16th
Borrow From Government, Lend To Government
The monster arbitrage opportunity for banks that borrow from the government (or central banks, if you really believe that they are independent) at quasi-0% and lend to the government pocketing a risk-free (beside sovereign default risk …) 3-5% spread is going on in Europe as well.
European banks, which have lost or written down $561 billion in the credit freeze, are awash with cash after governments approved $5.3 trillion of aid, more than the annual gross domestic product of Germany, European Union data show.
Financial institutions increased their holdings of government debt to 1.51 trillion euros in October, from 1.19 trillion euros at the end of 2007, ECB data show. The situation is similar in the U.S., where bank investment in such securities has risen by 25 percent to $1.39 trillion since 2007, according to the Federal Reserve.
So European banks have bought a net €320 billion in government bonds in 2008 and 2009. Their American counterparts have bought about $350 billion during the same period.
