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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SimplePrinciple's picture

So Spain follows Argentina. And the Fed wonders if maybe US retirement money can replace the Fed in buying Treasuries? Ugh.

HurricaneSeason's picture

401Ks could keep things going another decade until the Chinese cut us off and the jobs come back. They're goal is to add 25 million jobs a year and should have plenty of consumers on their own side of the world by then.

SimplePrinciple's picture

China's running a trade surplus with the US and is not needing to be buying Treasuries.  If the US gov is thinking of mandating that US citizens' IRAs, 401ks, et. al. have some percentage of US govt debt big enough to offset the Fed, they better also figure on buying up all the Japanese and Chinese holdings, too, as intelligent investors that could get out would get out.  That really would be Argentina-style and would do bad things to the dollar.  It would make us competitive again, sort of like the poor peasants in China.

HurricaneSeason's picture

Who would want to give China and Japan the security of 401Ks et al backing up their motgage backed security and treasury bond purchases, besides China and Japan? That was never part of the deal. Those investments are backed by the full faith and credit of the United States of America, they knew that going in. The Feral Reserve on the other hand is our lender of last and only resort and they dont even have any money, now that's loyalty. We must reward them with security and higher taxes and austerity since they own the congress and president regardless of which party is in office. It wouldn't lower the value of the dollar if the Feral Reserve skims some off the top, that'll be stashed away for future generations of bankers unless they see China and Japan dumping their mortgage backed securities on the market cheap. Then the dollar would drop and that's what the politicians and Feral Reserve wants, so that the government promises can be cut in half by dollar devaluation.

Salon's picture

History repeats itself. First as a tragedy, then as a farce.

LeisureSmith's picture

Use the farce Luke, or as Rahm (It in your Fudge machine) Emanuel said "Never let a good crisis go to waste" Order out of chaos and all of that jazz.

HD's picture

If I ran these PIIG countries I would just start counterfeiting euros and be done with it. No disclosure, no bailouts - everything is "fixed" without the dog and pony show.

slyhill's picture

Isn't that the problem there? They forgot to add the "any bankrupt member can Print Euros at Will" clause in the pact.


EDIT: Oh, you said "counterfeit." Sorry.

Twodogs's picture

What's the difference between counterfeit Euros and official Euros backed by nothing at all?

SAT 800's picture

I'm glad you asked that question; really, I am. There's a very, very important difference between counterfeit Euros and offical Euros. It's, uh. uhh. it's, uhh; the paper. yes, that's it; real euros are printed on very very good paper. I hope that answers your question. next?

hooligan2009's picture

the spanish central bank can print euros as long as SPGB's remain investment grade (held in "pretend" welfare funs). pretty much the same in any country and its currency.

icanhasbailout's picture

they still have actual money in their Social Security accounts? Wow are they behind the times.

Freddie's picture

They have a "Lockbox."  Al Gore got his $100 lockbox payoff for his Tv "network' from Al Qeada today.

nmewn's picture

...last week I think...before the new tax rates on capital gains kick in.

The "burning" question is, will the male talking heads have to grow beards & the females wear burkas now?

And selling out to oil producing Qatar of all very Inconvenient Truth ;-) 

Charles Wilson's picture

No, this is Amerika.

The females grow beards and the males wear burkas.



DaveyJones's picture

yeah I was thinking about Qatar too. It's almost as if...he can be bought. You can payoff a vice president but you can't payoff his massage therapist

Freddie's picture

Do a little digging and you will find most of American TV (networks which own most of the channels) is backed by Saudi money and their supposed enemies aka Rahm, his brother et al.   Fox is and so are the others.  Disney's second largest shareholder Saudi/Al Waleed.   The only one that is not in deep is CBS/Viacom/VH1/MTV.  Sumner redstone has plenty of deals with them.

It is all about access to China's TV satellites and the Middle eastern (Saudi) sats. Why? Billions of people.  VH 1 alone  reaches 1 billion muslims in Indonesia.   Turn off TV and Hollywood.

Zwelgje's picture

Indonesia has 245 million citizens.

Disenchanted's picture



The Gore family and oil isn't a new thing...



For example, in the Democratic Party, Vice President Al Gore has a long-time relationship with Occidental Petroleum that has been enormously beneficial to the company. Occidental's late chairman, the controversial Armand Hammer, liked to say that he had Gore's father, Senator Albert Gore, Senior, quote, "in my back pocket", unquote. When the elder Gore left the Senate in 1970, Hammer hired him for $500,000 a year. Personally and professionally the vice president has profited from Occidental largess. To this day he still draws $20,000 a year from a land deal in Tennessee brokered between his father and Hammer. The total amount is more than $300,000. The personal relationship between young Gore and Hammer was very close throughout the 1980's, including trips on Hammer's private jet and constant campaign contributions.


