Europe, are you sure Mario Draghi has a clear idea of what he is doing? Scary question eh?

Sir I refer to the latest ECB/Draghi measures “to save the eurozone from economic stagnation, as reported and commented on in several ways in FT on September 5.

In the Short View James MacKintosh writes “they should… perhaps encourage mortgage and business lending”. Mortgage lending, yes, business lending, NO! Because business lending requires banks to hold much more of that extremely scarce bank capital than what mortgage lending does.

In fact anyone that in Europe, with added liquidity and lower interests tries to help medium and small business, entrepreneurs and startups, to gain some access to bank credit, without considering eliminating completely the considerable differences in capital requirement for banks when lending to these “The Risky” than when lending to “The Infallible”, has no idea of what he is doing. Scary eh?

But perhaps Draghi knows. When Claire Jones and Christopher Thompson, in “Draghi pins hopes on ‘orphan child’ plan” write about asset backed securities and capital charges and that “Mr Draghi said that decision was in the hand of independent regulators and beyond central bank’s control”, it sure sounds like the former chairman of the Financial Stability Board is trying to wash his hands.

And you argue “Purchases of asset-backed securities will only make a difference… if loans are genuinely taken off strained bank balance sheets, freeing space for new lending”. I ask, what kind of new lending are you referring to? I guess all the bank lending we would see would be that which requires them to hold little capital.

In fact, I suspect that most of what that part of the ECB exercise would achieve, is to dress up the banks before the oncoming asset quality review and stress tests… Might ECB be getting nervous about what it might find? Indeed, ignorance is often bliss!