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Why ECB's LTRO Won't Stop Collateral Contagion
Via Gordon T Long of GordonTLong.com,
How long can the European media keep the EU credit implosion a secret? The disgraced former IMF Director, Demonic Strauss Kahn said on Tuesday December 12th, 2011 that No 'Firewall' Exists and Europe Has 'Only Weeks'. Of course within minutes of this Financial Times news release which detailed his vent on EU leadership and the perilous situation in Europe, the article disappeared.
The details of the European liquidity crisis are generally reported, but for some reason no media source wants to pull the pieces together so everyone can see the magnitude and futility of the crisis. A growing Collateral Contagion is being shrouded in the apparent belief that the solution to the European Financial and Banking crisis is a grand change in Treaty governance. Obviously the European Central Bank (ECB) was well aware of the reality, when it was forced to deploy a historic and unprecedented LTRO (Long Term Purchase Operations) on Wednesday December 21, 2011. 560 banks desperately and immediately grabbed what they could, to the tune of €489B.
The LTRO bought the EU private banks some time. It did nothing to solve the EU Sovereign Debt Crisis. After less than one week, the cash held at the ECB surged €133B to a new record €347B. Since the net LTRO was only €210B, it tells you that the EU banks not only have a cash problem, but more specifically, as ECB President Mario Draghi says : "hoarding at the ECB signals that the problem afflicting the Eurozone is not so much about the amount of liquidity but that this liquidity is not circulating around the region's banks".
I would argue that the problem short term is a shortage of real collateral and that US dollar cash, versus 'encumbered' cash flow, is now king. It is clear that the rampant advancing Collateral Contagion will quickly eat this futile attempt like ravenous wolves. A well circulated Tweet from PIMCO bond king Bill Gross said it all: " What does LTRO stand for? 1- A shell game; 2-Cash for trash; 3 Three-card Monti; or 4. All of the above."
Here is the stark reality of what forced the ECB to offer unprecedented three year loans at absurd rates and most alarmingly, the acceptance of collateral that no other financial institutions will accept. The ECB has sacrificed its balance sheet in yet another EU "kick at the can".
1. COLLATERAL CONTAGION: There is a cascading Collateral Contagion crisis in which secured lending, based on sound assets, has replaced unsecured lending based on future expected cash flows.
2. WHOLESALE LENDING: Wholesale bank lending, which is a unique cornerstone of European banking, has completely frozen since the failure of Dexia and US Money Market Funds will no longer risk short term capital having learned their lesson in 2008.
3. BANK RUNS: Bank Runs are quietly and insidiously occurring throughout the peripheral EU countries as corporate and private depositors seek safe havens for their cash holdings.
4. SHADOW BANKING SYSTEM: The European Shadow Banking System off balance sheet and unreported leverage structures, such as SIV (Structured Investment Vehicles) is collapsing due to non performing loans which must finally be rolled nearly 3 years since the financial crisis began.
5. GLOBAL INVESTORS PULLING SOVEREIGN EU INVESTMENTS: Net outflows from the euro-zone’s financial account reached €32.1 billion in October alone, on an unadjusted basis. The drop reflects the sale by foreign investors of €53.3 billion in euro-zone debt instruments and €6.6 billion in equities.
6. INTERBANK LENDING: Prior to LTRO, overnight interbank lending was impaired as LIBOR, LIBOR-OIS and TED spread yields were going almost straight up on a percentage change basis.
7. INVERTED YIELD CURVES: Prior to LTRO, yield curves in the EU peripheral countries were either inverted or nearing inversion prior to LTRO.
8. US DOLLAR SWAPS: A shortage of US dollar denominated loans forced the US federal Reserve and other global central banks to intervene and offer what is turning out to be unlimited US dollar SWAPs for minimal interest rates and unprecedented, extended durations, not previously considered.
9. SOVEREIGN BOND MARKET: The EU Sovereign Bond Market is being avoided by almost all Global financial institutions. The only participant are Central Banks desperate to buy more time until confidence is restored.
10. GERMAN BUND SCARE: You cannot have a currency without a risk free bond. The German Bund had become a proxy for this, but recently even the Bund has come under pressure as selling escalated in a flight from Europe.
11. YEN CARRY TRADE: The YEN Carry Trade which has been a major financing source for the EU, even prior to its inception, is being forced to unwind due to a significantly weakening Euro and the threat of a serious drop.
