The only thing we need is to set up a limited liability corporation, get it a banking license and some crappy toxic collateral. We use it to borrow money from the ECB, buy Spanish/Italian/Greek sovereign bonds, constantly turn any interest accrued into dividends for the shareholders (that is, us) and keep milking the scam if and until the periphery countries defaults. Then we declare bankruptcy, default on the debts to the ECB and go buy some Ferraris with our accumulated dividends (which we have sent to some obscure island so as to avoid capital taxes, of course). All perfectly legal.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

- Jake

Friends come and go. Enemies accumulate.

The ECB is expected to announce a much larger than expected take-up of the first 3-yr LTRO; national central banks have been putting pressure on banks to take the money; a Spanish 3-month auction saw a drop in interest rates from 5.11% to 1.74%; Germany's Ifo index rises against all expectations; Hans Werner Sinn says Germany was decoupling from the rest of Europe; Peter Spiegel writes that no crisis can be large enough to distract Europeans from their favourite sport of navel-gazing; Greek coalition faces a first real test as New Democracy is expected to challenge cuts in auxiliary pensions; there are conflicting reports about the state of the PSI+ negotiations in Greece, as a large hedge fund walks out of the steering committee; Jean-Pierre Jouyet said it would be a miracle if France was able to maintain its AAA-rating; a poll says that most French would blame Nicolas Sarkozy for a downgrade; Sarkozy met with Gerhard Schröder yesterday, a man whose policies he admires; Dominique Strauss-Kahn says the eurozone is a sinking ship; Nouriel Roubini, meanwhile, warns policymakers against another year of kicking the can down the road.

Martin van Vliet at ING Financial Markets says the perceived stigma attached to central bank borrowing has not prevented eurozone banks from making extensive use of the ECB's offer of unlimited three-year liquidity, with 523 banks taking up €489bn of loans. He highlights that the number of banks participating is relatively low:

The take-up of loans is massive, and even higher than in the ECB's first 12-month longer-term refinancing operation (LTRO) of June 2009, which attracted demand of €442bn. However, the lower number of participating banks (523 versus 1121 previously) suggests that the take-up is currently less widespread - and probably more concentrated in banking systems in peripheral eurozone countries. We will be keeping a close eye on national central bank data over the next few weeks for further clues on which countries' banking systems tapped the three-year facility.

Today's allotment of three-year loans is equivalent to almost one and a half times Spain and Italy's combined sovereign bond issuance in 2012. However, we doubt whether the money will be used extensively to fund purchases of peripheral debt, given concerns about mark-to-market risks and possible reputation risks. Only banks in peripheral countries with large exposures to local sovereign debt may decide to actually pursue the sovereign-debt carry trade. Most other banks, instead, may prefer to use the three-year ECB-loans to finance credit to the private sector or to repay maturing bank debt. Against this backdrop, we are sceptical as to whether the recent rally in (shorter-dated) Spanish and Italian sovereign bonds will sustain itself.

(Reuters) - Banks took a huge 489 billion euros (409 billion pounds) at the European Central Bank's first ever offering of 3-year funding on Wednesday, providing hope a credit crunch can be avoided and that the money may be used to buy Italian and Spanish debt.

A total of 523 banks borrowed money at the tender with the final demand well above the 310 billion euros expected by traders polled by Reuters in the run-up to the operation.

The euro rose to a one-week high versus the dollar while stocks gained after the ECB's three-year lending operation produced a greater takeup than market participants had been expecting, boosting risk appetite.

The three-year loans are the ECB's latest bold attempt to ease the euro zone's current troubles.

It hopes the limit-free, ultra-cheap and ultra-long funding will have a range of beneficial effects, including bolstering trust in banks, easing the threat of a credit crunch and tempting banks to buy Italian and Spanish debt.

Rather than a simple flat rate, the 3-year funds were offered at an interest rate which will be the average of ECB's main interest rate over the next three years. That benchmark rate is, after a rate cut earlier this month, currently at a record low of 1.0 percent.

Mr. Draghi might explain it: unlike the banks and their owners, periphery tax-payers are not members of the financial world

He might also more plausibly explain it: Germany will not have it any other way.

Mario Draghi, the ECB president, told MEPs in Brussels that pressure in bond markets in the first quarter would be "really very, very significant, if not unprecedented" as hundreds of billions in debt came up for renewal.

...

The ECB president said he had "no doubt whatever about the strength of the euro, its permanence, its irreversibility" but he reiterated his view that the central bank had no role to play in buying up sovereign bonds on a long-term and enhanced basis.

"We are trying to avoid a credit crunch, which might come from a lack of funding for banks," he said. "The ECB cares about financial stability, it cares a lot, but this has to be done without undermining the credibility of the institutions."He said the proposed "fiscal compact", to be discussed in Brussels on Tuesday by senior officials, including from the UK Treasury, was a breakthrough but was inadequate to solve the crisis.

The worst combination of financial repression combined with massive liquidity provision: The current ECB strategy. A disaster in the making

ECB's three-year liquidity operation has a take-up of €489bn, much larger than forecast; the news triggered a massive rally, which reversed during the trading day, as investors reminded themselves that this would have no lasting impact on the crisis; one analyst compares the policy to a "sugar rush"; the Libor-Ois spread, a measure of stress in the money markets, registered no change despite the policies; Mark Schieritz says it will only have a marginal impact, and predicts that most of the money will end up with the ECB; the Italian economy shrank by 0.2% in Q3; Mario Monti faces a confidence vote in the Senate today; Lucas Papademos starts bilateral talks with party leaders to overcome the  latest political crisis; opinion polls show the FDP at 2%; Germany continues to increase its export surplus against the rest of the eurozone (adjustment would require the very opposite to happen); economists believe that France will not reach its 2013 deficit goal; Kenneth Rogoff says eurozone crisis casts a long shadow over the global economy in 2012; Olivier Blanchard, meanwhile, says that IMF calculations show that the eurozone rush to fiscal retrenchment will fail even in its narrow goal of debt reduction.

Instead of bashing the ECB we should ask ourselves why is everything laying on the shoulders of this non-elected institution.

You might find me At The Edge Of Time.

Southern European Banks are main users of the ECB's 3 year LTRO

Banks from Italy and Spain are the main users of the ECB's unprecedented 3 years LTRO, Frankfurter Allgemeine Zeitung writes. Referring to figures published by Reuters based on banking sources Italian banks borrowed €116bn. One of the reasons for their run on the ECB offer was that Italian banks had been short on collateral they could offer the ECB up until recently. FAZ says that altogether 523 banks used the ECB offer, among them many Spanish, but also German and French banks. The net liquidity injected into the system by the ECB is not €489bn but rather €210bn, the paper states. The reason for the lower figure is the end of an open market operation of €234bn and that €45bn where shifted from a previous 1 year tender to the new 3 years tender.

Euro-area banks parked 452 billion euros ($591 billion) with the Frankfurt-based ECB yesterday, the most since the euro's introduction in 1999 and up from the previous record of 412 billion euros a day earlier.

The ECB last week lent 523 banks a record 489 billion euros for three years to keep credit flowing to the 17-nation euro economy during the sovereign debt crisis. It lent the money at its benchmark rate of 1 percent. Banks are depositing excess cash back with the ECB at the overnight rate of 0.25 percent, incurring a loss rather than lending it at a better rate.

Barclays Capital estimates the three-year loans injected 193 billion euros of new money into the system, with 296 billion euros accounted for by maturing loans. Since the three-year loans started on Dec. 22, overnight deposits have jumped by 187 billion euros, suggesting banks are parking almost all the additional liquidity back with the ECB.