Monday, December 19, 2011

The Draghi gambit

Simple explanation of the ECB's Long-Term Refinancing Operation (LTRO) that begins December 21.

Read it at CounterPunch
Draghi’s Stealth Plan
by Mike Whitney

LTRO is commonly represented as similar to QE in the US, but it seems more comparable to the Fed providing banks with lost cost loans assumed assumes to be used for purchasing state bonds and munis.
If the plan does succeed and sovereign bond yields fall while the banking system is slowly nursed back to health, then Draghi’s stock will rise considerably. In fact, he’ll be the most powerful man in Europe because he’ll be able to dictate economic policy by merely adjusting the amount of sovereign debt he accepts as collateral from the banks. This is unspoken goal of the emergency liquidity assistance facility, to put big finance in the catbird seat so they can impose hairshirt austerity measures on debt-stricken nations through the coercive manipulation of bond yields. It’s a foolproof way of trouncing representative government and handing the levers of power to unelected bankers. But then, there’s nothing really new about that, is there?
Remind me where is Draghi from. Oh, right, Goldman Sachs.

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