I'm not sure people have grasped the magnitude of what has just happened. The European Central Bank firehosed €489,190,000,000 at the eurozone banking system. Five-hundred-and-twenty-three banks snatched greedily at the cheap cash.It's a collosal sum, especially for an ostensibly conservative central bank.
the ECB is hoping that banks will buy government debt with it – as, indeed, they are more or less obliged to do under the Basel III rules. So eurozone governments are borrowing money to lend to private banks to lend to, er, eurozone governments.
Detlev Schlichter has more:
The pathetic state of the global financial system was again on display this week. Stocks around the world go up when a major central bank pumps money into the financial system. They go down when the flow of money slows and when the intoxicating influence of the latest money injection wears off. Can anybody really take this seriously?
On Tuesday, the prospect of another gigantic cash infusion from the ECB’s printing press into Europe’s banking sector, which is in large part terminally ill but institutionally protected from dying, was enough to trigger the established Pavlovian reflexes among portfolio managers and traders.None of this has anything to do with capitalism properly understood.