November 07, 2014

Europe, having ECB injecting liquidity instead of banks, is indeed a real recipe for disaster or waste.

Sir I refer to Claire Jones’ “Draghi’s go-it-alone style off the menu” November 7.

ECB “has announced that four private sector asset managers will begin buying asset backed securities on its behalf starting this month.”

Why does ECB trust more that will inject liquidity better in Europe’s economy than banks allowed to do so freely without regulatory distortions?

That question reveals the real dilemma. The credit-risk-weighted capital/equity requirements for banks, impede these to allocate credit efficiently and so bureaucrats, whether outsourced or not, who put absolutely no money at risk, have to step in and do the lending.

Europe, that is indeed a real recipe for disaster. In this case it is better for you that ECB sends a small check to each European, for a loan at .1% interest, payable in 20-30 years. Who knows, ECB might even recover more of its money doing so… at least in nominal terms.