This Footnote To The ECB's LTRO Announcement Will Make You Squirm - Business Insider: "It was just a little footnote to the LTRO announcement. Just a little statement that 40 billion of the collateral received by the ECB was newly issued, newly guaranteed Italian debt. The more I think about it, the more uncomfortable I get.
The ECB claims they have 40 billion of Italian government bonds on their books from the LTRO. The banks say they pledged 40 billion of Italian government debt. The Italian government doesn’t acknowledge it as debt. Maybe it will show up in a footnote somewhere, but that is about it.
So while approving some new austerity measures that are unlikely to work, the government added 40 billion of contingent liabilities. The rating agencies can’t be happy about that. Investors shouldn’t be happy with that. Rather than being a new source of funds for Italian debt (the most optimistic view of LTRO) it created new debt! It is adding to Italy’s debt problem.
And I can’t even figure out why they did this. Didn’t banks have other eligible collateral? Have they already pledged anything decent they own to the ECB or private lenders to get funds? Given the size of the balance sheets that is unbelievable but yet there is no explanation of why they didn’t have more ‘normal’ assets to pledge."
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