Alsacien, where has the €489bn come from?

#1
Alsacien,

Where has the €489bn come from that the ECB has just 'lent' to all those banks?

Was it printed money - or as they like to call it now QE? Or was it money deposited, and if so, who deposited it?
 

Alsacien

MIA
Moderator
#2
Well despite the myths about the ECB being short of readies, the opposite is true. The place is creeking under the weight of assets, probably somewhere in the region of 4-4.2 trillion. There is also 10,000 tons of gold in the Eurozone (I think UK has about 300 for comparision), so getting leverage is really not an issue either.
This LTRO was a great success, everyone was expecting up 300bn, so nearly 500bn is a real result - these are all secured loans of exactly 3 years (with a pay back option at 1 year), tracking the base rate which is currently 1%. But there was no limit set, any amount that could be secured could be borrowed.
The big take up is significant. Even when you look at a worst case capitalisation scenario for Eurozone banks in terms of their financing and capital reserve needs next year, you end up with a figure of around 400bn, and a realistic figure of 150-250bn. So banks are borrowing dosh that they will not be sticking in their cellar, or back in the ECB's cellar, which means they intend to put it to work.
I went to a presentation by Draghi a couple of weeks back where he explained the rational behind the 36 month LTRO.
The board at the ECB concluded that governments can sort their own lives out, but the banking needs are within the ECB's remit. To summarise 1 hour into a sentence or two; for all banks with good collateral assets, solve liquidity needs and capitalisation needs (interbank lending has dried up completely, markets are squirrelly); make cheap money available so banks are encouraged to lend to SME's (typical loan periods do not exceed 24 months); encourage banks to invest in government bonds which are a good investment asset that can be reused as collateral.

Some banks will be in the kak, about only because they are so over exposed compared to their collateral they should not be able to survive anyway.
SME lending will not be really visible for 6 months, and any real growth 12-18 months away.
Government bond purchasing is a bit more optimistic, and Draghi flagged that - but the indicators yesterday were good. There will be another 36 month LTRO I think in Feb, which bonds can be used to secure, so it will be interesting to see if banks go for it in the next couple of months.
 
#3
Well despite the myths about the ECB being short of readies, the opposite is true. The place is creeking under the weight of assets, probably somewhere in the region of 4-4.2 trillion. There is also 10,000 tons of gold in the Eurozone (I think UK has about 300 for comparision), so getting leverage is really not an issue either.
This LTRO was a great success, everyone was expecting up 300bn, so nearly 500bn is a real result - these are all secured loans of exactly 3 years (with a pay back option at 1 year), tracking the base rate which is currently 1%. But there was no limit set, any amount that could be secured could be borrowed.
The big take up is significant. Even when you look at a worst case capitalisation scenario for Eurozone banks in terms of their financing and capital reserve needs next year, you end up with a figure of around 400bn, and a realistic figure of 150-250bn. So banks are borrowing dosh that they will not be sticking in their cellar, or back in the ECB's cellar, which means they intend to put it to work.
I went to a presentation by Draghi a couple of weeks back where he explained the rational behind the 36 month LTRO.
The board at the ECB concluded that governments can sort their own lives out, but the banking needs are within the ECB's remit. To summarise 1 hour into a sentence or two; for all banks with good collateral assets, solve liquidity needs and capitalisation needs (interbank lending has dried up completely, markets are squirrelly); make cheap money available so banks are encouraged to lend to SME's (typical loan periods do not exceed 24 months); encourage banks to invest in government bonds which are a good investment asset that can be reused as collateral.

Some banks will be in the kak, about only because they are so over exposed compared to their collateral they should not be able to survive anyway.
SME lending will not be really visible for 6 months, and any real growth 12-18 months away.
Government bond purchasing is a bit more optimistic, and Draghi flagged that - but the indicators yesterday were good. There will be another 36 month LTRO I think in Feb, which bonds can be used to secure, so it will be interesting to see if banks go for it in the next couple of months.
Thank you for this, but you missed answering the question. Or, to be more precise, not divulged who has deposited that 4 trillion of assets. I accept that the exact answer will probably run into LONG list of names, but I'm just trying to guage what proportion of that amount has been deposited by EU zone governments.