For most of the 20th century, oil companies have tried unsuccessfully to obtain control of two oil fields owned and operated by the federal government: the Teapot Dome field in Casper, Wyoming, and the Elk Hills field in Bakersfield, California. Despite his public reputation as a staunch environmentalist, Gore recommended that the president approve giving oil companies access to this publicly owned land. It is land that the U.S. Navy has held as emergency reserves since 1912. In October, 1997, the Energy Department announced that the government would sell 47,000 acres of the Elk Hills reserve to Occidental.

Stuntgirl's picture

That's just because first we spent all our bank deposits guarantee fund...

fonzannoon's picture

Can someone connect the evil dots for me today? Last month the fed comes out and not only doubles down on QE but clearly states they will continue QE until well after the economy (year right) has begun to expand. They placed an emphasis on the fact that they would not wind down the program even if thing show improvement. Today there is a mutiny and several members want to end QE soon, at most by the end of the year.

Was this some long winded PM knockdown at the expense of setting off a treadury selloff prior to debt ceiling? That makes no sense. Was it because inflation reared it's ugly head? Nope? Unemployment hitting 6.5%? Nope.

Why would they come out a month after doubling down and indicate they want to reverse course? Unless they want to try to spark something? If so, what?

Being Free's picture

They have PM's in the crosshairs. When AU and it's brothers take off it's the end of the ponzi.  They will lie, cheat, steal, fuck your mother, or whatever to make the sheep afraid of the PM's.

DaveyJones's picture

they're fucking my children more than my mother.. fuckers

nmewn's picture


An honorable system of governance does not do this.

When the law becomes little more than a mechanism to steal from the productive and future generations, it ceases to be a law that will be respected by anyone. Add in the fact that vested interests inside government, use the same, to maintain their power, their influence & prestige and you have the perfect storm of unethical behavior leading to corruption...and finally...systemic collapse.

DaveyJones's picture

at some point the children will come to realize that they are the adult and move to stop their older, destructive kids. 

Winston Churchill's picture

Think the stage is being set for 401k money to be forced to  "invest" in UST's.

The Govt. is being paniced by the threat of the FedRes not funding the deficit.

Playing chess,not chequers here.

Now the FedRes doesn't want junk US debt either.They joined the club.

fonzannoon's picture

Then why threaten to end bond purchases and scare everyone out of the UST's they want everyone to buy?

Winston Churchill's picture

Mainly nobody else except them is buying them.80% now.

A message is being delivered .They expect pressure from other holders/players to

carry the water.

The 401k money was always their exit plan.Too tempting a target.


The Miser's picture

Taking 401k money and giving the owners of the 401ks a credit (treasuries) in their SS accounts is on the horizon.   It is only a matter of time.  After all, they need to re-distribute the wealth.  The rich need to do their fair share.  Shame on you for diverting federal taxes in your 401k when others have not. 

Almost Solvent's picture

Why stop at 401(k)? The minute they pull that trigger is the minute this whole thing is exposed to the average joe with his $15k "saved" up. Plus, most 401(k) $$ is in the stock market. So, that would tank the market in 2 seconds taking all that 401(k) $$ out of stocks and shoving it into bonds.  


Unless that is what they want - and if the end of the market is to be, then why not take every fucking dime in stocks and transfer it over to Bonds? Close out every mutual fund and trading house in the USA all at once. Now Unca Sam's bonds are the only thing anyone can invest in.


dark pools of soros's picture

no it will just be collateralized ...  rehypocathated or whatever..  spin and make more from nothing to support all our dreams

centerline's picture

The same game as last time, just more people going hawkish.  Playing into what we know (and others) - that QE can't end.  Just smoke and mirrors for the masses.  Nothing else - except a sign that pressure is starting to mount... big time.

Plus, they have the market cornered anyhow.  Keep in mind that funds desperately need yield and have no choice but to accommodate previously unheard of risk or go bust.  The game will be played right up until the music stops.

fonzannoon's picture

Why chance the spark of a treasury selloff? What was the goal? Knock PM's down a few bucks? In the process making themselves look like total schizophrenic nut jobs?

centerline's picture

I think the nut job thing is more like it.

Please don't throw me in the briar patch!  lol.

It's the eventual exit.  Fed was built to be dismantled.  Just like any other corporation built to veil and protect it's shareholders.

fonzannoon's picture

come on in centerline. I am out here in the deep end.

The fed may exit, but it won't send smoke signals. It will just end and take as many with it as possible.

FoeHammer's picture

I like where you are at fonz. Always liked your comments and lines of thought.


Maybe they are trying to drag down the price of PMs to discourage buying of said PMs either by Central Banks or sheeple? Trying to maintain the currency monoply by smashing the oppenents.


Who knows?!

fonzannoon's picture

That is probably the answer. I am probably complicating it, and thanks for the compliment. To do that at the expense of a bond selloff just blows my mind. Unless a bond selloff is what they want.

