Courtesy of Pam Martens.
Bloomberg News is carrying an article today that raises the question as to whether cash for trash may be the comeback kid at the European Central Bank. That, in turn, leads to speculation as to how long it will be before the comeback kid leaps across the pond and nestles into the arms of the U.S. Federal Reserve.
According to the article, the European Central Bank is buying up billions of Euros in asset-backed securities made up of things like Spanish auto loans, Portuguese home loans, and legacy deals that have been stuck on the balance sheets of European banks since the financial crisis of 2008 and 2009. The article notes that the ABS market is down from a peak of 524 billion Euros in annual issuance in 2006 to a paltry 77 billion Euros in annual average issuance over the past five years.
Now let’s face it, European Central Bank President Mario Draghi is not buying 60 billion Euros a month of European sovereign debt and asset-backed securities because things are going swimmingly in Europe’s economy. Europe hopes to skirt another financial crisis and the headwinds of deflation.
There’s a ring of familiarity to all of this. Back on September 21, 2008, one week after the failure of Lehman Brothers and the shotgun marriage of Merrill Lynch to Bank of America, Paul Krugman wrote in his New York Times column that “Some skeptics are calling Henry Paulson’s $700 billion rescue plan for the U.S. financial system ‘cash for trash.’ ”
At the time, Paulson was U.S. Treasury Secretary in the administration of President George W. Bush. Krugman noted that the Paulson plan called “for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities” while Paulson demanded “dictatorial authority, plus immunity from review ‘by any court of law or any administrative agency…’ ”
By March 22, 2009, Krugman was worrying aloud in his column that newly elected President Obama, through his Treasury Secretary, Tim Geithner, was going to resurrect Paulson’s “cash for trash” plan. Krugman wrote insightfully:
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