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LTRO "Bazooka" Is Epic Disaster As Banks Scramble To Redeposit "Free Carry" Cash With ECB, Lose Money On "Inverse Carry"

Tyler Durden's picture


When on Friday we penned "And This Is Where The LTRO Money Went" we said that the final nail in the "Carry Trade" theory was that instead of using the LTRO "Bazooka" cash to collect meaningless pennies in front of a steamroller, Europe's banks turned around and deposited it right back with the ECB after the bank's deposit facility soared to a 2011 record €347 billion, €82 billion more than the day before. Today, any residual doubt of where the LTRO cash proceeds went is eliminated, as the ECB has just confirmed that what goes out of one pocket comes back in the other, as the ECB's deposit facility has just exploded to not a 2011 record, but an all time record high €412 billion, a €65 billion increase overnight, and €167 billion higher in the past two days alone, which effectively accounts for practically all of the LTRO's free €210 billion.

And to those who foolishly claim this is a seasonal year end cash parking, we present the full history of the ECB's facility usage since it exploded on the scene in 2008. P;ease go ahead and show us when in 2008, 2009 and 2010 there was a spike in year end facility usage. We have all day. But wait: there's more! In another independent confirmation that all hell is about to break loose, we just saw the 1 Year Bund drop sub zero again. As a reminder, the last time it was there was in the last days of November, just before the global central bank cartel had to come in and provide a global liquidity bailout for Europe's banks. So: back to square minus one ladies and gentlemen of an insolvent Europe?

But the biggest slap in the face of Sarkozy is that instead of banks pocketing the "guaranteed" 2-3% in carry trade between the 1% LTRO rate and the soveriegn bond yield, banks are losing 75 basis point on this inverse carry trade, where they take LTRO cash and deposit it with the ECB where it yields... 0.25%!

ECB Facility Usage (source):

And 1 Year bund yield:


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Tue, 12/27/2011 - 05:59 | 2012891 dieyoung
dieyoung's picture

Iran did it.

Tue, 12/27/2011 - 06:04 | 2012899 Chris Jusset
Chris Jusset's picture

Is it just me, or is the half-life of these emergency bandaid measures getting shorter and shorter?  You blink twice, and the Eurozone finds itself in a worse position than prior to the quick-fix.

Tue, 12/27/2011 - 06:27 | 2012914 TheFourthStooge-ing
TheFourthStooge-ing's picture

In a comment posted two or three months ago, I suggested, as pure hyperbole, that when the effects of the emergency measures didn't even last long enough to issue a press release about them, the can kicking would be augmented by an agreement to roll back the calendar by one year. Keep watching, because the descent by TPTB to full spastic pants-shitting retard will make an official calendar rollback appear sensible.


Tue, 12/27/2011 - 08:22 | 2013090 Temporalist
Temporalist's picture

Krugman was right of course.  (this is a surrogate post for MDB)

Tue, 12/27/2011 - 08:23 | 2013092 Oh regional Indian
Oh regional Indian's picture

Very nice indicator 4th. Another indicator is when people run out of superlatives to describe something ordinary.

In the age of Hyperbole, the understated man is king.



Tue, 12/27/2011 - 11:45 | 2013589 Yancey Ward
Yancey Ward's picture

I, for one, am looking forward to 2011.

Tue, 12/27/2011 - 12:28 | 2013755 45north
45north's picture

pretty funny

Tue, 12/27/2011 - 07:49 | 2013021 Sudden Debt
Sudden Debt's picture

I wish I got 0,25% of 400 billion for 1 month... For free...

Tue, 12/27/2011 - 08:04 | 2013044 Non Passaran
Non Passaran's picture

Read TFA, bozo.
They are paying 1% and receiving 0.25%.

Tue, 12/27/2011 - 09:23 | 2013211 Vagabond
Vagabond's picture

This doesn't add up, why would they do this?

Tue, 12/27/2011 - 09:40 | 2013263 Sean7k
Sean7k's picture

In a monetary system that lacks a taxing authority, the only way to stick the people with the bill is either through sovereign bond interest or through currency debasement. If the governments are unable to tax enough to pay for the bonds, debasement is the only other method that works. 

The banks can now leverage these deposits and move into other instruments. We can now wait and see what shows up where next...

Tue, 12/27/2011 - 10:19 | 2013370 Raynja
Raynja's picture


Tue, 12/27/2011 - 11:38 | 2013563 Fedophile
Fedophile's picture

This doesn't add up, why would they do this?

Because they think their losses would be larger than .75% if they did anything else with it.

Tue, 12/27/2011 - 12:02 | 2013657 larynx
larynx's picture

I wish i get 400 billion at 0.25% for a year. That should be enough to corner the silver market unleveredged.

