Spain Plunders 90% Of Social Security Fund To Buy Its Own Debt

Tyler Durden's picture

With Spanish 10Y yields hovering at a 'relatively' healthy 5%, having been driven inexorably lower on the promise of ECB assistance at some time in the future, the market has become increasingly unsure of just who it is that keeps bidding for this stuff. Well, wonder no longer. As the WSJ notes, Spain has been quietly tapping the country's richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds - with at least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt. Of course, this is nothing new, the US (and the Irish) have been using quasi-government entities to fund themselves in a mutually-destructive circle-jerk for years - the only difference being there are other buyers in the Treasury market, whereas in Spain the marginal buyer is critical to support the sinking ship. The Spanish defend the use of pension funds to buy bonds as sustainable as long as it can issue bonds - and yet the only way it can actually get the bonds off in the public markets is through using the pension fund assets. The pensioners sum it up perfectly "We are very worried about this, we just don't know who's going to pay for the pensions of those who are younger now," or those who are older we would add.

Via Wall Street Journal: Spain Drains Pension Fund In Borrowing Spree

Spain has been quietly tapping the country's richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund's role as guarantor of future pension payouts.


Now the scarcely noticed borrowing spree, carried out amid a prolonged economic crisis, is about to end, because there is little left to take. At least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt, according to official figures, and the government has begun withdrawing cash for emergency payments.


Although the trend has drawn little public attention or controversy, it has become a matter of concern for the relatively few independent financial analysts who study the fund, which is used to guarantee future payments of pensions.




In addition, there are worries that Social Security reserves for paying future pensioners are running out much quicker than expected.


In November, the government withdrew €4 billion from the reserve fund to pay pensions, the second time in history it had withdrawn cash. The first time was in September, when it took €3 billion to cover unspecified treasury needs.


Together, the emergency withdrawals surpassed the legal annual limit, so the government temporarily raised the cap.


"We are very worried about this," says Dolores San Martín, president of the largest association of pensioners in Asturias, a small region that has one of the highest percentages of retirees in Spain. "We just don't know who's going to pay for the pensions of those who are younger now."




After the crisis began, some of those countries began using the pension reserves for other contingencies, such covering a drop in foreign demand for their government bonds. Since the collapse of Ireland's property boom, for example, most of its pension fund has been used to buy shares of nationalized banks and real estate for which no foreign buyers could be found.


"Most of the [Spanish] fund is an accounting trick," said Javier Díaz-Giménez, an economics professor in Spain's IESE business school. "The government is lending money to another branch of government."


Spanish officials defend the heavy investment of the Social Security Reserve Fund in their government's high-risk bonds. They say the practice is sustainable as long as Spain can continue borrowing in financial markets, and they predict the economy will start to recover late in 2013, easing the debt crisis.




"With foreign investors staying away from the Spanish debt market, you're going to need all the support you can get from domestic players," said Rubén Segura-Cayuela, an economist with Bank of America-Merrill Lynch.




Spain's commercial banks already have increased their Spanish government-bond portfolio by a factor of six since the start of the crisis in 2008, and now own one-third of government bonds in circulation.


The percentage of Spanish government debt held by the Social Security Reserve Fund stood at 55% in 2008, according to official figures; by the end of 2011 it had risen to 90%. Analysts say the percentage has continued to rise, even as international agencies have lowered Spain's credit ratings.


Spain's continued use of those reserves to buy its own bonds appears to violate a rule set by government decree that mandates their investment only in securities "of high credit quality and a significant degree of liquidity."




But with unemployment now above 25% of the workforce and fewer wage earners paying in, the Social Security System is about €3 billion in deficit, according to government estimates.

And in other news, and completing the picture, if not the circle jerk, is news from Libremercado that according to the Spanish Confederantion of Employer Organizations, some 60% of the Spanish companies are now losing money. Via Google translate:

The President of the Spanish Confederation of Employer Organizations (CEOE) has estimated that "60 percent of the companies are in losses. Thing is that entrepreneurs are more thoughtful and went outside."


Joan Rosell responds well after being asked if he receives "Spanish citizens too negative" in an interview with the newspaper La Razon, who heads a special titled "2013, the recovery begins," and says that "social unrest is evident and business world is no exception. "


The president of the CEOE has considered that the private sector "has already made ??all the restructuring that had to do and the decline in employment in the private sector has virtually stopped. now is the restructuring of the public sector."


After defining the first year of Mariano Rajoy in government as a year of shock, Rosell has considered that the Spanish economy remains "superfluous fat by many sides.'s Central government, regional and local. Avoid duplication. We are a country hiperregulado ".

