary Transactions in full discretion and acting in accordance with its monetary policy mandate.
Coverage
Outright Monetary Transactions will be considered for future cases of EFSF/ESM macroeconomic adjustment programmes or precautionary programmes as specified above. They may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access.
Transactions will be focused on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between one and three years.
No ex ante quantitative limits are set on the size of Outright Monetary Transactions.
Creditor treatment
The Eurosystem intends to clarify in the legal act concerning Outright Monetary Transactions that it accepts the same (pari passu) treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through Outright Monetary Transactions, in accordance with the terms of such bonds.
Sterilisation
The liquidity created through Outright Monetary Transactions will be fully sterilised.
Transparency
Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis. Publication of the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis.
Securities Markets Programme
Following today’s decision on Outright Monetary Transactions, the Securities Markets Programme (SMP) is herewith terminated. The liquidity injected through the SMP will continue to be absorbed as in the past, and the existing securities in the SMP portfolio will be held to maturity.
And here are the details on the expansion of ECB collateral, aka the "please give us your used condom wrappers for 100 cents on the Euro" part.
6 September 2012 - Measures to preserve collateral availability
On 6 September 2012 the Governing Council of the European Central Bank (ECB) decided on additional measures to preserve collateral availability for counterparties in order to maintain their access to the Eurosystem’s liquidity-providing operations.
Change in eligibility for central government assets
The Governing Council of the ECB has decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the central government, and credit claims granted to or guaranteed by the central government, of countries that are eligible for Outright Monetary Transactions or are under an EU-IMF programme and comply with the attached conditionality as assessed by the Governing Council.
The suspension applies to all outstanding and new assets of the type described above.
The decision on the collateral eligibility of bonds issued or guaranteed by the Greek government taken by the Governing Council on 18 July 2012 is still applicable (Decision ECB/2012/14).
Expansion of the list of assets eligible to be used as collateral
The Governing Council of the ECB has also decided that marketable debt instruments denominated in currencies other than the euro, namely the US dollar, the pound sterling and the Japanese yen, and issued and held in the euro area, are eligible to be used as collateral in Eurosystem credit operations until further notice. This measure reintroduces a similar decision that was applicable between October 2008 and December 2010, with appropriate valuation markdowns.
These measures will come into force with the relevant legal acts.
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You say "OMT", I say "Bailout"
....and just that fast SMP2.0 has been revised to SMP2.1000032.
The liquidity created through Outright Monetary Transactions will be fully sterilised.
Hmmm, I call complete and utter bullshit....that is not going to happen.
CTRL + P
Lets get that vix to zero.
VXX down over 4% so far today
<----- Artificial stock ramp lasts more than 48 hours
<----- Artificial stock ramp gives out in less than 48 hours
it's lasted 4 years. i will give it another 48 hrs.
Where's my cut bro? I thought you were all socialists?
Ohhhhhh.......corporate bankster socialists.
Thanks for clearing that up Draghi. I guess I'll get my reward in the afterlife.
LTRO, ESM, ESSF, LTRO2 and now OMT..
This is unlimted in size and therefore a big deal. This is a "big kick" of the can down the road.
LTROESMESSFLTRO2OMT
I can't keep the acronyms straight. The "youngsters" on this thread probably don't remember the television advertisement for Lucky Strikes (cigarettes) "LSMFT, Lucky Strike means fine tobacco".
They could have saved a lotof words and just said, "we're gonna make it up as we go, and pull the money out of thin air."
serious question: how can there be no quantitative limits to buying bonds when they are not going to print up money to pay for them? surely they are limited by how much is in the bailout fund(s)? is this going to be enough?
someone help me out with this?
The whole thing is complete bullshit, there is nothing to understand except that the ECB is devaluing its obligations - the euro - inflation pure & simple. The ECB is loading even more shit on its balance sheet than it already has splattered there.
The fact that the euro still trades 'money good' is a testament to human ignorance & stupidity. And then there's the Fed....
you are correct that notion of "no quantitative limits" is inconsistent with a reluctance to actually print more money to make the purchases. The OMT is sterilized, meaning the purchases of bonds with 1-3 years left to maturity will be funded by the sale of longer term maturities and the bailout funds EFSF/ESM. Thus no new money will enter the system.
so is the size of EFSF/ESM vs potential size of Bond issuance / borrowing requirement from Spain, Greece, Italy workable?
mkts up, so now comes the hiring right? let the trickling upon commence!
What a sick fucking shit show.
OMT is still not monetization, right? Just checking that they did not slip up and get all honest and stuff. Outright Monetization Transactions?!
Still apropos: http://www.youtube.com/watch?v=HRx49-leiRE
Actually it's Outright Meretricious Transactions.
Trust us, we're lying!
The EFSF/ESM isn't even properly monetized to deal with 1/4 of the debt of Italy and Spain , let alone the smaller E/Z members that are insolvent!
There is "NO" such thing as sterilizing! That money will be put on the ECB balance sheet "via short term notes" to banks. When those bonds come due and the ECB can't collect we shall see how "sterilization" shell games turn out!
Helicopter Ben promised to reverse QE1 as soon as the crisis passed. That was like, four years ago.
Central bankers promising 'I'll sterilize' are the same guys who tell their girlfriends 'Really honey I'll pull out.'
They might mean it at the time, but in the heat of the moment everything changes.
AFA (Another Fucking Acronym).
And so the value of our euro's went POOF!
la, la, la, la, la, la, la, la, la.......
BULLSHIT.............
hey bitch ass bankers....take down Silver just a little bit more before my dealer opens out here in Cali u fucks......
let's hope that it's at 20$ arround newyear! Because that's bonus time and time to load up!
la, la, la, la, la, la, la, la, la.......
