The next known unknown

Posted by – November 10, 2011

As the US subprime crisis was unfolding, it was impossible to find out which institutions had what amounts of “toxic” securities on their balance sheets. You see, nobody was willing to admit anything was really toxic until they were on the brink of bankruptcy. Just before Lehman went down, its debt was still considered investment grade by the ratings agencies.

Bond traders have been saying in the last couple of days that the European Central Bank has been buying Italian debt in the markets in order to prop up its price (keep interest down). The ECB has revealed nothing, and nobody knows how much it’s been buying.

So I figured I should at least be able to find out how much Eurozone debt has been on the ECB’s balance sheet prior to the newest crisis. I wasn’t able to. If anyone else is, please tell me.

But this looks a lot like one of those things that we’ll be reading stories about in a couple of years (“how could they not have known?”). Problems are being hidden, good money thrown after bad, so that if/when the final crash comes, it will suddenly become apparent that stability-guaranteeing institutions have been quietly rendered worthless. There’s no point in throwing out the garbage when you live in a dump.

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