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Ex-ECB's Juergen Stark Says ECB's Balance Sheet "Gigantic", Collateral Quality "Shocking"

Tyler Durden's picture




 

The German criticism of a mess they themselves have enabled (and benefit from via peripheral current account deficits funded via TARGET2 as shown previously here) at the ECB continues, and following public protests by Bundesbank head Jens Weidmann about recent ECB activity, it is the turn of former ECB executive board member Juergen Stark to take center stage. In an interview with the Frankfurter Allgemeine, warned that following the massive expansion in the ECB's balance sheet, in which it is clear to anyone that the ECB will accept used candy bar wrappers as collateral, that "the balance sheet of the euro system, isn't only gigantic in size but also shocking in quality."

Of course, with the ECB now the bad banks' bad bank, this is not at all surprising. Keep in mind that the recent $1.3 trillion balance sheet expansion was supposedly not the equivalent of "printing money" because the ECB made the cash available in the form of a loan in exchange for collateral. The problem is that the ECB accepted literally everything that was not nailed down and proceeded to give 100 cents on the dollar for some unamortized book value associated with it. The end result was the already documented here first encroaching ECB initiated margin calls which may or may not be an added twist in the European liquidity situation. However one thing is certain: the quality of the ECB's balance sheet has deteriorated massively, as the European central bank rushes to catch up to the Fed in terms of asset "quality" backing the currency.

Marketwatch has more on the FAZ interview:

[Stark] added the structure of the balance sheet is a cause for concern because increasingly short-term debt claims are being replaced by long-term ones and this will make it more difficult for the bank to reverse its loose monetary policy.

 

With his comments, the bank's former hawk Stark is backing Germany's central bank president Jens Weidmann. The head of the Bundesbank told Der Spiegel weekly magazine over the weekend that requirements for banks' cheap loans have been "very generous" and the program calms the situation in the short term, but this calm could be deceptive. He was concerned about the collateral requirements that the banks had to provide.

 

The ECB's balance sheet soared past the EUR3 trillion level last week partly because the bank has flooded markets with over EUR500 billion in cheap loans for banks.

Of course, this long-term deterioration in prospects for yet another central bank means that it has bought a short-term reprieve, as has been reflected by rising asset prices. However, what happens when the effect of this latest dilution in the value of the paper currency fades, or worse, when the ECB's balance sheet becomes non-performing and confidence in the montary authority is lost?

Well, since that will be "someone else' problem" why worry?

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Thu, 03/08/2012 - 08:57 | 2235450 q99x2
q99x2's picture

They should have opened a pawn shop instead.

Thu, 03/08/2012 - 09:00 | 2235459 cossack55
cossack55's picture

I've no problem with Chummley running the FED.

Thu, 03/08/2012 - 09:04 | 2235471 markmotive
markmotive's picture

Gold. It's not in a bubble...the world of ponzi is.

Marc Faber: "Very few people in this world own gold"

http://www.planbeconomics.com/2012/03/07/marc-faber-gold-is-nowhere-near...

Thu, 03/08/2012 - 09:08 | 2235477 GetZeeGold
GetZeeGold's picture

 

 

 

The bubble heads on CNBC are not going to be happy to hear this.

 

Now where did I put my shocked face again......I had it right over here.

 

Thu, 03/08/2012 - 09:13 | 2235491 Harlequin001
Harlequin001's picture

Does anyone know where I can get a really big loan against my totally shagged out car?

Anyone?

Thu, 03/08/2012 - 09:16 | 2235499 Momauguin Joe
Momauguin Joe's picture

Try Capital One. When their website is back up, that is.

Thu, 03/08/2012 - 10:11 | 2235660 trav7777
trav7777's picture

participants in a shared currency regime have to bail each other out.

When IL goes BK, the rest of the 57 will have to pitch in whether they like IL's corruption, crookedness, crime, and spendthrift.

Thu, 03/08/2012 - 11:34 | 2235970 Hard1
Hard1's picture

Well, this was the financial cash for clunkers, what did they expect to get as collateral???? Nobody would give you bunds, when they can get 100 cents on the dollar for Unibanco, Portugal, etc..etc...

Thu, 03/08/2012 - 09:39 | 2235564 silverbullion
silverbullion's picture

Gold is in a bubble... it is backed by nothing.

