Changing the Rules

"I'm not gonna spend the rest of my life working my ass off and getting nowhere just because I followed rules that I had nothing to do with setting up, OK?"
--Tess McGill (Working Girl)

After Tuesday's downgrade of Portuguese debt by Moody's, the European Central Bank (ECB) today said that it will suspend minimum collateral rules for Portuguese debt in ECB refinancing operations.

A lender's axiom is that borrowers deemed to be greater credit risks must put up more collateral.

As a result of the debt downgrade, ECB rules dictated that Portugal should now be seen as a greater credit risk and must put up more collateral in order to refinance debt. Unfortunately, more collateral is something that Portugal doesn't have.

Facing an inconvenient situation, the ECB did the bureaucratic thing. It changed the rules.