Remember: when in doubt, baffle with bullshit. From Dow Jones:
- EU Paper Confirms Looking At 2 EFSF Options, May Combine Them -Senior EU Source
- EU Paper Says EFSF Option To Set Up Special Purpose Investment Vehicle -Senior EU Source
- EU Paper Says EFSF Bond Insurance and Special Vehicle Options Could Be Combined - Senior EU Source
- EU Paper Says Neither EFSF Leverage Option Requires Change To EFSF Rules -Senior EU Source
- EU Paper Says EFSF SPIV Would Combine Public, Private Capital - Senior EU Source
- EU Paper Says EFSF Could Set Up One Central Euro Zone SPIV - Senior EU Source
- EU Paper Says EFSF SPIVs Could Be Set Up In Several Euro Zone Countries - Senior EU Source
- EU Paper Says EFSF SPIVs Would Be Used For Bond Purchases, Bank Recapitalization - Senior EU Source
- EU Paper Says EFSF Bond Insurance To Be Tradable Independently Of Bonds - Senior EU Source
It also has a Phillips-head screwdriver, opens cans, serves as a flashlight, dispenses crazy pills can be used as a garrote. And if you act now, you can get get a second one free for the low, low price of €1 trillion, leveraged infinitely courtesy of the world's most complex structured credit product ever conceived.
Zero Hedge has the pleasure to bring its readers this extensive Q&A with one of the most prominent voices of "Austrian" economic sensibility, and foremost experts on capital markets and commodities: Diapason's Sean Corrigan, who has repeatedly graced our pages in the past and who always provides a much needed 'on the ground' perspective on his native Europe. Among the numerous topics discussed are the Eurozone, its collapse, its insolvent banks, and the EFSF as the Swiss Army Knife ex Machina; the 3rd year anniversary of Lehman's failure and what lessons have been learned (if any); how to fix the US economy; on Goldman's relentless attempts to intervene in, and define, US monetary policy; what the Fed's role should be (if any) in the economy and capital markets; his views on the Occupy Wall Street movement; his advice to an inexperienced 25 year old looking to make their way in the world; And lastly, the $64K question: what is the endgame. A fascinating must read.
Citi Joins Goldman And JPMorgan In Settling Fraudulent And Misleading CDO Practices: Wristslap Costs $285 MillionSubmitted by Tyler Durden on 10/19/2011 10:35 -0500
And so Citi becomes the third firm after Goldman and JPM to put all their gross CDO criminal (wait, allegedly, they neither admitted nor denied) activity behind them with a $285 million wristslap.
- Citigroup will pay USD 285mln to settle SEC charges for misleading investors about selling CDOs related to housing market, according to SEC
- Citigroup's main US broker-dealer unit misled investors about USD 1bln CDO tied to US housing market, in which Citigroup bet against investors.
It is unclear if the money used will be courtesy of FDIC-backed TLGP notes still on Citi's books. Either way, justice is now "served."
There Is No Bailout Spoon: The Math Behind The €2 Trillion EFSF Reveals A "Pea Shooter" Not A "Bazooka"Submitted by Tyler Durden on 10/18/2011 12:53 -0500
The latest and greatest plan to bail out Europe revolves around using the recently expanded and ratified €440 billion EFSF, and converting it into a "first loss" insurance policy (proposed by Pimco parent Allianz which itself may be in some serious need of shorting - the full analysis via Credit Sights shortly) in which the CDO would use its unfunded portion (net of already subscribed commitments) which amount to roughly €310 billion, and use this capital as a 20% "first-loss" off-balance sheet, contingent liability guarantee to co-invest alongside new capital in new Italian and Spanish bond issuance (where the problem is supposedly one of "liquidity" not "solvency"). In the process, the ECB remains as an arm-length entity which satisfies the Germans, as it purportedly means that the possibilty of rampant runaway inflation is eliminated as no actual bad debt would encumber the asset side of the ECB. A 20% first loss piece implies the total notional of the €310 billion in free capital can be leveraged to a total of €1.55 trillion. So far so good: after all, as noted Euro-supporter Willem Buiter points out in a just released piece titled "Can Sovereign Debt Insurance by the EFSF be the "Big Bazooka" that Saves the Euro?" there is only €900 billion in financing needs for the two countries until Q2 2013. As such the EFSF would take care of Europe's issues for at least 2 years, or so the thinking goes. There are two major problems with this math however, and Buiter makes them all too clear....Buiter's unpleasant, for Allianz, Merkel and Sarkozy conclusion is that "that would likely not fund the Spanish and Italian sovereigns until the end of 2012. It would not be a big bazooka but a small pea shooter."
