Monday, March 14, 2016


Well, I guess no one tried to sneak up on me while we were gone.  Sr Draghi and the ECB did just what everybody expected and pulled out most of the stops to include lowering the deposit rate to -0.40, lowering the discount rate to Zero and increasing it's version of QE by 20 billion Euros a month. There was one surprise, however, in that the ECB announced that it was prepared to fund bond issuances from selective southern tier banks for up to four years.  Now that was an eye-opener.  Remember how we always said liquidity was the most important thing for the banking system?  In so-doing, Sr. Draghi tacitly admitted that there was a problem most places south of the Alps.  This is not capital building mind you, this is old fashioned depositing gussied up to look like free market operations.  The Greeks, Spanish, Portuguese and Italians loved it;  the Germans hated it.  But Sr. Draghi is a realist if nothing else. The Germans are faced with a surplus of liquidity with no place to put it and everyone else is faced with a lack of liquidity and no place to put it.  Motion, in this case as in others, can often be confused with progress.  Move the deck chairs, Mario, maybe the leak will stop.

Speaking of liquidity, someone--probably Big Danny Tarullo--got it in his head last week that the TBTF banks Over Here have far too much exposure to one another so there is a movement afoot to limit that exposure through some sort of legislation which has yet to be figured out.  Wait a moment said the industry groups, has anyone thought of the consequences which could result from such a move?  Of course not is the answer aside from the fact that there are already in place rules which in my day used to be known as "legal lending limits" which do precisely what the Big Danny Mob wishes to accomplish.  Anyway, in a market that already suffers from a liquidity problem whenever some major player sneezes, these guys want to create even more reasons for markets to seize up.  In this regard I wonder whether Big Danny realizes that his bank now owns 19% per cent of all the U.S. Treasury debt issued?  Now that's a kick because if a company owns 20% of the equity of another company, the entity has to be consolidated.  Maybe Janet should go whole hog and buy another 1% so if she ever puts out a balance sheet that anybody can understand, she'll be able to consolidate the United States of America (it's debt being...essentially...its capital).   Would that be a good thing?  I donnknow, but talk about a liquidity problem.  Maybe it falls under the Trading With The Enemy Act?

Plus ca change...

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