Double the LTRO , Double The Fun ! Money for Nothing........

http://www.cnbc.com/id/46199414

European banks are preparing to tap the European Central Bank’s emergency funding scheme for up to twice as much as the ECB supplied in its debut 489 billion euro auction last month, providing further evidence of the sector’s liquidity squeeze.

Several of the euro zone’s biggest banks[.SX7E  108.86    2.06  (+1.93%)   ] have told the Financial Times that they could well double or triple their request for funds in the ECB’s three-year money auction on February 29.

“Banks are not going to be as shy second time round,” said the head of one eurozone bank at last week’s World Economic Forum in Davos. “We should have done more first time.”

Three bank chief executives, all of whom asked to remain anonymous, said they were planning to increase their participation twofold or threefold.

Goldman Sachs [GS  109.73    -2.04  (-1.83%)   ] has told clients that banks could ask for twice as much in the February auction as in December when more than 500 lenders raised 489 billion euros. “They could do another 1 trillion euros easily in February,” said one senior banker. “It could be way more than that if things get worse in the markets.”

The ECB, under new president Mario Draghi, launched its funding facility in December to avert a looming credit crunch, with 230 billion euros of bank bonds coming due for repayment in the first quarter of 2012 while bond markets remained largely closed to new issuance.

Bankers credit Draghi with helping to destigmatise the ECB’s funding operation by persuading as many institutions as possible to participate. Previously, banks had shied away from such support schemes for fear of appearing weak.

Bankers expect many more banks to take part in the February auction, encouraged by the widespread participation last time, as well as the promise of unlimited cheap money — the funds attract an interest rate of only 1 percent.

http://globaleconomicanalysis.blogspot.com/2012/01/you-aint-seen-nothin-yet-another.html

Unlimited Money for Three Years at One Percent

The ECB is offering unlimited money to banks for three years, at one percent. Banks are salivating because the first round went well.

The money is supposed to go for bank lending but it won't. Why should banks lend? They have a guaranteed profit by speculating in Spanish or Italian bonds, assuming of course Spain and Italy do not need bailouts coupled with a writedown on government debt.

However, that's quite a risk, and in my opinion Spain will need such a writedown. If so, Germany will be on the hook once again.

For a discussion about how futile this is, please see Premature Dollar Obituaries and Mainstream Economists' Monetary Insanity; Keynes-Inspired Great Depression; Lessons Not Learned

Money Supply Will Soar, Lending Won't

Don't expect the next LTRO to make it into the real economy. It won't. Rather the LTRO will fuel more bank speculation and more leverage in government bonds. Money supply will soar, lending won't and this rates to be good for gold.