As we mentioned several months ago in A Thinly Veiled Bail, Zero Hedge writes that now William Dudley (CEO of the Federal Reserve Bank of NY) admits that the Fed is bailing out the European Union – by "a very small amount."
"The European Central Bank (ECB) is borrowing U.S. Dollars from the Fed to bailout European banks. And that is in addition to the Long Term Refinancing Operation (LTRO).
"However, the 'borrowing' is not called 'borrowing.' It's called a "temporary U.S. dollar liquidity swap arrangement." Yet it is really borrowing because it's going massively in one direction for the purpose of giving the ECB Dollars to lend to European banks, so the ECB can avoid lending more Euros. The ECB doesn't want to tarnish its 'inflation fighting' reputation and further devalue the Euro. Instead, the Fed is taking billions of Euros as collateral for the Dollar swap…
"'The Fed has opened an unlimited credit line with the ECB and other central banks for which it has so far lent billions of Dollars, with Euros as collateral. The Fed is bailing out European banks; that's not in dispute. The ECB is the guarantor and the conduit, but the banks are the recipients of the bailout, and the Fed's balance sheet is expanding as a result of the loans to the ECB.'"
~ Ilene
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
As if the 'risk-less' dollar-swaps the Fed has extended to any and every major central bank were not enough, William Dudley just unashamedly admitted that the Fed now holds 'a very small amount of European Sovereign Debt'. Explaining this position, as Bloomberg notes:
- *DUDLEY: FED HOLDS OVERSEAS SOVEREIGN DEBT TO MANAGE RESERVES
- *DUDLEY: HIGH BAR FOR ADDITIONAL PURCHASES OF EUROPE DEBT
Dudley, testifying to a House panel, noted that he doesn't see more efforts by the Fed to buffer the US from Europe's tempests and believes European banks are deleveraging in an orderly manner. So not only is the US taxpayer bailing out Europe via the IMF (as we noted here a week ago using Greece as an intermediary) and the Fed is providing limitless USD (US Dollar) swap lines but now we join the ECB in monetizing European government bonds – something we warned might happen back in December 2010. As for being a small amount – wasn't MF Global's holding relatively small too? And aren't we getting a little full from all this buying?
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