Suppose the Fed set up a program to buy municipal bonds but wouldn’t announce how much came from California or Florida or other states or cities.

Some of the Fed’s recent bailouts have been just as opaque as this, for example AIG Schedule A. The money went to banks rather than to state or local governments but that doesn’t make the secrecy any easier to accept.

The European Central Bank’s emergency bond-buying program may be creating its own distortions. While the ECB has calmed some segments of the market by buying Greek, Portuguese and Irish bonds, investors don’t know how far the central bank will go with its purchases, making it hard to participate in the market.

The mission creep into ECB doing something to damage investors engaged in currently legal activities is step too far. Hopefully this reason is only used for PR reasons.

The net news is that fiat currencies are devaluing competitively, no surprise. The ECB has options. Wise. Best to move slowly in order to increase the devaluation.

Who will pay? Those who pay taxes in the EU, bank in the EU and who have funds in EU FIRE sector. For the next ten years, minimum. Given the lack of the Wizard of Oz, the money making machine, the economy from which payments are to be made and repayments of priciple of past debt will more than make up for the so called benefits from the borrowing and consequent malinvestments. Volatility is high and will get higher, as capital seeks a safe haven.

Japan shows what is likely to happen. Except the Japanese consider living and dying elsewhere than in Nippon, to be a shame. So they can afford to carry a debt of 200% GNP. At less than 1% interest rate. What happens when that goes up?

Massive frauds have still to be revealed …..derivatives can postpone the evil day for a while, but as the volatility goes logarithmic, there is going to be a CRASH! Argentina defaulted and confiscated large sums on deposit in banks ……… Cash in hand, anyone? Having the ability to live in another hemisphere might also be handy.

Don’t forget to vote in the next election and show your pleasure at how the economy is performing.

Having driven through the Euro primarily as a political project in pursuit of “ever closer union” - though not without significant economic benefits to the core members, but without securing explicit popular consent, the EU’s leading politicians (and the top Eurocrats behind them) are finding it very difficult to explain to their voters, in particular German voters, that it is their banks and pensions that are being bailed out in the first instance - and not exclusively the PIIGS (who, effectively, have ceded economic and fiscal sovereignty and are experiencing severe fiscal adjustments).

A bit more honesty all round - and less concern about factional advantage - is needed to shore up popular support for the major adjustments required. But when did we ever get honesty from politicians?

maybe i missed it (quite possibly), but where do you guys stand on the issue of whether the ECB should be doing QE (regardless of whether this ultimately constitutes QE or not) - for or against, reasons etc? Its obviously a controversial subject that throws up very differing arguments.

While the ECB action has stemmed panic selling as existed in early May, anecdotal evidence (and unfortunately there’s no better available) suggests that the sales to the ECB have come from what the markets call “real money”, i.e. long-term or natural-home investors such as pension funds, life companies, and general insurers.

Leaving aside the return effects of short-term price moves, it’s worrying that such funds (if the anecdotal evidence is true) are shunning the enhancement of returns over either money rates, or those available on the German yield curve, at any point one cares to pick.

listen, i think a Greek default is a done deal, its a question of how and when. I think this is the point behind the ECB action. At no stage up until the bond buyback was announced did either Greece, the EU or the ECB have a handle on this problem, it was being chased away from them by the markets, and it was completely out of their control, and both an imminent and near total Greek collapse was in the offing, as well as the very real threat of contagion. The buy back at least allows a situation where they can take a look at the Greek finances (as well as the rest of the PIIGS), come up with a plan to reduce the deficit, and make an eventual restructure as ‘fair’ to all parties as possible, whilst also giving the markets time to get a grip on what a large right down will mean for most holders. The German unilateral decision, stupid as it is, also seems to have this end in mind. Remember, for all the large scale of the Greek bond buybacks, its likely only going to amount to a fraction of their total outstanding debt of 300bn.

Btw, on a complete tangent, anyone see Sean Quinn on PrimeTime? Slightly surreal interview. Living in a parrallel universe in terms of how he viewed that the regulator was “technically” right that Quinn Insurance did not meet the solvency requirements. Basically felt that because he (SQ) that that QI was solvent enough then it was ok. Truley strange. As someone just texted me, “car crash tv - no offence or pun intended on the guy who was paralysed”.

The yield on Greek debt reflects the probability that it will be restructured i.e. defaulted on. Whether this happens or not should not really be the ECB’s business. “Getting control of the Greek story” is not a Euro area monetary policy concern any more than “Getting control of the California story” is an issue for the Fed.

