Ponzi Comes Full Circle: ECB Will Rate Sovereign Bonds It Accepts As Collateral

Tyler Durden's picture

Two days ago we noted with muted disgust that Europe has legislated to scrap the use of rating agencies, who were everyone's best friend during the up-phase in the global ponzi, but now that deleveraging is accelerating and ratings downgrades are coming, are like the drunk guest who refuses to leave the insolvent party at 4 am. Sure enough, the time has come to enact rules to kick them out. But wait, there is much more. Moments ago Reuters reported that the European Central Bank is discussing a medium-term plan (as in indefinite) to scrap rating rules on euro zone sovereign bonds and instead set their value when used as collateral in lending operations on its own internal assessment, central bank sources said. You read that right: the ECB itself will decide what the collateral value is of pieces of paper it accepts, in exchange for other pieces of paper with the faces of famous dead people on one side (even if technically the whole operation takes place electronically). And to think that for some odd reason allowing drug addicts to write their own prescriptions is illegal. Apparently all is fair in love and breaking all rules of sinking monetary systems.

More from Reuters:

With the ECB not yet ready to take over the technical but highly political responsibility for rating sovereigns, the bank's policymakers will also discuss more immediate ways to help Spain and its banks at their meeting on Thursday, such as further widening the types of collateral Spanish banks can use.


The discussion come as Spain braces for a downgrade from small rating firm DBRS, which without a change in ECB rules will trigger an extra 5 percent penalty on Spanish bonds when used to get ultra-cheap ECB funding.


ECB members have heavily criticised the actions of rating agencies during the euro zone crisis and have vowed to reduce reliance on their assessments.


"In the case that the ECB Governing Council decides this, it would reduce the widely criticised influence of Standard & Poor's, Moody's and Fitch," one euro zone central bank source who spoke on the condition of anonymity said.

And the punchline:

"On the other hand, this could also expand the shrinking pool of collateral which banks in troubled countries have available."

Bingo. Only not "expand" it, but make it worth whatever Goldman ex-banker Mario Draghi decides it is worth. In other words, the last remaining market test of even the faintest credibility, the one backstopping roughly ten trillion in deposits, has just become worthless

There is still some hope:

Opposition, in particular from the Bundesbank, has been strong, however. The German central bank has argued that the dramatic loosening of the rules has increased the risk of lending to banks for the ECB and the national central banks.

It is still unclear what criteria the ECB would apply in the future if it ditches the use of rating agencies in the area of sovereign bonds.

One central bank source said there would continue to be a sliding scale of haircuts (charges) that would be applied to the different countries' bonds.

"It is clear that the ECB will continue to make reductions depending on the creditworthiness of the country whose bonds are submitted to it as security," said the insider.

Sadly, at his point not even Germany can turn the ponzi choomwagon around.

It will make for some great comedy though, when in retaliation for continuing German obstinacy to hike German retirement age to 100 so that the French can retire at 60, the ECB itself will downgrade Germany's credit rating.

You laugh, but it's coming.

Obviously, once the general public comprehends that the ECB has now gone full tilt with its entire deposit base, backstopping it by now officially worthless paper in the biggest and most corrupt failure of circular valuations ever, and everyone decides to invest in the First and Only Mattress Bank, it will be too late. And the ECB will be saying how nobody, nobody, could have possibly predicted that it itself is the precipitating factor for the terminal bank run.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
jimijon's picture

Any gaming lawyers here?

Is it possible to create a "real ponzi" game? Like that Russian guy I read about here?

I think it would make for some fun and profitable social apps, phone apps, etc.

We would do full disclosure, etc. 

I can program it if it would be legal.

