Financial Oligarch's Playbook

Step 1: Armageddon!

In a speech in ~~Washington~~ Berlin, ~~Treasury Secretary Paulson~~ Lagarde warned that the US world economy was on the brink of ~~tanks in the streets~~ a “defining moment”, adding:

It is not about saving any one country or region. It is about saving the world from a downward economic spiral.

How is that any different from this, which we were treated to during the $700 Billion TARP robbery:

If you continue reading the linked article above, at the link just below the quoted part, you’ll see that Ms. Lagarde, after reprising Hank Paulson’s asteroids-striking-earth speech (imitation being the sincerest form of flattery), you’ll note that the “European Stability Mechanism” (ESM) is supposed to be no more than 500 Billion Euro, and that the International Monetary Fund (IMF) recently began lobbying for an additional 500 Billion Euro (much of which is to come from the U.S., and by that I mean “U.S. Taxpayer”). Later, reports began circulating of Ms. Lagarde claiming she had not called for doubling the ESM.

Which brings us to…

Step 2: The jawbone of an ass (beard optional): for awhile, you can actually prevent an outright collapse by promising to backstop everything, while totally confusing everyone. Since you are backstopping everything, and since the purpose of your backstops is to support prices, all markets (stocks, bonds, housing, consumer spending, etc) and all prices depend on your continued support. No one (except yourself and the people on your “friends and family list”) knows when you will stop your support of any individual market. What is anything truly worth? How can capital markets function without real prices? Build a factory? You’d have to be insane, unless you’re doing it with taxpayer money. Since you are a major central banker and you have arrogated unto yourself total economic power, you can say and do any damned thing you want to, and the only thing the poor suckers in the markets can do is try to figure out what you mean and invest their capital accordingly. You can initiate QE (markets up!) while talking about how your intervention will be unwound (markets down!); you can promise to keep short term interest rates at historic lows “for the foreseeable future” (credibly threatening to expand your balance sheet) while using operation twist to sell the short term end of the market and lower long term rates, while not actually expanding your balance sheet. Who’s going to do anything about it? Certainly not the Congress!

Fed set to push back timing of eventual rate hike

(Reuters) – The U.S. Federal Reserve looks set to keep monetary policy on hold on Wednesday, even as it releases forecasts expected to show interest rates will be near zero for at least two more years.

Step 3: Alphabet Soup! The real beauty of monetarism / central banking is that you can have fun stealing other people’s money while pretending to help them! Alan Greenspan made famous the technique of giving testimony to Congress using such arcane language that virtually no one in Congress understood him (well, to be fair, they WERE congressmen…). During a crisis, it is remarkably important to ramp up the rhetoric to ensure that the busy worker bees don’t have time to figure out what the hell you’re saying and, besides, what better way to belittle him? Think of the cocktail conversations at Davos!

Fed Programs used during the 08-09 crisis:

Single tranche OMO Program
Term Discount Window Program
Term Auction Facility (TAF)
Term Securities Lending Facility TSLF)
Primary Dealer Credit Facility (PDCF)
Term Securities Lending Facility Options Program (TSLFOP)
Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (!)
Transitional Credit Extensions (TCF)
Commercial Paper Funding Facility (CPFF)
Money Market Investor Funding Facility (MMIFF)
Term Asset-Backed Securities Loan Facility (TABSLF)

So far, the European Central Bank has initiated these facilities: