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A Funny Thing Happened On The Way To The LTRO
From Peter Tchir of TF Market Advisors
A Funny Thing Happened On The Way To The LTRO
I’ve taken some comfort with the LTRO. While it won’t solve the sovereign debt crisis, or even provide much direct benefit, it does help the banks. It helps the banks manage their balance sheet and is a clear sign that the ECB takes its role of lender of last resort to banks very seriously.
That is all very good, but at least one part of the process strikes me as somewhere between bizarre and downright scary.
Banks in weak countries have been issuing debt, getting a government guarantee, and then posting them as collateral at the ECB. There are examples of this for Greek banks for sure, but my understanding is it has also been occurring in Portugal and Ireland. It is the only way banks in Greece (and the other countries) can raise money.
It always struck me as a little bizarre, but guess it was done so the ECB could justify lending the money. I always thought it was relatively harmless, and was only adding to the risk of countries that were already in deep trouble – providing a guarantee is NOT riskless.
But it appears about €40 billion of yesterday’s LTRO was done by Italian banks that issued bonds to themselves and got a government guarantee, and then posted it to LTRO.
Here is an example of what I think happened. Unicredit issued these bonds on the 20th. It was by far their largest bond issuance in more than 2 years. Nothing else in that timeframe was bigger than 2 billion.
Intesa Sanpaolo had an even bigger issue. I’m sure there are others.
So these banks didn’t have any other collateral they could post? Unicredit has a balance sheet approaching a €TRILLION but they had nothing they could post as collateral?
That seems strange. Extremely strange.
To the extent people hoped these banks would buy sovereign debt, they have actually created MORE sovereign debt. Italy supposedly guaranteed these bonds. Italy just increased their potential debt burden by providing this guarantee. This is taking the All for One and One for All approach to an extreme.
I’m still somewhat constructive about what the ECB is doing, but this idea of banks issuing bonds to themselves, getting a government guarantee, and posting it as collateral at the ECB to pay for the purchase, is worrisome. The fact that it wasn’t just one bank that did this is even more troublesome. It is so circular, that I may be overreacting, but it certainly doesn’t pass a smell test.
The bonds I have found are all 3 month zero coupon bonds. I am very curious why they are only 3 months. Why not longer? Is there something special about 3 months? Time to decide to switch currencies?
Why was it only Italy (or at least as far as I know was only Italy).
There is more conjecture and guesswork here than I would like, but investors need to figure out what this means. Monti kind of rhymes with Ponzi and too many banks did this for it not to have been supported, if not directed by the government.
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It's the season of miracles! Fake money lent to leverage more fake money. Anything to keep the government spending collapse from finally happening.
HA!
Good times, good times...in the next rinse cycle they'll add another IOU on top of the existing 20 IOUs chained to one another.
What collateral does the US FED and US Treasury post for their issuances...
It's ALL faith-based economy, Bitchez!
Do you believe...
Great post Peter. You wandered why three month maturity?.....by definition of LTRO. From the ECB itself:
The ECB conducts repo auctions as weekly main refinancing operations
(MRO) with a (bi)weekly maturity and as monthly longer term refinancing operations
(LTRO) maturing after three months
full document here
http://www.ecb.int/pub/pdf/scpwps/ecbwp359.pdf
Also, 3 months is just long enough to get them to the next LTRO in February.
Ben will officially announce QE III in February, or just print without the announcement.
The author is puzzled by the action of the ECB that would add to the mountain of unstable sovereign debt. This collapse is inevitable, but they are trying to eek out a few more years before they face the music. The tune? War. Yes it is back, only this time it really will be a World War...
“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” ~Earnest Hemmingway
I agree that collapse is inevitable. But we can't have another World war, there would be no civilization left to pick up the pieces.
I found an IUO in my ATM : for a Trillion dollars, payable in Euros from a Japanese bank.
Hmm. Might use it for my Xmas shopping. Who knows? Maybe Best Buy would swap it for a Wii!!
What collateral does the US FED and US Treasury post for their issuances...
"Full Faith And Credit Of The US Government"
...aka I.R.S.
IRS is the (strong arm) collection agency for the Fed, guaranteeing a steady stream of money to pay back maturing Fed loans to the US government.
Geithner doesn't have to worry about finding money to pay off maturing Treasuries. IRS takes care of that.
IRS maintains USD world reserve currency status more than anything else, guaranteeing maturing US Treasuries will be paid off.
If IRS went away, US Treasuries would collapse overnight, and USD would lose WRC status nearly overnight.
So no, Ron Paul won't succeed in shutting down IRS. Just not gonna happen.
