A little over my head, and not very encouraging:
In terms of collateral, the ECB board member said that "assets held as collateral only constitute a guarantee, not a direct exposure. Accordingly, related price decreases could only induce Euro system losses if those decreases took place after the default of the counterparty."
But here's what's frightening: In dismissing claims that the ECB could fail, Bini Smaghi makes arguments that repeatedly rely on the premise that there won't be any actual defaults.
When talking about the bonds the central bank holds, he opened up the proverbial can of worms by saying that "only default risk could threaten our profit and loss accounts."
Doesn't he realize that default is exactly what's on the table?
Read more: The Next Global Credit Crisis: Why U.S. Banks and Greek Debt Will be the Toxic Trigger - Money Morning