The message of the day is “damn the consequences, the casino bar shall remain open”, whatever it takes, no matter the consequences to taxpayers who will be responsible for the bar tab.
Bank of England Launches Two New Stimulus Packages
The BBC reports Bank shares jump on new business support plans
Bank shares have jumped in the wake of plans from the Bank of England to launch two new stimulus packages.
The Bank of England’s announcement of the plans on Thursday comes in response to the worsening economic outlook, governor Sir Mervyn King [Chairman of BOE] has said.
Together with the government, it will provide billions of pounds of cheap credit to banks to lend to companies.
Banks will also have access to short-term money to deal with “exceptional market stresses”. The chancellor said the measures would “inject confidence”.
But Labour’s shadow chancellor Ed Balls said the plans did “not go far enough”.
Rather than further QE to stimulate the economy, the Bank will now offer cheap loans to banks on the basis that they increase lending.
“Today’s exceptional circumstances create a case for a temporary bank funding scheme to bridge to calmer times,” Sir Mervyn said.
“The Bank and the Treasury are working together on a ‘funding for lending’ scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK non-financial sector during the present period of heightened uncertainty.”
Clearly Ed Balls is not satisfied with QE, with below market rates loans to banks for an extended period of several years, or anything else the BOE has done.
Apparently Balls is waiting for the BOE to do things even more foolish such as forcing banks to lend or for the BOE to simply drop money from helicopters so that people and businesses can spend.
Meanwhile, please note the Bank of England is committed to the same theory as the Fed. If it doesn’t work do more of it, and for longer periods of time.
So much for Balls and the BOE. Let’s take a look at ECB promises to keep the casino bar open.
ECB “On Standby” Promising Liquidity for Greek Election Fallout
The Financial Times reports ECB “On Standby” for Greek Election Fallout.
The European Central Bank is on standby to keep banks flush with liquidity if Greece creates fresh financial market turmoil, its president has indicated, joining a chorus of central bankers pledging support ahead of Sunday’s elections.
Mario Draghi’s comments on Friday followed the announcement by the UK’s central bank of plans to pump £100bn into the ailing British economy.
“The ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. This is what we have done throughout the crisis . . . and this is what we will continue to do,” Mr Draghi said.
Shares rallied in Asia and Europe on hopes that central banks would act to stem any negative impact from Sunday’s election in Greece. The euro was stable and the yields on Spanish and Italian government bonds, which had been approaching dangerous levels, fell.
Let’s take a look at that reported drop in Spanish bond yields from “dangerous levels”.
A quick check on Bloomberg of Spanish 10-Year Bonds currently yield 6.84% – a drop of .04 percentage points since yesterday.
Japan Ready, Willing, Able
Continuing from the Financial Times, it appears Japan wants in on the liquidity drop.
Masaaki Shirakawa on Friday said Japan’s central bank was ready to take any necessary steps to maintain financial sector stability. Meeting journalists after a regular bank policy board meeting, Mr Shirakawa did not comment on whether central banks might take co-ordinated action to deal with possible market jitters after the Greek election. But he said central banks had a common understanding of the importance of stability.
Yes indeed, the common understanding is Central Banks will do whatever it takes to bail out banks, regardless of what stupid lending decisions banks make that get them in trouble.
If that fails (and it has), then central banks work out schemes with varying governments to force taxpayers to pay the bill.