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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: Elsewhere who wrote (19376)	9/6/2011 1:41:52 PM
From: ahhaha	Respond to of 24758

What it will* exchange is probably the weekly deposits for euros.* The "weekly deposits", deposit agreements, are euro denominated. The ECB has to exchange what it originally acquired when exchanging for these deposits. Looking at the complete sequence weak bonds are exchanged for euros. Yep. Weak debt. Italian and Spanish sovereign bonds. The weak bonds end up on the ECB balance sheet. And they don't want to hold that trash either. Shades of "toxics". Now you see how the European situation is following the US 2008 somewhat. Probably they aren't marked to market (yet). A mark isn't necessary because of the brevity of the term. That could change tough. I know too little about a CB setup to say what happens once they are written off but it "ain't good". It's a good question about what happens. FED still holds almost $1 trillion in toxic MBS which they'd like to remarket, but there's no one who will buy because no one knows what these securities represent. Probably 90% of the banking community swears by the integrity of the process of securitization, but they don't want to buy the MBS. Maybe ECB will have to swallow, hold, some of the sovereign bonds. To get banks to retake them their yields will have to rise substantially, thereby putting more pressure on the governments underneath them to provide service. Either the ECB will have to "print new money" or member states will have to replenish the gap. It's unclear because ECB doesn't have a national identity or authority. If one takes the extreme case, ECB can and would issue euros and attempt to paper over the funding gap, but that's not within the ECB charter. Funding must be born by member countries. As was the case with FED during 2008 no one knows where things are going because there's no precedents. Hope this exercise has shed some light on the fact that sterilization is no panacea, and that it only delays or distributes pain over time and place. What time? Weeks. What place? Greeks.