These people are insane

The ECB has rules for the "investments" it can make.  So far they've been limited to bonds issued by sovereign governments or their agencies, which is crazy enough.  Many is the private bank that's gotten itself into trouble obeying rules deeming sovereign debt to be triple-A safe no matter how high an interest rate some shaky government had to pay in order to lure suckers in the door.  Hey, if it's all AAA, why not buy the Italian bonds with high interest instead of those boring German bonds?  If the bonds go bust, we can just say we were following orders and are entitled to a bailout.  No one's job or bonus is on the line.

Now the ECB has decided to expand the list of approved bonds to include "corporate bonds."  That's not such a terrible idea, in an alternative universe where people choose private-sector investments according to traditional principles like price and risk.  "Senior Eurozone Economist" Frederik Ducrozet at Credit Agricole explains that the move to "quasi-corporate bonds the ECB could seek a greater transmission of QE to the real economy." Almost sounds like a dawning realization that there's such a thing as a real economy, and that it's not transfer payments by sovereign entities, but what's with the "quasi-corporate"? Turns out what they really mean is Italian utility companies. Here's the punchline:
Hyung-Ja de Zeeuw, a credit strategist at ABN AMRO says she thinks they chose these specific corporate names "because it wouldn't disrupt the level playing field (competition). They have natural monopolies."
So that's their idea of the "real economy": something with a natural monopoly that's immune to competitive forces.  Gosh, I wonder why the EU is in crisis?


Grim said...

You've got to admit, a business providing a necessary service whose monopoly isn't just "natural" but enforced by law does sound like a relatively safe investment.

Actually, I'm not sure the 'natural' monopoly really exists in the sense they imagine it. That's an artifact of technology. The developing technologies around carbon nanotubes suggest to me that we may be going to see a serious change in the way electricity markets work. For one thing, solar technologies will be a lot better; for another, the expense of creating transmission systems may drop substantially, enabling easier competition than with metal wire transmission technology. Depending on the structure, nanotubes can be excellent conductors, and in principle could be produced quite cheaply.

Texan99 said...

"Safe," maybe, "real economy"--no. That's not a bank, it's a tax siphon.

jaed said...

What Texan99 said.

Also, fairly or unfairly, the very phrase "Italian utility company bonds" is making me itch.

MikeD said...

All I can think of is the website for the (fake) UK power company's Powergen's Italian division "Powergen Italia"