ECB Drawing Up 'Bad Bank' Guidelines

WSJ ^ | 02/01/09 | JOELLEN PERRY

[TigerLikesRooster]

ECB Drawing Up 'Bad Bank' Guidelines

By JOELLEN PERRY

DAVOS, Switzerland -- The European Central Bank is drawing up guidelines for European governments that are considering so-called "bad banks" to house banks' toxic assets. The ECB is also working on guidelines for European governments that plan to guarantee toxic assets remaining on banks' books, another form of bank bailout.

Both sets of guidelines are being drawn up with the European Commission. The ECB hopes the guidelines can help avoid competitive one-upmanship across the 27-nation European Union as nations seek to shore up struggling banks.

The ECB, which makes monetary policy for the 16 countries that share the euro currency, has no power to enforce any guidelines it develops. But in recent months, euro-zone governments have asked the bank to play a mediating role by developing guidelines for, for instance, European government guarantees of some types of bank debt.

[TigerLikesRooster]

We did know when a giant star blows up, a black hole could be born. However, we did not know until very recently that, when banks blow up, banks turn into a black hole.

[TigerLikesRooster]

Ping!

[Bon mots]

They already did all of that.

It’s called BASEL II.

Not many saw through the charade that it was just a way for banks to put off the day of reckoning when it was realized that many of them would be insolvent under BASEL I rules.

So what to do?
?
BASEL II!!!

[allmost]

However, we did not know until very recently that, when banks blow up, banks turn into a black hole.

The peculiar thing about these black holes is that they don't attract all matter equally. People with common sense run away while politicians with other people's money are strangely and inexorably drawn to them.

[Swing_Thought]

Okay, I’m still trying to ken this bad bank concept and how it’ll screw me. (That it’ll screw me is all I’m sure of.)

So the idea is that taxpayers fund the bad banks, which then buy the bad assets from the banks holding them now, paying who knows what. The banks, now cleansed of the “toxic assets”, are then able lend freely again, but to who knows whom since nobody wants to borrow, but life is swell again, for the banks anyway. Meanwhile the bad bank offloads the toxic crap on who knows whom, for who knows what.

So what it really comes down to is how much the currencies get debased to pay for the crap, who gets stuck holding the bags of crap in the end, and how badly the crap stinks.

Okay, so I get hurt by the debasement to whatever degrees I’m exposed, and I’m thinking the taxpayers are gonna be the ones holding the bag in the end, so no avoiding that. The unborn taxpayers get it good too. No wonder they come into the world screaming bloody murder.

Keeping up with these government and bankster creeps is real work. Life was so much simpler before I accumulated a little wealth and developed a desire to keep some of it.

[TigerLikesRooster]

Even after banks starts lending, we still have huge debt. All bad bank holdings, credit cards, state-local gov bailout. Banks lending to people or entities with huge debt, the debt they cannot repay realistically.

They are talking about canceling debts. At manageable cost to real economy? Would it really work? That is the big question.

After all proposed clever scheme somehow works and banks start lending, that question still remains. Banks' lending problem is only a fraction of the entire mess, I suspect.

[Swing_Thought]

They are talking about canceling debts. At manageable cost to real economy? Would it really work? That is the big question.

Yeah, they're in a tight spot.

If they cancel debts they can't hurt depositors or they risk losing all trust in the system. It'll have to be owners and creditors who get hurt, but that'll cause other problems. Who are the owners and creditors and how many don't even know they are.

On the other hand they can debase more, but that risks losing lenders which will require more debasement which will lead to losing more lenders and so on. No fun down that path.

I'm starting to conclude that it'll be awhile before this mess gets sorted out, and that it'll get much uglier before it gets better.

The big question to me is whether fiat currencies survive this.

[GOPJ]

Yeah, "bad bank?" - gimme a break. It's a way to keep doing the same old, same old for a while longer. Stupid idea.

A company making toasters that catch on fire half the time could stay in business if the government made a "bad toaster" factory - meaning the gov accepts all the risk, replaces the bad toasters and pays for the fire damage done to homeowners.