New SuperMario game revealed

ECB boss using sealed money-flow scam to hoodwink markets

Bundesbank’s Weidmann continues to sound alarm bells

A major deception being undertaken via the LTRO bursts, launched by Mario Draghi at the ECB, was roundly condemned by a senior German banking source this morning. “Draghi is misleading sovereign investors and heads of government into thinking that Italy and Spain will not go the same way [as Greece]. Of course they will – and we Germans will have to pay for it” he told The Slog  within the last two hours GMT. Zero Hedge was first with the story yesterday, producing detailed, charted backup for the claims the site picked up from a number of prominent Wall Street analysts. But the story also ties in significantly with both rising mortgage rates in the UK, false bond market optimism in the eurozone, and the now hugely divided feelings in the EU about the Greek bailout attempt. The Slog presents a broad analysis.

You may have noticed a number of UK/Euro banks putting up their mortgage-lending rates yesterday. The standard claim across the piece was that the price of  ‘funding’ money for lending had increased.

There’s an oddly vicious circle to this spin – as indeed there is with most banker ‘explanations’. Zirp has meant very few retail customers placing deposits with the banks. Zirp was allegedly done in the US and UK to create cheap commercial loans, but we’ve known for years that that’s bollocks: it was done to give hugely over-leveraged banks a margin on sovereign debt purchase…and multinationals cheap money to take to the bottom line, give out dividends, and thus keep the Dow and FTSE nice and buoyant.

So with very few customers making deposits, banks have had to turn to the wholesale money markets. But they’re as tight as a drum through lack of trust in each other (aka ‘credit crunch’) and that increased sense of risk pushes up rates. So now we’ve finally come full circle to where things normally both start and end: we the punters wind up paying more.

As long ago as mid 2010 The Slog insisted that this must be the medium-term result of banking insolvency: sooner or later, lending rates have to go up – and in a deregulated banking system, thereafter it makes not a sou of difference what rate the Fed or the Bank of England MPC say they should be….lending rates will go up.

The really cool thing about QE and Zirp in tandem is that the banks get to dump their toxic assets on central banks via QE (paid for by us, again) and in return, Zirp allows the banks to buy Sovereign debt at a profit margin, thus keeping the bond markets confident…and the price of sovereign borrowing down…and pensioners knackered.This is why the Fed note/gilts markets in the US and UK repectively are so cheap and bullish now. Of course, the economy comes to a grinding halt, but hey, who cares about the economy? It’s always about saving the pols and the bankers.

Thanks to incontinent bank sovereign lending policies regarding cheap money, Jean-Claude Trichet nodding off, Goldman Sachs advice about accountancy cheating, Silvio Berlusconi – and a host of other factors and gangsters – in the eurozone, this turned into a major-league sovereign debt crisis….and the realisation that the private eurobanks (plus some Americans) would fall over rather noisily given that southern European borrowing was completely out of control, and repayment anything from highly unlikely to are you kidding or what. Somebody had to pay, and as both the bankers and the pols were broke, well, it was only ever going to be us. Again.

So was the Troika brought to life, and the Greeks made to pay higher taxes and have their salary cuts backdated by six months….while the frantic ECB/Berlin/Paris axis tried every trick they knew to invent some new money. By last November, none were forthcoming – and a credit crunch of Lehman-like proportions was looming over the horizon. Since then we’ve had two enormous bouts of LTRO from Mario Draghi, who is now proclaimed Saviour of the World. As the last person to claim that title was Gordon Brown, things can only get worse for Mario from here on.

But the LTRO has so far been depicted as liquidity to help business lending and thus growth (lies) and – by financial sites and a few of the MSM – as a disguised way of giving the eurobanks more sandbags against the Tsunami of toxic crap heading their way from Greece. You may recall that in News Ketchup last week, I posed the question as to why a nice fat and allegedly safe bank like Barclays would have piled into the trough to take some Mariomoney. And given that all this (relatively) cheap money has been power-hosed into the system, exactly what excuse the mortgage-rate increasers might have for putting up loan prices in a housing market already flatlining.