Tue, 12/27/2011 - 08:57 | 2013160 Ned Zeppelin
Ned Zeppelin's picture

The objective is to keep things afloat until the bonus checks clear.

Tue, 12/27/2011 - 14:28 | 2014158 Red Raspberry
Red Raspberry's picture

Excatly as Richard Maybury of the Early Warning Report predicted a couple years ago.

Tue, 12/27/2011 - 14:37 | 2014180 Red Raspberry
Red Raspberry's picture

Stupid back button....

Tue, 12/27/2011 - 10:15 | 2013363 dereksatkinson
dereksatkinson's picture

Just speculation..

I think the banks are waiting for the last auctions of the year to put this cash to work.  I think the expectation that they are just going to pour funds into securities in this thin of a market is foolish. 

Tue, 12/27/2011 - 11:19 | 2013495 Elwood P Suggins
Elwood P Suggins's picture

It's all the fault of George W Bush.

Tue, 12/27/2011 - 06:01 | 2012894 Fips_OnTheSpot
Fips_OnTheSpot's picture

So - they are in so desperate need for more liquidity - they just park it into ECB digital shelters. What a farce.. at least it cannot add up inflation from there - for now.

Tue, 12/27/2011 - 06:50 | 2012939 AUD
AUD's picture

Ahh... yes it can, you're assuming the credit of the ECB is a standard of value, rather than bank credit.

Tue, 12/27/2011 - 08:12 | 2013063 DormRoom
DormRoom's picture

Dont' they need to park it because of the upcoming Basel II requirements?  I'm assuming if they park it, they don't have to dilute shares, to meet Basel II, thereby diluting bank execs option packages.

Tue, 12/27/2011 - 12:09 | 2013685 Fips_OnTheSpot
Fips_OnTheSpot's picture

upcoming would be Basel III (3).


Interesting the 7-day "parking" rose to some insane amounts, also. Just I might go to sleep until 01/01/2012

Tue, 12/27/2011 - 06:01 | 2012895 Practical Cogitator
Practical Cogitator's picture

All shells -- no peas

Tue, 12/27/2011 - 06:03 | 2012897 trade the day
trade the day's picture

Oh boy.  thin volume , on this news eurusd should hit 1.40. 

Tue, 12/27/2011 - 06:04 | 2012898 achmachat
achmachat's picture

has anyone else noticed in europe that banks keep large sums (anything above 5000€) for much longer now (almost a week) when you wire money?

That looks like a huge sum of free money for the banks.

Tue, 12/27/2011 - 06:24 | 2012910 Catequil
Catequil's picture

yep, in my case for instance I had a small problem (technical mistake) with a money transfer and it took about 14 days to sove it. these 14 days the money were in the bank system....

Tue, 12/27/2011 - 06:08 | 2012902 Zaphod B.
Zaphod B.'s picture

So long and thanks for all the fish!

I love the sarcasm....'got all day'....'wait theres more'

Nearly coughed a raisin out me nose...

This week more stories on negative margins on all those 'phlat-screen TV' loss leaders?????

Tue, 12/27/2011 - 06:12 | 2012903 lolmao500
lolmao500's picture

German bonds are the new US bonds! Really bankrupt but the market haven't figured it yet.

Tue, 12/27/2011 - 06:26 | 2012913 misterc
misterc's picture

You seem to be the first one to get this here.
We Germans have 2 billion € in public on-balance-sheet-debt. We have bailout obligations of roundabout 400 billion, I think.
We have massive demographic problems. Public spending is out of control. Welfare spending is hilarious. Counties and cities are broke. A social study recently warned of public unrest aka London iPad riots at some point in the future in Ruhrgebiet (our rust belt).
Young people, even educated, are more or less locked out of good paying jobs. Time-limited, contractor jobs only.
It's almost impossible to have two kids on one middle-class-income. Your wife has to work, too. And it better be not a McJob. Cost of living is going trough the roof. We are a nation of renters. Leveraged financial instititutions and dubious companies like Annington buy up all the condos and raise rents in order to make management, creditors & stockholders whole (massive wealth transfer).
Oh yeah, and our so called manufacturing base is also going down (look at all the greentechs, they've gotten run over by China with cheap solar cells and so forth). Volkswagen, Mercedes-Benz & BMW are all massively vendor-financing with their own banking entities (VW Bank, BMW Bank, Mercedes Bank). Channel stuffing to the point where you have not a single parking spot available for your current car when visiting a BMW dealer (I have experienced this myself).
We are repeating the American mistakes at a very, very fast rate (McJobs, education bubble, real estate bubble in some parts of the country), yet our tax rates are not at historic highs but near historic highs. Not much room to go without risking capital flight, in my opinion.

How anyone can buy German bunds at all is beyond me.

