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The $600 Billion Ripoff


European Central Bank president Mario Draghi is either a liar or a fool.  Either way, he should be canned immediately before he dumps more money into an EU banking system sinkhole.

What’s all the fuss about? Here’s a clip from Bloomberg that explains what’s going on:

“The European Central Bank said overnight deposits from the region’s financial institutions increased to an all-time high. Euro-area banks parked 452 billion euros ($591 billion) with the Frankfurt-based ECB yesterday, the most since the euro’s introduction in 1999 and up from the previous record of 412 billion euros a day earlier.

The ECB last week lent 523 banks a record 489 billion euros for three years to keep credit flowing to the 17-nation euro economy during the sovereign debt crisis. It lent the money at its benchmark rate of 1 percent. Banks are depositing excess cash back with the ECB at the overnight rate of 0.25 percent, incurring a loss rather than lending it at a better rate.

Barclays Capital estimates the three-year loans injected 193 billion euros of new money into the system, with 296 billion euros accounted for by maturing loans. Since the three-year loans started on Dec. 22, overnight deposits have jumped by 187 billion euros, suggesting banks are parking almost all the additional liquidity back with the ECB.” (“ECB Says Banks Increased Overnight Deposits to All-Time High”, Bloomberg)

Notice how the Long-Term Refinancing Operation (LTRO) was supposed “to keep credit flowing to the 17-nation euro economy during the sovereign debt crisis”?

How does that work when the banks are stashing every penny they borrow in an account at the ECB?

Like all central bankers, Draghi likes to talk about “the transmission of monetary policy”. So, tell me, how does hoarding hundreds of billions of dollars lead to another credit expansion? How does that even promote interbank lending let alone improve the broader economy?

It doesn’t; which means that Draghi either didn’t understand how bad-off the banks really were, or he lied about the LTRO to get his dodgy bank buddies a big-honking bailout. Either way, he should get the boot.

Here’s what you are not going to read in the newspapers. This is not a sovereign debt crisis. That’s baloney. Government debt has always been guaranteed. Until now. The decision NOT to guarantee government debt was a political decision, not an economic one. Governments’ always underwrite their debt because governments represent the collective interests of the people. And with sovereignty comes certain perks, like printing one’s own money if need-be. So, if a government like Italy gets into a jam and needs to either weaken its currency or lower interest rates; it can do-so by either printing more money or buying its own bonds to keep rates low. That means, there’s always some risk of inflation, but never any risk of default. And, that’s what matters, because investors don’t buy gov. debt to get rich; they buy it because it’s safe.

The scamsters at the ECB refuse to guarantee government debt because it’s not in their interests. What they want is a bigger share of the economy to go to big finance and corporate elites. And the easiest way to achieve that is by allowing bond yields to rise enough so the politicians can be blackmailed into doing whatever the banksters want. And we know what they want. They want more for themselves and less for everyone else.

This is Draghi’s game. He’s giving away the farm to his bankster friends and giving working people the finger.

Try to wrap your mind around the amount Draghi gave away just last week; nearly $600 billion! Apart from TARP, this is the biggest heist on record, and yet, people still can’t figure out what’s going on. I’ll tell you what’s going on. The people are getting fleeced bigtime. How much more do you need to know?

This is no “debt crisis”. That’s a diversion to make people think the problem lies with the states. But the only thing the states can be blamed for is surrendering the control of their own currency, which was a very big mistake indeed. There’s no way that one can protect one’s labor force or public assets, if they don’t control their own currency. That’s the big lesson of the present crisis.

But this was a bond bubble, pure and simple; brought on by easy lending, unregulated capital flows, and poor risk management. And now the bubble has popped, which is why the banks are sinking fast. They bought this crap (bonds) from Greece, Portugal etc. to make a few more bucks and failed to see the risks. And, they got burned. So what? That’s capitalism, right? “You pays your money and you takes your chances”. No whining.

But banks and bondholders are not allowed to lose money anymore, right? Even if they’re the ones who inflated bond prices to begin with, and even if they’re the one’s whose balance sheets are presently underwater due to their own stupidity. So, we have to change the whole system to accommodate them, which is why their agents–like Draghi–occupy all the positions of power, so reckless speculators won’t have to suffer the consequences of their poor choices.

This is what we’re up against; a small group of obscenely rich people who have totally rigged the system and who are grabbing more and more of the wealth for themselves while they preach austerity to everyone else.

Even so, it’s pretty amazing when people get ripped-off for $600B and it doesn’t even make the headlines.


MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at

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