Draghi's Witches' Brew Tries To Combine Hyperinflation, Austerity, Lax Bank Standards
August 29, 2012 • 10:10AM

European Central Bank chairman Mario Draghi will make a surprise non-appearance at the Jackson Hole bankers' conclave starting Friday, CNBC reports. The reason given by Draghi's office is that he will have too much work to do between now and Sept. 6, when he will announce his much-ballyhooed plan for hyperinflationary money-printing and Eurozone sovereign bond-buying. But one clear reason is that the market "shock and awe" from three weeks' worth of Draghi trial balloons, has worn off, and anything further "Hyper-Mario" might have said about it at Jackson Hole would likely be counterproductive to the intended effect of delaying the debt blowout.

ECB board member Joerg Asmussen told CNBC that the opposition of German board member Jens Weidmann will not stop Draghi's plan. Asmussen implied that through it, somehow the ECB would develop enforcement mechanisms for national austerity regimes, or recessionary "conditionalities" attached to ECB bond-buying.

Ironically, Weidmann still intends to go to Jackson Hole.

In contrast to his demands that countries bleed themselves for access to money-printing, Draghi plans no enforcement of rules on banks, just the opposite. As Bloomberg reports, Draghi has antagonized the Federal Reserve by proposing to weaken the liquidity coverage rule (LCR, under Basel III) for European banks. In their plans to weather a 30-day liquidity freeze, Draghi wants the banks to be able to count as liquid capital, asset-backed securities, which have very recently proven to be completely illiquid in such a crisis!

The ECB already counts any scrap of IOU as collateral for its loans, so Draghi apparently wants to make the bank capital rules match his own collateral standards. As Tim Geithner has told him, bankers are the best sort, and their concern for their banks' reputations would never allow them to use laundry tickets as collateral or junk as capital....