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"yeah, about that guarantee? Go suck on it."

Who will suck on it? The irish depositors? Or the capital owners - that would be the government and the pension fund. Leaves the ECB. A hegde fund? the ECB has given 100 Billion Euro or so to the irish banks. at 1.00%. Have you ever heard of a hedge fund acting like this?  

by IM on Fri Feb 4th, 2011 at 09:35:31 AM EST
[ Parent ]
the ECB has given 100 Billion Euro or so to the irish banks. at 1.00%.

If that's true, it's the repo rate, at one-week maturities.

If it's been overnight lending at the punitive "marginal lending facility" rate, it's 1.75%, when the overnight interbank lending rate is not much higher than 0.25%

All of this lending is overcollateralised, as it is "against eligible assets" at a discount set by the ECB itself at its discretion.

Anyway you look at it, the ECB is making a lot of money on this lending. It's called Seigniorage.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Feb 4th, 2011 at 09:44:05 AM EST
[ Parent ]
So what. Do you really think a hedge fund - or any private lender woulds give a credit to the irish banks at 1.75%?

And why should the european and irish central bank not enjoy seignorage?

by IM on Fri Feb 4th, 2011 at 09:48:17 AM EST
[ Parent ]
Oh, it should. But it should not complain about it.

Also, the Eurozone monetary authority shouldn't be the leading driver of the push to bring in the IMF to lend Euros to a Eurozone treasury.

Something really bizarre happened in November.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Feb 4th, 2011 at 09:53:21 AM EST
[ Parent ]
Who will suck on it?

The people who are holding the Irish government bonds that they got in exchange for the toxic debts of Irish banks.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 02:01:33 AM EST
[ Parent ]

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