But, as a point that could be put forward in favour of your assessment, the ECB are certainly talking in public as though it’s their business. Look at this speech by Executive Board member Lorenzo Bini-Smaghi

http://www.ecb.int/press/key/date/2010/html/sp100528.en.html

He accuses people who say Greece will default of not looking properly at the issue by, for instance, reading the IMF’s report on GreeceL

“To summarise, I wonder which analysis is more serious and credible: the many one-pagers, very well publicised – I must admit – which probably aim to influence the rest of the market; or the IMF’s 120 pages of rather tedious analysis describing the contents of the programme, together with its risks.”

The funny thing is, I have read the long IMF report. I came away from it thinking that avoiding default was a long shot.

I think the ECB are straying into very dangerous territory here.

while as you rightly note, secondary market prices don’t directly affect the Greek state right now, headlines like “Greek debt hits 15%” are not particularly helpful when the ECB and EU is trying to calm the markets. Aggressively buying Greek debt (a) kills those who were shorting Greek debt and (b) gets rid of those headlines about crazy high yields. Its an effective, if expensive, way for the ECB to get some manner of control on the story and buy some breathing space for the moment. The effect on Irish and Portugese secondary market rates however WILL help with actual issuing yields when they return to the markets. It could also be argued, less conclusively though, that the ECB quasi-QE is driving down interest rate swaps and increasing liquidity, which will ultimately have some affect on the rate that Greece pays for its EU/IMF bailout, although this isn’t a particularly effective or significant factor so far.

We have already crashed into zero interest rates with no likelihood of escape in the neat term (at least not without serious consequence). We have already abandoned Maastrict deficit and debt guidelines (for all eurozone states it would appear). Yet we still have deflation or near deflationary conditions. How can this be if we are not stuck in debt deflation?

Somebody somewhere is going to have to take a loss on the mountains of public and private debt that exist. It’s the who and where that are unclear at the moment!

Another impact could potentially be to reduce borrowing rates for the Greek private sector - in other words to transmit monetary policy to Greece

The linked article below suggests a little French conspiracy

http://www.spiegel.de/international/europe/0,1518,697680,00.html

“By buying up Greek debt, the ECB keeps the prices of the bonds artificially high. French banks, in particular, benefit from this policy because it enables them to sell their Greek bonds to the ECB, as an inexpensive way of cleaning up their balance sheets. France’s banks and insurance companies have a total of about €80 billion in Greek government bonds on their books.

German banks, on the other hand, are not potential sellers, because they have made a voluntary commitment to Finance Minister Wolfgang Schäuble to hold their Greek bonds until May 2013.”

If true and we do not know if it is, it boosts the solvency of the core banks most exposed to the Greek market. These would be the French who could (just) withstand the hit to capital and the German landesbanks who could not. So effectively it would be an ECB bail out of the German banks plus Societe General & Credit Agricole.

The only impact of secondary market support to Greek bond prices is to help banks which hold them and must mark to market. I fail to see what this has to do with M. Trichet’s ‘transmission of monetary policy’.

well i can only tell you what im hearing and seeing. It’d be great if you could provide additional or counter information from your viewpoint (accepting of course that you’re not anonymous like me), rather than just saying that mine “surprises” you. Of course so much is going on it is very hard to get a full and true picture of what is going on, so the more info out in the open, the better. For instance, me noting that the ECB is less active makes sense with your note about the BTP (Italy) spreads going back out to their highs. Sharing is caring Ciaran.

“No information has been revealed about the composition of these purchases in relation to whose debt has been purchased or which maturities.”

No official figures correct, but anecdotally we are hearing its almost 75% Greek debt purchases, with Portugal and then Ireland being the next biggest beneficiaries, and some smaller Spain and Italy purchases thereafter, though this mix would no doubt change as market perception of who is “weak” changes. Focus has been on the shorter end of the curve, 2y-5y maturities, and while initial bids were designed to push the price way back up, ECB bids are now seen more ‘just under’ the market prices, though in allegedly massive size (ie purely as a hypotethical example, Greek bond trades two way 95-97 in 10mio, and ECB is on the bid for 100mio at 94). They seem to have been a lot less active this week though, so will be interesting to see the new figures that come out on Monday or Tuesday.

I think the basic principle seems to be (a) get spreads down and (b) wipe out any shorting interest for a long long time.