12. BASEL BOX: The Tier 1 Core Capital requirements have forced many banks to actually shrink lending to meet requirements. A significant withdrawal from lending in Central and Eastern Europe and many Emerging countries is now clearly seen as a direct result.
13. CREDIT DOWNGRADE ONSLAUGHT: S&P placed the long-term sovereign-debt ratings of 15 euro-zone nations, including struggling Italy and Spain, on negative watch. That typically means there is at least a 50% chance of a downgrade within 90 days. France is likely to soon lose its coveted AAA rating, which will impact the European Financial Stability Fund (EFSF) borrowing costs.
The list is even longer, but it will need to suffice for this shorter article.
The above issues suggest, minimally, an immediate €4-8 Trillion EU problem.
The EU has no ability to solve this problem short of simply printing Euros, which unlike the US Federal Reserve, Bank of England and Bank of Japan, the ECB presently (I stress presently) refuses to do.
Let's briefly discuss a few of these so we can appreciate the seriousness of the EU problem and what lays behind a first half 2011 surge of $107 TRILLION in derivative SWAPS.
The rest of the interesting and unusually complete article can be found here:
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At least that little Greece thing is taken care of.
Oh really? And how is that?!?!?!?!
-John
http://www.youtube.com/carmarketer
Gee, I figure they must have fixed it … seems nobody is complaining about the forced 50% loss of capitol on billions of sovereign debt, that it has not become a credit event, and there is absolutely no news of discontent over there as we enjoy the holidays.. so no news is good news , right?
Anybody still have any questions about how a creditmoney system can't function in the face of contraction?
Or are we gonna continue to play this charade that growth is just around the corner? You either PRINT to pay the coupon or the creditmoney system COLLAPSES almost overnight.
They will print, as they have been printing, at an accelerating rate. The system will first try to save itself at the expense of everything else. It takes an outsde force to make it stop. But the system has too much influence to allow that. Just when you think hyper inflation might not happen, that is when it will realy kick in.
As always, this is a good time to buy gold. LOL. Every day is. The idea is not new or fresh. It is not exciting. There is no way to outsmart it. It just is what it is.
4-8 trillion, spread can really be played.
I'll take 7.2 trillion Alex
for some reason no media source wants to pull the pieces together so everyone can see the magnitude and futility of the crisis
No wait... You're KIDDING me... Get right out of town! I thought THE MEDIA were on our side!
Main stream might not but i know some magazines who nail the crisis pretty good. To bad joe and jane don't read that stuff... No cartoon section and all...
When I read 'magzine' and 'nail' I suffered a shock-second.. but at second glance I was calm again.
Rumors say that President Napolitano told the newspapers and TV news back in september not to talk about a return to the Lira nor invite anybody to talk about it. So in Italy the average Giorgio doesn't even think it possible to exit the euro... never heard a word about it!
European bond-buying in earnest beginning soon.
The can will be kicked a few more months yet.
The nature of gub'mint
Is that the EU will print.
THE EU SOLUTION!!.!.!.!.!.!.!.!
http://www.uline.ca/BL_6758/Trash-Can-with-Wheels
No more can kicking!!
Why is nobody calling out LTRO for the QE that it truly is? It might be that it would contravene the German Constitution and require approval by their Parliament and people? Ot perhaps it might be connected with the price of Gold?
Either way, on the one hand it isn't solving the problem, as evidenced by the return of the cash to the ECB, and the EUR has strengthened since the first round of this stealth QE was launched.
None of this makes any sense to me. Am I missing something or is this yet another illustration of the markets being totally broken?
LTRO is simple to understand. We are experiencing a deleveraging, and LTRO is an attempt to re-introduce leverage into the system. In other words, it is an attempt at a substitute for outright printing. It is meant to soften the blow of the deleveraging event. It was all they could come up with. As Bill Gross points out, it is a massive joke.
'The EU has no ability to solve this problem short of simply printing Euros, which unlike the US Federal Reserve, Bank of England and Bank of Japan, the ECB presently (I stress presently) refuses to do.'
Clever. You almost had us there. We'll wait until Shalom prints for us. I mean, they're already doin' it over there so what's the big deal?
Does this mean the financial system is NOT sound and stable?? But but they wear ties and have university degrees.. I am sure they will fix it when they discover any flaws.
I believe 'unsafe and unsound' is the official terminology
It will help. If the wolf's want to leave EU pigs alone, interest rates drop, everyone blind again and so the story goes like in the past 50 years. It is all up to the wolfs created by US FED itself. If other countries have attempted similar financial "Wolf's" entity they will be bombed in 24 hours under excuse they jeopardize world order.