Tue, 12/27/2011 - 06:28 | 2012918 Sandmann
Sandmann's picture

aka London iPad riots

Why do you say iPad. They were Blackberry Messenger Riots

Tue, 12/27/2011 - 08:27 | 2013098 Temporalist
Temporalist's picture

Either way they'll have to resolve to eating them.  How do you like your Android; with ketchup or mustard?

Tue, 12/27/2011 - 06:40 | 2012928 misterc
misterc's picture

One more thing, a friend of mine works at the BMW motorcycle plant. His opinion is that most parts come from other countries by now, they basically just stitch it together here in Berlin. But he thinks that's dangerous, as you have to deliver BMW quality if you ask for BMW pricing.
And he's just a temp worker there for the past year. He's been a temp for the last few years. He wouldn't be able to afford the BMW motorcycle he's involved manufacturing.

Sounds more like China, doesn't it? 

Tue, 12/27/2011 - 06:56 | 2012945 GoldBricker
GoldBricker's picture

It's all inflation, whose pressure makes itself felt everywhere, all the time. There's the headline, visible price inflation, and then there's the other things you mention: working mothers, temp work, no jobs, quality dilution, and much more. These other things decrease our quality of life just as surely as higher prices, but less visibly.

What you see at BMW now was already happening with Volvo cars in the early 1980s, as more and more parts were made outside of Europe. Even the Chinese sub a lot of stuff out to still-poorer countries, like Vietnam and the Philippines.

The world still associates 'made in Germany' with high quality, and for good reason, but keep in mind that Britain and the US once enjoyed similar reputations.

Tue, 12/27/2011 - 08:47 | 2013130 Temporalist
Temporalist's picture

You know Germans make good stuff.  Sham-fucking-WOW!

Tue, 12/27/2011 - 07:37 | 2013000 deez nutz
deez nutz's picture

     Sounds more like China, doesn't it?

actually it sounds more like Amerika.

Tue, 12/27/2011 - 07:53 | 2013026 Sudden Debt
Sudden Debt's picture

Everybody can buy a BMW! Just apply for a loan and sign with blood.

Tue, 12/27/2011 - 08:07 | 2013050 El Hosel
El Hosel's picture

BMW    Bite My Weenus .  INDU futures are down 11,  the PPT must have had too much eggnog.

Tue, 12/27/2011 - 10:07 | 2013340 VisualCSharp
VisualCSharp's picture

Maybe unrelated, but I just got a class action lawsuit notification in the mail yesterday. It was regarding high-pressure fuel pump and turbo wastegate failures in BMW's N54 engine. When I owned my 135i I had to get two HPFPs replaced before I sold the car. It's a shame, too, because it was a great car besides.

Tue, 12/27/2011 - 10:57 | 2013447 Variance Doc
Variance Doc's picture

What year was the car?  I have a 2010 335i, drive the crap out of it (daily driver), and have never had problems with the drivetrain (just the radio had to get replaced).  Great car.

Tue, 12/27/2011 - 10:10 | 2013345 e-recep
e-recep's picture

Communicating vessels. China's living standards will rise, Germany's will fall. That's what you get when you have "global free trade". It's very profitable for huge corporations but not for the majority of the locals in the developed part of the world. Yet those locals have been voting for governments who advocated "free trade". Idiots.

Tue, 12/27/2011 - 10:53 | 2013436 AGoldhamster
AGoldhamster's picture

waoh - 1 of a million who got it finally ... sure you are not european

Tue, 12/27/2011 - 10:14 | 2013361 CvlDobd
CvlDobd's picture

Look at my avatar. That's me on my R1. If you wait a minute my friend on his S1000RR should be along. It's a badass bike. It's just ugly IMO.

They opened up a new BMW dealer in Asheville NC and bikes seem to be selling well there. Makes me scratch my head. At the grand opening there was an Aston Martin and a Ferrari in the lot so maybe it's the really wealthy peeps buying the BMW bikes.

Tue, 12/27/2011 - 06:42 | 2012929 GoldBricker
GoldBricker's picture

Thanks for the update. I live in Belgium, where the economic situation is similar (except our state bonds are not considered that safe, and we have neither Merko nor Kozy to represent our parochial interests).

Regarding bunds as the new T-bills, I guess that bankruptcy is relative. Germany isn't solvent, it's just less insolvent than the other big players. It's like black holes; they're all voracious points of no return, but some might be 100 solar masses, while others are a million.

Tue, 12/27/2011 - 08:39 | 2013117 Temporalist
Temporalist's picture

All Belgium needed was a new government.  Everything is going to be great now that there is a gay socialist in charge.  And if that doesn't work you can get Van Rompuy to straighten the country out; he should be a national hero.

