The Polish letters: That beautiful collateral

In a now long ago forgotten week of June 2006, yours truly was participating in a week-long workshop organized by the ECB in Frankfurt-am-Main, to show off to the world the wonders of its carefully crafted monetary policy process. As I recall with amazement to this day, ECB officers spent a whole afternoon discussing just the thoughtful approach they applied to the evaluation of collateral for repo-operations. What a wonder! What a marvellous display of human ingenuity and rigor!! This was vastly superior to anything that those rustic cowboys on the other side of the Atlantic ever will come up with, not to mention the apes in the rest of the Americas or the brutish despots and their bureaucrat-henchmen in Asia.

And so it was... beautiful... Until Reality rang the doorbell, and against the best judgment of the Teutonic crew, Club Med people imposed their Board majority (and Axel went... and Jürgen went...), and now we are here, with this awful wound open... and rotting... The system was just too beautiful to resist the ugliness of humanity and life (like that, in lower-case...)

Anyway, I sympathize with the private creditors though. After all, it is true that the ECB got quite a discount on its purchases, so why isn't it taking a little cut to help the boys? Otherwise, Portugal's, Ireland's, Spain's, Belgium's, Italy's remaining private bond investors will confirm what they have known all along: they are now holding junior debt, junior to the identical toilet paper held by the ECB. You know, not all toilet papers are created equal, either...

But I sympathize with the ECB also, mainly because Jens is still involved with that motley crew... And also because they did attempt to perform an operation that restored the transmission mechanism of monetary policy, and besides, by not taking a hit they can still pretend that the system is young and beautiful and wholesome... That beauty is worth the self-delusion...

The only honorable thing to do now, is for one of the Ponzi-scheme funds out there (the ESM, EFSF, FBI, IUD, whatever) to purchase the rubbish out of the ECB balance sheet and take the hit... But hey, there are French involved here, so... Not to mention Angela Merkel, who with typical Weimar politician spirit, is again failing her constituents...

Now, you want something really funny? Listen to another Frenchman talking:

European Central Bank Executive Board member Benoit Coeure on Tuesday called for emerging countries to put their monetary reserves to use through the International Monetary Fund to help stabilise the global financial system.
In a thinly veiled reference mainly to China, Coeure said emerging countries hold around $2.1 trillion in U.S. government debt and have overall reserves of $6.5 trillion, adding that those levels are not justified for precautionary motives.
"The unused resources of the international monetary system need to be mobilised," Coeure said in the text of a speech to be given at a BIS/ECB workshop.
"It would be advisable, therefore, to utilise some of these excess reserves to stabilise the international monetary system, while Europe is enhancing its firewall. One obvious way to do this would be via the IMF," Coeure said.
"The IMF could borrow global excess reserves and use them to support programme countries that are suffering from liquidity shortages, under strict conditionality."
European governments have pushed other countries to help them increase the IMF's resources in order to build stronger defences against the euro zone sovereign debt crisis.

Is this the French way of begging? Is there no limit to arrogance? I know this whole rant of mine reeks of Schadenfreude, but truly, it is not. It is just looking at things the way they were looked upon in the past, when the roles were the opposite...

I presume that at this point you might be asking yourself (among many other more important things like "did I buy milk?") whether I think the German people can do no wrong. As a matter of fact they can. They are not asking for the devolution of Prussia yet...

Tschüss