Submitted by Tyler Durden on 02/17/2011
When about six months ago we noted that the European ponzi is in full force, courtesy of banks using any toxic assets as collateral to the ECB, little did we know just to what heights this scheme would reach. Today we get our answer. The Irish Times writes that Irish Banks are issuing billions in bonds to themselves "under the Government guarantee to borrow cheaply from the European Central Bank and to avoid drawing more heavily on emergency lending from the Irish Central Bank. Four banks issued bonds worth €17 billion to themselves last month under the Government’s extended guarantee, the Eligible Liabilities Guarantee, to use as collateral to borrow from the ECB. “What you have here is micro-quantitative easing, or money printing,” said Cathal O’Leary, head of fixed-income sales at NCB Stockbrokers. “The banks are issuing unsecured loans to themselves.” And since this is happening in Ireland, it is most certainly happening everywhere in Europe. And yes - this is the pinnacle of a pyramid scheme - this is about a thousand times worse than what US banks did when they purchased CDO tranches from each other, as the risk in the Irish case is ultimately borne by the European taxpayer. But such is life when the entire financial system continues to be massively insolvent, and only openly Ponzi schemes of this nature allow the system to continue operating on a day to day basis.
All the bonds mature in April and May when the details of the banks’ plans to sell off assets and shrink the size of their businesses must be agreed under the EU-IMF bailout deal.
Bank of Ireland issued the largest amount, €9 billion, on four bonds on January 26th. AIB issued €2.63 billion on January 25th, Irish Life and Permanent €3.1 billion the following day and EBS building society €1.7 billion on January 28th.
Bank of Ireland raised a further €980 million on another bond on February 10th.
The bank said that the issuing of the bonds represented “a technical adjustment” replacing sterling bonds backed by UK mortgages as the ECB stopped accepting sterling loans as collateral from the start of the year.
AIB said that “own-used” bank bonds could be used as collateral from the ECB if Government guaranteed. The banks have leaned more heavily on central bank funding from Frankfurt and Dublin due to the loss of deposits and the closure of the markets to Irish-issued debt.
The Central Bank said that access to ECB operations allows the banks obtain funding that is not available in “the continued stressed market conditions”.
The Government is in talks with the ECB, EU Commission and the IMF about the pace and timing of asset disposals by the banks aimed at reducing their reliance on central bank funding so they can fund themselves on their own.
Banks in Ireland had borrowed €126 billion from the ECB at January 28th, representing almost a quarter of all borrowings drawn from Frankfurt by euro zone banks.
The Central Bank in Dublin has provided a further €51.1 billion to the Irish banks through exceptional liquidity assistance (ELA) at this date on ineligible ECB collateral.
Yet is this really surprising? After all, with the Fed as ultimate backstop to Europe, as has been the case ever since the advent of the FX swaps, which are still being used to this day, and with Illinois relying on Europe of all place to funds its pension funds, and with everyone relying on everyone else for a continued "funding" circle jerk, it is now clear that the entire global financial system is and has been for two years one massive ponzi scheme. Luckily, this time it is different, and whereas Madoff ended up in jail, Bernanke will soon receive the Congressional Medal of Freedom from the master puppet of it all.