Greece: Hostage to the ECB

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Ah, the economy – what a ridiculous scam the whole thing is. It would be hilarious if the consequences weren’t so tragic at times.

Take the case of Greece. Here is one nation that the elites in Europe are royally screwing.

The Financial Times reports that the Greek central bank is so desperate to bring the country’s banks back to health that it’s resorting to all sorts of accounting tricks.

This might sound obscure – but it will help you perceive the financial system for what is: a transfer of wealth from the many to the few.

Here’s the gist of the latest. The Greek central bank wants to set up a ‘special purpose vehicle’ (SIV).

The major Greek banks will then, according to the plan, transfer their deferred tax assets to this SIV.

That’s the first step.

Then, the SIV will use these assets as collateral to issue bonds.

Then, with the money it raises, the SIV will buy the non-performing loans that rest on the balance sheets of the Greek banks.

You are following this, right? It doesn’t really matter.

This shuffling of assets and money shenanigans is only required because the European Central Bank (ECB) refuses to use its powers to restore the Greek banking system to health.

It could do it in an instant…and could have done it years ago. The only question is why it perpetuates the whole absurdity.

It’s now eight years into the austerity program imposed on Greece.

It’s a decade since the GFC.

Meanwhile, the Greek workers are still in the streets protesting.

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Today’s Profit Watch explains why the ECB wants to keep Greece pinned down…

No money for our Med friends

The issue for the Greek banks is their non-performing loans. They need to get rid of these before they can start lending to the Greek economy again.

Hence why the Greek central bank wants to find a way to do get rid of them…and the Greek Finance Ministry is cooking up some other plan.

They’re doing what they can for the Greek economy.

The European elite have a different agenda.

From the Financial Times

Earlier Greek hopes that a “bad bank” for non-performing loans could be established with funding from the country’s international creditors were dashed by the reluctance of the EU and IMF to back such a project.’

Oh dear. Poor Greeks. No money for them. That’s strange. Everyone else gets a lot.

After all, under the ECB’s Quantitative Easing plan, it has already created a staggering €2.6 trillion to buy bonds all over Europe.

It’s bought government bonds…corporate bonds…and asset-backed securities.

Here’s the deal…

The ECB could print up the money required and buy the non-performing loans from the Greek banks.

That would extinguish the problem in a heartbeat. Crisis over.

The bad debts would go to the European Central Bank. This is exactly what the US Fed did in America in the wake of 2008.

But wouldn’t that be bad news for the ECB?

No.

The Greek bad debts are around €88 billion. That looks pretty pissy compared to the trillions the ECB has been throwing around.

But still, the issue is unresolved…

Now, you might argue that the ECB is being prudent. This Greek paper might have even less value than it’s currently priced at.

But it doesn’t matter one iota…because the ECB’s cost of funds is zero. It owns the printing press.

We can see this truth right now. And if this doesn’t show how absurd the whole thing is, I give in!

Greece is about politics, not economics

The head of the ECB is Mario Draghi. He’s guiding the markets to say the European QE program will stop expanding by the end of the year.

But currently, the ECB still buys about €1 billion in corporate bonds a week.

This is debt that companies issue to the capital markets.

One billion a week is a lot of money.

Are the bureaucrats at the central bank carefully studying the cash flows of these companies and their sales outlook and the state of the economy?

Er, no.

The Financial Times again:

When placing orders for new bond sales, the ECB explicitly chose not to evaluate the credit quality of a given company, instead simply assessing whether the bond met its technical criteria including a need to be rated investment grade.’

Read that again. They buy bonds without assessing the credit quality of the companies issuing them.

Naturally, the ECB has run into trouble a few times when the bonds it buys go from investment grade to junk after the companies in question run into trouble.

Is that going to stop the ECB and send it broke? Hardly. Again – it owns the printing press.

So if the bonds fall in value by half, the ECB is still a winner- because it costs zero to acquire the bonds in the first place.

Such is the power of credit creation.

So, why doesn’t the ECB just buy the Greek banks’ crappy paper and be part of the solution?

Well, another agenda must be at work. It’s clearly not an issue of money or quality.

Perhaps keeping Greece under heel helps impose structural reforms of its economy.

After all, people don’t argue against wage and pension cuts and asset privatisation when the alternative is starving in the street.

The ECB – like any central bank – can turn the money spigot on and off to suit whatever agenda it likes.

Unfortunately, it’s not always guaranteed to be a democratic one.

Regards,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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