How the Rich Stay Rich. Money For Nothing. Photo From www.businessweek.com
The Global economy has been moving rapidly towards recession. But stock markets today are feeling a bit better because European Central Bank head Mario Draghi has decided to print up fresh money and hand it over to the the Mega Banks of Europe and likely private corporations as well.
The money is “loaned” to these institutions of the rich at chump change interest rates, so they can use it to make more money for themselves.
Draghi asked these Mega Banks very kindly if they would use this money he is handing them, to loan out to ordinary people, so as to get the Euro economy moving again.
Since the Euro Mega Banks OWN Mario Draghi however, they will do what is most profitable for them, including investing the money in Asian debt markets for a better return.
This is exactly the same thing that happened during the US banking crisis of 2008.
And what Draghi gets as “collateral” for these loans is “Asset Backed Securities”, (you may remember those from the US debt collapse of 2008 as well) and who knows exactly what “assets” back them, or what market value they have? For the most part these loans are only as good as the solvency of the banks involved.
But the expectation is that Draghi is also going to take “corporate” bonds as collateral to loan money to Euro Corporations, has really driven stock markets upward. By doing so the capacity of the ECB to remain solvent is based on the strength of, or lack of it, of these banks and corporations.
By taking these unsecured corporate bonds and “Asset Backed Securities” as collateral for fresh cash, the cost of borrowing for Europe’s Mega Banks and Corporations falls. And that is a de facto form of corporate welfare.
But when there is welfare someone pays. In this case it is the citizens of Europe who are effectively backing the contingency risk that is being taken on by Draghi in their name.
But all Euro citizens do not have an equal capacity to pay for a broken ECB. The Northern countries, whose balances sheets are in the best shape will most likely have to cover any 2008 US style banking disaster. And that for the most part means German citizens. The German people, (unlike their American counterparts) for the most part do understand the situation and are furious about it all.
In any case Europe’s coming recession can’t be solved by printing and distributing a simple few billion Euros here and there. It will take trillions. The Mega Banks and Corps in Eurolandia are positively salivating at the free money they see coming their way and global capital will be buying their stocks wanting to get in on the free money bonanza.
If the Germans allow Draghi to print up trillions in their name and distribute it to Europe’s Mega Banks and corporations, that is the virtual machine that will insure that the rich will get much richer at the expense of everyone else.
This is the same garbage as the way the US Federal Reserve works. Entitled “How the Rich Stay Rich” Money For Nothing. Here you can get a five part series explaining it all in very simple language.