I thought they were half way there already.
Which direction?
I still remember the eu bank problem was 1 to 3 trillions... It was the year of our lord 2011...
ROFL.
the scope of problems is the only thing still growing in this economy
As I've been saying for months. Too much credit, too much debt. and not enough dollars and an insane amount of CDO's. Adding credit to the system won't help. The only way out is to outlaw CDO's first. then reduce credit and finally the debt. Nah, it'll never happen.
Sir/Madam, may I kindly remark that your time machine brought you into 2011. The CDO=toxic crap - analysis was appropriate between circa 2007 and 2009.
They need to open a department of "can kicking" in all graduate economics porgrams
I believe there are Ivy League schools currently working with the Eurocrats to help create the curriculum
can-kicking and procrastination were my top two disciplines at the university!
I majored in can emptying. Procrastination came naturally.
from reading that report i would have to say, i don't see how they can continue kicking the can down the road much longer. maybe old dsk is right. they only have a few weeks more of existence............
Can-kicking HAS been the curriculum for 40+ years. That's why it comes so naturally to our top people. Indeed, that's why they are our top people. Somebody's got to pay the piper? Nope. The old folks have decided that they're going to be dead before the bill comes due. What about the kids the piper led away as hostages? "ach! keep 'em. We're buzy playin' shuffleboard and smokin' that medical cannabis!"
Can Kicking = Modern Finance for all business and government entities.
Which leads to Goldman Sacks and JPM.
Which leads to infinite debt spirals, debt traps, and banksterism.
Which leads to MF Global.
Throw in some computers and math and you have modern Wall Street.
LTRO2 bitchez!
- The EU has no ability to solve this problem short of simply printing Euros, which unlike the US Federal Reserve, Bank of England and Bank of Japan, the ECB presently (I stress presently) refuses to do.
These things always end with the same conclusion - the ECB must print. Germany gets demonized - the Eurocrats are all called 'short sighted' because they wont print. There is just one unfortunate fact - printing is not a solution to anything. There is a reason they don't do it.
This is my latest video and song, an attempt to make it clear to even Joe-six pack the evils of ZIRP.
The ZIRP Song
+1,000,000,000,000
That video was great!
Share it - my channel needs exposure! You could almost call it 'Zero Hedge in song'. I think most here would agree with what is expressed in the songs and videos there! Definitely an apolitical viewpoint - I don't want it to be pigeonholed as a typical left ( or right ) leaning protest music. I just want to speak the truth.
good idea... tired of being called a communist by Fox viewer types because I object to bailouts of big banks...
Here is the chorus of a song I have planned for production that addresses the lack of critical thinking on all sides:
Talking points, talking points
All I'm hearing are your talking points, talking points
Can you think outside the tiny box
Of your ideology?
Talking points, talking points
All I'm hearing are your talking points, talking points
All your thoughts are just hand-me-downs
From your ideocracy
It's not that printing Euros will solve the problem, its simply that it's the last available option to give the can one more kick down the road, and keep the banks alive for a little bit longer. And it's been demonstrated time and time again that - if there's a way to kick the can down the road, then politicians will do it - banks will be kept alive by any means possible They'll print Euros, because othe therwise nobody can buy PIIGS debt, and the only option is to have Greece, Italy, etc. fail, and it's not that the establishment gives a shit about Italy, Greece, etc..., but if they fail, then that means the European banks fail, and THAT won't be allowed.
By the way, great video, and spot on - we'll all pay in food, gas, whatever we really need, to keep the ponzi alive. But that's the way the system was designed.
Thanks. I have contributors who record the songs and make the videos, and they do a great job. I agree that any can kick will be undertaken. I am just trying to do my part so people might at least recognize it for what it is and make connections they miss or don't understand. A 3 minute song can do that.
Terrific work! Keep it up!
that is great ! make your own music
with the right lyrics that reflect the
real situation we have here. thanks
e.v. .
Hey Blindman! Yeah as you know I have been plodding along getting these out for a while now. I have found cost effective ways to get the music done and to get videos produced. I have 4 songs on the channel now, with more in production, so we will be at this a while! I have settled on a style that is not too dark, with a touch of humor but uncompromising and very clear lyrically, so you don't need to interpret much to get the message. I do not want the songs to be able to be twisted by the righties or the lefties - I want them to be clear, and speak the truth we all can see around us.
