Sunday, December 11, 2011

LOLR, ECB, and "too complicated for people to complain about"

Interesting post on Marginal Revolution, What is the difference between LOLR to banks and LOLR to governments?

Cowen: “Is this transfer of the subsidy to the sovereign a bug or a feature of the plan? Perhaps this is how the EU/ECB, viewed for a moment as a consolidated entity, will circumvent EU law to finance troubled governments. Is it possible that by changing collateral requirements they can alter the flow of funds to governments in a discretionary, ever-changing, and relatively non-politicized fashion? Does this satisfy the “too complicated for people to complain about” provision?”


Good post. It is probably a feature, not a bug, and it is surely “too complicated for people to complain about,” at least for now.

This isn’t a new thing, though. The ECB has been lightening up collateral requirements for a few years now, presumably in part to finance weak governments through the back door. Remember when the ECB broke its rules and began accepting BBBminus-rated collateral?

Relevant Link:
Peter Garber, Deutsche Bank. The Mechanics of Intra Euro Capital Flight

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