LOL :-)

Thu, 03/08/2012 - 09:16 | 2235500 MillionDollarBonus_
MillionDollarBonus_'s picture

Pfft. Juergen is such a drama queen. Euro states have plenty of collateral to pledge to the ECB including gold, land, infrastructure and natural resources.

Thu, 03/08/2012 - 09:18 | 2235507 Clint Liquor
Clint Liquor's picture

You forgot, People.

Surely, they are worth something.

Thu, 03/08/2012 - 09:29 | 2235530 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Soylent collateral.

Thu, 03/08/2012 - 10:02 | 2235632 spiral_eyes
spiral_eyes's picture

securitization, bitches.

Thu, 03/08/2012 - 10:17 | 2235691 a growing concern
a growing concern's picture

Rehypothecation, bitchez.  It's where you go when you die.

Thu, 03/08/2012 - 09:25 | 2235520 AC_Doctor
AC_Doctor's picture

MillionDufusBoner,  you forgot their future unborn children and the air we breathe.

Thu, 03/08/2012 - 09:31 | 2235536 4xaddict
4xaddict's picture

Anyone been watching how many low grade US housing assets have been passed internally through large banks and onto the ECB balance sheet?

Would be an interesting study and one that probably shows a large scale international theft...

Thu, 03/08/2012 - 10:12 | 2235667 trav7777
trav7777's picture

there are enough low-grade housing assets in europe that have done so too and ended up on FRB balance sheets.  It's a two-way street.

Thu, 03/08/2012 - 09:40 | 2235566 LawsofPhysics
LawsofPhysics's picture

Good, because they have no energy sources, so at least they have something to trade in exchange for oil. Somewhere there is an old Weimar farmer laughing his ass off.

Thu, 03/08/2012 - 10:23 | 2235707 trilliontroll
trilliontroll's picture

GOLD:

    Yes ,  Germany ( and Switzerland) Gold at the NY Fed

LAND:

 (especially developed areas ) in Spain

  ( http://www.thespainforum.com/f202/housing-overhang-1-million-properties-  drag-spanish-property-market-yea-153889/)

INFRASTRUCTURE:

(already done by german cities as they leased it to americans)

http://www.time.com/time/business/article/0,8599,1890418,00.html

"...But there was a risk, and it would end up costing German taxpayers dearly. It related to a term set down in the leasing contracts — massive tomes, written in English, which required the Germans to take out policies with AAA-rated insurers to cover the value of the assets for the life of the lease. Should the insurer lose its top rating, the Germans would have to either find another insurer or, in the worst case, provide additional collateral to guarantee the assets.

"

NATURAL RESOURCES:

EURO-Zone

 coal , bauxite, nickel, zinc ; oil / natural gas: far less  than consumption

http://www.ehow.com/about_5515777_list-european-natural-resources.html

Thu, 03/08/2012 - 11:58 | 2236084 JPM Hater001
JPM Hater001's picture

"Pfft. Juergen is such a drama queen. Euro states have plenty of collateral to pledge to the ECB including gold, land, infrastructure and natural resources."

Do you think he does it just to show how- even when the arguement is made...and sometimes with considerable thought I might add, that we at least took the time to hear the moronic argument and discredit it with ferocious verasity our intellect provides rather than dismiss it as the MSM et.al. do??

Or is he just a dick.

Thu, 03/08/2012 - 12:02 | 2236104 Teamtc321
Teamtc321's picture

MDBooner; Rehypothecation my golden tube,

Greek style %>>>>>>>>> 

Thu, 03/08/2012 - 09:33 | 2235541 Toolshed
Toolshed's picture

Too funny!! +1

Thu, 03/08/2012 - 09:00 | 2235456 bdc63
bdc63's picture

*gasp* ... what utterly shocking news ... how could anyone have ever predicted this ...

Thu, 03/08/2012 - 08:59 | 2235458 Tebow
Tebow's picture

Thats what the girls said when I banged her Gigantic and shocking.

 

Thu, 03/08/2012 - 09:06 | 2235473 resurger
resurger's picture

 

 

"HIT EM UP'" TuPac

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"-,,_::::_,,-*__,,,,~"

Thu, 03/08/2012 - 09:11 | 2235485 GeneMarchbanks
GeneMarchbanks's picture

Is that the infamous doubleheaded camel cock?

