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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HurricaneSeason's picture

Yes, that's why "deficits don't matter" Chris Christie thinks they do, but what the hell does he know? We haven't even paid off World War II yet. All those good jobs back then supplying the war machine were free. The beauty of it is, we borrow at least $1300 billion a year and only pay $300 billion in interest. Try that at Bank of America. The government should have to pay 39% tax on their $1 trillion profit there and hire and accounting firm to look for loopholes.

Seasmoke's picture

how do you say LOCK BOX in Spanish ???......or massage my stomach ??

Chupacabra-322's picture

Lock box = Caja Fuerte

Massage my stomach = Masaje de estomago

FiatFapper's picture

That's a big wrap-around; worry when they start paying septuagenarians with BitCoins...

Jam Akin's picture

Coming VERY soon to a theatre near you.  

centerline's picture

I thikn that when it goes down, it goes down all at once.  There might be some tremors here and there.  But no test of the waters.  401k's probably get grabbed first...  fucking the private sector is pretty much a given anyhow.  The end game is all public sector pensions getting wiped out in a massive default along with SS and everything else.

HurricaneSeason's picture

The banks make the big decisions, not the president or congress. They don't want it to blow up and default. They beg China to double their currency value overnight and halve ours. The republicans, democrats and feral reserve all agree on that. It will bring factory jobs back, supposedly. It might help Boeing and Lockheed, that's about it. It'll cut their promises in half overnight. The Chinese will be more than happy to do it at some point, they're trying to add 25 million jobs a year.

Jack Burton's picture

Is this not just what America has done since the Vietnam war era.

nmewn's picture


They're just as safe as them being shoved into a filing cabinet somewhere in West Virginia.


John_Coltrane's picture

Yes, LBJ started it all financing the "great society" and vietnam war on a credit card with the huge deficit concealed by borrowing from SS.  Thus, LBJ is my candidate for the worst post war president actually born in America and thus eligible to be president (so Fabian Socialist Kenyans with counterfeit SS numbers don't count).  And for all those with very short historical memories who like to blame Bush remember, there would be no deficit without the great society programs of medicare and medicaid.  And LBJ also started food stamps.  Carter gets credit for starting the worthless Dept of Education and Energy.  Eliminate those along with TSA (Bush's baby) and you completely eliminate the deficit and would actually have cash funds to retire rather than roll over maturing bonds, thus eventually allowing a transition to a gold, not debt backed, currency.

As Reagan once said, "the ten scariest words in the English language are: I'm from the government and I'm here to help you"

And as Thatcher pointed out,  "the problem with socialism is pretty soon you run out of other people's money" 

Well we've just about run out of OPM and the Spanish did a long time ago.

KingTut's picture

Heck, we did this 30 years ago, what's the big deal?

The so-called  $4.5T SS "trust fund" comprosied mostly of the surplus from boomer paychecks is long gone.  The government now "owes" SS that surplus.  But the government has no money (that's why they borrow over $1T per year), so our SS benefits will have to come out of new tax revenues.  But since we're $1T short already, they are just going to borrow that too.  Except that nobody will loan us the money, so we'll just print it. Nice.

Overfed's picture

This should end well.

Silver Garbage Man's picture

Anybody out there that follows Zerohedge, SGT Report, Infowars ,Drudge Report, Max Keizer, Brother John,The Doc, Gerald Celente, Ranting Andy, King World News among many other very good websites Knows what is going on and you better be ready. GOLD AND SILVER. It has been ready to blow now for several years.If you get caught in this paper game IT IS YOUR FAULT.

DoChenRollingBearing's picture


Everyone should have gotten started years ago.

stormsailor's picture

made me sick today, had to send off my 941 and everybody's check was less.  


you work?  well bend over we need your pennies or we will go broke.  section 8 housing recipients need new mercedes, and tbtf need more liquidity. 



XitSam's picture

Obama needs a new vacation. Oops, he's still on the previous one.

knowless's picture


i dont see any 30% on that list.

"in the former industrial city of chicago"

just guessing the news outside of america doesn't paint as pretty a picture of our fine country. you all know there is blatant censorship in place already right?

Cabreado's picture

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

No, not "Spain" exactly.

A relative handful who are Spaniards much later than they are de facto criminals -- once in control, now in self-preservation.

Let's not implicate the country and its citizens -- let's take advantage of every opportunity to tell the truth, and implicate false leadership.

Practice up...


Stuntgirl's picture

I know, I get frustrated at the misinterpretation of a lot that is going on in Europe.

It still needs constant clarification that the Greek bailout money goes straight to foreign banks and funds, likewise in Spain. Spanish and greek people are not spending it.

That our entitled, subsidized classes are our political classes, and we don't have the samewealth redistribution problems the US has.

PIIGS media has been and still is MUCH more manipulated than in the US,if you can imagine that, and the people are making terrible decisions because of this.

