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European Central Bank Has Become a `Neapolitan Garbage Dump'

Jan. 31, 2008 (EIRNS)—A report out today states that 30 billion euros of securitized junk has been packaged by Rabobank, the Anglo-Dutch mega-bank, for the contingency of using it as collateral for borrowing from the European Central Bank (ECB) through its repo (lend and repurchase) operations. "The ECB has become a Neapolitan garbage dump," commented a banking source to EIR News Service today, referring to the trash pick-up crisis in Naples.

According to today's London Financial Times, Rabobank, the only bank still holding a AAA rating from Standard and Poor's, has packaged mortgage loans in order to keep them on its balance sheet as bonds, ready to have as collateral to offer the ECB, in case of a liquidity crisis.

This is similar to what Spanish banks in particular have done since last December, i.e., issuing securities for which there is no market, except at the ECB repo facility. It has been reported that in December alone, Spanish banks borrowed 63 billion euros through this facility.

In doing this, the ECB is de facto bending its statute, which allows it to lend money directly to money banks only in extraordinary cases, and only against prime collateral. Acting this way, the ECB has bailed out major sections of the European banking system since December, offering temporary cash life-support to a corpse.