It is not exactly clear why google translate had a problem with that last word...

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FreeMktFisherMN's picture

The Germans and just people in productive should just go Galt and only trade their goods with people who are actual customers, i.e., those  able to pay with something of comparable value. 

tsx500's picture

this could NEVER happen here .....  right   ? ? ?

IvyMike's picture

Whenever you think you are facing a contradiction, check your premises.

sunaJ's picture

I'm so glad that I am not psychologically "all in" to this system.  I dunno how people are going to deal with "nothing left."  Is that when we start seeing more face-eaters?

Buck Johnson's picture

When this ride is over, people will truly see how much of a joke their whole economy truly was.

Fukushima Sam's picture

Pretty sure this is all coming off as expected.

Pinto Currency's picture


100% of the Social Security trust fund has been borrowed by the fed gov and is in i.o.u.'s (Treasuries).

$2.7 trillion worth.

economics9698's picture

Yep, we can't plunder what is already plundered.

Beam Me Up Scotty's picture

Hey, Social Security is a great American investment.  After all, who wouldnt think that if you give Uncle Sam a $1 today he will give you $.75 cents when you retire isn't a good deal?  I mean, you could lose it all in the stawk market and have nothing, or get something from Uncle.  Which would YOU chose?

General Decline's picture

Show me on this anotomically correct doll where Uncle Sam touched you.

fonzannoon's picture

Right on my balls and he won't stop squeezing!

Michaelwiseguy's picture

The complete and total worldwide economic collapse will fix most of we the peoples problems for us. And it'll be way too funny observing it happen.

Temporalist's picture

The answer is bath salts.  A video you won't see on US news:

US Navy's old salts up in arms over designer drugs

"A spate of violent psychosis-induced attacks in the United States has their navy so concerned it has commissioned a video as part of a campaign to prevent its sailors from turning into sea monsters."

dark pools of soros's picture

yahoo plastered that everywhere..  the PSA and everything

Dr Benway's picture

Except that it's all 100% total bullshit drug scare. The Faceeater Rudy Eugene had not taken bath salts - it all came back to one of the cops saying he thought that must have been it.

It would be preferable if commenters here ceased repeating blatant untruths.

WTFUD's picture

That's fighting talk! good on ya.

Ben(B) the two of us need live no more
You yes know what you've been fighting for
With no place to call my own
Was blown up by a Drone. . . .
You Have A Friend In Me!!!

Your a shooting star on your way to mars
On a collision course; a sattelite; your outta control
Your a sex machine ready to reload like an Atom bomb
Your gonna whoa whoa whoa whoa whoa Explode
Your burning through the sky yeah
16T degrees thats why they call you Mr Farenheit
Your Printing at the speed of light . .
Dont Stop me now i'm having such a good time
Having a ball! dont stop me now; dont stop me now
I dont want stop at all. . . La lala lala

NorthPole's picture

Why do we still call the guy 'Uncle Sam' ? Let's move on with the times and call him Uncle Joshua.

boogerbently's picture

...the miracle of compound interest.     :)

fallst's picture


3) The 1983 Social Security amendments enacted hefty increases in the payroll tax in order to generate large future surpluses.

4) As soon as the first surpluses began to role in, in 1985, the money was put into the general revenue fund and spent on other government programs. None of the surplus was saved or invested in anything. The surplus Social Security revenue, that was paid by working Americans, was used to replace the lost revenue from Reagan’s big income tax cuts that went primarily to the rich.

They skimmed 1.5% off FICA for "general revenue", raiding SS money for regular spending...a stealth 1.5% additional income tax to all brackets. 


donsluck's picture

SS is not a government expense. It is repayment of a loan coerced through the IRS from the workers, who have no choice but to contribute. "entitlements" are just that, we are entitled ABOVE ALL OTHERS to repayment of those loans. Members of Congress who want to plunder SS are nothing more than thieves.

akak's picture

That is an incredibly naive viewpoint.

The reality is that SS is a pay-as-you-go system, always has been, and there are NO "loans", "lockboxes", or "trust funds" of any kind in any practical sense --- the money that is extorted from your and my paychecks (and more!) is spent for SS recipients just as soon as our kleptocratic government gets its hands on it.

You might just as effectively argue that the burglar who robs your house has taken out a "loan" of property that he is honor-bound to repay.  Good luck with that one, too.

HoofHearted's picture

Nice how you wrote all of that, but you forgot the one important word: Ponzi.