Except... the IRS is paying what percentage of government revenues?
"The bonds I have found are all 3 month zero coupon bonds. I am very curious why they are only 3 months. Why not longer? Is there something special about 3 months? Time to decide to switch currencies?"
Isn't there also a new 3 month Greek bond AKA the 'payday loan' ???
Incidently, Good Friday is on April 6th 2012, Easter Monday April 9th, a week or so after those bonds are due the markets will all be closed for 4 straight days due to bank holidays.
They can shut down bond trading to ensure the carry trade works :D
We need a new word. Collateral is SO 20th century..
Che sucks.
Yes but as you see in the avatar he also picks his nose. I bet he eat it too lol.
For those interested in some untold stories about what a loser Ernesto "Che" Guevarra was:
http://bigpeace.com/hfontova/2010/10/09/che-guevara-guerrilla-doofus-and-murdering-coward/
Excuse me sir, I'm a government worker and you havent provided one good reason why this can't work. You want to go back to an agrarian system? Or do you want to embrace the new financial world like me? My job is easy as I basically just tick the boxes whoever pays me the most pays me to tick; if you have a harder job thats all your fault as we live in a multi-trillin dollar economy, thanks to people like me directing the money flows the right way. And to say its collapsing is absurd; we have plenty of resources yet untapped - plenty of americans own gold and silver that we could use in a collapse scenario.
I would like to buy one of them printing machines from the Federal Reserve. How much?
There's a twofer sale going on in printers -- now ink, that'll cost ya!
Please fuck off
Can I issue my own debt, guarantee it myself, and then trade it for gold? The Philosopher's stone has been found!
The alchemist's of the middle ages discovered it was pointless to try to convert straw into gold, when it was so much easier to convert money from nothing.
Candy covered popcorn, peanuts and a prize!
Its the season of mind blowing fraud and coverup of corruption, same as it ever was.
Record bonuses from the central planners to the central planners.
What a fucking joke at the expense of everyone else.
Iraq will be in a civil war soon and with it the entire middle east, perhaps a profit might occur for big oil in the process. Perhaps more hope and change, and Tim Geithner sucking more Fed dick while castrating the dirty middle class.
Racketeering and war profiteering is good business, just ask the Bush family syndicate of Connecticut money-sluts!
Mission accomplished you God fearing fucks!
Your post triggered a random and outlandish thought...but if it's true, it's unbelievably scary. Our current Fuhrer does not want us to drill for oil at home. He does not want to build a pipeline from our neighbor Canada to ensure cheap oil. He pulls out of Iraq, supposedly for political reasons, way to early. Now what happens if the middle east goes into a full blown war? Where do oil prices go? Without additional domestic reserves or Canadian reserves to draw from, what happens to our supply of oil? It's all a plan to sell more Chevy Volts to boost GM's stock so that $14 or so billion they still owe the taxpayer can be returned. The secondary plot is that Obummer gets his wish and transforms our energy policies...at the cost of millions of jobs and very expensive energy. He really does care about the little people.
(Please understand the tongue-in-cheek attitude I had when writing the above).
Impossible, no one sees these things coming.
Nobody.
Isn't it peak oil. Then these little pockets of oil to drill last drop will only pacify you for a short time. Time to find other energy or decrease consuming. Peak oil, means cheap oil.
So there are offering leveraged IOUS on top of Leveraged IOUS...with more IOUs.
Wow. This will end well.
I'm starting to believe that cash stored underground might be the best investment idea of the year.
Here, take these sunglasses. That lightbulb must seem awfully bright.
Haven't they been doing thatfor years?
Tyler, you should be a criminal investigator. How do you dig up all this stuff?
Article from Peter Tchir.
Then Peter Tchir should be one.
Yeah! Think if Tyler Durden and Peter Tchir had some REAL regulatori power..
But he is.
"It is so circular, that I may be overreacting, but it certainly doesn’t pass a smell test."
Kyle Bass called it "sophomoric" and speculated that it probably wouldn't fool institutional investors, but could fool retail investors.
circular are the numbers: payback on the loans is 20/03/12, this will be in the news on 3/21/12. Sick kabal thinking I know, but another solicite date.
I don't know why this is surprising. Its what I would of done.
Nothing from nothing makes nothing.
Transfer your credit card balance to another credit card.
Worse than that, it's opening up a new credit card so you can borrow cash to make the minimum payments on the old credit card.
I hate the idea but have to admit I would like to get me some of that cheap money
Wouldn't the average person go to jail for doing something like this?