I mean, ECB makes cheap money available to banks with the hope that a significant proportion of that cash will then be used to buy up sovereign debt. Do the banks go for the safe option and support German Bunds or take the riskier but highly profitable option of buying up Italian, Spanish or Greek debt? Whatever option they take, they make a profit - assuming the debt doesn't go bad and they cop a haircut. In effect, taxpayers will be putting more cash into bankers pockets for, what appears to be, a political decision that the ECB is not permitted to 'lend' (or better still let them have their own cash back) to EU sovereign states.

Any thoughts? Comments?
 
#4
For Gawd's sake don't get me started on our gold reserves..................

Odo
 
#5
Mmm, I remember Gordon 'Tosser' Brown boasting that he'd bought Euros with some of the proceeds of flogging off our gold reserves. Admittedly the € was doing ok at the time and he said it in his special 'I'm a genius don't you know' voice, but really?
What an unimaginable berk.
 

Alsacien

MIA
Moderator
#6
Thank you for this, but you missed answering the question. Or, to be more precise, not divulged who has deposited that 4 trillion of assets. I accept that the exact answer will probably run into LONG list of names, but I'm just trying to guage what proportion of that amount has been deposited by EU zone governments.

I mean, ECB makes cheap money available to banks with the hope that a significant proportion of that cash will then be used to buy up sovereign debt. Do the banks go for the safe option and support German Bunds or take the riskier but highly profitable option of buying up Italian, Spanish or Greek debt? Whatever option they take, they make a profit - assuming the debt doesn't go bad and they cop a haircut. In effect, taxpayers will be putting more cash into bankers pockets for, what appears to be, a political decision that the ECB is not permitted to 'lend' (or better still let them have their own cash back) to EU sovereign states.

Any thoughts? Comments?
I think about 5bn was the operating capital supplied by the Eurozone governments to set up the ECB, that is it as far as I know.
About 2 trillion are held ECB assets, and the same again in ESCB assets held by the NCB's in the Eurozone countries. Think of them like giant pawn shops, with a very big list of customers.

The banks have a vested interest in buying their own national bonds rather than go cross border, so I imagine pure speculation not to be more than 10-20%.

IF the ECB was allowed to lend to governments I do not think it would unless the fiscal discipline was in place and believed in.
Take the example of the BofE.
They have bought £200billion of UK government bonds, which opens several issues which only balance out in risk terms because:
This UK government got the message, fiscal discipline is planned, being enforced and there seems no reason to think they will not stick with it.
3.5 years with the government not likely to change to Brown II.

This has brought servicing UK debt down in price, but at the point inflation starts to run away, someone will have to pull £275 billion out of the economy, preferably without impact. Another £75 billion is going in around March most likely.
With every country in Europe either just above or just below the recession threshold, inflation is not the most pressing concern - lesser of several evils.

It will be interesting to compare the impact of UK QE to the ECB 3 year LTRO in terms of inflation and growth figures, but it may be hard to separate from all the other chaff for the next 6-9 months.

Edited to add:
I just re-read the above and thought maybe it is still not clear.
The ECB just simply create the credit in the requesting banks account as they have the assets to cover it.
 
#7
I think about 5bn was the operating capital supplied by the Eurozone governments to set up the ECB, that is it as far as I know.
About 2 trillion are held ECB assets, and the same again in ESCB assets held by the NCB's in the Eurozone countries. Think of them like giant pawn shops, with a very big list of customers.

The banks have a vested interest in buying their own national bonds rather than go cross border, so I imagine pure speculation not to be more than 10-20%.

IF the ECB was allowed to lend to governments I do not think it would unless the fiscal discipline was in place and believed in.
Take the example of the BofE.
They have bought £200billion of UK government bonds, which opens several issues which only balance out in risk terms because:
This UK government got the message, fiscal discipline is planned, being enforced and there seems no reason to think they will not stick with it.
3.5 years with the government not likely to change to Brown II.

This has brought servicing UK debt down in price, but at the point inflation starts to run away, someone will have to pull £275 billion out of the economy, preferably without impact. Another £75 billion is going in around March most likely.
With every country in Europe either just above or just below the recession threshold, inflation is not the most pressing concern - lesser of several evils.

It will be interesting to compare the impact of UK QE to the ECB 3 year LTRO in terms of inflation and growth figures, but it may be hard to separate from all the other chaff for the next 6-9 months.
Hmmm!

Apologies for layman terminology.

What you write is starting to take on an even more worrysome hue if I understand you correctly.

As far as I'm concerned, and you may have already had the misfortune of reading on ARRSE, the current global mess is a based upon greed and selfishness in society. The majority used 'cheap' money to fuel over-lavish lifestyle choices beyond their means. Politicians fueled and encouraged the delusion. Bankers oiled the machinery and happily lined their pockets.

