Eurozone Banks Dump Bad Paper on Taxpayers

Bloomberg is reporting on what looks like a brazen con being pulled on taxpayers by eurozone banks and governments. It goes like this: During the recent credit bubble the PIIGS country banks created and then sold a bunch of low-quality mortgage bonds. Now they’re buying them up at big discounts to the original price, booking a profit on the trade, and using those securities as collateral for low-interest-rate loans from the European Central Bank.

Stripped of all the terminology, this scam comes down to European governments investing taxpayer funds in risky mortgage bonds — in order to prop up banks that made a lot of ill-considered loans in order to generate big year-end bonuses. This may be legal, strictly speaking, but it’s definitely not moral, and to the extent...

It’s also interesting that the banks admit that they have no other source of cash. The markets at long last appear to have recognized that most big European (and American for that matter) banks are stuffed so full of bad paper and on the hook for so many billions in derivatives that they’re terrible bets. Now only governments with docile citizens are left to keep the zombie banks animated.

This game, like many others in today’s global financial system, can go on as long as the currencies the central banks are creating remain viable. Once euros and/or dollars lose their attractiveness as a store of value, the end will come quickly.


................. By John Rubino