Bizarro Bank Behavior (Europe edition)

A quick recap (from an earlier post)

... The ECB offered "unlimited" cheap (1%!) 3 year loans to the Euro banks, accepting as collateral, well, anything (as long as it is A- or better. The plan is that

1. The banks park all their toilet-paper bonds at the ECB, and get a ton of money from it
2. This money is used to provide the banks liquidity - which they are desperately short of
3. They use this money to make loans, thus preventing The Great Depression II
4. They also use this mechanism to buy up sovereign debt and park that at the bank (the Carry Trade is back! w00t!), thus reducing the borrowing costs of the countries.

Basically, Backdoor QE by the ECB used to solve the entire #euromess in one swell foop.

How well did this work?
As it turns out, not so well.  Lets take this one at a time

1. Bank Liquidity: The banks borrowed 498B Euros from the ECB of which they've deposited 412B Euros back at the ECB.  You're probably thinking this sounds good, vaguely remembering TARP, and something about borrowing cheaply from the fed, redepositing the money at a higher interest rate, and collecting the difference (to pay profits to execs.  Separate story).  Unfortunately, the ECB is currently paying, wait for it, 0.25%!  The banks are losing 0.75% on the money they borrowed from the ECB.  So much for liquidity.
2. Carry Trade:  The lowering of long term bond yields across the Euro zone due to the carry trade.  Well, Italian 10 year yields are currently at 7.1%, i.e. it didn't work.

The bottom line?  The can did not get kicked all that far down the road.  As zerohedge puts it

In another independent confirmation that all hell is about to break loose, we just saw the 1 Year Bund drop sub zero again. As a reminder, the last time it was there was in the last days of November, just before the global central bank cartel had to come in and provide a global liquidity bailout for Europe's banks. So: back to square minus one ladies and gentlemen of an insolvent Europe?

Fun days ahead!!!