I tried this line of discussion with my Dad. I said "You know there have been massive bailouts and printing, right? Where is the money? Do you have any of it? Does anyone you know have any of it? Where did it go? I'll tell you where it is - it is chasing the markets and bidding up the price of your gas and food and lining crony banker's pockets. And the only solution the politicians and bankers have is to pour more money in and create more debt that cannot be paid. The new money won't reach you either".
I know thats an oversimplification, but it gets the point across, and thats what the song says, too, in so many words.
Thank you..great song
A ponzi is a scam which pays early investors out of the investments of later investors. In a sense, the world’s monetary system is one giant fiat ponzi scheme with the only question being when will the ponzi end, not if it will end.
The problem is growth is no longer able to keep up with the malinvestments caused by cheap money (0% rates + QE). Either cheaper money is increasingly provided in order to cover up the malinvestment (more QE, or purchasing of MBS, or printing money to purchase anything), or the malinvestments become exposed.
Allowing the malinvestments to become exposed is politically unfeasible, so cheaper money will be provided in order to keep the malinvestments hidden. In a sense, the new investor is the newly created currency..once the new currency stops or even slows, the ponzi fails, but keep the new currency coming in faster and faster and hyperinflation is the end result.TheSilverJournal.com
WRONG.
Growth HAS STOPPED.
I don't know what it will take to get you ostrichlike fools to accept what the symptoms are telling you.
It's ALL OVER, everything you know is at an end. Life as we know it is over until and unless we find a new growable energy supply (like fusion).
Period. Stop fighting the truth. I marvel that people who can come far enough to see that the financial system is a scam cannot go beyond that to accept that the whole entire GROWTH system was inevitably going to peak and inflect. it HAD to happen. Now is just when it DID happen.
Ezero coined by ZH says it all. Who didn't know it would blow up as all fiat money does. Reaching it's intrinsic value. The Ezero to the USDinker dollars is racing to zero. Twin towers of financial illusion burning to ashes and not a damn thing the PTB can do about it except keep the noose of citizenry circling in from choking the foul urchins to death.
The only thing that gives fiat currency value is the guarantee that it will remain scarce. Governments around the world are racing to make their currencies as common as grains of sand.
Wrong. The only thing that gives Fiat currency value is the fact that you must have it to pay your taxes. Scarcity is a related, but side issue. It doesn't matter if the Government prints a trillion trillion dollars if most of it is locked up in bank reserves. What matters is the amount of cash in actual circulation and how high the taxes are. If you don't get enough $ to pay what you owe the Governments (Federal, State, and Local), you go to prison or lose all your property.
Too Big To Fail
Too Big To Nail
Too Big To Jail
Too Big To Hail
No such thing as too big to nail. Just drink some more tequilla.
Big girls/guys need love too
http://confoundedinterest.wordpress.com/2011/12/23/ecb-and-the-645-billion-ltro-opening-the-floodgates-having-little-effect-in-putting-out-the-eurobond-fire/
http://confoundedinterest.wordpress.com/2011/12/26/the-euro-crisis-and-the-great-unwind-why-monetary-policy-cant-fix-europess-woes/
The solution is functionally the same as if the ECB slashed bank reserve requirements. It is just a form of credit expansion and expansioin of the money supply. The only twist is an attempt to keep the bulk of the new money from entering general circulation, allowing it to be used to bid up wages and prices, and thus raise the general price levels. But by enabling the various Euro governments to keep spending more than they take in, the extra money will eventually be used to bid up wages and prices.
Inflation is theft by dilution, similar to when the bartender waters down the drinks.
Then the Euro governments will just raise taxes to claw that money back. Price levels won't rise but the people get poorer. It is like the bartender who gives big happy-night discounts on watered down drinks at the same time they put a coin operated lock on the restroom. The bar still makes more money.
CTRL P ... the only thing they will do ....
I've been reading this site for a few weeks now, and reading market-ticker for a few months. I've learned more about markets and the truth of things in that time with these two sites than I ever did watching media sources for 10 years and considering myself proficiently up to speed in current political/world affairs. Until I found these sites, I didn't know how much I didn't know.
The one question I keep coming back to is...
Do our congressional leaders and president actually know what the fuck they are doing with financial matters or do they know what zerohedge folks know and are throwing everything in the toilet on purpose? If the latter, why? What's the end game?
the end game is multi faceted. our congress and the president are merely place holders...........its all a big lie and a sham and a facade....
