The European Central Bank has announced a dollar-based liquidity operation to last through to the end of the year so that European banks can gain access to the dollar liquidity that the market has shut them out from.
The Euro rallied in a 130 PIP spike against the dollar on the news, but did then fall back as it dawned on the market that this might just be another sticking plaster.
This announcement comes at the time that Timothy Geithner, the US Treasury secretary urges European governments to get together and use ‘overwhelming force’ to get ahead of the power curve and address the Euro-zone’s financial problems.
Geithner is also due to attend the European finance ministers’ meeting in Poland on Friday, which in itself is unprecedented, and if he turns up with a box full of TARP like tools then it could be seen as more than that sticking plaster and signs that the immediate crisis could be receding.
The US Federal Reserve, European Central Bank, Bank of England, and Bank of Japan are all participating in this move. The ECB will be offering three separate three month loans in co-ordination with the Fed, which it is hoped will ensure that Euro-zone banks have enough dollars until the end of 2011.
The last time a move like this was tried was at the time of the Lehman Brothers collapse. But the collapse still happened.
We are being prepared for a full Greek default.
Speaking to Reuters Win Thin of Brown Brothers said "Today's actions won't prevent a Lehman-type event, but they could mitigate the dislocations and market turmoil that will likely result from such an event. We fully expect policymakers are preparing quietly for a Greek default, and would look for more and more preparatory measures in the coming months." While Lane Newman of ING Capital Market said that the markets had already priced in a 90% likelihood of a Greek default.
For a range of market views see the Telegraph. Some of the comments do seem ridiculously positive though. I know where my sentiments lie, as Geoffrey Yu, director of foreign-exchange strategy at UBS put it "This doesn't change anything. It helps the banks for the next couple of months but that's it."
So, another tranche of loans then, yet more debt for an already debt soaked world. And no guesses for who will end up paying the interest on all of this. Just more transferring of wealth from the people at the bottom to the few rich and powerful people and institutions at the top.
But all co-ordinated on a grand global scale. The start of a global style bank maybe?