[lbo-talk] interest rate policy

[Tony Rolfe]

My understanding of all this is fuzzy.  I have a notion that
mechanisms like the LTRO, QE etc... are basically publicly insured
loans (insured through power of taxation) to banks to shore up their
balance sheets via "old fashioned" banking (borrowing short, lending
long).

The short loans have extraordinary guarantees, not just in terms of
public backing, but also duration--essentially removing any risk.  As
I understand it, this is The Plan.

Do I have this right or am I now a conspiracy theorist?

On 2/28/12, Marv Gandall <marvgand at gmail.com> wrote:
> There's a profitable carry trade currently underway for the European banks
> while European workers are getting squeezed. Thanks to the ECB's Long Term
> Refinancing Operation introduced in December, the banks can borrow cheaply
> at 1% over three years, putting up the most dodgy collateral, while
> investing in Spanish and Italian bonds yielding about three to 300-400 basis
> points higher over the same period. The banks reportedly increased their
> holdings of the sovereign debt of the two countries by a record amount last
> month. The ECB loan facility to the banks so far amounts to about a trillion
> euros.
>
>
> On 2012-02-28, at 8:48 AM, Tony Rolfe wrote:
>
>> Borrow at 0%, buy T-bonds at 2% (or higher, if inflation picks up).
>>
>> That's not really speculation is it?  Somehow I thought these guys
>> borrow at 0% and then trade pork bellies.
>>
>> On 2/28/12, Doug Henwood <dhenwood at panix.com> wrote:
>>>
>>> On Feb 25, 2012, at 11:29 PM, nathan tankus wrote:
>>>
>>>> Second, I would dispute that setting the federal funds
>>>> (internationally, and more accurately, referred to as the interbank
>>>> lending rate) at zero is an "easy money" policy. I think the
>>>> relationship between interest rates and the rate of money creation is
>>>> weak at best.
>>>
>>> It's manna to speculators (see: the Greenspan years). Borrow at 0%, buy
>>> T-bonds at 2% (or higher, if inflation picks up). You'd have to regulate
>>> all
>>> kinds of other things to compensate.
>>>
>>> Doug
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