1st post welcome!
when you figure out the answers, let us know, ok?
"Do our congressional leaders and president actually know what the fuck they are doing with financial matters or do they know what zerohedge folks know and are throwing everything in the toilet on purpose?"
In the toilet on purpose for their own benefit, or a few that are delusional (Reference "Mr. Smith Goes to Washington").
Perception is reality.
Wells Fargo was fucking around with my Sisters' checking account and my dear Mothers' mortgage account, and it came up over Christmas dinner.
I told them that it was intentional to incur fees and penalties, and showed them recent court cases and decisions against "Wells Fargo" (modern day stage coach robbers posing as 'bankers').
"Why isn't this on the evening news?" they asked.
"Who offers credit and funding and payroll services to the network news and the politicians?" I said.
Ding! Ding! Ding!
Why, the very banks engaging in the skullduggery and malfeasance of course!
"Hmmmm..." they said.
I at least, hopefully, made them doubt the extant mass media propoganda that "all is well"; when in actuality thieves are in power.
It's simpler than that. Our representatives are employees, hired hands, tools if you will, of those who want things to continue on their present course. Thye jsut do as they're told, and DON'T think. Who do you think writes those big checks? Grandma at the dinner table? Ho, ho ho. . . . .
shit, half the people that have jobs are government employees in one way or another.
no. It won't.
You found their mental 3rd rails. And they will avoid that shit like the plague, just as ZH "freethinkers" do on a variety of subjects simply JUST TOO SCARY to think about.
they have no fucking clue. None.
Most of the people HERE don't know what the fuck to do or even why any of this has happened.
a carefully crafted banking plan to adjust the standards of living? hmmm...............
amerika, watch , look and listen. your turn is coming soon ............
http://www.bloomberg.com/news/2011-12-28/pboc-may-suspend-sale-of-china-s-three-month-bills-tomorrow-traders-say.html
China may cancel 3 month treasuries tomorrow. Click on fresh bloomberg link. It seems that nobody with big money wants any government paper except for US right now.
somebody needs to whisper in their ears and tell them our paper is not worth a damn either......the fish all swimming in the same direction, getting ready to be harvested
http://www.euronews.net/2011/12/09/floods-and-strong-yen-sink-toyota-s-profits/
strong yen killing profits on exports............just what they need..........
Quite a read Some of troll friends should invest some time, read this article, and actually learn about the problems the system faces, instead of denouncing the messengers. Of course, if you already know the problems are not capable of being solved, at least in the current environment given who is in control, you enlist trolls to perform their obfuscatory errands, in a pathetic effort to slow the approach of collapse and, worse, to avoid or delay the recognition of loss by 1%ers.
http://decoded.nationaljournal.com/2011/12/gingrich-unloads-on-paul-worse.php
gingrich unloads on paul. paul is getting lots of attention now. maybe the status quo is upset and worried about the pending embarrassment. how dare that little old man from texas get in here and cause us problems ...........
yeah they are...this is how elections still matter. Without people pulling levers like they are TOLD TO, they can't get elected and the veneer of legitimacy comes right the fuck off of their con.
we actually still could vote out these motherfuckers as surely as several countries have tossed out actual DICTATORS in the past year.
notice how white people are pulling the RACE CARD on him. CASE IN POINT, you fucking BITCHES.
Half the RP supporters IN HERE do that shit ALL THE TIME. RP's newsletter spoke the TRUTH; he spoke the truth. And his supporters simply will mentally IMPLODE rather than admit that.
They are calling him a racist for speaking the SAME TYPE of "hate facts" that I do...and calling him that in the SAME WAY that Gingrich is. So, IOW, a lot of ZHers are the equivalent of NEWT GINGRICH.
All you need to know is that gold and silver are on sale.
Buy some now and if it goes lower, buy some more.
If you are all in, fret not, before long it is going much higher.
I've been buying since 2001, and I have never felt more positive
about PMs than I do now.
yeh , all this talk about a top is the same kind of bullshit we heard in 2008. same old game. but when the smoke clears and the nutt cutting starts, where do they go.....back to poppa............where else?
The ECB doesn't have to print Euros, the Fed does it for them, thats where the LTRO money came from and where the money in 2012 will come from. The fed is enabling and contributing to the growing disease.
*Looks at graphic*
Yeah. "disintermaedation" is not a word.