The last time (May 2010) when the head of the worst performing division at Goldman, GSAM's Jim O'Neill openly taunted the market skeptics ("Anyhow, dear grizzlies....bet your [sic] worried about today’s rally? See u later.") the market proceeded to implode with such ferocity (not to mention see the first and biggest SEC fine charged against his firm for CDO rigging) that it took QE2 to prevent a depressionary relapse. Now, following the latest two week surge in risk assets, driven as we currently speculate primarily due to a FX repatriation out of French banks on asset liquidation and USD to EUR conversion, Jim O'Neill has once again crawled out of his shell and has gone "bear hunting." However, so as not to jinx the ongoing melt up on proceeding liquidations, he is far more subdued and rhetorically answer himself: "So are the bears beaten? As tempting as it is, alas I think not - at least yet." He continues, putting the onus of the growth thesis once again squarely on China: "While the Euro challenges are immense, I don’t see them as being necessarily of the power to drag down either China or the US, or both. While it is perfectly possible, the US and China have coped perfectly well with Japan’s weakness for a long period, so I don’t see why they can’t cope with a struggling Europe. A collapsing Europe would be a different story, but a struggling Europe, that shouldn’t be too demanding. As for Europe, the bar has been raised these past few weeks, as markets have recovered and expectations of a Big Bang increased. There are all sorts of dilemmas remaining, ranging from Berlusconi’s tentative hold of power in Italy to the divergence of stances on the right broad European solution. What we really need from Europe is to just not implode, that would be a problem for the rest of us and the markets." Unfortunately for Jim, he appears to have missed the "paradigm shift" when few if any buy the China as world savior phenotype any more, and instead most finally see what Jim Chanos and other fringe bloggers have been claiming for year. As for the bears, Jim, just like last time, fear not - the bears will once again have the last laugh.
Van Rompuy And Barroso Announce €440 Billion EFSF Fully Functional; Now, How Do They Expand It To €3 Trillion?Submitted by Tyler Durden on 10/13/2011 12:38 -0500
Following the Slovak approval vote earlier, the EFSF is now fully functional, or so say Europe's two unelected leader Herman Van Rompuy and Jose Barroso (full statement here). Which is great, considering it only took Europe 3 months to ratify something that was supposed to be operational 2 months ago, and take over for the ECB's SMP declining bond purchases sometime in mid-September. And now, as Zero Hedge explained back in July, comes the hart part where the Eurozone realizes that the EFSF, which recently has found it has more uses than a Swiss Army Knife and can be used as a central bank, as a guarantor, as an insurance policy, as a CDO squared, cubed, etc, etc, or at least so the rumors go, has to be expanded from $440 billion to €3.5 billion. Recall: "slowly the sell side is coming to the realization that not only will the EFSF have to be expanded (that much was known), but that Germany, and specifically the outright economy, will be on the hook by an unprecedented amount of money. And expanded it will have to be: not by two, not by three, but by a cool four times, to a unbelievable €3.5 trillion which according to Daiwa's Head of Economic Research, Grant Lewis, is an act which will be necessary to convince financial markets of euro area resolve to save Italy and Spain." That was two months ago. Finally, the governments, which back then religiously denied such reporting as scaremongering, are getting on the bandwagon. It was none other than Le Figaro, mouthpiece of the country that has the most to lose from the inability to ringfence a Greek fallout, that said yesterday: "The euro area reflects one of several options to increase by up to five times, or more than 2500 billion euros, the firepower of its relief fund for countries in financial difficulty (EFSF), said on Wednesday AFP European sources." In other words, the target number is now known, and nobody is ashamed to put it out there: between €2.5 and €3.5 trillion. The only question is what form it will take: yesterday it was a bank, today it is an insurance "fund", tomorrow who knows - gotta keep those rumors a surprise after all: they don't call the EFSF the modern version of the Swiss Army Bailout knife for nothing.