Tue, 12/27/2011 - 07:06 | 2012956 Jendrzejczyk
Jendrzejczyk's picture

Assuming your land(over)lords have a large mortgage on the apartmet building, would it be possible to organize a renter's holiday? If everybody in the complex got together and refused to pay rent for a few months, the loan might go into default and be forclosed upon.Evicting everyone in the building at the same time would be rather difficult and costly.

Not many investers would want to purchase such a troublesome property.

Using all the cash they saved from not paying rent, the tenants could then put a sizable downpayment on the (distressed) property and purchase it for pennies on the dollar.

Just a thought.

Tue, 12/27/2011 - 07:58 | 2013031 lolmao500
lolmao500's picture

Great idea. But you would have to do this in secret and quite quickly for it to work.

And even if it worked, the cops would come knocking with ``conspiracy to commit fraud`` arrest warrants.

Tue, 12/27/2011 - 10:09 | 2013342 VisualCSharp
VisualCSharp's picture

And when they do come knocking, make sure your dogs are kept safely hidden, lest they end up dead.

Tue, 12/27/2011 - 11:42 | 2013574 bbelux
bbelux's picture

you forget the healthcare...

Tue, 12/27/2011 - 06:13 | 2012904 Platypi4Lyfe
Platypi4Lyfe's picture

Fucking shocking.. could it be this actually is structural rather than liquidity crisis? Woah man, trippy..

Tue, 12/27/2011 - 06:19 | 2012906 jonjon831983
jonjon831983's picture

Wait, if the cash is deposited at the ECB , doesn't it mean the ECB has more cash to lend out? Say at a 1:20 ratio?

412B * 20 = 8.24T

Are we saved?

Tue, 12/27/2011 - 06:24 | 2012911 LookingWithAmazement
LookingWithAmazement's picture

Indeed. #WhatCrisis?

Tue, 12/27/2011 - 06:34 | 2012924 TheFourthStooge-ing
TheFourthStooge-ing's picture

Boringly predictable world we live in, huh?

How long before banks realize that they can increase their cash reserves infinitely simply by making loans to themselves at zero interest?

Oops, I guess I shouldn't have given them any ideas.


Tue, 12/27/2011 - 07:07 | 2012957 Urban Redneck
Urban Redneck's picture

They're saving that card for the Q1 debt rolls... kick the can again by having the broken shadow banking system prop up the broken regulated banking system, all financed by taxpayers through the broken central banking system... one big banker circle jerk.

Tue, 12/27/2011 - 07:22 | 2012978 LookingWithAmazement
LookingWithAmazement's picture

Indeed. All the doomers again and again. And 2012 hasn't even begun!

Tue, 12/27/2011 - 08:03 | 2013041 mvsjcl
mvsjcl's picture

Damn! I like the way you think! Sure you don't work at a central bank?

Tue, 12/27/2011 - 08:29 | 2013102 FinHits
FinHits's picture

ECB should device new ways to increase its profits like this, which it can then distribute to Eurozone Central Banks as profits, that can be invested as IMF contributions, to be lent to Eurozone countries.

Sounds like a profitable plan. Too bad the profits are in Euros...

Tue, 12/27/2011 - 06:23 | 2012909 evolutionx
evolutionx's picture


We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments.  Thus most of these assets are also worth-less.


Let us be very clear, this financial Shangri-La is now coming to an end. The financial system is broke, many western sovereign states are bankrupt and governments will continue to apply the only remedy they know which is issuing debt that will never ever be repaid with normal money.

Tue, 12/27/2011 - 06:32 | 2012923 LookingWithAmazement
LookingWithAmazement's picture

Hyperinflation is already going on. Check out the True Money Supply. Gold and silver down. #WhatCrisis?

Tue, 12/27/2011 - 08:41 | 2013120 Temporalist
Temporalist's picture

Shut up and go eat an iPad.  The Fed says there is no inflation silly and they are always right.

Tue, 12/27/2011 - 09:48 | 2013291 Sean7k
Sean7k's picture

Do you have to shout? Do you really think what your saying is news to anyone here? Stop it!

Tue, 12/27/2011 - 10:29 | 2013387 e-recep
e-recep's picture

Bah, this is getting old.

Tue, 12/27/2011 - 06:27 | 2012917 Sandmann
Sandmann's picture

So we actually have the ECB issuing Promissory Notes against itself to build up its Deposit Base. What exactly are the legal aspects of this ? We have Central Banks funding local commercial and investment banks with funds transferred from the ECB which itself has no backstop; and those Commercial and I-Banks are then depositing these funds with the ECB on the other side of its Balance Sheet.

There is some circularity but it also has echoes of re-hypothecation. This is very peculiar legal territory and I wonder if anyone has a real grasp on what the implications of Domino-Default really are ?


Tue, 12/27/2011 - 07:00 | 2012951 Cast Iron Skillet
Cast Iron Skillet's picture

It's probably illegal, but the perps are bankers, so who gives shit?

