The biggest news of the day today was not that some old crony capitalist had doubled down yet more of his non-taxable wealth on a bet Bank of America would yet again be bailed out, or that Wall Street is about to be sumberged under 3 feet of water. No, the most notable event from today was what we commented on in our first post from 7 am, namely that: "If we crossed through some spacetime vortex that brought us back in time just two short months ago, to July of this year, today's confirmation that the second Greek bailout has now failed, following the Finnish finance minister's comments that the country will defy Germany and will not give in to demands to abandon its deal for Greek collateral, which in turn has sent the Greek 2 year bond bidless, its yield up 227 bps to an all time record 46.38%, would have been enough to send the futures and the EURUSD plunging." Well, a few hours later, we did get a plunge, even if it was not in the US, but in Germany, where the entire local market flash crashed upon realizing what we noted hours prior: that Greece is now pretty much done. Yet it turns out there was more: unwilling to admit defeat yet, Greece was forced to pull out the last rabbit hiding deep in the recesses of the hat. As the Telegraph reports, "In a move described as the "last stand for Greek banks", the embattled country's central bank activated Emergency Liquidity Assistance (ELA) for the first time on Wednesday night." Such efficiency out of the Greeks for once- not a single Persian was harmed, or even needed, in this 21st century version of Thermopylae: the Greeks did it all on their own.
More: "Although it was done discreetly, news that Athens had opened the fund filtered out and was one of the factors that rattled markets across Europe. At one point Germany's Dax was down 4pc before it recovered. The ELA was designed under European rules to allow national central banks to provide liquidity for their own lenders when they run out of collateral of a quality that can be used to trade with the ECB. It is an obscure tool that is supposed to be temporary and one of the last resorts for indebted banks." So much for temporary: we are rather certain that the only time this last ditch measure is turned off is when Greeks resume paying each other in Drachmas again. The good news: Drachmas, which we hear are now trading on a When Issued basis with several banks, will be back in circulation very soon.
Raoul Ruparel of Open Europe told The Telegraph: "The activation of the so-called ELA looks to be the last stand for Greek banks and suggests they are running alarmingly short of quality collateral usually used to obtain funding."
He added: "This kicks off another huge round of nearly worthless assets being shifted from the books of private banks onto books backed by taxpayers. Combined with the purchases of Spanish and Italian bonds, the already questionable balance sheet of the euro system is looking increasingly risky."
Athens' activation of the ELA will raise concerns that Greece will simply shift debt to Brussels.
By accepting a lower level of collateral the debt in the ELA is, in theory, supposed to be the responsibility of Greece. However, since the Greek state is surviving on eurozone bailouts and Greek banks are reliant on ECB funding, in practice the loans are backed by the eurozone. The terms of lending and other details are not disclosed publicly.
Mr Ruparel said: "Though the ELA is meant to be a temporary emergency solution, we know from Ireland, where the programme has been running for almost a year, that once banks get hooked on ELA they rarely get off it.
Just like Europe's short selling ban: the drastic measure at stock market controls was supposed to last 2 weeks; it has now been extended for months in places. Another thing we are confident is that by the time all is said and done, any selling will be made illegal.
First in Europe and then in the US.