Friday, May 16, 2008

Now the monetary news for the day:

And no, the article doesn't mention such practice occurs in the United States.
Truly a most disastrous outcome simply because the policy available cannot catch up with "innovation" and legal loopholes that the "people" themselves agreed to create in the past 30 years. This is no ordinary rabbit hole, in my opinion.


ECB concern over liquidity scheme
By Paul J Davies and Norma Cohen in London and Anousha Sakoui in Vienna
Published: May 15 2008 23:37 Last updated: May 15 2008 23:41

The European Central Bank on Thursday voiced its "high concern" at growing evidence that banks are exploiting its efforts to unblock the frozen funding markets by using its liquidity scheme to offload more risky assets than it envisaged. Yves Mersch, a governing council member, said the ECB was now "looking very hard at whether there is not a specific deterioration of collateral" which the central bank is accepting in return for funds. He was speaking amid signs of some banks creating low-rated assets specifically so they can be traded for treasuries at the European Central Bank. Central banks have become important in providing funding for difficult to sell mortgages on what is intended to be a short-term basis while securitisation markets remain frozen.

The Bank of England recently created a facility for UK banks to access funding for mortgages and the Financial Times has learnt that almost £90bn ($175bn) worth of bonds are being created to be placed there - almost twice the £50bn in itially expected when the scheme was launched only three weeks ago

Similarly, Lehman Brothers recently structured a €1.1bn CLO, which it is expected to use for ECB funding. Meanwhile, Macquarie Leasing, a unit of the Australian bank, has done a securitisation of Australian motor loans, which will have a euro-denominated slice so that the investors who buy the deal can use it at the ECB. Investment bankers who work in securitisation say that their main business is structuring bonds that are eligible for ECB liquidity operations. Some analysts have concerns about whether the bonds being created will ever be saleable if markets recover. "There is moral hazard . . . and we are not in the business of taking over the market," Mr Mersch said. "That means there must be an exit strategy." The importance of central bank involvement in supporting securitisation markets has been shown again in the UK, where the Bank of England's Special Liquidity Scheme has already attracted almost twice the level of demand originally anticipated. According to debt market sources, the banks planning to use the scheme are the UK's eight largest lenders.


D said...

Mr. Mersch,

You were the exit. Dumbass.

alcan said...

I am shocked that you are insinuating that those most noble ones at the US IBs would even consider doing something like this. You should expect a call from the SEC later today.

MTGSPY said...

I will post from my iphone in the gulag. No problem.

D said...

I am not insinuating anything, I am explicitly stating. I've got a FINRA account, Cox knows how to reach me. We can have a discussion about his post chairmanship plans and what his contingent exit strategy is when Americans give up on the "due process" and take justice into their own hands.

I am happy to not be one of these guys, I would not want my face/name associated with any of it.

GTT said...

Mish said it perfectly today

"First Law Of Swap-O-Rama

Let's apply Parkinson's Law to the Fed's and ECB's Swap-O-Ramas. Here goes: The garbage dump will expand in direct relation to the willingness of the dump to accept garbage."