Peak Heist

December 22, 2011
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The latest bank heist (LTRO)  totaled $641 billion as European banks passed on collateral in exchange for a 3 year, 1% loan.  In return the ECB just was handed a gigantic can of worms. The ECB balance sheet is now up to $3.5 trillion USD and at this point an undetermined amount of PIGGS plus Belgium debt.

Illustrating the nature of this circular transaction, Reuters reports that Unicredit and Intesa, two insolvent Italian banks, are using “state guaranteed bonds” as $52 billion collateral to throw at the ECB. So rather than even using actual Italian sovereigns, the ECB accepts something more nebulous down the food chain. If anybody knows exactly what this collateral is I’d love to know. It can’t be good, you can’t make this stuff up.

The WSJ is also on a roll describing the complex scams governments are using to just hand money over to banks without going through democratic considerations. Of course at each step along the way transactions can be inflated to benefit banksters. Incredibly these privatizations (and that’s what they are) can be securitized and pledged as collateral to borrow from the ECB. Explains why a Goldman Sachs crony has taken over in Italy and elsewhere. We are at peak loot.

As part of a broader deficit-reduction tangled web program in Portugal, the government essentially is borrowing money from bank pension funds and could use some of the funds to help state-owned companies repay bank loans. Elsewhere Commerzbank AG is negotiating with the finance ministry to transfer its troubled real-estate finance unit into a government “bad” bank. The bank and government are in talks about ways to structure the deal so it isn’t “considered” a bailout. These Governments can ill afford this at this point.

WSJ:

There is a story that a deal to haircut  and restructure Greek debt is in the works. This is a default and a big story and yet the markets are ignoring it. The amount of the haircut in net present value terms (uses about 4.25% coupon over eight years) is 65%. That number makes some sense, but Greece is talking about a 10% deficit for the current year.

Euro banks are shedding U.S. mortgage-backed securities (MBS), and depressing their prices along the way. Deutsche Bank estimates that Euro banks hold about $100B in MBS not  backed by Fannie or Freddie.

Looks like the Old Maid Card holders used the rally to unload Spanish and Italian 2 year bonds. Spanish 2-years are up 12 bps to 3.47% after falling as low as 3.23%. Italian 2-years are up 25 bps to 5.22 after sinking all the way to 4.73%.

In the US, finance and insurance makes up an outsized 8.4% of GDP. Bankrupting half the governments of the world to maintain this? Matt Taibbi: Obama and Geithner Government Enron style.  Way overdue on the time to kill the parasites.

WSJ:

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