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EFSF - A Flowchart
Via Peter Tchir of TF Market Advisors
Here is our best attempt at a flow chart for the EFSF that tries to capture everything it does. If it looks complicated, that is because it is complicated.
Member States
There are 17 Member States who provide Guarantees to the EFSF. Ireland, Portugal, and Greece have “stepped out” and are actually not providing guarantees. Italy and Spain are likely to use funds so it is unclear if they will remain Member States providing Guarantees. There are 6 AAA Member States, their guarantees are just over €440 billion. Their guarantees limit the maximum amount of guarantees that the EFSF can issue and still achieve a AAA rating.
EFSF Fund Raising
The EFSF has been issuing notes or bonds that rely on guarantees from the EFSF (and its Member States) to raise money. This program would continue. The EFSF has contemplated issuing short dated bills and possibly utilizing repo agreements. All of these money raising efforts will count against the maximum of €440 billion AAA guarantees at its disposal.
EFSF SPV’s and PPC’s
The EFSF is planning on creating a unique SPV for each bond that it provides a PPC for. So each Italian bond that is issued under the PPC program would have a unique SPV and tradable PPC. The list of possible PPC’s reminds me a little bit of a bobsled race at the Olympics. In the current draft, the EFSF hopes to use guarantees rather than cash to provide “credit support” to the SPV’s that then issue the PPC’s. Those guarantees would also count against the €440 billion capacity of AAA guarantees. I think this structure has several problems, but we will look at the PPC’s more closely later today in a separate article.
EFSF Use of Proceeds
Assuming the EFSF gets away with its plans to only use guarantees for the PPC’s, then the proceeds from their fund raising has four outlets. They have to fund existing commitments made to Greece, Ireland, and Portugal. It appears that the EFSF will not recapitalize banks directly, but will instead make loans to countries so they can recapitalize their own banks. In any case, this will use up cash raised from either bond sales or bill sales (this cannot use the repo market). The EFSF would also launch the Primary Market Purchase program (PMP) and would be able to intervene in the secondary markets. Both of these programs would rely on advice from the ECB, particularly for the secondary market activity. The proceeds for this could come from bond sales, but may also be able to use the repo market (details and how that impacts the EFSF’s ratings need to be determined). The EFSF also plans to launch some Precautionary Programs. These programs would provide relatively short term funding, with rollover provisions, and would be based on similar IMF facilities. It is contemplated that the IMF would be involved in management of these programs.
CIF’s
I did not show the co-investment approach since it is too vague to even guess how the flows would look, but can be clearly added later.
Stretching the guarantees
The EFSF has many mandates and lots of potential demands for money in serving those goals. Only the PPC shows an obvious attempt to get some leverage from the proceeds. With the markets remaining weak for German and French paper, and existing EFSF paper, it is unclear how much money can be raised, or how much they can leverage their AAA guarantees. The AAA would track any changes to any of the 5 largest AAA guarantors.
On Sunday we took a first cut at Analyzing the EFSF Guidelines <> and will provide a more detailed assessment of the PPC program (though our initial analysis shows lots of problems and minimal benefits from the program as currently contemplated by the EFSF).
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Flow chart, or Rorschach test ?
Where's the fuse on that thing? Timing is everything.
http://youtu.be/QoprzV1qCgs
Here is a link to the XXX color version of the same chart. You can't see Europe very well because of all the bankers, but she is there.
http://www.homeadultmovie.com/amateur-porn-tube/clusterfuck-3-scene.jpg
I would totally click on that link of yours, hh(because it's you, after all) but I'm waiting on a meal. Tempting though...
This version clearly illustrates the co-investment approach. The EFSF does seem to have quite a bit of liquidity being swapped. Can't have Europe drying up.
In Robo's famous words: LOL
HH....I don't even want to know how you found that picture! Best laugh I had for a couple of days, since it is all too true!!!!!!!!!!!!!!
Banzai could have fun with this?
It's a bat!
A much more useful gadget...
I have 90% of my 'money' in this thing. You in?
Notice that two arrows meet right across the word 'money', now is that a coincidence or prophecy?
Invest now, thank me later.
You kidding? I'm going all in baby. Full leveraged and damn the stoploss. And when it goes down, I will buy some moar, because it's such a fucking deal. I missed the opportunity with the Andresson Mezzanine fund, this one is not getting away from me.
Sounds like he is already fully allocated, but maybe we can talk GeneMarchbanks' wife/girlfriend into taking a co-investment approach with us?