BULLSHIT.............
hey bitch ass bankers....take down Silver just a little bit more before my dealer opens out here in Cali u fucks......
So......they're going to PRINT? NOOOOOOOOOOOO!
"the existing securities in the SMP portfolio will be held to maturity"
This means, how much, 250 billion euro loss for the european taxpayers?
If by european taxpayers you mean the germans, then yes.
I wonder what the 1/2 life before the markets digest this " Operation Ponzi Twist" will be? OPT - There's an accronym for ya!
The turn around was about 12-18 hours last time Draghi blessed us with his "technocratic B/S"!
F/X risk " GBP , EURO, AUD aren't buying it. The aud/jpy is the only one, and it's because usd/jpy is jacked up on the spx spike. That is gonna be a nice short later. ;-)
Austerity Sensitive Sterilaztion Hampered Asset Transaction
ASSHAT Programme
Fully stereilized? How? This sounds like an outright lie.
It is. You can't sterilise liquidity, it is a corruption of the whole concept of liquidity.
Have you never heard of antimatter liquidity, that vaporizes regular liquidity on contact?
Errrr, well, neither have I. But it's a great concept and a great story.
And the market believes it ...
No winky emoticon following the single sentence under "Sterilization?"
472 words. Lemme guess, same # that Paulsen used. Must be nice to lie whenever you need to and not answer questions you are asked and act like you did.
Buying up debt with more debt. These guys must be having hysterical laughing fits behind closed doors.
Why do I feel that a crash is coming?
DavidC
Am I the only retarded that understood the ECB will purchase from the EFSF? Why then the condition that the EFSF be in the primary mkt?
The latest plan that will save everything uses the euphemism for Outright Monetary Program. See, by using the word "monetary" you make it really a plan to transmit monetary policy rather than the financing of governments prohibited by the ECB's charter in Article 123. The dishonesty does not stop there.
Central planning is running amok in the Eurozone:
Interest rates have diverged in Europe because the risk of lending within each country has diverged. Draghi says that the program "will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro." One man's severe distortions are another man's market forces.
Spain is in the midst of a severe economic depression, and Italy is in a recession. Due to these economic conditions, loans to companies within their borders are more risky and deserve a higher interest rate. When a central bank artificially lowers the interest rate by fiat, it does not lead to more lending as we have learned since 2008 (and since 1994 in Japan).
Banks are not getting compensated for the risk that they are undertaking due to the controlled rate, so they choose not to lend to the private sector; however, they have no problem using their capital to buy sovereign debt in this rigged game. With the Draghi put, there is virtually no risk in carrying short-term Spanish or Italian bonds.
This program will not solve the problems of an ill-fitting currency union; it will merely keep it afloat longer. Banks will continue to purchase sovereign bonds and will actually decrease their lending to the private sector to do so. One of the unintended consequences to this program will be reduced economic growth in the PIIGS.
Another problem with this plan is the seniority issues. For some reason, the mainstream media glides over this issue. Recall that when Greece needed a bailout, the ECB was not involved in the write-down. Nothing in the bond covenants, the ECB charter or any other European rule or regulation gave the ECB senior status.
Yet, there it was getting 100% of its money when the bailout was crammed down on the private sector. Now, the ECB is saying, "Don't worry. We won't act illegally again," and this claim is merely repeated without any scrutiny in articles I read in the NYT, WSJ, Reuters and Bloomberg.
Why is the ECB being treated with kid gloves when it is in the midst of such a blatant power grab? The new program requires countries to apply for an official bailout with "conditions."
Ask Greece about what conditions mean. Spain and Italy will be forced to sign memorandums of understanding pledging to enact certain reforms; I add that these reforms would never fly in Germany's over-regulated economy.
These countries will also be subject to periodic inspections. The ECB board will be able to cut off funding if it feels that the conditions are not being honored. Applying for a bailout will be tantamount to a regime change. The people may stand for budget cutbacks, but I do not think that they wish to be humiliated at the hands of their so-called allies.
This plan must be placed in the context of the ongoing Eurozone recession. Once again, the mainstream media falls flat on its face and repeats the rosy forecasts of the ECB, which calls for economic growth next year while conditions continue to worsen.
Economic red flags are no longer confined to the PIIGS; the northern core countries have witnessed steadily deteriorating economic conditions and look poised to enter a recession. Remember, the PIIGS are Germany's largest trading partners, and they are importing less due to the depression/recession.
No matter how the Eurocrisis is spun, the economic fundamentals point to a continuing malaise. Two years ago, serious reform combined with some short-term assistance by the ECB could have prevented the endgame. Now, I believe that a Eurozone breakup is inevitable, but the timing is indefinite.
dareconomic.wordpress.com
The wire is already highlighting immediate pushback from The Bundesbank.
This won't stand; it cannot, because it's pure economic idiocy. Unlimited, 'sterilized' liquidity, to buy bonds backed by 'assets' with no credit rating requirements? So, a piece of toilet paper with $1 Trillion note written on it is collateral according to Draghi? I'd be quietly moving my money if I was a squid customer.
Until the ECB treats its previous SMP holdings as pari passu with those that have been PSI'd any claim of change in seniority MUST be viewed with the greatest skepticism since European policy makers have clearly demonstrated their complete lack of respect for the truth
WE MAINTAIN OUR BEARISH/BULL CALL:-
(1) SHORT EURO (EXPECTED AT 1.17 BEFORE YEAR END) AND US HOUSING STOCKS BUT LONG GOLD AND CRUE OIL (DUE TO INFLATION CONCERNS)
(2) LONG USD, CAD, MXN (AS FED WILL NOT PRINT)
(3) SHORT US FINANCIALS
(4) LONG FACEPLANT