Tue, 12/27/2011 - 07:22 | 2012980 Curtis LeMay
Curtis LeMay's picture

Euroland can be looked at in two parts. One is the beauracratic monster part, which we all know and hate, and there's the policy side. This policy side is essentially under anarchy, run by tryants. Germany and its French poodle issue diktats and everyone else in euroland simply follows orders.

In short, there are no laws governing finance in euroland. None that are honored, anyway...

Tue, 12/27/2011 - 06:30 | 2012922 MoreNails
MoreNails's picture

The timing of the LTRO was quite weird, as obviously the banks couldn't do anything with the cash now, when there's zero liquidity. Guess it was for the year-end books. So obviously they park it with the ECB for a couple of weeks. We'll truly see the effect on the markets in January, when (how / if) the new cash is deployed. For the time being, they might just be waiting for any sellers to be back into the market so they can actually buy something. They might even be dumping a mil or two to depress market levels and get a better entry point in January... Who knows.

Tue, 12/27/2011 - 06:58 | 2012948 onebir
onebir's picture

Good points. Unless something major changed immediately after they LTRO, they wouldn't have borrowed so much just to earn -ve carry... Perhaps they're holding the funds with the ECB until existing funding needs rolling over?

Who know's whether they'll eventually buy sovereign bonds (some analysis here* quoting Peter Tchir suggests they won't) - but it's too early to say, and even if they don't directly buy them, the LTRO funds will ease banks' funding requirements at the margin (which as another ZH article recently pointed out will be pretty massive in 2012) & support bond markets overall.


Tue, 12/27/2011 - 06:37 | 2012925 GoldBricker
GoldBricker's picture

banks are losing 75 basis point on this inverse carry trade, where they take LTRO cash and deposit it with the ECB where it yields... 0.25%!

Is no one going to play the Henny Youngman card and ask how they make their money? (On volume, for you younger readers)

Tue, 12/27/2011 - 06:57 | 2012947 valley chick
valley chick's picture

so the banks are making "money" by parking it at .25% when it was suppose to bail out their broke arses? So there is still a liquidity issue?  So now the ECB can lend out even more "money" ?  Is this merely a circle jerk with the banks making "money" ?  I am new at this and trying to understand it.

Tue, 12/27/2011 - 07:07 | 2012958 GoldBricker
GoldBricker's picture

What Tyler is saying is that the banks are paying 1% (100 points) but receiving only 0.25% (25 points) and are thus losing 75 points. They could make a 2-3% profit by taking that money and putting it into govt. bonds instead (thus making Sarko happy, as he can finance his debts while having the ECB line his bankers' pockets).

The only rational reason for the bankers not to go for the sure profit is that they think they will need the cash soon, and don't want to have to sell distressed assets (govt bonds, of which they already have many) into a falling market. It's the same reason that you or I might hold cash, even with inflation taking some % of it all the time: we might need to meet a sudden expense and not find a market for other stuff that we could sell.

Tue, 12/27/2011 - 07:11 | 2012964 valley chick
valley chick's picture

Got it ...thanks!!!

Tue, 12/27/2011 - 09:12 | 2013192 blindfaith
blindfaith's picture

it is a wee bit like all the 'consumers' who bought with a credit card before Christmas and are lined up at the return counter now and getting cash back.

I remember a check thing going around in the late 60's where you cound have several bank accounts and stagger a check from one bank to the next and suddenly have 20,000 in cash in your hands and no actual money in the bank.  See, old ideas never die they just evolve.

Tue, 12/27/2011 - 09:31 | 2013236 GoldBricker
GoldBricker's picture

What you describe is called 'check kiting', and is a scam as old as checks.

JK Galbraith said something to the effect that all financial innovations are new ways of packaging old scams so that they are neither recognized by the public nor forbidden by regulators.

Tue, 12/27/2011 - 06:45 | 2012931 EZYJET PILOT
EZYJET PILOT's picture

With all due respect Tyler the banks aren't losing anything in the inverse carry trade, because they pledged worthless garbage to begin with.

Tue, 12/27/2011 - 08:12 | 2013065 Non Passaran
Non Passaran's picture

Correct about the garbage, but they are losing even more. The garbage money was lost already, this -0.75% is on top of that.

Tue, 12/27/2011 - 06:48 | 2012936 EZYJET PILOT
EZYJET PILOT's picture

And by the way that's 0.25% more than the bastards deserve!!

Tue, 12/27/2011 - 06:58 | 2012949 Frastric
Frastric's picture

Either banks have become more insaner than they usually all are, or everything is going exactly as Sith Ponzi forsees it...

Tue, 12/27/2011 - 08:16 | 2013074 mvsjcl
mvsjcl's picture

Yeah. That's the thing that really scares me. It's bad enough to contemplate that they might be losing control. It's much worse to think that the results thus far have wildly exceeded expectations.


