29 Feb 2012

Mario Draghi prints another 529 billion euros for the banks

So - there you have it. Today's bank bonanza resulted in 800 different banks being handed €529 billion euros of freshly printed cash, courtesy of Mario Draghi, the head of the ECB - and ex-European Director of Goldman Sachs. I'm sure that it's a wonderful deal for Europe's taxpayers.

That's a total of over €1 trillion - if you add the €489 billion already handed over on the 21st of December.

According to the Guardian, all 800 banks got the full sums that they asked for. And there was no upper limit on the amount that could be generated. Truly amazing. Imagine a research funding agency that said that we will finance anyone who wants money. No attempt to choose those banks that have the most intelligent or useful proposals for what they do with the money. As the ECB replied to my question back in december, "It is up to the banks to decide how to use the money they have borrowed from the central bank system."

Robert Peston has a piece on the BBC website where he mentions that "Italian and Spanish banks were the biggest takers of the central banks' three-year loans - respectively borrowing 30% and 15% of the net new money according to Morgan Stanley - and then promptly used more than 40bn euros of their ECB debt to lend to their respective governments." I presume that this was the money handed out in December.

I suppose I should be applauding the fact that 40 billion of the 489 billion ended up with governments. It's better than nothing. But if the 40 billion only gets used to pay the interest on the national debt, the only ones who really benefit are the banks... again.

I've said this already, but I'll say it again. 340 billion of the 1 trillion euros should have been used to get Greece off the hook by allowing it to reimburse its debts. It could then have been obliged to repay the money over a reasonable period (for example 10 years) at the same interest rates offered to banks (1%), and using a variable rate Financial Transaction Tax to guarantee the repayments. I've already estimated that with transactions in Greece running at some 12.5 trillion euros a year, the entire debt could be paid off in ten years with an FTT of around 0.3%. Oh well....


  1. Oh well, indeed. 
    More or less the attitude from the press in general that you rightly criticized. I suppose they apply the no-news-is-good-news theory to this one. 
    I still insist that until national debt is erradicated from the equation this will go on. Everybody knows full well that all this money is 'lent' to the banks at 1% while governments just hope and pray that the banks will simply turn round and buy national debt with it (at the corresponding much higher rates, naturally), thus perpetuating this highly immoral and illegal political sweeping under the carpet so future generations are progressively more ruined while they sit back and slap each other on the back for a job well done.Disgusting.

  2. Hi Michael,

    I couldn't agree more. It is absurd that Central Banks lend to Commercial Banks at rates that are not available to governments. The system is clearly rigged to allow Commercial Banks to make massive profits. End of story....