Putting aside my ramblings on societal failures and political greed, one of the key elements of the financial/banking collapse of the past few years was very much self-inflicted by bankers with financial trickery. It wasn't just the 'cleverness' of repackaging good and bad debt together as top-grade investments - but the idea that they could slip those loans across the balance sheet and into the asset column. Banks found a way to lend money backed by 'assets' which were, in reality, just more 'lend money' that they'd bought off somebody else.

And now they're at it again.

And, although I understand the basis of QE acting as a lubricant to growth, it is the pursuit of 'growth' as the holy grail - especially growth by consumer spend/debt - that has got us into the mess in the first place.

However, 'long'-term these financial models that are floating around the banking world claim to be, I have the sense that they are nothing more than yet another layer of bandages being strapped round a broken society, measures that allow short-term politicians to avoid making tough decisions and another scam for the banking industry to profit.
 

Alsacien

MIA
Moderator
#8
Hmmm!

Apologies for layman terminology.

What you write is starting to take on an even more worrysome hue if I understand you correctly.

As far as I'm concerned, and you may have already had the misfortune of reading on ARRSE, the current global mess is a based upon greed and selfishness in society. The majority used 'cheap' money to fuel over-lavish lifestyle choices beyond their means. Politicians fueled and encouraged the delusion. Bankers oiled the machinery and happily lined their pockets.

Putting aside my ramblings on societal failures and political greed, one of the key elements of the financial/banking collapse of the past few years was very much self-inflicted by bankers with financial trickery. It wasn't just the 'cleverness' of repackaging good and bad debt together as top-grade investments - but the idea that they could slip those loans across the balance sheet and into the asset column. Banks found a way to lend money backed by 'assets' which were, in reality, just more 'lend money' that they'd bought off somebody else.

And now they're at it again.

And, although I understand the basis of QE acting as a lubricant to growth, it is the pursuit of 'growth' as the holy grail - especially growth by consumer spend/debt - that has got us into the mess in the first place.

However, 'long'-term these financial models that are floating around the banking world claim to be, I have the sense that they are nothing more than yet another layer of bandages being strapped round a broken society, measures that allow short-term politicians to avoid making tough decisions and another scam for the banking industry to profit.
Well that is the world we live in, artificial in financial construct and deeply flawed.
The derivatives market alone is 10 times bigger than the entire worlds GDP, go figure.....

I don't think there is a solution, except to chip away with regulation to contain the impacts of something that is basically uncontrollable......
 
#10
Hmmm!

Apologies for layman terminology.

What you write is starting to take on an even more worrysome hue if I understand you correctly.

As far as I'm concerned, and you may have already had the misfortune of reading on ARRSE, the current global mess is a based upon greed and selfishness in society. The majority used 'cheap' money to fuel over-lavish lifestyle choices beyond their means. Politicians fueled and encouraged the delusion. Bankers oiled the machinery and happily lined their pockets.

Putting aside my ramblings on societal failures and political greed, one of the key elements of the financial/banking collapse of the past few years was very much self-inflicted by bankers with financial trickery. It wasn't just the 'cleverness' of repackaging good and bad debt together as top-grade investments - but the idea that they could slip those loans across the balance sheet and into the asset column. Banks found a way to lend money backed by 'assets' which were, in reality, just more 'lend money' that they'd bought off somebody else.

And now they're at it again.

And, although I understand the basis of QE acting as a lubricant to growth, it is the pursuit of 'growth' as the holy grail - especially growth by consumer spend/debt - that has got us into the mess in the first place.

However, 'long'-term these financial models that are floating around the banking world claim to be, I have the sense that they are nothing more than yet another layer of bandages being strapped round a broken society, measures that allow short-term politicians to avoid making tough decisions and another scam for the banking industry to profit.
Mmmmm..even before I read your reply I thought it was a 'in denial' technical ramble..I've gone through his posts over the last couple of years..the 'luxenberger' is 'crabbing'..but hey I'm just a 'Joe' who has to pay the bills..but should the 'backlash' come..'strange fruit'...
 
#11
Simple, you, as the European central bank, can simply pull the money out of your arse, just as the Federal Reserve does. For the rest of us, the mere mortals who foot all the bills, it's called inflation.
 