All you need to know via Ransqwuak:
'Pimco's Gross says QE and financial repression are necessary to boost the economy'
Monti rhymes with Ponzi about as well as Draghi.
Squid Strikes again, Italy & the basket cases are run by squid droppings, so they are just using that methodology, to them it is business as usual.
These are the headlines i posted yday.
*ITALIAN BANKS ISSUED ABOUT EU40 BLN STATE-BACKED BONDS :UCG IM
*MONTE PASCHI ISSUED EU10 BLN STATE-BACKED BONDS FOR ECB LOANS
*INTESA ISSUED EU12 BLN STATE-BACKED BONDS FOR ECB LOANS :UCG IM
*UNICREDIT ISSUED EU7.5 BLN STATE-BACKED BONDS FOR ECB LOANS
*BORSA ITALIANA GIVES ITALIAN BANK COLLATERAL DATA IN FILING
And from here u can see the whole list.
http://www.borsaitaliana.it/bitApp/caratteristiche.bit?target=Download&isin=IT0004784416&market=MOT&lang=it
Excellent post - thank you!
Be first, be smarter or cheat.
Clearly the wops being Italians went with the last.
This won't end soon, but it also won't end well. Going to leave a massive mark.
Great line. Won't end soon but won't end well
Billions in ELA lending, toilet paper posted as collateral. The ECB is running a junk shop
They can't have any collateral to post because despite the guarantees, even for an investment grade debt it takes up to 160% in guarantees funded by collateral so you ask for 10 Euro, you have hawked $26 of collateral. With 1 Tln in Debt going around you have used and reused everything to a Euro 2.60 Tln collateral and much more when you are no junk.
If France is no longer AAA, you have 35% lending capacity of the EFSF gone for the extra guarantees and double that in collateral required after the collateral haircut. Call it the wild goose chase and then lend the dollar for 1% stay alive, stay happy no one used the printing presses...! :D
http://advantages.us For the European crisis search for "European Debt Crisis" http://advantages.us/?s=Europe+banks+crisis
Everything is allowed to keep the illusion of grandeur of the welfare state alive.
Why don't they just use the Shroud of Turin to miraculously zap their balance sheets into solvency with a burst of divine ultraviolet light? Why keep such a tool when you're not going to use it?
European Banks are offloading trash collateral to the ECB, so when the sovereign exits come, and banks are recapitalized, they will not be burden by legacy trash collateral.
The ECB is the zombie bank of first resort.
Once again, banks are privatizing profit, and socializing losses.
it's only "FAIR" in this Marxist-Socialist world for Bankers that if the Yanks like Blankfein and Dimon get to shit on the pavement and super pooper scooper Bernank shovels them up that the incontinent European bankers also get their own Nanny nappy changer
it is mighty stinky at all our Central Banks but hasn't that always been the case?
Confucius would be pulling his hair out (if he had any) at these certified retards of banking
They are called God's workers. How dare you, Sir.
there's nothing wrong with leverage in a house of cards ..until someone leaves the kitchen door open and a cold burst of wind blows in and the whole lot collapses
just ask Trichet and Count Dracula about "stability" on stacking cards with a firm hand next to a revolving door with a hurricane blowing outside
S T A B I L I T Y is the word
hehhehe
old news to Italy
Biggest Portuguese bank , BCP issued 1,35 Beuro for 3 years with the portuguese gov endorsment.
The statement says it was done at current prices and the bank will pay itself a spread of 12%+euribor 3months .
ofc the entire stake was bought by BCp itself . LOL
http://www.jornaldenegocios.pt/home.php?template=SHOWNEWS_V2&id=524091
There ae no words to adequately describe such activities other than fraud! This is not just the Potuguese banks - it is obvious that the Banking system did in fact collapse in 2008 & the irrrationality continues until the next collapse...I would stongly recommend that people, especially EU ZHers reviiew the ESM treaty - as this 'transaction' now puts everything in context...
so the eu banks have their OWN printing presses? ....well at least the ecb isn't printing. I have a chequebook full of available "bonds" name your price; oh yea can you pay me intrest on it too. wth are these people thinking!?!?
Evidently there was a great deal on Nigerian barges that they couldn't let slide.
Ponzi sounds like a Italian surname.
It is all a smokescreen to make you think they are not just printing money faster than John Law on meth. There is absolutely nothing backing any of the paper being created.
IOU and I ain't paying you until you turn blue.
This is the final crescendo at the end of debt-based money in the great de-levering return to Capitalism.
Rebuilding from Ground Zero is the only way back to Grandma's house; real money that can only be transparently syndicated. Everyone trusts that works.
