Too Many to Fail
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Posted 05 July 2012 - 11:03 PM
The ECB is already fully committed to the too many to fail banking system. The ECB now has almost half of it’s balance sheet in loans to a wide swath of too-many-to-fail European banks, and have been accepting more and more questionable collateral in the process.Hardly noticed or mentioned in the ECB move, was a new policy whereby the central bank will no longer accept [Marketwatch] “government-guaranteed collateral”. This is no small detail, and to my thinking represents a tightening. I covered this scam in December in my article “Peak Heist”. This next graphic was in the NY Times, describing this machinations used in LTRO. This was in fact very much a key function of LTRO and I had a tizzy about it at the time. Now one has to believe the ECB is having a wake up call about the abuses that must have spewed forth from this. Looks like the bazooka has already been spent, the only thing left being calculating all the losses on this merda.The other $1.5 trillion euro in the ECB balance sheet is full of non-investment sovereigns. The ECB has lowered rates to zero on the one trillion euros banks have on deposit. When banks lose that interest from just parking money, it represents a defacto tightening and less income. Apparently the ECB is changing the incentives and is hoping banks will put the money to “greater use”, as opposed to the backdoor toxic dumping that “pledging collateral” represents.Of particular note is the poor trading back up to a 6.87% yield in Spanish sovereigns, since the latest Europe-is-saved mucky mucky-muck and Hail Mary rally. Every bond rally in Spain has been worth a quick fade.And what is with all the talk about “loosening up” in China? All talk and no show as Chinese regulators reportedly will not only keep the 75% cap on loan-to-deposit ratios, but may even add credit-restraining rules on top of that. “The government won’t let it go easily,” says an analyst, arguing it’s regulators’ most effective tool at curtailing loan growth.As a follow up to my post yesterday on the US food belt drought, comes similar news out of India, where monsoons have been delayed. India’s economy is already a bagunca (mess), even before this.Separately, the Ukraine lowered its corn harvest forecast by 8 percent.Ditto Trading has brought out an offer for my new followers who open accounts through August 31. If you do so, it would be a simple matter to review the current positions established and decide if you want to put through the trades yourself, then toggle the shadow trade function. Here is the site to get started.
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