#12
Well that is the world we live in, artificial in financial construct and deeply flawed.
The derivatives market alone is 10 times bigger than the entire worlds GDP, go figure.....

I don't think there is a solution, except to chip away with regulation to contain the impacts of something that is basically uncontrollable......
There is a solution. But that solution means the masses getting to grips with the fact that we are simply not as well off as we think we are and that riches (for the masses) will only come with long and hard work. We cannot expect cheap products AND high wages. The trick of exporting manufacturing to cheap labour zones was a clever short term con that will result in the next 3 generations having to pay off the current generations greed. When will people learn that that all the imaginary wealth the UK created and circulated within its service industry consumer spend/debt boom is now sitting in Far East vaults.

Alsacien, I find your posts informative and interesting. However, I'd be grateful if you would add the odd healthwarning to them along the lines of, "although I suggest the financial apocalype is not going to come any day soon, the truth is, we're only creating another lie to hide the other lies that you've been fed. The hospital is running out of bandages."
 
#13
Well that is the world we live in, artificial in financial construct and deeply flawed.
The derivatives market alone is 10 times bigger than the entire worlds GDP, go figure.....

I don't think there is a solution, except to chip away with regulation to contain the impacts of something that is basically uncontrollable......
how can the derivatives market be 10 times bigger than the GDP of the world ? thats insane. where did you get that from ?
 
#14
There is a solution. But that solution means the masses getting to grips with the fact that we are simply not as well off as we think we are and that riches (for the masses) will only come with long and hard work. We cannot expect cheap products AND high wages. The trick of exporting manufacturing to cheap labour zones was a clever short term con that will result in the next 3 generations having to pay off the current generations greed. When will people learn that that all the imaginary wealth the UK created and circulated within its service industry consumer spend/debt boom is now sitting in Far East vaults.

Alsacien, I find your posts informative and interesting. However, I'd be grateful if you would add the odd healthwarning to them along the lines of, "although I suggest the financial apocalype is not going to come any day soon, the truth is, we're only creating another lie to hide the other lies that you've been fed. The hospital is running out of bandages."
This post is bang on.
 

Alsacien

MIA
Moderator
#15
There is a solution. But that solution means the masses getting to grips with the fact that we are simply not as well off as we think we are and that riches (for the masses) will only come with long and hard work. We cannot expect cheap products AND high wages. The trick of exporting manufacturing to cheap labour zones was a clever short term con that will result in the next 3 generations having to pay off the current generations greed. When will people learn that that all the imaginary wealth the UK created and circulated within its service industry consumer spend/debt boom is now sitting in Far East vaults.

Alsacien, I find your posts informative and interesting. However, I'd be grateful if you would add the odd healthwarning to them along the lines of, "although I suggest the financial apocalype is not going to come any day soon, the truth is, we're only creating another lie to hide the other lies that you've been fed. The hospital is running out of bandages."
I don't big negative and I don't do big positive - I'm not in the media, I'm not a politician, and I am not allowed to make any direct money out of it, so I don't have anything to gain by it - but I do have to try and deal with it.

We are seeing the limits of political consensus acting to reduce the exposure of the ordinary Joe to the financial world. UK won't except any regulation putting its risky financial industry first and foremost, other EU politicians are not much better and put their local issues first and play at scoring points before actually sorting anything out. As long as we have political structures designed around short to medium term returns and re-election, what will happen? Does not bode well for radical change....

There is no black and white answers to most dimensions of the situation, opposites can both be right. My start point is always figuring out what is not possible for practical reasons, when figuring out what may or may not be possible within those parameters.
 
B

bokkatankie

Guest
#16
As long as we have political structures designed around short to medium term returns and re-election, what will happen? Does not bode well for radical change....

So what is your final solution for the long term?

You have stated that the situation cannot be fixed by having money thrown at it, and yet the ECB has thrown buckets loads and still not working. Markets today initial good feeling sooned turned bad when even the most simple of sums were done.
 
#17
I don't big negative and I don't do big positive - I'm not in the media, I'm not a politician, and I am not allowed to make any direct money out of it, so I don't have anything to gain by it - but I do have to try and deal with it.

We are seeing the limits of political consensus acting to reduce the exposure of the ordinary Joe to the financial world. UK won't except any regulation putting its risky financial industry first and foremost, other EU politicians are not much better and put their local issues first and play at scoring points before actually sorting anything out. As long as we have political structures designed around short to medium term returns and re-election, what will happen? Does not bode well for radical change....