Well now it seems that Daily Collateral at Zero Hedge may well have provided the answer…complete with elucidatory charts. It made my brain hurt along the way, but the Sun headline is this: Draghi is in fact employing the exact same ‘sealed money circle’ employed by the UK and the US to keep both the banks and the sovereigns upright at the same time.

The evidence presented in favour of this is:

1. A spike in distressed sovereign-bond buying among eurobanks

2. An increase in the proportion of ClubMed bank monies invested in their own government’s debt

To be honest, it looks pretty irrefutable to me. The borrowed money is going back into the ECB on overnight at a paper loss, being used the next day to buy sovereign bonds at a paper profit, going back to the ECB that evening or soon thereafter….andonandonandon. The ECB’s reserves look secure, the banks look stable, and the bond markets look more buoyant. Hence the improvement in the costs of Italian and Spanish debt in recent weeks…and the successful auctions in both countries. It had nothing to do with ‘market sentiment’….and everything to do with a Goldman Sachs-trained illusionist called Mario Draghi.

Wolfgang Munchau took a pop at Jens Weidmann of the Bundesbank in the FT this morning (paywalled) for being disingenuous about the ECB LTRO decision he’d himself signed off on. But Munchau is off beam about this: Weidmann signed off on one liquidity exercise – not an inflationary circular saw.

There are other problems with this stealth bailout. Number one, it’s way beyond the ECB’s legal remit. Technically, a national Central Bank from any EU member State could challenge it. Number two, it leaves eurobusiness out in the cold….and yet another economy being starved of funds by barmy neocon austerity polemics. And Number Three, the risks of the circle breaking to cause hyper-inflation mean that one day soon we may well all be in the Number Two.

The Slog’s Bankfurt Maulwurf was contacted first thing today – the EU being an hour ahead of GMT. His view was typically trenchant:

“As I said last week, Draghi is a disgrace,” he began accomodatingly, “And had he not made the political moves he did at the ECB, such behaviour would not be allowed. Weidmann is being discreet, but he is one of us….he sees the madness coming, as more and more of us do. For this Greek bailout to go through now would not only be a disaster for Germany, Draghi is misleading sovereign investors and heads of government into thinking that Italy and Spain will not go the same way. Of course they will – and we Germans will have to pay for that.”

As always, Herr Maulwurf remains coy about his own involvement in any ‘plans’…as you’d expect. But I can only say this lends further support for the Slog’s belief that powerful influences in many institutions across the globe will do almost anything to derail the Greek bond-swap/restructure process.

The analyses summed up at Zero Hedge come at a key point in the Greek bailout-or-default guessing game. But far more fundamentally significant is the way the EU’s Central Bank boss is now steering it into the realms of pure deception….along with its faithful allies at ISDA. Current and future eurozone junk bondholders would do well to heed that significance.

Related update: Why Athens will have to invoke CACs to complete the bond-swap


  1. I have once again reached the point where I can’t even listen to this cadre of corporate whores, sociopaths, liars and finks.

    Bring on the tsunami, at least it will justify their executions.

    And Draghi looks like a clever boy today, but like you say John, smoke and mirrors can only go so far.


  2. ‘There are other problems with this stealth bailout. Number one, it’s way beyond the ECB’s legal remit.’ John, doing things that are not legal has never bothered the euro elites before. They think ‘the dream’ is bigger than
    anything and must be preserved at all cost’s.


  3. You refer to “incontinent bank sovereign lending policies”

    And that has to include primarily the fact that the loony bank regulators allowed all the banks in Europe to lend to all European sovereigns holding only 1.6 percent or zero capital… which means an authorized leverage of between 62.5 and the sky. If European banks lent to European small businesses or entrepreneurs they need to hold 8 percent, an authorized leverage of 12.5 to 1.

    Bank regulators thought that by giving further advantages to the lending to those perceived as not-risky they could keep the banks safe: “…One has to belong to the intelligentsia to believe things like that: no ordinary man could be such fool” George Orwell, “Notes on Nationalism”, 1945

    Of course those perceived as not-risky already were advantaged, like with lower interest rates so to further advantage these created and excess of advantages which cause the excessive bank exposures to what is officially perceived as not-risky.