We should all hope that it ends in capitlism. It might not. Way things are going...just sayin
The problem with implementing a system of capitalism is that everyone does not start on equal footing... and leads can be punitively exploited...
Why try to figure it out...just as you think you have it figured they do something else that you can´t figure out.....get out and sit on the sidelines..this is not even a game anymore...we don´t know the truth..the facts...to make a decision
With you my friend - less than 10% of portfolio in the market
1) Steal underpants
2) Bonus!
Well played.
I dont think its strange a bank that says it has $1 trillion in assets actually just has debt counted as an asset.
I just received a canceled check from my bank and on the back it said "Pay Any Schmuk"
It's called check kiting.
Ironically, western banks are insolvent and the Bank of North Korea is looking solid. Think I'll go hang with Kim Jong Un before he goes viral
Many banks in emerging markets are solvent because of the lack of financial sophistication in those countries, which stops them from doing anything stupid.
Its a Festivus Miracle !
This is so wacked I can hardly wrap my brain around this. The banks actually "bought" their own issued debt in order to offload it to the ECB for "real money"? Help me out here, what exactly is the journal entry for this: Debit the "I love Fiat" account, credit the "riots in street" account?
"The banks actually "bought" their own issued debt in order to offload it to the ECB for "real money"?
Correction: The banks actually "bought" their own issued, government guaranteed debt in order to offload it to the ECB for "real money"?
Wrap your brain around that!
BAC inflating their Q3 profit because of CVA - AMATEUR compared to these guys!
I hope they paid themselves a really good interest rate.
And report the interest inflow as current earnings, while deferring the reporting of the interest outflow. I'm sure GS has a way to achieve that for a small fee.
Why not? I mean let's face it - in for a penny, in for a pound. If you're gettng the naked massage, might as well turn over for the happy ending as well eh?
Lewis Carrol, if he took all of his laudanum and ergot stash and went over to William S. Burrough's pad with Hunter S. Thompson and his quart bottle of ether... the three of them together, as completely stoned as they could possobly get, could not invent this kind of hall of mirrors, where not only is everything inverted, but also distorted into an infinite variety of perversities and hallucinations.
Which way is up? Is anyone keeping apermanent record of this? Will anyone, 50 years from now believe it really happenned?
Now I know why HST blew his brains out.
This is all so silly and unfair.
(Because I had no winning bet on it.)
This is not economics. This is what a lie's long and tangled tail looks like just before it implodes. Really, the only question is, how long can all of this be sustained? If a gang of policemen beat a homeless man to death for fun, and all tell lies about it, perhaps it doesn't matter if their stories don't add up, as long as none of them admits to what really happenned. But why invent a scenario? We have 9/11.
What's holding the thing together? Why haven't the wheels come off yet? The only answer I have at present is that the 4 angels are holding back the winds of strife, until all of the servants of God are sealed in their foreheads. If you don't know what I'm talking about it may be too late for you. If you do knnow, then hopefully you are sufficiently awed and imbued with a certain holy dread to actually take some sort of spiritual action. God bless you all.
Business Week suggested €200b in new money, another €400b in rollovers of ECB debt.
Nowhere to go with this b/c either the funds are added to a country's debt burden or the ECB stuffs the risks into the participating banks. Before the LTRO the probs were countries' debt burdens and too much concentrated risk. Now what?
And Bank Loco saw that their ass was saved once again, so they finally realized they don't give a fuck anymore and starting tomorrow, they'll be ready to start to fuck things up again.
SEE YA UNTILL THE NEXT BAILHANDOUT BITCHEZ!
Wait, so they have near Trillion balance sheet and cant find shit to pledge?
In theory, you cant pledge the same asset twice....but then communism works in theory too....
borrow from your right hand and give it to your left hand! Brilliant!
Don't be so hard on Euro banks now. Our own US government does the very same thing, issuing bonds guaranteed by themselves and borrowing (printed) money from the Fed with them. America's version of LTRO.
This is what it sounds like to me:
http://en.wikipedia.org/wiki/Check_kiting
"Banks in weak countries have been issuing debt, getting a government guarantee, and then posting them as collateral...."
You mean weak ones....does that include treasuries?
How about these Italian banks issuing 1 trillion each and the ECB doing some 100 year LTRO. Now, that's what I call can kicking...
