As you know, back in December the ECB conducted a 3 year LTRO operation that drew far more interest than anticipated. The operation saw banks draw a Gross (net liquidity injection was ~210 Billion Euros [8]) ~490 Billion Euros from the ECB (and not according to plan, turned around and parked it back at the ECB [9] instead of buying up shitty bonds).
Bagus on the LTRO:
"If you're a Greek government you don't tax you just spend, you pay with writing paper government bonds, you give it to the bank, the bank gives you money, the bank takes the government bond goes through the ECB as collateral and receives euro's and can expand the money supply"
On the true purpose of central banks:
"You could easily solve this moral hazard by saying ok the ECB does not accept government bonds as collateral anymore. But then of course all governments would collapse...You have to think that for central banks, one of the main purposes is to finance governments, so if you stop this financing they go bankrupt immediately"
On Euro bonds, or rather, the EFSF and the blatant redistribution of wealth:
"We had this from the very beginning of the euro because there was the implicit guarantee for all government debts of the eurozone, all could issue debts that could be supported by the ecb and the stronger governments. So now we get this redistribution that existed from the beginning of the eurozone that gets more and more explicit. The euro bond would be the most obvious symbol of this redistribution"
And for late night laughs, the ECB's balance sheet growth -- ze debt is not a problem.