    Besides, any system that trusts more its government than what it trusts its citizens is doomed to fail.

    The bank regulators should be ashamed. It is they who are doing Europe in! http://bit.ly/t3mQe0


  4. “Give me control of a nations money supply, and I care not who makes it’s laws” said a Rothschild with a proud family motto ‘Concordia, Integritas, Industria’ translates as ‘Harmony, Integrity, Industry’. Who could possibly doubt them! Why need our nation shudder?


  5. I always said that Draghi was brought in to print money and that’s what he’s doing. My only surprise is that it took him so long to get started. Maybe the Germans were standing in the way but now he’s found a way of bypassing them …with Merkel’s blessing.
    I don’t think it’s a secret that LTRO is being used by many borrowing banks to buy up sovereign debt, thereby reducing sovereign yields and the risk of more sovereign defaults. What I don’t know is whether this is a secretly mandated condition of LTRO. As you rightly point out, Draghi’s LTRO hosing is unlawful under several treaties. But the EU elites and their EU institutions gave up abiding by the Rule of Law a long time ago. They now make it up as they go along. ‘The Dream’ must survive and if that means impoverishment of the EU populations, so be it.


  6. I recommend Steve Johnson’s article,FT today,FTfm section.’Whenever you do these big actions you tend to get unforeseen consequences….’much of this money could find its way into high yielding blue chip equities..e200 billion is big…’ So, interest rates up,house prices down,PIGS debt is quasi worthless,inflation out of control in the UK,buy the quality on the dips to avoid being wiped out completely.


  7. Per
    I think you are right. But incompetent regulators do not make a case for NO regulators: only an improvment in the ethics of ou commercial culture can do that.


  8. BT
    I’m damn sure that laundering sovereign bailout funds was never in the script…hence Weidmann’s tantrum.


  9. LTRO laundering into buying up sovereign debt may not have been in Weidmann’s understanding of what Draghi was planning to do with it.
    But I’m darned sure it was always on Draghi’s agenda; the whole thing was devised to create a camouflage to fool the German people and their watchful institutions…

    The only people who can bring an end to this ponzi scheme – which I have zero doubt Merkel has quietly approved – are the German Bundestag, Bundesbank and constitutional judges (because Germany doesn’t have enough voting power on the ECB now). But do they have the powers? Is there any process for impeachment/arrest of Merkel for wilfully violating German Basic Law? And would they want to provoke the alternative apocalypse anyway?


  10. I have a question here for John!
    What is the participation threshold for the cancellation of the Greek PSI after all – 66,6% or 75% ??

    there seems to be a confusion, considering that BNP’s flow chart did not give as a possible Argentinian type default a theshold of 75%. In fact according to that flow, any participation above 66,6% would be followed by CACs –

    If it is 75% however, It does seem hard to achieve !


  11. The 66.6% threshold was a mistake, any bond which requires a participation rate for a renegotiation is normally set at 75% (as is the Greek debt restructurign this week).

    I think they will struggle to get this (especially following the exemption of the ECB and EIB from taking a haircut).

    Question is will ISDA still not declare this a default if the CACs have to be used?


  12. william, if I give you all my money will you promise to look after it for me? I’ve taken to keeping my wallet in the sink as I’m worried about my trousers catching fire..


  13. And so, the wheel spins even faster, how long can the axle hold?
    At each twist and turn in this saga the situation becomes more fragile, there will come a point where it can no longer support it’s own weight.


  14. Weidmann always said that remove the gun to the head and the periphery would lose all interest in the sound management of its accounts.

    No-one expected the finger to be raised quite so quickly though…….Spain saying it really could not meet its agreed targets before the ink was even dry on the new treaty. That is what has p****d Weidmann off. He was promised that they just needed the breathing space provided by the LTRO to get on with their reforms……..Like hell.

    Like the Greeks, they just needed some more cash. Period.

    PS ‘neo-con austerity’??????- as opposed to what exactly?… the enlightened keynsian spending that got us here?


  15. the problem for all of us in Greece, is that if the threshold for a full cancellation of the PSI is indeed 75%, then a full blown – Argentina type default may be extremely close !

    Triggering the CDS payments can indeed create a mess, but a formal cancellation of the procedure is an immediate threat beyond any imagination !

    So – forgive my asking twice – is the 66% threshold one that gives the opportunity for CAC activation, or is it a total failure that leads to cancellation of the PSI ?


  16. Well, as no one is stopping Mario from printing he must have Merkels blessing therefore, are we to suppose that they will print their way out of this mess and deal with the inflation as and when, because they consider that is an problem easier to manage?


  17. @Panos P.: If 75% is not reached, your Govt have said it will invoke a CAC and impose it anyway. That would open the way for a Default to be called, although ISDA have their own agenda.


  18. The end game is much closer than that. The hope was that all this upfront credit would suck in money from outside Europe to support the periphery’s bonds. It has not. This means the ECB is now stuffed with collateral that is valueless.

    What is more, it is now clear there will be no outside money in via the IMF….we are well on the way to the rouble-ization of Europe. To suggest that inflation is a problem they will worry about down the line, misses just how close the oncoming train really is.


  19. Ok thanks for your answer !

    the cancellation of the whole PSI (Argentinian type default) cannot happen unless they miss the 66% participation, however !

    Apparently they can get around 68% easily. The triggering of CDS is not a priority for Greece right now !


  20. It does make a very strong case for protecting deposits but otherwise letting banks go to the wall. Right now we have a toxic mix of incompetent regulation and zero moral hazard due to our stupid politicians.


  21. What a FRAUD and FARCE the EU, ECB and Dragi are playing at: The EU and all its criminal politicians who created this entire financial mess have gone “Scott-free” without any one of them being held accountable or found guilty of fraud, theft and incredible misdeeds!

    Nothing will change in the EU Commission with its corrupt politicians in Belgium and they will continue stealing EU citizen’s money, making the People the only ones responsible. Why has the EU Commission never asked Greek Politicians about the 200 billion Euros they have looted from the people and EU funds they stole and sent offshore and to Swiss banks?

    Because the EU Commission is in on this game and absolutely corrupt… It is Pathetic… Time to tear they system down and start over… Stop voting for these political scum politicians!


  22. Of course it was in the script. Lend to banks at <1% who then buy sovereigns at between 3-6%. It recapitalises the banks while still allowing deficit countries to borrow. That's the whole point – it prevents the collapse of the Euro & the Euro banks in the short term. Whether it helps in the long term entirely depends on there being a recovery which, with the present crop of twats in charge, isn't going to happen.

    If your Bankfurt mate only just figured that out then he is outstandingly dim, even by German banking standards. (The old joke on Wall St being if you need to sell some worthless toxic sh*t speak to a Landesbank.)


  23. Pingback: Stealth QE confirmed around the web | The Truth Hurts

  24. Personally I think Mario is very smart, I think he knows what’s coming & sees it as inevitable, he is simply doing his utmost to prop up the European banks & therefore their US counterparts. What the hell, when it all goes apeshit, as they know it will, the three Goldman stooges will all be well looked after.


  25. @Panos P.:
    Yeahbut see my other post…even if 75% is not reached, your government have said it will impose a CAC anyway. That means the PSI deal will not be cancelled.


  26. Severe metal fatigue is setting in, maybe! If Merkel looks a bit suntanned next time she shows her face in public, it may be due to a bad attack of rust!


  27. Yep. It looks like Weidmann is basically a decent bloke with old fashioned German ideals. He failed to recognise that Merkel is a new breed of politician who is happy to lie and lie and lie some more if it means staying in power.


  28. I no longer have much of a clue what is going on so I think I will put the kettle on and have a nice cup of hot water.


  29. @kfc:
    I think you’re right. Something could cause an implosion at any time. OTOH, it’s just as likely we could be sitting here in 2014 with the Euro still deep in crises and considered to be a ‘risk currency’, and the EU pols holding summits to talk the talk about dealing with it. The Americans will be quite happy so long as their banks are shielded from fall out and the USD remains the global reserve currency.


  30. “Spain risks being fined under new EU rules for a “grave” breach of budget limits, the European Commission warned on Monday.”