I personally believe that there is no "free" alpha. That said, there is a way to earn returns that may look like alpha, especially if you are an astute student of human nature. You can make a bet when other people are behaving irrationally, as when you buy when there is blood in the street.
Now we have a new plan. EFSF would take first loss on the full guarantee amount of 726 billion. Given everything that EFSF can now invest in, and the fact that it is taking first loss risk, the potential loss is 726 billion. So in a little over a year, the risk of loss transfer from private companies to sovereign nations has increased from 120 billion, to 270 billion, to 360 billion, to the possibility of 726 billion! That seems bad enough, but the situation is worse than that. At each turn, Greece has underperformed and been found to have bigger needs than previously thought, but the latest IMF decision to go ahead with the next tranche anyways, sends a clear signal to Greece that they are in the drivers seat. Why do more now when IMF will keep picking up the tab until you finally decide that drachma's suit you better. Portugal cannot be blind. It sees where Greece has failed but still gotten money, and that Italy barely goes through the motions of pretending to try, so why should they?
The Latest Incarnation Of The European CDO Cubed Bailout "Swiss Army Knife": A Multi-Trillion Insurance PolicySubmitted by Tyler Durden on 10/11/2011 13:13 -0500
A few weeks ago Steve Liesman ramped stocks higher for the day after he released a subsequently disproven rumor that the EFSF would become a CDO square, recycling private investments into sovereign debt. Well that rumor is now dead and buried, so it is time for the next one involving that uber multi-functional Swiss Army Knife which is the EFSF, and apparently has an infinite+1 number of applications, none of which involve actual cash funding. The source of this latest brilliant idea is Pimco parent, Allianz, which has trillions in fixed income exposure all over the world, so it is no wonder it is pushing hard for the world's taxpayers to bail it out. Only instead of a recycling cash, this time the EFSF will become Fed-Lite, "insuring" trillions in debt.
Bob Janjuah: "In One Year I Expect Global Equities To Be 25%/30% Lower; The S&P Will Reach Low 1000s In October"Submitted by Tyler Durden on 10/03/2011 06:56 -0500
Nomura Bob is back with another hotly anticipated if, unfortunately, grammatically flawless, market strategy piece. Short and sweet, Bob as usual cuts right to the point. "My secular view remains bearish. In or within a year from now I expect global equities to be 25% to 30% lower. My S&P500 target for the low in 2012 remains 800/900, and I think an 'undershoot' into the 700s is entirely possible. In this bearish outcome I would expect 10-year bund yields at 1% to 1.25%, 10 year UST yields at 1.25% to 1.5%, and 10-year gilts below 2%. The USD should do well, credit and commodities should not....On a secular basis, investors should remain cautious, and focus on strong balance sheets and strong/robust business models. I expect the next year to be about capital and job preservation. Any counter-trend rally should be tradable but short lived - it should be viewed opportunistically."
The big news this morning, aside from the relatively strong economic data out of the US (of course, we’ll have to wait for the downward revision on jobs to see the real number, which is an ongoing statistical aberration for the record books but anyway) is the news that the German parliament overwhelmingly passed the measure to support the EFSF. In reality, this wasn’t really that newsworthy as passing this particular legislation had been expected since Germany originally agreed to the deal in principal earlier this summer. This was not the leveraged, CDO^2 like structure that failed NY Federal Reserve President cum Treasury Secretary Tim Geithner had been pitching recently in Europe. No, that idea has been dismissed out of hand and Mr. Geithner properly ridiculed for recommending that the already over-taxed European people be further Major Kong-style strapped to the ticking atom bomb that is the European banks’ leveraged balance sheets.
In case you haven’t noticed lately, the market doesn’t move on good or bad earnings or economic data, it moves on political rumors and innuendo about government’s willingness to continue the TARP/cheap money/QE lifeline to the terribly over-leveraged banking sector. It’s especially troubling when you consider the faith most members of Congress place in Ben Bernanke and the other Oracles of Delphi at the Fed. One area that’s going to come home to roost very soon is the zero interest rate policy (ZIRP) that has been in place since late ‘08/early ’09.