Thu, 03/08/2012 - 09:17 | 2235502 resurger
resurger's picture

right into the ECB's orifice

Thu, 03/08/2012 - 11:01 | 2235835 fuu
fuu's picture

In case you haven't noticed you totally suck as ascii art posts.

Thu, 03/08/2012 - 12:19 | 2236179 LowProfile
LowProfile's picture

And yet, it was immediately identified for what it was.

ZH comments mess with formatting, I'd like to see you do better...

Thu, 03/08/2012 - 13:34 | 2236488 fuu
fuu's picture

Well the next time I feel like posting a large penis in the middle of the comment thread I'll show you how it's done.

Thu, 03/08/2012 - 09:11 | 2235488 Harlequin001
Harlequin001's picture

That looks like a self portrait...

Thu, 03/08/2012 - 09:00 | 2235461 Sandmann
Sandmann's picture

It is evident Stark is providing heavyweight support for Weidmann. I would have expected Weber and Hans Tietmeyer to have joined in, but he is VC of BIS in Basel and might not want to rock that boat.

Thu, 03/08/2012 - 09:01 | 2235465 PaperBear
PaperBear's picture

"Shocking" ?

Another S word springs to mind.

Thu, 03/08/2012 - 09:02 | 2235466 GeneMarchbanks
GeneMarchbanks's picture

http://en.wikipedia.org/wiki/Hyman_Minsky#Understanding_Minsky.27s_finan...

Someone else's problem until there is nobody left to replace you...

Thu, 03/08/2012 - 09:02 | 2235467 silverbullion
silverbullion's picture

I was a plumber at some stage. Not even a plumber will touch that stinking mess.

Thu, 03/08/2012 - 09:05 | 2235474 williambanzai7
williambanzai7's picture

The Tower of Bubble

Thu, 03/08/2012 - 10:53 | 2235810 rosiescenario
rosiescenario's picture

......built atop a sand pile that is in excess of its angle of repose.....

Thu, 03/08/2012 - 09:06 | 2235475 Clint Liquor
Clint Liquor's picture

The inevitable conclusion of Keynesian Economics: Debt Saturation.

Like a sponge that cannot take on any more water, it starts to leak. But all the Central Planners can do, is add more.

Thu, 03/08/2012 - 09:57 | 2235615 wandstrasse
wandstrasse's picture

Weidmann / Stark are like magicians who say: the virgin is not really being cut in peaces - it only seems so! And she is not even a virgin!

Thu, 03/08/2012 - 21:37 | 2238129 StychoKiller
StychoKiller's picture

Another round of drinks will sober us right up!  How soon before the Stupid people pass out?

Thu, 03/08/2012 - 09:07 | 2235478 DutchDude
DutchDude's picture

In 3 years time it's more expensive to whipe your ass with toiletpaper than with eurobills... saving €5 bills from now on...

Thu, 03/08/2012 - 09:15 | 2235493 Clint Liquor
Clint Liquor's picture

I believe the YEN is much more supple and softer. Therefore, it will be preferred.

Thu, 03/08/2012 - 09:37 | 2235556 DutchDude
DutchDude's picture

Hmm, good point; those crips Euro notes, still warm from the 24/7 printing press, are much more likely to cause papercuts down there...

Thu, 03/08/2012 - 10:38 | 2235757 NorthPole
NorthPole's picture

Not to mention you might get contact high.

Thu, 03/08/2012 - 10:55 | 2235815 rosiescenario
rosiescenario's picture

...they need to be laundered once or twice...

Thu, 03/08/2012 - 09:08 | 2235480 crawl
crawl's picture

Markets have ignored reality for a while now.

ECB will spin the story or if it really becomes a concern, stop making margin calls and ignore the lack of quality collateral on hand to avoid reality.

Thu, 03/08/2012 - 09:10 | 2235484 Pumpkin
Pumpkin's picture

Compared to fiat, how bad could the quality possibly be?

Thu, 03/08/2012 - 09:23 | 2235517 Clint Liquor
Clint Liquor's picture

So true! In a world where all things are valued in terms of pieces of paper with the pictures of dead people.

Thu, 03/08/2012 - 09:14 | 2235494 bugs_
bugs_'s picture

Creditanstalt

Thu, 03/08/2012 - 09:30 | 2235531 azzhatter
azzhatter's picture

Was that comment from Merkel when she pulled the train at the G20 meeting? 

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