There is no black and white answers to most dimensions of the situation, opposites can both be right. My start point is always figuring out what is not possible for practical reasons, when figuring out what may or may not be possible within those parameters.
:)

Although I barked at your cry that there was no solution, we are having a heated agreement that 'the solution' is not going to occur.

Democracies don't do hard choices. Democracies are like turkeys at christmas: they don't vote for people who say they have to work much harder and for much less.

Whilst the masses watch in awe as the 'western' world implodes upon its own self-inflicted debt problems, the very same masses think striking will bring higher wages and better conditions becoz they got lernd that they are betta than the rest deserve more and more and its somebody elses fault and sombody else will pay.

Despite it being a currency, the Euro is a political construct that will not be allowed to fail. The French, for example, will never let that happen. However, it is true to say, that in the long term, who's in the Euro may alter and the measure of 'success' may also be rewritten.
 

Alsacien

MIA
Moderator
#18
As long as we have political structures designed around short to medium term returns and re-election, what will happen? Does not bode well for radical change....

So what is your final solution for the long term?

You have stated that the situation cannot be fixed by having money thrown at it, and yet the ECB has thrown buckets loads and still not working. Markets today initial good feeling sooned turned bad when even the most simple of sums were done.
Welcome back, sincerely.
I don't believe I stated that at all, some things can be fixed with money in the short to medium term. What happened today was a good thing, I think you will have to scrape the anti-barrel to find someone who disagrees.
I guess you are referring to the stock market? Why it went up beats me, all impacts of this are way down the line - just shows the general instability and overreaction right now either way.
Will it work? Who knows for sure? Everyone is moving money around trying to keep oil on the wheels, different ways may work better or worse.

I cannot fix this long term, doubt anyone can, maybe when a Chinese committee is controlling the worlds financial markets...... but that is seeming less likely too.
Maybe it can be brought to a brink serious enough for politicians everywhere to realise that some level of control and limit is preferable to short term economic gain........they don't seem to be buying it so far.....
 

Alsacien

MIA
Moderator
#19
:)

Although I barked at your cry that there was no solution, we are having a heated agreement that 'the solution' is not going to occur.

Democracies don't do hard choices. Democracies are like turkeys at christmas: they don't vote for people who say they have to work much harder and for much less.

Whilst the masses watch in awe as the 'western' world implodes upon its own self-inflicted debt problems, the very same masses think striking will bring higher wages and better conditions becoz they got lernd that they are betta than the rest deserve more and more and its somebody elses fault and sombody else will pay.

Despite it being a currency, the Euro is a political construct that will not be allowed to fail. The French, for example, will never let that happen. However, it is true to say, that in the long term, who's in the Euro may alter and the measure of 'success' may also be rewritten.
I absolutely agree.
The Eurozone cannot fail for purely practical reasons, therefore it will continue.
Will it continue to be a compromise by committee? Of course, we like to call it "democracy".
Is the final construct and limitation defined? No, we should argue the limits needed.
Can it change? Of course.
Can it change quickly? No.
How long would in take? 2-4 years to engineer an exit without chaos.
Problems are pressing right now.....

That is the easy part.
 
B

bokkatankie

Guest
#20
Welcome back, sincerely.
I don't believe I stated that at all, some things can be fixed with money in the short to medium term. What happened today was a good thing, I think you will have to scrape the anti-barrel to find someone who disagrees.
I guess you are referring to the stock market? Why it went up beats me, all impacts of this are way down the line - just shows the general instability and overreaction right now either way.
Will it work? Who knows for sure? Everyone is moving money around trying to keep oil on the wheels, different ways may work better or worse.

I cannot fix this long term, doubt anyone can, maybe when a Chinese committee is controlling the worlds financial markets...... but that is seeming less likely too.
Maybe it can be brought to a brink serious enough for politicians everywhere to realise that some level of control and limit is preferable to short term economic gain........they don't seem to be buying it so far.....
So short, medium term fixes are essentially a waste of time and assets? Trouble is that I see the ECB as a logistician preparing cake delivery for next year whilst Paris is already on fire. Frankly, and it pains me to say it, you are right, we need a sense of urgent reality from the policy makers, except, those policy makers are being given the wrong lead and he wrong information by today's (appreciate it was not all today) action.
 
Thread starter Similar threads Forum Replies Date
S The Intelligence Cell 0
msr The Intelligence Cell 14
R The Intelligence Cell 8

Similar threads

Latest Threads

Top