Thursday, October 16, 2008

The ECB floods the system with money

"The ECB is doing whatever it takes to unclog the interbank market," said Gilles Moec, from Bank of America, who described the move as "spectacular" volte-face and a belated recognition that the credit crisis is deadly serious....

He issued a stark reminder that life is going be very different for the banking elite as governments move to restore the lost discipline of the Bretton Woods financial order and attempt to "civilise" capitalism, the code word for clamping down on the City – dubbed "the Casino" in Europe.

"Let everyone remember after this crisis, who solved it. Politicians did, not bankers," he said. Mr Juncker added that this episode would have a profound effect on the euro debate in Britain.

"The British prime minister had to beg to be let into the room. I'm sure that when the storm is over, the British will think about whether they shouldn't become an equal in all decision-making bodies."

German Finance Minister Peer Steinbr├╝ck echoed the warning. "When a fire's burning in the global financial markets, it has to be put out, even if it's a case of arson. But then the arsonists have to be held responsible, and spreading flames must be outlawed.''

In a key change, the ECB is providing unlimited liquidity for longer-term loans to force down the market rates used to price mortgages in the Eurozone. The aim is to help banks pass along last week's half-point cut in interest rates before the region's economy starts to seize up altogether.

The standard for collateral has been slashed from A- to the once unthinkable level of BBB-, allowing distressed banks to offload securities that cannot be sold on the open market. It greatly widens the range of instruments and – crucially – lets banks use their dollar assets for the first time.

No comments: