The European Central Bank lent but in reality handed over yesterday 9 January a total amount of €77.7 billion to a number of Eurozone banks, under an arrangement called Main Refinancing Operation (MRO) at the negligible interest rate of 0.7% for a duration of 7 days. This is however the upper side of the iceberg.
It’s not the first time that the ECB gives out money for free to banks, the majority of whom are practically bankrupt. If it was not for the ECB the majority of the “systemic” Eurozone banks would have disappeared.
In practice the ECB is now acting in the Eurozone as “lender of last resort” for practically every bank, a function that the ECB’s governing council was denying until recently, not only because this is not allowed by the ECB’s statues, but also because they considered it as a breach to prudent monetary policy. With Mario Draghi in the top job of ECB though all that have become mere typicality.
“Super Mario” has now opened the coffers of Eurozone’s central bank to all and every careless, dangerous and other people’s money spinning banker. He knows this game well because he has served in New York’s banking gangs for many years. Those dreadful New Yorkers have managed even from 2008 to “persuade” the Washington administration to “support” them, with at least $3 trillion taxpayers’ and freshly printed money for free that is, at zero interest rates. But let’s take the story from the beginning.
The credit crunch
As everybody knows, after the great credit crunch of 2008 in New York and the economic crisis that followed, still taking its toll, governments and monetary authorities (central banks) alike all over the developed world have being handing out trillions of euros, dollars, yens and pound sterlings to “systemic” but bankrupt banking groups. Why? Because, those “systemic” banks in Eurozone, Britain, the US and the rest of the developed world hold hostage societies and governments alike, just by owning every national and international financial transaction system and controlling all markets.
This awkward situation was first acknowledged by the US when the George Bush administration, in the winter of 2008-2009, was forced to support the New York bankrupt financial conglomerates with trillions of dollars. After that a whole literature was developed, seemingly aided by the public relations budgets of big banks. The new stars of economic thought are now insisting that some banks are more equal than others in the trade, because without them our modern societies cannot function. If they go bankrupt and cease existing, a huge part of the real economy will go to a standstill and soon disintegrate. Who knows this may even be true…
The fact is that those banks are monopolising our needs for financial transactions. Unfortunately, no competition authority or public attorney in the entire world ever dared to send them to jail for forming trusts, practicing usurpation, unlawfully exploiting entire markets and spinning around other people’s money to forcefully steal value from the real economy. When their game doesn’t pay and go bankrupt, they ask for government and central bank money to recapitalise and start all over again.
In Eurozone it was not directly the banks which went bankrupt. The special programmes though drafted by the troika of EU, ECB and the IMF to support some governments, have as an ultimate goal to save the “systemic” banks of Germany and France and to lesser degree of Ireland, Spain, Italy and Greece.
It was the bankers that pushed those countries on the cliff. Ireland is an unfortunate example of that.
All that may be known to the average reader of the economic columns. What is not widely known however has to do with the cost of resurrecting the bankrupt “systemic” banks.
According to well-informed sources the European Central Bank has spent around 30% of Eurozone’s Gross National Product amounting to €2.85 trillion, to ultimately support the banking system. Some of the money has being spent to buy sovereign junk bonds directly from banks, while most of it used to finance direct transfers to those lenders at almost zero interest rates.
The last trillion was paid to 5,000 Eurozone banks at the end of 2011 and the beginning of 2012 under extraordinary Long Term Refinancing Operation (LTRO), providing three year loans at almost zero interest rate. Those LTROs continued and the ECB gave out to banks another €28.5 billion during the last two months of 2012. Mario will be taking good care of banks also during this year starting with the €77.7bn mentioned above.
Is there a cure from banks?
The question is who can liberate us from the dynasty of banks. Fortunately enough in New York the authorities have started accusing and dearly fining certain lenders, but mainly the foreign ones operating there. HSBC and UBS have each being fined with almost $1.5bn. It’s a good start, even if the motives of the Americans are mainly to make the foreigners pay. It’s very doubtful if the Europeans can do the same for the US banks operating in Europe. It is also doubtful if the Americans will continue their probes on the US banks as well. Unfortunately the bank plague of our societies is not easily curable.