Thursday, September 15, 2011

Behold - Global TARP!

This is exactly what got the EU into trouble in the first place -

ECB Announcement:
15 September 2011 - ECB announces additional US dollar liquidity-providing operations over year-end The Governing Council of the European Central Bank (ECB) has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year. These operations will be conducted in addition to the ongoing weekly seven-day operations announced on 10 May 2010. The schedule for these additional operations is as follows:
Tender date Settlement date Maturity date
12 October 2011 13 October 2011 5 January 2012
9 November 2011 10 November 2011 2 February 2012
7 December 2011 8 December 2011 1 March 201
These will all take the form of repurchase operations against eligible collateral and will be carried out as fixed rate tender procedures with full allotment. Further information on tender procedures can be found on the ECB’s website.
The Real Effect
Remember the talk of garbage assets back in 2008? The initial solution to that issue was essentially a dilution concept in which funds were taken from one group and spread around to "stabilize" another group. This would lead to a better 'capitalized' institution which then wouldn't 'fail'. The problem with this sort of concept is that it doesn't dilute the problem and then the issue evaporates. Rather, the aid is consumed by the troubled assets which begets more troubled assets from the inherent moral hazard. Put simply, you give a shark a meal and he'll go away for a bit, but he's coming back for more later and he will have grown exponentially.

In 2007, the facade on many institutions began to crumble which led to the collapse of the image of solvent banks in 2008. (In truth, the institutions were already long since insolvent it's just that the market finally caught up with their shenanigans and called them on it.) The beginning of 2009 saw the bottom of the first collapse as government fed the shark everything that wasn't nailed down in an attempt to appease it. True to form, the image improved for a time but in 2010, the shark showed up in Europe.

For the last year and a half, the EU has thrown everything they have at the problem and yet, it just keeps getting worse. This in turn has led to the destabilization of myriads of political institutions across the planet and will eventually lead to a global war as the sharks pit man against man in an attempt to eat the entire planet.

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