It's a fukin casino, I am out.
pussy.
It's people like you, making statements like that have caused this mess in the first place. You are like that idiot back in 2007-2008 who turned to the guy next to him and asked what all this MBS/CDO crap was worth anyway. People like you who don't understand that the Dollar is backed by the US Government and the FED, while Gold is backed by nothing. So what's next from the likes of you? Calling the FED a Ponzi? The next thing you know you will be telling us that Greece is bankrupt and that the Euro is a schizo clusterfuck of a currency and that china is a bubble. Grow up, cut the crap an buy the dip in Netflix.
did you notice the SPV,s, special purpose vehicles incorporated in Delaware, Luxemburg, Guernsey, Cayman, Singapore etc.?
so the bankers gan make more tax free money!
What a beautiful world we live in.
Delaware isn't even a real place. Kinda like Narnia.
Forgot the recycling arrows back to the member states, it's a closed loop system.
EFSF ===D Germany.
Where is the Pac Man?
Laughable
Great minds think alike.
I picked Martin the Martian, because sometimes, (especially when I turn on the TV), I wish that I had come from Mars instead.
The shit flows downhill. I think I got it, tks.
I think the technical analytical term for this construct is "clusterfuck"
I thought this was the CBOE slush fund.
i thought this was one of your pictures :) no wonder they are back to begging the ecb to lend to the imf
WB7, this is precisely the sort of convoluted financial geometry which will drive a "Congressperson" to retire, and start a new career.
http://2.bp.blogspot.com/_n7RltmTdk-g/TOw8y3xMJZI/AAAAAAAAYFE/OYKaCMp1o7...
I'd read this but I'm easily confused before lunch.
Hey where 'Steve Liesman' in this flowchart?
Polishing the Bernank's knob so he can line up an interview.
I think hes wearing the boots.
Corzine has time on his hands, maybe he can explain it to us.
Corzine is a busy man. He has a couple billion dollars to hide. It's tough trying to figure out which offshore account to put it in. Then he has to formulate a plan to funnel Obummer's re-election campaign some money. So cut him some slack.
Hanging out with Michael Corleone.
I like that "Italy XX?"
jinx
Flowchart simplified: Complication aids dishonest men doing dishonest things.
Germans will love that
Holy shit all those guarantees changing magically into money! they must have some catalyst to help that magic transformation is it stupidity of "investors" or "high speed printing press"?
The Mandrake mechanism.
PPC:
http://www.equityhelpdesk.com/finance-news/tranched-efsf-or-tarp-lite
Partial Protection Certificate (PPC)
The PPC approach is included as one of the two proposals. They came up with a name so that is progress. It looks like payout would be linked to events that are very similar to CDS Credit Events.
IOU'S in, IOU's out. Problem solved. I have found the flow of my toilet to be a better flow chart of the EFSF, but you did an outstanding job Mr. Tchir.
Advanced Alchemy. The original was turning paper into real things. This more advanced alchemy turns digits into real things, as in "all your stuff belongs to us."
Yes, financial alchemy magically turns "your" assets into "their" assets
is it safe to assume they will be recapitalizing the same banks the plan to sell their efsf bonds??
this is better than obama's job program....this creates high paying jobs!
Where's the section that showa GS and JPM skimming fees?
EFSF is at least as fine as, say MS. Strong buy!
Where is the FED SWAP Window? UMMMMMMMMM???
Ahhh... remebers me of this little story:
A rich tourist enters the lobby in an small greece village.
She deposits 100 Euro in the reception to go and take a look at the rooms.
The hotel manager quickly takes the 100 Euro and runs to the slaughter to pay his debt.
The slaughter goes to the farmer and pays his debt.
The farmer takes the money to the gas station and pays his debt.
Gas station manager goes to the local prostitute and pays his debt.
And the prostitute goes to the hotel and pays her 100 Euro debt.
The hotel manager puts the 100 Euro on the counter just as the tourist returns to the reception.
She didn't like any of the rooms and takes her 100 Euro back.
The village is now happy and debt free...
that scares me
Flow charts are very useful, thanks for that. Would like to see one on the current tax system.
I do remember back in engineering school, they said to make something work well, you have to design it with as many moving parts as possible. No, wait, scratch that, they said the exact opposite, basically Keep It Simple Stupid. But since the EFSF is not beholden to the laws of physics, I'm sure KISS doesn't apply either.
/sarc
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