FoeHammer's picture

I think the commenter Al Huxley put it better terms than I ever could,

"I'm not sure how much of this stuff is planned and how much of the time they're just shooting from the hip and making shit up as they go now.  I'm pretty sure they have an overall game plan, but there are going to be surprises along the way - nobody has complete control of the way all of this unfolds."


Are the central planners omnicient and, more importantly, omnipotent? I doubt it. Maybe they are testing the waters?

IrritableBowels's picture

Read the fucking comments! Do the sheeple awaken in 2013?!

HurricaneSeason's picture

The Feral Reserve can't buy $5 trillion to $10 trillion more in treasury bonds at the same time they save mortgage backed securities Detroit, New Jersey, New York, Europe and pensions. They want to see interest rates go up even though the value of their bonds go down in the short term. Their capital of all those mortgage backed securities and treasury bonds could be called fraud and not need to be paid back if they raise their balance sheet to double digit trillions. They want to see the annual deficit at least cut in half and are signaling that even with millions of lost jobs involved. They were going to have to choke at some point. The Chinese and Japanese will never be paid and the Feral Reserve is looking iffy.

fonzannoon's picture

Why not just have an old fashioned market tank and go NIRP? Why spook the bond market? How are they going to cut the deficit in half? Keep going I'm listening.

HurricaneSeason's picture

Well, it might be a bit tea party republican, but they could cut off all aid to states. It doesn't make much sense for people in Detroit to pay for teachers and firemen in Cleveland. They say the federal government pays for one third of the state budgets, so stop doing it. Let them raise taxes at the local level. I'm taking a wild guess of $450 billion there. Then, cut off all foreign aid and enough military cuts to get another $150 billion. That gets us pretty close. Let the bush tax cuts(now the Obama tax cuts) expire early and we're there. The main issue is $250 a month labor on the other side of the world that dictates that we have to waste a lot of energy resources to keep that exploitation going as long as possible to keep the corporations rich. It's actually nonsense from anything but a fiat perspective and will collapse eventually. I hope for China to confiscate their factories and property to make up for their worthless treasury bonds and mortgage backed securities. I think the cure will come from outside the country, not congress or the president. The best plan B is bring in teachers and firemen on H1B visas and only pay them $15 an hour for the hours they actually work with no retirement in 20 years or 40 years. Maybe a free apartment. It'd be great for at least foreign language teachers, to start. If it's good for engineers, it's good for the rest.

centerline's picture

Just doing the only thing they really can - flap thier gums.  Problem now is that everyone is onto the fact the only thing they have left is serious shock and awe crap, and if it goes south they are screwed.  Instead, they are going to paint the politicians further into the corner.  Just watch.  This fiscal "cliff" thing is the setup.  Each round the politicians play right into it and dig a deeper hole.  We know this because thier is no way out without profound pain... the sort of pain the gets politicians kicked out of office and ends thier own gravy train in the process.  Not to mention that at least half those egomaniacs (if not more) think they can ride this beast into the sunset.

Cosimo de Medici's picture

I'm going to beat my dead horse here.

We might all be able to agree on one thing and start with the same assumption, which is that things suck and the outlook is not good

After that, we might differ.  There is a school of thought that is more comfortable---even when faced with a horrific near certainty---to think that some force is in charge.  Those of this school will accept a malevolent leadership just so long as it explains why things turned so badly.  They prefer to believe there is a plan and malice aforethought, because someone in control, even a malevolent force, leaves open the slight possibility of a deal with the devil.  The thought of randomness or abject incompetence at the helm scares them.  Man creates gods for the same reason, and then accepts all sorts of "works in strange ways" and Master Plans, rather than face the fact that "shit happens" due solely to physics and not some Infinite Morality.

The other school of thought, of which I am a member, is that those who reached positions of authority and control are in over their heads, haven't a clue what their machinations will unleash, will sometimes take false comfort in their arrogance---as in "models" and "research"---and other times just feel terribly insecure, might occasionally take advice from someone else who thinks he can game things to his favor, and ultimately just pretend to have things under control so as not to panic the masses.

In the end, they cry like babies and scream for mother.  I've got a pacifier ready for Ben when the time comes, but I'm still undecided as to whether I stick it in his mouth or shove it up his arse.

booboo's picture

There are only two dots on the page. One titled "Watch what we say" the other titled "Watch what we do" There is no connection, but I would stick with the second because they are fucking liars.


SAT 800's picture

Their boss, the swindler in chief, got re-elected; they don't give a shit now. I think they're just bored; maybe they'll fuck around with the economy a little, see what blows up.

nmewn's picture

Its all in government bonds...its all perfectly safe!...ROTFLMAO!!!

ZFiNX's picture

It is all to finance our next great world war, gentlemen. As these schemes have always been.