GetZeeGold's picture



If we could just get Obama to pardon Madoff....we could fix this crap.


knukles's picture

Ministry of Truth Rating Agency

tocointhephrase's picture

Just now from that so called news channel bbc 

NatWest and RBS customers hit by technical problems

Barclays has the same issues nearly every month just before pay day!


theMAXILOPEZpsycho's picture

I'm again left agast at the ability of these agencies to wreck havoc in world markets. Its no different to a naughty boy in school saying calling the school beauty a slut and spreading nasty rumors around - ultimately leading to her suicide. Thats exactly what the rating agencies are doing with some of our best institutions - and the best of the best, sovereign governments. They are literally playing around with poeoples livelihoods. and even if some of the rumors were true, what good does it to bring it to light. Everyone knows the world economy thrives on confidence; we either thrive together, or we go down together, it really is that simple. Thats why I'm calling for the nationalization of all rating agencies - we can get the best minds from our universities to do the job, selected by the best minds from the government. We'll get the right people that way. The way these cowboys are carrying on at the moment you'd say they let just any unqualified simpleton decide the fate of an entire nation. Imagine how much better the poor old greeks would be today if it wasn't for the rating agencies.  


The fightback starts here...

Chris Jusset's picture

This is a very proud moment for Sir Charles Ponzi ... as it is now beyond question that his thesis has become the ultimate guiding principle for all Eurocrats and Central Bankers.

Comay Mierda's picture

And the funny thing is when the SHTF all CNBC/CNN/FOX/MSNBC talking heads will say NO ONE SAW THIS COMING

Stackers's picture

Ratings ? We dont need no stink'n ratings ?

Divided States of America's picture

We also dont need no Basel III requirements either.

TheCanadianAustrian's picture

Excellent troll. I thoroughly enjoyed that, thank you.

semperfi's picture

Better yet, make him Secretary of the Treasury - who is better qualified, really?

101 years and counting's picture

i'm first in (bottom of pyramid gets money back!).

N. B. Forrest's picture

Just more rearraging deck chairs on the Titanic. 

DeadFred's picture

The list of the deck is getting a mite steep now so it's hard to keep things looking tidy. These measures are unreal. We heard it was coming, we believed it and now we're seeing it and I still am amazed at what I'm watching. How do people with half a brain not see this for what it is? I use Phil Davis for my (somewhat) bullish counterpoint to ZH and this morning he said "GET OUT NOW!" (His caps)

101 years and counting's picture

whats next?  Obama will executive privilege 10 trillion in debt down to 6 trillion?

SheepDog-One's picture

Declare it so...and why stop there? Just wipe out all corporate/govt debt and transfer it to the peasant taxpayer.

Catullus's picture

Monetize everything.

I'm sure those assets will be marked to par and not market, as is traditional for central banks.

battle axe's picture

Fucking Joke. Rate themselves, that always works well, will give a lot of confidence to the market...

lizzy36's picture

What? self-rating doesn't work?

You mean the 10 one see's on their local "please date/shtup me" website is photoshopped. That one needs to read in an extra 50 lbs, 10 years, and perhaps a sex change....unpossible.

DeadFred's picture

And yet another reason why staying married is a happy thing. Thanks

pods's picture

Why do I see the collateral as being the same suitcase used in Dumb and Dumber?


adr's picture

What was her name, swisson, swanson?

Look Lloyd it's written on the suitcase.

Bernankonite, man I was way off.


What is that?

Those sir are BOU's, just as good as cash. Everything is accounted for.

Gief Gold Plox's picture

What's this thing a "deposit" you speak of?

knukles's picture

EU Collateral and Sperm Bank Deposit Authority

Cursive's picture

Henhouse, meet Fox.  Of course, this could NEVER happen in America with all of our governmental checks and balances among the 3 branches of government.  Oh, and as for that 4th branch that is not mentioned in the sacrosanct "Constitution", I am told by the Fed that it is completely independent of the political process.  So, no, no way this is gonna happen in Amerika.

Boxed Merlot's picture

By fourth estate, you do mean of course your right and privilege to write and post your opinion, right?