It is obvious that things are far worse than most of us imagined,,,Unfortunately, it appears that the request made several weeks ago by EU banksters to expand the acceptable collateral categories have now extended the term collateral to where it has absolutely no meaning...IMHO this is far worse than any HYPER-HYPOTHECATION scheme can achieve - if it is true (and I have no reason to believe it is not) that these Italian banks 'created' 40 Billion EUROS of bonds which it issues to itself, had the Italian government provide gtds & pledge it to the ECB as collateral and this has all been sanctioned as a viable transaction (value earned/value received) then we ARE WELL BEYOND ANY REASONABLE LIMITATION - even Lewis Carroll in his most extreme discriptions of WONDERLAND stopped well in advance of such bizarre behavior - I am not an alarmist, however, under any reasonable expectation it is hard to imagine that such behavior can continue...When did we as supposedly intelligent individuals lose all concept of integrity?
Who would have thought we would look back at NINJA loans as being somewhat prudent :D
yeah, at least NINJA loans had an underlying asset for collateral. This is ridiculous
integrity? HAHAHAHAHAHAHAHAHAHAHAHAHAHA
(thanks i needed a laugh this morning)
This is by far the scariest thing I have ever read on ZH.
stick around, it gets worse.
You bet that “the ECB takes its role of lender of last resort to banks very seriously.” Just as does the Fed banking cartel; that was one of the purposes for which it was created – to shift the inevitable losses of its member banks to the people, to protect their banking cabal from competition and demise.
Thus, a seamless move is being made by the global financiers from the Fed and ECB as lenders of last resort, creating currency out of nothing for virtually the entire planet, to the IMF as a world central bank creating currency out of nothing… And onward to the demise of freedom and free enterprise.
In effect, as put forth by a letter of Demand for Monetary Reform in England in 1943 just prior to Great Britain losing her Pound Sterling to the dollar as the anchor of the system, “it is a forced levy on the nations that confers on the borrower the power to purchase a corresponding amount of wealth on the market, which wealth does not belong to them, or those who borrow from them, but to the community. The proceeds of the issue of new money—whether of paper or any other form of credit money—belong to the Nation in which it is, or is accepted as, legal tender, and not to the issuer. Herein lies the basic flaw of the existing monetary system.”
If the Federal Reserve banking cabal could be excised now from its hold on the world’s governments, the global financiers’ march to a world currency and world government could be stopped.
The issue is not the political will of the US government to go on spending beyond its means, it is the political will of the rest of the world to go on accepting the unworkable global system indefinitely. They will not do it. – Bill Buckler
"Unicredit has a balance sheet approaching a €TRILLION but they had nothing they could post as collateral?"
If they didn't have to why would they? If the ECB is good with them playing shenanigans and getting guvmnt guarantees on bullshit, why would they put any real collateral at risk? Jeez, if the central banks did this for the little people instead of mismanaged and corrupt big banks, we might actually end the crisis...but then the little guy doesn't have $750 trillion of layered derivative exposure either, does it? Next time around I will try to borrow way more than I can ever possibley afford to repay!
If you owe the bank $1,000,000 it's your problem
If you owe the bank $1,000,000,000 it's the bank's problem
If you owe the bank $1,000,000,000,000 it's the taxpayer's problem.
Let's have the crash now - this movie plot's too ridiculous to folow any more
Excellent observation!
It seems some sovereigns and their banks are competing with North Korea for the cup of who collapse first.
why put anything up as collateral when the taxpayer's unborn descendants have already unwillingly signed on for that?
shit, investing with no capital. i want a slice of that racketeering!
it's no wonder those slimy fucks are taking advantage of that leverage.
http://confoundedinterest.wordpress.com
What a brilliant idea! Issue bonds, pledge them to the ECB as collateral, and then get cash! Absolutely brilliant!
Why hasn't anyone thought of this before? What took the ECB so long to figure this out?
The sheer immorality of this concept is mindblowing. The sheer immorality of the left wing facsists will cause war and millions will perish. Isn't that which has happened over the last 100 years?
I guess it was getting crowded on this planet anyways.
How can you pledge a 3 month bill for a 3y LTRO auction with a minimum payback of 1 year? So, this article is saying that a bank can pledge a 3month bill for 3 year money? Am I missing something?
Maybe in 3 months they will have real assets? This is truly bizarre
"Issue bonds, pledge them to the ECB as collateral, and then get cash!"
Correction: Issue bonds, get a government guarantee, buy back your issued bonds, then pledge them to the ECB as collateral, and then get cash!
It's even better than you thought!
And here I was thinking packaging CDS payments into CDOs was evil...
Wow, the more I think about it - makes subprime look amateur by comparison.
Citing Fabrice Tourre, it takes "mental masturbation" to a. Whole. Nutha. Level.
wooohooooo
another 2 portuguese banks went for it....4 B this time...
http://www.jornaldenegocios.pt/home.php?template=SHOWNEWS_V2&id=527371