Also noteworthy for those who don't understand why spaniards and possibly greeks don't react as abruptly as americans might in similar circumstances, is that our civil war baggages are very heavy and very recent. Noone I know is without direct relatives who were tortured, killed, raped, etc, and that will really make a people force themselves back from violence as much as they can.


Notarocketscientist's picture

A more accurate headline:




Anyone want to bet that Spanish govt officials' pension funds are not touched?

Stuntgirl's picture

Of course nobody touches govt. official's stuff.

Interestingly, In Spain, a Govt official will receive a salary from the party, a salary from the state for hatever post he's occupying, and if he/she decides to change post, will receive an INDEMNITY (for voluntary firing themselves) almost equal to their salary. This indemnity is higher than the average spanish salary.

These officials accumulate 4 or 5 government salaries while not even properly tending to one of their "jobs".

A citizens' law proposal to cut these accumulations got repealed LAST WEEK.

I also commend you on your use of "french and german BANKS", because there is a lot of anti-german feeling brewing up, and hey, guess what, the german people have nothing to do with it, they're getting shafted as well.


yogibear's picture

Can you say revolution?

Plundering it's Social Security to pay off IMF banksters. Go long gasoline, rags, bottles, fuel oil and fertilizer!

Time to hang some people from all the trees responsible.


knowless's picture



"And, while Turzhanskiy has the freedom to associate with whom he wishes and enjoys the freedom of expression, Peifer said his client was willing to agree to have no contact with any anarchist groups as a condition of his release. "


terms of bail issued includes limitations on political affiliations.

XitSam's picture

The trees are not responsible! Time to hang all the people responsible from the trees.  :)

Salon's picture

Make this go viral. Encourage ur friends to pass it on

Here are your orders, patriot.

The plan

rjs's picture

US Plunders 100% Of Social Security Fund To Buy Its Own Debt

AndrewJackson's picture

+ 4.5 trillion!!! Our economy is such a ponzi scheme, it is just one big sad joke. To bad average joe does not have the ability to understand the whole process of enslavement they are being put through.

Insideher Trading's picture

Spain in broke?

what the fuhhh???

When the FUCK did that happen?

HurricaneSeason's picture

They're not broke, they're overextended. Leveraged, so to speak.

inevitablecollapse's picture

i got over-extended once and couldn't walk straight for a week...hopefully they're back in shorter order 

samsara's picture

They can't be broke,  Germany still has checks in their check book.

BuckShotJones's picture

ZH had the story on Greek Public Pension Plan being forced by law ( quietly)  to purchase bad Greek debt.  We also know our 401k,IRA and the remaining private pensions are under plans for a similar bulk purchase of US Treasuries on a ongoing basis.

California, the nation's real " Emergency Broadcast System", had CalPers do a similar large "investment" with California debt..but don't worry...

"If this had been an actual emergency, the Attention Signal you just heard would have been followed by official information, news or instructions.

"This concludes this Emergency Broadcast System Test."

vincent's picture

Been trying to convince my mother that her SS check is safe here in the USA...except for the inflation issue, which will eventually rob her of any real purchasing power.

As much as I hate it, lying to her is best. Her mind will be gone before it happens, I hope.

We're all on our own. No news for youse folks. Peace

max bucket's picture

So the same people that got them into the mess are getting them out of it

Someone donate a compass and a packet of beef jerky quick

q99x2's picture

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

Thems fighten words there. Someone steals mine or my parents Social Security money and going to hunt them down.

Salon's picture

Read to the middle at least to find the grand strategy and plan.

Lots of people will be out a huntin'

Disenchanted's picture

q99x2 said:


Thems fighten words there. Someone steals mine or my parents Social Security money and going to hunt them down.


Sorry, but legally it's not yours nor theirs. That was decided in 1960 by SCOTUS.

Flemming v. Nestor


But guess what, legally you must continue to pay your FICA taxes from your income.

Sweet, eh?

AndrewJackson's picture

Don't you love the slight of hand with these people.

Atomizer's picture

Lockbox Bitchez.. Another 500 million dollar dream in selling a deteriorating business model under inadequate government math formulations.


Classic Infomercials

OldPhart's picture

Spaniards are pikers at raiding social security -- our 'Murican government has embezzled over 1,000% of the social security funds.

bugs_'s picture

me hedgies if there be one thing the Spanish know about it be PLUNDER!!! arrrrrrrrr

FubarNation's picture

They shoud have had a lock box.

FubarNation's picture

Courtesty of Al "Humpy' Gore that is.

GMadScientist's picture

No, it's all's "intragovernmental"... :)

Salon's picture

They owe it to themselves.


Bunga Bunga's picture

Get over it, a government can't go bankrupt, but their people can. Why should a government give up before they looted their last resort.... was never different in history.