    This really is cloud cuckoo land isn’t it? They are struggling to pay their debts and what do they do?
    Give them a huge fine.
    Do they not see the irony?
    Or maybe, just maybe their attention has now turned to Spain for it their turn to have the “Grecian treatment”
    I can’t keep up……


  31. Sorry,no can do,too busy trying to recover shares and cash transferred to MF Global from my account, at the behest of the regulators of LIFFE,so that the market is safe for everybody….


  32. I think that the analogy of a circular saw to describe the money circuit is the wrong one. I think a smaller gear connected to a larger ones is a more accurate description . As the smaller gear turns it throws off new Euros with each rotation. It is meshed with a much larger “drive gear” and the drive gear that must spin increasingly faster. Those riding around on this gear are the politicians and the MSM. Then of course there is the even BIGGER gear that the rest of us spin on and the centrifugal forces being exerted on this gear have enough power to throw our life’s savings into outer space.


  33. Another article on ZH noted that in spite of 2 bouts of LTRO the net increase in ECB deposits less bank debt refinance was [35b?] – ie the money was not finding its way back into the economy or the inter-bank market. So there is still a credit crunch in the EZ.

    However it should not be a surprise that banks are engaging in the “Sarkozy” carry trade – especially Spanish and Italian banks. However it begs the question of why the EZ just doesn’t directly buy at 1% rather than have EZ taxpayers pay the margin to recapitalise dud banks – oh sorry that’s the point isn’t it!

    So in spite of all the hard words, the EZ and ECB is printing. Like everyone else. Which is not to say it is a flawed policy in the short term – the ECB is supposed to be a lender of last resort. However I can’t work out the likely German reaction to all of this – with or without a Greek default – and factoring in any other crisis along the way.

    What’s the German for “sleepwalking into disaster”?


  34. Slightly off topic, but article today in Der Spiegel v worrying, and if it is to be believed, David Cameron has agreed to “shun” Hollande.
    “Meddling in France
    Merkel Forges Anti-Hollande Alliance in Europe
    …..According to information obtained by SPIEGEL, leading conservative governments in the EU — those in Germany, Italy, Spain and the United Kingdom — have agreed not to receive Hollande during the campaign.
    Merkel secretly agreed with Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy that Hollande should be shunned, SPIEGEL has learned. British Prime Minister David Cameron also agreed not to meet him.
    They weren’t just motivated by sympathy for Sarkozy but also because they’re angry at Hollandefor saying he would seek to renegotiate the fiscal pact agreed among 25 of the 27 EU members…..


  35. @Chris

    If I were M. Hollande, knowing that, would make make me more determined than ever to renegotiate when I became President. Considering that all the polls show Sarkozy trailing, does Ange know what she is doing, or is she just being spiteful?


  36. Quite understand. I’ll just have to lie back and think of…well, some country I haven’t thought of yet.


  37. Jason et al
    In classic Venizelos style (this is the twerp who nearly bankrupted Greece at their last Olympics) he got the number wrong and then had to put 75% in afterwards.
    And the 75% os based on a quorum number. My information so far is that it might as well be based on a quantum number: there is going to be big hold-out, and the Sprouts are as usually going la-la-la.


  38. The more fitting german expression would be “Sehenden Auges in den Abgrund” which is “walking into the abyss with open eyes”, as there is no sleepwalking here at all.

    I detest Frau Merkel, but i have to admit that she seems to know exactly what she does. This woman has fangs where other people have balls. The bitch can create vast amounts smoke grenades out of thin air to confuse everyone everywhere everytime. I would advise not to make the grave mistake to underestimate her notable qualities.


  39. Gill
    While I realise that life with Jens must be hell right now, don’t get carried away. There is no way any informed person coud describe Rip Van Trichet’s policy as enlightened anything, let alone Keynesianism.
    We should forget the branded policies of the past. None of those guys had the faintest clue what the globalist madness would turn into forty years later.
    This problem has 0% to do with economics, and 100% to do with Homo not very sapiens.


