Tuesday, June 29, 2010

ECB Failed Fixed-Term Deposit Auction

Right on cue, as soon as I write a post saying that big stuff happens when I'm away, a significant story:  ECB Fixed-Term Deposit Auction fails.  What does this mean?  Well, although I don't have a PhD in economics, allow me to explain it to you in layman's terms:  the ECB's attempt to "sanitize"  (EDIT:  correction:  STERILIZE - see, if only I had a PhD in economics...) their bond purchases - they were going to distribute capital by buying bonds, and then remove capital by selling term deposits, so that no net money was created - failed.   The banks didn't want to buy ECB term deposits with their precious money.   Why?  Well, it seems that liquidity is pretty pretty pretty tight right now in Euro-land... I don't think that could ever be considered a good thing.

ok - have at it in the comments - I won't be able to respond, but maybe Kartik Athreya will stop by and tell us mortals how to interpret the failed term deposit auction.



But What do I Know? said...

I'd love to comment as well--but my doctorate is in mixology. . .

Andrew said...

I think you mean "sterilize."

getyourselfconnected said...

Those smarter than us said it was no big deal as banks preserved cash for some other reverse thingy later in the week:
"The shortfall is a clear sign of rising tensions in the money
market as banks hoard cash in preparation for reimbursement to the ECB
of a E442 billion 1-year LTRO that expires Thursday."
Who knows, but it looks bad.

Kartik Athreya said...

Yo man, stop hatin' on me, dawg. I was just playin' witch'all. I was just pimpin' on Elizabeth Warren, y'all. She tight. Bitches like it when you disrespect them. Makes them all hot and bothered.

Economics PhD representin'.

beaumont said...

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Anonymous said...

beaumont, why do you think the crisis was unexpected?


beaumont said...

One simple explanation for why the crisis was unexpected is that those making the decisions, whether regulators or executives, are in some sense encouraged by competitive forces into believing that when prices are going up, good things are happening.