The federal reserve is nowhere mentioned as an estate in the original writings. Coining of money was however, and it took nearly 150 years before the insidious private sector script was surreptitiously adopted by the sovereign government of the US as "legal tender". The 100 year old federal reserve has proven itself a most cruel slave-owner and has "legal" claim to US government issued promissory notes whose compound interest bearing accumulations are such that our grandchildren will be unable to pay off, yet alone touch the underlying "principle". Isn't 100 years old the "legal" definition of a life span? I say it's time for its burial.

"Your gold and silver are corroded. Their corrosion will testify against you and eat your flesh like fire. You have hoarded wealth in the last days." Last days indeed. Time for a new beginning. One with sovereign issued non-interest bearing script redeemable in lawful money coined in legally specified weights and measures as prescribed by law. imo.


Benjamin Glutton's picture

subprime central banking.

knukles's picture

Truly the Zimbabweization of a Central Bank Balance Sheet


Knukles Insight of the Day

The Fed's taken in all sorts of MBS and has an UBSO (Unidentified Balance Sheet Object) called Other Assets... which we know of naught... probably funky shit as well, the ECB's now gonna take in everything and anything that walks upright....

How do you say Currency Debasement?

With what do you protect yourself?

I knew you knew the answers.

This is a formal confirmation that fiat is worthless.

The Credibility Trap.
This will, mark my words, come back, standing out as a seminal moment.  Defining the formal destruction of the Euro... of the Current Fiat Regimes.
Gold will be under CB selling pressure in this light.
Cannot let the market confirm the inanity of this decision.

gkumar's picture

It means Draghi can now launch LTRO-3 with these toilet papers as collateral?

Gief Gold Plox's picture

I thought LTRO 1 & 2 already accepted T.P. So I guess for LTRO#3 they'll have to resort to accepting used T.P.


q99x2's picture

That'll never work.

miker's picture

The Crouts will screw the whole thing.   They still consider themselves superior to the rest of Europe.  They hate America too for annihalting them in WWII.  The EU is doomed. 

And, most signficantly, most people are starting to undertstand that.......the black swan this time is truth.

Beam Me Up Scotty's picture

We are raising your chocolate ration from 30 grams to 20 grams!! You have earned it!!!

hedgehog9999's picture

Whatever rating they choose to give those bonds , it does NOT change the fact they will be acquiring garbage, perhaps at a faster rate which will speed up this slow motion movie!!!!

More popcorn please...



lizzy36's picture

WHAT....they klepotocrats are changing the rules mid game to benefit themselves again.....color me NOT shocked.

So far EZ is doing a great job at breaking that whole bank/sovereign, incestuous realtionship thingy.

The Vizier's picture

Why not ? Thats how banks do it and we know how well it worked for them.

tarsubil's picture

It seems we can't get enough morphine anymore so we're going to supplement our diet with LSD.

MarcusLCrassus's picture

Someone sounds butthurt that their corrupt rating agencies are finally getting kicked to the curb. 

knukles's picture

When all they had to do was get rated by the agencies more often so as to pay more fees to the ratings agencies....
Sorta in the same vein as heroin, campaign contributions, hearings, etc.

What a clusterfuck.

SeverinSlade's picture

LTRO3 coming now that Fed has basically said no QE until 2013?

BliptoP3's picture

Just one question:

How do I open an account at this ECB?  You see, I am an Nigerian prince ...

magpie's picture

Wait, they'll send you an email.

orangedrinkandchips's picture

"Ratings? We aint got no ratings....we dont need no ratings....we dont have to show you no stinking ratings!



fuu's picture

The check is in the mail?

GetZeeGold's picture



Yes. We sent a blank one......fill it out for whatecer you need.


fuu's picture

Pay to the Order of: Fuu

Amount: Eleventy Brazillion Dollars and xx/100

Deuces gone wild's picture

Hopefully the models they use aren't produced by Jamie and his crew.