Disenchanted's picture

Thanks fallst for posting that. +1

From your link:


The reason I don’t believe the government will honor its debt to Social Security without major political pressure is that it does not legally have to repay the money.  The government certainly has a moral obligation to do so, but, because of a 1960 U.S. Supreme Court ruling, it has an out.  In the case of Fleming v. Nestor, the Court ruled that nobody has a “contractual earned right” to Social Security benefits.  This ruling was based on Section 1104 of the 1935 Social Security Act which specifically states, “The right to alter, amend, or repeal any provision of this ACT is hereby reserved to the Congress.” Based on this strong language, Congress could do whatever it wanted to do with regard to changing or even eliminating Social Security.


Btw that should be Flemming v. Nestor.

Why you were called an idiot and received 8 down votes is beyond me. I guess the truth does hurt some of those who've 'invested' in political hero worship of one cult of personality or another.

Dr Benway's picture

There is a group of junkers here that neither read nor comprehend the articles or the comments, but just reflexively junk when they see certain keywords. That is the limit of their intelligence and contribution.

tabasco71's picture

Wow, are you saying there are HFT's on ZH as well now?

Shitters_Full's picture

Sorry but my programming required that I down arrow you for mentioning HFTs in a negative light.

My only regret is that I have but one junk to give!


DoChenRollingBearing's picture

Spain and the USA are rapidly "doing an Argentina": defaulting one way or another.

SAT 800's picture

I would choose, "Beam me up Scotty"; sigh.

BuckShotJones's picture

What is rehypothecation then?



theorist's picture

Do remember that although this is inexcusable the difference between the US and Spain is that Spain cannot print its currency. Therefore, when the Spanish government defaults the Spanish Reserve fund will have nothing but cliams on a government that cannot pay, whether by inflating the currency or otherwise. That makes the Spanish situation  a lot worse.

tabasco71's picture

I like ZH and the comments because they do make me think about things.  I don't buy the whole conspiracy theory or the working out as planning stuff completely as I don't think anything can be entirely controlled in todays world (an interesting question is whether those who preach revolution would turn me away if I asked if I could deposit my money with them instead of the banks?)

I agree there are those with more control than others.  If I step back a few centuries when towns were new and small and a group of guys offered to start managing everyone's affairs, then it is pretty logical to assume that they took a small skim to remunerate themselves for their effort.  Today's systems have grown organically from that and I don't have a total problem with it because I couldn't do it much better - certainly not with the vast and rapid increases in population that have been possible from all the revolutions and modermisations taken place within all the various civilisations around the world.  Also, I don't want to bother myself with everyone else's administration - I'm too busy doing things I enjoy rather than managing everyone elses affairs (my choice).

I think a big part of todays issue is that people are just getting too lazy. If something can't be done online then its too much effort and too labour-intensive.  Rather than do a decade's work, I'll just strip the equity out of my property.  Yes, banks were to blame for getting too carried away, but they can't sell debt if no-one wants it and demand at the time was so great they had to create synthetic produces to keep up with it.

Anyway, have to wrap up my ramblings as have work to do, but I'm pretty sure the burgeoning populations are the real battle for governments and all the hamfisted and inappropriate policies are mostly as a result of that - as resources get harder to come by, those who have are the ones who get served first.  I resent not being one of them, but there's nothing I can do other than try to scrape a little bit off the system at the same time as I contribute to it.

I mean there is of course the legacy of what we leave for our children, but there is also respect to pay to our elders.  My father spent all his days working to make what he could for me and he gave his pound of flesh.... am I really all that above doing the same?

Anusocracy's picture

But will they understand how truly evil government is?

SAT 800's picture

I doubt it. The explanation machine, the opinion creator, will "explain" the things "no one could have foreseen"'; and there will be scapegoats, of course. At least, that's the way it's usually done.

MiguelitoRaton's picture

Throwing good money after bad...will not end well.

Water Is Wet's picture


Salon's picture

We have seen speculators chasing their losses so many times.

G-R-U-N-T's picture

"I dunno how people are going to deal with "nothing left."  Is that when we start seeing more face-eaters?"

sunaJ, When there is "nothing left" there is nothing left to lose, except maybe your face...


akak's picture

Everything I say is the truth.

I am lying.

slyhill's picture

Does not compute...unless you are an economist.

akak's picture

Broken windows represent an economic loss.

Breaking windows is good for the economy.

nonclaim's picture

Same for a broken currency ...

TN Jed's picture

He's from Truthville and you can trust him.  I should know, I'm from Liars Town. 

slyhill's picture

Better head back to Tennessee, Jed.

TN Jed's picture

Ain't no place I'd rather be.


S5936's picture

I ran into Charlie Ford, he blacked my eye and he kicked my dog !

DaveyJones's picture

you know the story of the island with the identical twins where one always lies and one always tells the truth?