You really believe the ECB will start to accept greek junk corporate paper/equities for funding or you believe they will decrease the haircuts
Nah, their ratings standards vary depending on whether it's guvvies, corps, ABS or smth else. Haircuts also vary... What I am saying applies solely to Greek govt paper. If the Greek sovereign rating suffers further, the ECB will not hesitate to lower their ratings thresholds for sovereign debt. That's precisely why they're looking at instituting their own internal ratings methodology. They want full control over the eligibility of collateral.
Buiter is referring to the market value of the gov debt not the ratings. As I understand the ECB uses the market value of gov debt to provide funding(correct?), so the Greek borrowing power is collapsing by that day
You're right, he's not referring to the cliff-like withdrawal of funding that may result from downgrades, but rather the relatively gradual deterioration in the capitalization of Greek banks. However, I don't think this is actually that big of a deal. I don't know about other types of collateral, but for guvvies the recent moves are a) not that large in terms of all-in bond PVs; b) are accompanied by lower main refi rate expectations, which softens the blow a little. Generally, he's correct, but there's so much priced in, it's hard to see how much further such deterioration one can expect on the funding side. The big problem, in my view, are the non-linear effects, such as depositor runs, impact of ratings actions on bond indices, etc...
Has it spread to Northern Europe as well, Martinghoul? Thanks. Btw, several European countries have taken out USD nominated loans these passed years which worked out to their benefit untill recently but with the hamering of the Euro... not so much anymore putting further pressure on these countries I would imagine.
It's spreading to all semi-core now, incl Belgium, but it's relatively mild for OLOs, so far. France is quite stable, though.
Got 'Invisible Hands' by Drobny yesterday and I'm reading right now, we will see if its interesting as the other one
That will be a good one. I'm also looking forward to Confidence Game, about Bill Ackman's bet against MBIA, which should arrive in my mailbox any day. http://www.amazon.com/Confidence-Ga...TF8&coliid=I3ITBVAFEDT5GC&colid=2MWI6P7FOIFAJ