What's a Trillion Dollars Worth Anyway?

Been lots of posting on the move by the ECB last night.  Looks like the euro went up against the dollar on the initial news and then fell back later in the day (hat tip - Krugman).

I think Felix Salmon captures why here:

Just like Hank Paulson’s TARP bazooka had to be pulled out and used, the markets are going to push the Eurozone periphery to a point at which the new bailout mechanism needs to be activated. And right now, nobody knows how or whether that mechanism is going to work. Does it need to be ratified by every individual country which is providing a guarantee? How cheaply will the SPV be able to borrow? Will it just borrow at floating rates overnight while lending at three-year terms, thereby essentially becoming a bank? How much faith will the markets place in the fragmented set of guarantees which is meant to reassure lenders to the SPV that they will be paid back in full? If one country fails to make its pro-rated payment, what happens then? Does the SPV have seniority over private-sector bondholders and even bilateral lenders in the way that the IMF does? Can any of this work in the absence of a formal international treaty setting it up? There are simply too many questions and too many uncertainties for anybody to be reassured at this point that the eurozone’s fiscal problems have found even an intermediate-term solution.

Clearly Felix has lots of questions. 

As you can guess there was lots of posting on the ECB action in the blogoshere.  I think Tyler captured the key take-aways in his entry this morning.  But I can't leave off my post with a link to Kevin Drum piece and his widely quoted paragraph:

The €440 billion pledged by euro-zone governments isn't immediately available cash in hand. Instead, a specially created off-balance-sheet entity will borrow the money, as needed, and then lend it out to the country or countries in trouble. The special entity's borrowings will be guaranteed by euro-zone countries — excluding the country asking for aid. This construction helps skirt the EU treaties' prohibition on one state's assuming the debt of another....This portion would need approval by the parliaments of contributing countries, something that could delay a rapid payout of funds.

I'm sure there will be more on this all week.  After all, this really isn't the problem of Greece, it's the problem of the entire global financial system (With a spotlight on Europe).

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