Part I

Pre-load:

• Critical series of posts about LTRO
• Facts, figures, a few fatuous opinions and a bit of fun
• Part I touches on LTROs we’ve had so far and their apparent effects

Another indecisive session for equity markets, albeit a more moderate one than we’ve had of late, during which stocks and other risky assets have slid alarmingly.

And in Spain, the epicentre of the latest euro-zone worries, the 10-year bond yield remains close to 6%, having recently peeped above that for the first time since November 2011.

Plus, the euro has been threatening another visit below the 1.30 barrier all week.

There’s no getting away from it: the crazy days last seen at the height of The Crisis, in 2011, could still be lurking not too far below the surface of euro-zone markets.

Not that I’ve met many people in this parish and beyond who would be genuinely surprised if that proves to be the case.

The idea that joint efforts by EU leaders, IMF and ECB [via SMP and latterly LTRO] have succeeded in stemming the debt crisis, is questionable, at best, in my view.

Still, it’s a notion which many market participants are happy to play along with while it suits them.

But even if we accept that view, who in the markets wouldn’t want another LTRO?

Markets do seem to be behaving as if they want another one.

After all, their apparent effect on more hazardous markets is well-known and benign.

Markets, are behaving en masse as if they seek to ‘re-live’ these apparent effects, very much like the ‘addicts to central bank funding’ which critics say markets have become.

This underlying desire for more cheap, cash [it’s difficult to imagine why markets would want such a thing] raises the issue of whether the widely held perception of what LTROs achieve is, in fact, valid.

It’s a question which the ECB is likely to consider closely.

Perhaps we should too.

I.e., apart from providing cheap money for over-privileged financial institutions, do LTROs help anyone, or anything else, in any material way?

There’s a widespread suspicion that the perceived effect of LTROs and their actual effects are quite distinct from each other.

And, if LTROs in fact don’t have enough of the effects which are desired, is it really worth chucking another EUR529.5 billion at ‘The Problem?

[EUR529.5 billion was the amount allotted at the second 3-year LTRO, held on February 29th.]

Comments from ECB President Draghi at the press conference which followed the ECB’s last interest rate announcement [rates were kept at 1%] make it clear that another flood of ECB cash has not been ruled out.

But perhaps it should be ruled out.

If it can’t be demonstrated that ECB long-term cash floods help the wider financial system [including individuals and households] that tends to weaken the case for opening the taps again.

Have the LTROs boosted European sovereign bond prices and helped credit expansion in the real economy?

Or has the credit injection just stayed in the banking system to ease the inter-bank credit squeeze and provide funding for bank debt redemptions?

I’m guessing we all already suspect what the answer is.

But fellow market-macroeconomics geeks will take a look at the next post in the series – I’ll tweet when it’s done.

ThSM

* The pun ‘LTROver’ has already been used; quoting  the source slightly obviates me from blame.