Screwy freaking world.

Tue, 12/27/2011 - 12:58 | 2013856 larynx
larynx's picture

I think exceeded expectations have been met in GR and IT, ... so far ...

Tue, 12/27/2011 - 07:00 | 2012950 bbelux
bbelux's picture

Yes you can see that in the dramatic way or ... in a more positive one ;


Banks raised money at a 0.25% interrest rate...pretty cooler no?

They've all declared they won't reinvest in sovereign in full, like unicredit said.


The LTRO window opened recently is a 3 year term, when the offer arrive, you have to strike. So basically, you take the money first and after that you think about how to spend it.


So banks have some cash... we'll see how they will use it.


But when you get a loan, if you give the money back, the loan is cloded, well in that specific case it is, and you cannot use the credit line anymore. So what to do? you borrow, and you place the proceeds at the ECB. Ok the operation cost you something, but frankly, where to find moey on the market at that rate???

Tue, 12/27/2011 - 07:49 | 2013020 Tyler Durden
Tyler Durden's picture

Uh, what?

Tue, 12/27/2011 - 08:06 | 2013049 BandGap
BandGap's picture

Let me essplain.  You tak-a zee money and reroute it beforz the bank cycle charges you interest but then give it back for zee payment on zee money in da cloud.

Tue, 12/27/2011 - 11:32 | 2013534 bbelux
bbelux's picture

haha not far :-) 

but again, and it's my opinion the LTRO, when it come to banks and their balance sheets is pretty good. In my case it's an opportunity i wouldn't have missed i IF I were a bank. It's an 1pct loan with a 3 year term...and no matter if your are unicredit or rabobank... 

Proceeds may  be used to call a lot of Jr Sub debt not yet elligible to Tier one capital ratios. So yes this is not deleveraging, but it is reducing the cost of the leverage...and this is not bad. The question of timming these operations and the way banks will use these funds in the end is up to them. Important is, they have the ability. Is it sufficent, i don't know. Nobody knows and a lot should admit that. the press call it a Bazooka, nobody at the ECB does... the press isn't driving the ECB... 


My only hope is that banks will use these funds to fuel the real economy and not to play with accountability. This is christmas, i'm allowed to hope...


Because here stand the true fight for the old europe...and the US (don't forget you are alos in a big mess you guys...) : creating value, not opportunity state jobs.


Nobody will deleverage a state or a group of states as you deleverage an Hedge fund. Nobody will change the strategy of a group of state as a fund manager can update it's fund prospectus. And finally creating value suppose support, financial support and budget discipline (wich is already embedded in the European Masstricht treaty, yes Maastricht is in Holland...)


Europe wil not blow up as a whole this is not Hollywood, Will Smith will not save the world neither, Muse won't play any music for the soudtrack...but the movie will last for decades! Far better than the 3 episodes of the lord of the rings displayed in a row no? This is a recession, this is a sovereign debt crisis, this is I think the beginning of better managed


So yes in a way, in the short run, we may be (are) all cooked, but I think the last silver bullet has to be played, and this silver bullet, again, in my opinion shouldn't be an "excel circular reference" accountability trick, but a huge project financing scheme.


So I doubt the LTRO was by design a tool used to massively help banks to purchase sovereign bonds, but to get fresh money by using all type of collateral (read italian gov bonds). Eurobanks are in a deleveraging/capital raising mode and LTRO is if not a capital raising tool, a way to minimise financial costs...and fuel the economy, and if needed support the Q1 issuances...even they will be very reluctant to do so.


So all in all, and even if we disagree on some points sometimes;I wish you all an excellent 2012 year an especially @ ZeroHedge where i'm sure the activity level will be at DEFCON 10 for years to come. Keep up the extremely high level contributions it's a true pleasure to read.


And for my old Europe, I wish Ghandi for president and Dirty Harry as prime minister. 


Again all the best for 2012 Everyone.





Tue, 12/27/2011 - 07:56 | 2013030 GoldBricker
GoldBricker's picture

Are you typing this from a cafe in Amsterdam, by any chance?

Tue, 12/27/2011 - 09:02 | 2013172 Temporalist
Temporalist's picture

COUGH COUGH!!!  Why would that COUGH matter COUGH?

Tue, 12/27/2011 - 07:18 | 2012973 savagegoose
savagegoose's picture

so pull all your cash and buy gold n silver.

Tue, 12/27/2011 - 07:30 | 2012988 mrpxsytin
mrpxsytin's picture

It's not a crazy move by the banks. It is completely logical to keep that cash on hand in order to bolster their "capital". Who else are they going to deposit the cash to? Each other? That makes no sense. They deposit the cash with the ECB and hypothecate that to create more money for lending. If they can lend out 10times what they have deposited in the ECB then the 0.75% loss they make with the ECB is more than made up for by the interest they earn on their newly printed money.

