The Financial Times reported this morning that the European Central Bank announced on Monday that they would offer “unlimited funds at below market interest rates in a special operation” to avert a yearend liquidity crisis.
What a wonderful message of giving in this holiday season. Wouldn’t it be a much nicer world if we were all offered unlimited funds. I am sure it woudl be a welcome message to holiday shoppers.
I always have had a problem with the supply side notion that by providing big business with corporate welfare and tax cuts it would improve that lot of all. I have no particular problem with tax cuts — I like most people would prefer to pay less than more — but the notion that some groups are more noble and worthy of cuts is grating. If ordinary people paid no taxes they would spend more, which is good for the economy. After all we are a consumer driven economy so lets put more money in the hands of the consumer and tax business. Of course that is just as silly, taxes pay for needed services and should be equitable. They should cover what we spend not more and certainly not less. After all there is no bigger tax than deficit spending as anyone with a mortgage should know.
The ECB announcement has nothing to do with U.S. tax policy but is another sign that something — we are still not sure what but it has to do with subprime mortgage backed securities — is seriously wrong and it is wrong on a global scale. The announcement or indication (a better description based on the opaque ECB) comes on the same day the Federal Reserve Bank held its first Term Auction Facility (TAF), auctioning $20 billion in 28-day credit to needy banks. Central banks around the world keep on opening up their coffers to the large investment banks and we keep on hearing that a crisis is still looming.
Most disturbing is that although reports of massive losses due to mispricing or more accurately put, corrected pricing of many types of securities began in July, we still haven’t heard a simple, legitimate explanation for what is happening and are kept being fed a line about some generic liquidity crisis.
Apparently when it is help for individual homeowners facing possible foreclosure it is OK to use the term bailout but when it involves investment banks, holding worthless paper, that could become insolvent if they had to mark their positions to market we need to use terms like Term Auction Facility.