There are few things more cringe-inducing than a government-subsidized bank CEO spouting self-serving, entitlement-laden idiocy to the world just because he and his bank might be subject to some extra constraints. That hasn’t stopped JPM Chase CEO Jamie Dimon from acting like a spoiled, sociopathic brat while characterizing proposed Basel III capital requirements and regulations as ‘anti-American’ at every opportunity. They are not ‘anti-American’ but globally risk-mitigating in a time of widespread economic Depression, a point lost in the haze of Dimon’s megalomania....Here’s what’s really anti-American – big banks receiving extreme federal assistance while the rest of the country is crushed, loan refinancing and other foreclosure reducing negotiations are anemic, and both private and public sectors can’t finance enough job growth to alter our horrific unemployment or poverty situation.
All the markets continue to bask in the glow of the new improved EFSF. From a low of 1115, the S&P futures are now trading at 1175. A pretty impressive 5% move. Stocks in Europe are doing even better and credit is following along. By now I would have hoped to see some details of this alleged new beast that EFSF has morphed into. While I search for detail all I could see, so far, are denials by Germany and Spain, some support from Austria, and additional rumors of what is to come. Every European politician outside of Germany can say this is a great idea, but if the money man doesn’t go along, is there really a deal? This isn’t a democracy, and only Germany controls German money. There was a brief headline that this new plan could cause S&P to downgrade Germany and France. As a back-up plan, there is talk about letting the EIB do the heavy lifting. Just in case the world wasn’t already controlled by enough 3 letter entities, welcome the EIB to the IMF, ECB, and FED party.
While overnight markets are rocking based on continued speculation coming from some completely uncorroborated and unconfirmed source that Europe has just boldly gone where even Goldman's Abacus has not dared to go before courtesy of the ECB's acceptance of a CDO squared "Enron Special" SPV, Germany has once again made it very clear that not only will there not be any expansion in the EFSF in regular terms, but certainly not in structural ones. As Goldman's Dirk Schumacher makes it very clear, any attempts at imposing on Germany a fait accompli reality that has no bearing in actual reality (especially one that excludes the only relevant decision-maker in Europe) will be met with increasing protests from the entire German ruling class. According to Die Welt, the Free Democratic Party is threatening to vote against overhaul of EFSF if discussions about leveraging fund don’t stop. Goldman elaborates: "FDP and CSU not fond of further increase of EFSF. Leading figures from the FDP and the CSU, the Bavarian branch of the CDU, rejected any thoughts of a further increase of the EFSF (either directly or indirectly through leverage). FDP general secretary Lindner said that "the chancellor should make clear immediately that there is no change to the business model of the EFSF." So, yes, consider that an official denial of the Liesman rumor which as typical, has no confirmation anywhere else.
UBS' Euro Doom And Gloom Team Releases Sequel: "The Eurozone Sovereign Crisis Has Entered A More Dangerous Phase"Submitted by Tyler Durden on 09/26/2011 18:39 -0500
From the same fine Swiss folks who three weeks ago (and before it was uncovered that when it comes to playing, or at least scapegoating, dangerously, UBS is second to none) brought you, "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change," comes the sequel: "We believe the Eurozone sovereign crisis has entered a more dangerous phase. Financial and banking stresses are plainly evident as concerns about sovereign default grow. Notwithstanding signs from Washington this past weekend that European and world leaders are willing to consider more decisive policies, concrete steps remain elusive. Yet rising uncertainty threatens an already weakened world economy." The Swiss Bank's conclusions? "First, Europe’s politicians and policy makers must do more to shore up the Eurozone and investor confidence more generally. Among others, that probably includes stronger capital buffers in the banking sector, an expanded EFSF/ESM to finance bank recapitalization and support Eurozone bond markets, and further fiscal austerity in ‘at-risk’ Eurozone countries. But these are big asks of Europe’s ‘political economy’. Hence, the second conclusion: The likelihood is that the crisis will intensify before policy can deliver what is required." Reality 1: Strange little "source" voices inside the heads of chief economists of financial comedy cable channels: 0.