Tue, 12/27/2011 - 09:07 | 2013179 Ned Zeppelin
Ned Zeppelin's picture

They deposit the cash with the ECB and hypothecate that to create more money for speculating.

There - fixed that for you.

Tue, 12/27/2011 - 07:33 | 2012996 Heyoka Bianco
Heyoka Bianco's picture

Sorry, Tyler, you're completely wrong. This inmcrdibly handsome and intelligent man has the irrefutable evidence (pretty blue charts) to prove the massive, massive impact of LTRO on bond yields. All that debt that needs rolling over in 2012 is going to be Hoovered up by the now supercharged "private" banks:

Tue, 12/27/2011 - 07:41 | 2013007 Irelevant
Irelevant's picture

This 3 year loans will never get paid back. Banks know this, that is why the don`t care. This is water for the fire, it will be used in short order at the time it is needed. It is not enought water however, its a pee gun.

Tue, 12/27/2011 - 07:53 | 2013025 Sandmann
Sandmann's picture

That may not be true. Regimes may emerge in EuroZone States that simply seize Bank Assets to reclaim these liabilities and thereby transfer private sector assrts into the hands of The New State. Imposition of Capital Controlsand freezing of Bank Deposits is not unknown. 2ndt March 1933 21 US States closed their Banks.  4 March Roosevelt closed all Banks for 4 days using Trading With The Enemy Act and on 9. March the Emergency Banking Act.

The way things are moving Europe will have a Fascist Renaissance and Capital Controls will lock funds into each sovereign state with a Resolution Corporation seizing any external imbalances from domestic private sector assets such as Pension Funds and Deposits.




Tue, 12/27/2011 - 09:07 | 2013180 Irelevant
Irelevant's picture

For certain Europe is in for a tough ride. 2012 is an election year for France, Russia, Finland (in Europe), USA, Brazil. I think they will kick the can down the road for all of 2012, gold prices will stabilize lower, all will seem well. This is needed if the PTB are to control the election outcome, otherwise all bets are of.

I believe this is a energy crisis as much as it is a financial fiasco. Peak oil is as real as it gets, and its here to stay, even per OMV Austria charts. What is happening with horizontal drilling and all other technologies might (will) assure faster depletion of existing fields, and create a seneca effect in the end. This was discussed on TOD. Such an outcome would be catastrophic. Gold and silver would be useless, societal complexity would just collapse in a matter of months. Such an outcome is truly frightening. Lets hope there will be a slow transformation in the way we, as a species, behave, and that we finally understand the need for sustainable development of this planet.

I think Europe is toast, all those bureaucrats in Bruxelles that can`t agree anything, and don`t even speak the same language, assure such outcome. Like Jorg Hajder (far right) won elections in Austria so will the communists win in Portugal, Italy, and other extremists will pop up all over the EU. The new governments will no longer accept the "austerity" diktat from Berlin and simply default on all obligations. This is will not change the nature of this crisis, this is an energy crisis. Fiat currency is utterly irrelevant to what is happening now. You cannot print money if you don`t have energy to back it up, and, simply put, there is no more surplus energy to be had.

This is why Germany is imposing austerity on the EU, the Germans want to benefit the surplus energy that the south can`t use due to imposed economic recession (via the EZ mechanism), this is a energy race, the euro, all fiat, is utterly irrelevant to them. All they think about is energy security, that why the Bundestag is off the grid, that is why they have north stream, that is why they will do everything possible to eliminate all competition on the energy market. The Germans are not stupid, neither are the dutch, they know there is a huge energy bottleneck coming, stiff competition for energy between emerging economies and the western powers. That is why you have the "arab" spring, that is why you have "protests" in Russia. It`s war, war for the last sources of energy. It is not about freedom, it is not about money, it`s about oil, it`s about gas, it`s about coal, it`s about assuring a nations survival, about securing the lifeblood of a modern society.

 In this respect gold is extremely important because, as another put it, gold and oil can`t flow in the same direction. Gold will buy you oil, in that sens gold will be the only currency accepted, as it is a store of value that will preserve wealth for future generations. If you give oil, which is a finite resources, you will only do so for store of value, that can be used in the future. Sure, you will buy military aircraft, build useless skyscrapers, but you always put 20% in gold, a store of value, for the real value of gold is, frankly, unknown. Gold is treated as a commodity only because it assures we get the oil we need at the same low price. Arabia, due to peak oil, and other factors, will not accept fiat if it cannot be exchanged for gold. Things will get interesting in short order after the coming elections. If Iran is attacked China will jump in to defend it, as it did with NK during the 50s.     

