Tuesday, 18 December 2007
Lender Of Last Resort
"Emergency help for financial markets entered new territory on Monday as the European Central Bank announced it would on Tuesday offer unlimited funds at below market interest rates in a special operation to head off a year-end liquidity crisis."
"The European Central Bank loaned 348.6 billion euros ($501.5 billion) for two weeks to banks to bring down the cost of money at year-end."
"The ECB said 390 banks bid for the two-week loans at a marginal rate of 4.21 percent."
"President George W. Bush warned “it will take a while to get through the housing bubble” but reassured Americans “we have got a strategy”." Well the republican have about one year to rebuild their damaged reputation before the democrat takes power in 2009.
The ECB will lend to the banks, believe it or not at a rate of 4.21%. The credit growth is at record high and still they are willing to maintain it, creating imbalances that generations have never seen.
Why do they do that? is it because they want to bring back to control the "credit monster" they indirectly helped to engineer? or are they trying to put time on their side to sort the mess they miscalculated?
Never the less what they want is to ease credit "suffocation" (indeed, 4.8% is too high?) at around the year end. We know that beginning of next year lots of reset are going to happen, they don't want to create massive insolvencies among consumers...
At the end it's better to deflate a balloon slowly then to burst it with a big bang!
Source: ECB, Bloomberg, FT