Friday, May 16, 2008
Well, who wudda thunk it!
FT: Banks eye £90bn in mortgage asset swaps
Love this bit...the European Central Bank on Thursday voiced its “high concern” at growing evidence that banks are exploiting its efforts to unblock the frozen funding markets by using its liquidity scheme to offload more risky assets than it envisaged.
Yves Mersch, a governing council member, said the ECB was now “looking very hard at whether there is not a specific deterioration of collateral” that the central bank is accepting in return for funds.
He was speaking amid signs of some banks creating low-rated assets specifically so they can be traded for Treasuries at the ECB.
Posted by gardeniadotnet @ 07:06 AM (509 views) Add Comment
8 Comments
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1. renting2 said...
What a total Bolt from the Blue! (Yeah...Not). Why Oh Why couldn't they just leave it all alone?!!
2. dude said...
Well if the ECB does prevent the banks from doing this it will show they have some teeth. I would have thought (clearly mistakenly) that if you messed up in your job, and gave loans to high risk people, who now have assets that are worth-less, you would be fired for losing the bank money. But no, it seems you can now use your skills to try to con the public authorities, and palm the same loans off on them.
Banking is such a crucial sector to our economies, why do we let them get away with so much?
Fingers crossed the ECB (and BoE, et al) don't get sucked into this one, otherwise we'll have another crisis on our hands while the banks themselves have their 'gold standard' securities firmly tucked into their back pockets. No, the bad debts are the bank's hot potatoes, so let them keep hold of them.
3. whiteknight said...
What ratings models are being used? These should be published of course.
4. whiteknight said...
I am still astounded by this scheme of course.
5. mark wadsworth said...
The whole thing is an outrage. If banks' mortgage assets really were AAA rated, then they'd be able to borrow against them. So clearly they are not. Banks should be doing massive rights issues, end of discussion.
6. cornishman said...
The banks are offloading their risky assets - and buying oil and grain and commodities and making a killing with the new borrowed money and pushing up world prices.
Now why is anyone surprised?
7. icarus said...
The ratings agencies rating collateral for the purpose of borrowing from the BoE - are these the same ratings agencies which rated assets AAA that later turned out to be junk? And if an AAA rating from these agencies is the answer as far as the BoE is concerned, why isn't the ECB employing the same method? Could it be that it doesn't trust the ratings? Like the idea that if ALL banks have the stigma of emergency borrowing then NONE of them has the stigma. Mark W is right - true AAA assets are already liquid.
8. Gardeniadotnet said...
@ cornishman
"Making a killing" is right. Countless men, women and children are dying of starvation as a result of this policy. Are the perpetrators evil or ignorant?