Tue, 12/27/2011 - 09:26 | 2013220 blindfaith
blindfaith's picture

well, 8 dollar a barrel oil killed, destroyed the USSR...not REAGAN as so many like to rewrite history and give credit where credit is not due.  You want to kill the beast, starve it with cheap oil...or some other alternative.... that is the real fear not higher prices or less supply.

China save Iran...that is a joke right?  You were being funny.

Tue, 12/27/2011 - 09:56 | 2013314 Irelevant
Irelevant's picture

What brought down the USSR is much more complex than $8 oil, that, for sure, contributed. China is Iran's largest trading partner. China is dependent on Iranian oil. China will defend that energetic lifeline at any cost.

Ask yourself why gasoline is more expensive in Greece than in Germany, why is it more expensive in Italy than in Germany? This is low level energetic warfare. Greece has soft winters, so its the best candidate to test the effects of prohibitive costs for transportation fuel. Will people riot if they can`t buy transportation fuel? Or cant afford it! Greece has ports and is, itself, a gateway for ME oil, so is Italy, gasoline prices are however higher than in Germany, it doesn`t make sense.

We spend our time talking about fiat currency, about government debt, it`s all a sideshow, the energy war begun in 2003 and is progressing as we speak. All else is irrelevant at this point, as long as the western nations are provided with oil, gas, coal. If the fat lady starts to sing and MENA + RUSSIA + VENEZUELA signal they will no longer accept worthless fiat for oil/gas all hell will break loose. That Arab "spring" was just a preview of what is to come. Qaddafi, in that rumbling UN speech, made a few important points, he wanted a hard currency, equal footing for the smaller countries and a bank of the oil producing nations, that could SET the terms on loans made the west. Qaddafi was "solved" in short order one year after the speech, Libya was liberated, and the former CEO of statoil became oil minister.

Apparently what we don`t understand is that oil producing nations that refuse to play ball as the west dictates will be "liberated" instantly in this age of peak oil. Do you think the house of Saud will reject US dollars? They will have a revolution instantly, people will fight for freedom, they will fight for freedom so much that the country will fall into civil war, citizens will be busy killing each other on religous lines, while we pump out the oil. See Iraq.

If MENA refuses to play ball they will be "liberated". Iran is the centerpiece of this "liberation" at this point, for it is China`s supplier, and China will not blink in deffending that oil. Even Russia might blink, but China will do no such thing. Remember Saddam Hussein wanting to price his oil in Euros? Bad idea! Iran wanting to value oil directly in gold? This is the end game signal. Gold is not a commodity, oil is not a comodity, they are bought currencies, oil will accept gold but, at some point, will refuse fiat and also refuse papper gold. We are closing in on that!  


Tue, 12/27/2011 - 08:03 | 2013042 Snakeeyes
Snakeeyes's picture

Dodgeball Eurozone-Style: EuroBanks Flee to ECB Overnight Facility and US Treasuries Draw All-Time High Bid-to-Cover of 9.07

Tue, 12/27/2011 - 08:49 | 2013135 tarsubil
Tue, 12/27/2011 - 09:13 | 2013195 OverMan
OverMan's picture

There is nothing strange with this...when you get so much money you just can't invest it in a single you deposit it at the ECB and than find a way to use it.

The bonds issued by Italian banks and guaranteed by the Italian treasury are just part of the EFSF agreement...simply the Italan government was one of the first to approve it and now italian banks can use it. Italian banks have a lot of other securities to use as a collateral (they have around 300bn of italian bonds, bce collateralized operations accounts for around 500bn, i believe just 100bn from italian banks!).

So...nothing new in Europe

Tue, 12/27/2011 - 09:59 | 2013310 falak pema
falak pema's picture

crisis of western capitalism is a shit storm that will make fall of Byzantine Comnenos seem like a sunday picnic. If Germany goes into financial tail spin then the last Euro domino goes south. Maybe if we head for Capetown we will meet the Euro zone at last urgent urgent urgent final final meeting before they jump into Antarctica. Like Shackleton and Scott. "See ya at South pole",...Only you never come back, unless you be Amundsen. But he was a non-euro european, triple home run hitter; as he was first to North, South Poles and North West passage. Awesome son of Viking, he hit oil at first drilling. Not so the LTRO nut cracker's suite players...

Tue, 12/27/2011 - 10:57 | 2013448 Greenhead
Greenhead's picture

Why wouldn't the banks buy sovereign debt and deposit them (at full value) with the ECB and create magic money on those "deposits"? 

Tue, 12/27/2011 - 11:17 | 2013492 trebuchet
trebuchet's picture

bifurcation trade: take good quality/cheap money and buy cheap assets, restructuring your balance sheet to dump bad assets - (italian sovs leaking upwards)

Its still marginally good for the bankng system, LTROs are still EU QE. 






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