  40. Denis
    Yes. That’s exactly what I’m saying…but you’re missing the point.
    What’s going on here is what I call the Circular Saw. One snapshot shows the BoE buying gilts, another shows the banks doing it. The one after that will show Merv buying Belorussian flats.
    The interpretation of all history is down to when you take the snapshot, and which snapshot you choose to put in the album.


  41. Probably old news by now, but a German tourist was recently stopped in Greece and asked to show his papers. He was then asked: “Occupation?” and replied: “No, just here on holiday.”


  42. Why isn’t the fine imposed directly upon the politicians and ‘crats? That, and the threat of restitution from their hidden funds, should concentrate their minds on their task.


  43. Pingback: Eurozone LTRO: Sensation as Data Show Draghi is Funding Sovereign Bailout by Stealth

  44. As far as the Bank of England’s Asset Purchase Facility is concerned it’s been a pretty longlasting “snapshot”, since right from the start of QE it has used almost all of the newly created money to buy gilts, and in fact the original letter from Darling authorising the Facility made it very clear that the Bank was not being asked or allowed to buy “toxic assets”.


  45. Agreed, she’s one of these:
    [audio src="http://flyto.zapto.org/Ritchie-Menina-Veneno.mp3" /]
    (for evaluation purposes)


  46. Note that Cameron is included as part of this behind the scenes effort to help Merkel ensure that her “fiscal pact” is ratified by France, despite the UK government having “reserved its position” over the very questionable legality of that treaty.

    This was the subject of my posts on the Conservative Home site today, which the moderators would not allow to appear – I wonder why not?


  47. “The interpretation of all history is down to when you take the snapshot, and which snapshot you choose to put in the album.”

    Or as some say: “what you see depends on where you’re viewing from”.


  48. I think the last train carriage on this slow motion trainwreck has just formed the appearance of an accordian! Not long to go now.


  49. Is an Israeli attack on Iran and the subsequent war going to really screw the EU even more,or is it going to be seen as another opportunity by the
    elites to further their ‘DREAM’?


  50. I have had some doubts about Conshome particularly recently, and am very concerned that your comments have apparently not been posted. (They weren’t in the replies, which do not show automatically??)


  51. If I am reading this leaked info from the Athens News correctly, it seems as though the swap deal re Greece may be all sewn up and the CACs won’t need to be triggered and thereby no default called?? Is this a correct assumption based on what is in the article or have I completely misunderstood this?.
    Some excerpts below.
    “German banks to accept Greek debt cut: sources
    Most German banks will accept the deal negotiated by the International Institute of Finance (IIF) banking lobby and Greece, cutting the face value of their Greek bond holdings by just over half, people with knowledge of the matter said…….Sources close to other big German creditors with an original Greek exposure of more than 1 billion – such as DZ Bank and Erste Abwicklungsanstalt – also said that the lenders would take part in the swap deal.
    Insurers Allianz, Munich Re and public-sector bank LBBW have yet to make announcements but are expected to join in.
    Sources close to several landesbanks with exposures of 80 to 250 million euros said the lenders would not prevent approval of the haircut….”


  52. “Is an Israeli attack on Iran and the subsequent war going to really screw the EU even more”

    Most definitely. They’ll run out of bunkers to hide in and hold meetings to wring their hands and ask each other what to do about their friend Iran being bombed.


  53. Am I right in thinking that Draghi and the whole shebang are also inviolate and unimpeachable?

    Have they not passed laws giving themselves that status.

    So, the only retribution, when the cesspit blows up and goes thermo nuclear, is the lampost and piano wire?


  54. Pingback: John Ward – Ezone LTRO – Sensation As Data Show Draghi Is Funding Sovereign Bailout By Stealth – 5 March 2012 | Lucas 2012 Infos

  55. The article is about German banks, who have a €15 billion exposure.

    Nevertheless, I would be slightly surprised if the bond swap does not achieve the required 75%. It depends heavily on the hedgies.


  56. If i perceive it correctly, 66% is not a mistake, it’s a different threshold. If we reach above 75%, it’s the standard participation rate you mentioned. If we fall below, the law that recently made it to the Greek parliament activates CACs provided that participation is still over 66.6%.


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