The EFSF As A Hedge Fund

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

The EFSF Pitching Itself As A Hedge Fund

There are still so many alternatives on the table and each is so confusing it is hard to come up with a decent analysis.  In the meantime, here is something to think about.

EFSF walks into a meeting with a potential investor.  EFSF is looking to raise some additional capacity so needs to borrow some money.

The meeting starts off great.  The investor is told that EFSF has 780 billion of capital.  That is amazing, says the investor, not many people walk through the door with that much capital at launch.   The investor is curious as to when the fund will get the funding.  For the first time, EFSF looks a bit uncomfortable and has to explain it doesn't really have funding, it just has some guarantees.  The investor is a bit confused about this since they would rather have money than guarantees, but decides that if the guarantors are good enough, maybe it's okay.

The EFSF instantly replies that the guarantors are great, they are all highly rated.  Well, some of them are at least.  Well, actually a few are so weak that they won't actually ever provide the guarantees, they just let us include them in the pitchbook so we could have a bigger number.  The Investor is getting a little nervous at this time, but still intrigued, so wants to know how much from the good guarantors?  They are reasonably happy that the answer is 726 billion.  Still very impressive, but at least a little confused why they bother with the 780 billion.  Their experience as investors tells them that when someone lies a little, they tend to lie a lot.

The next obvious question is what are they going to do with the investors money, that doesn't have cash below it, just has some guarantees that would take losses before them.   The EFSF proudly announces that it is going to pay as much as possible to prop up weak banks and countries throughout the Eurozone.  The investors sit there with stunned looks on their face.  The EFSF fully enjoying how awestruck the potential investors are, explain that there are many countries and some banks that cannot receive the financing that they need because they are having cash flow problems, are over leveraged, and quite simply are in deep trouble unless someone is will to buy their bonds at aggressive prices.  As the investors finally regain their composure, they are sure they must have misunderstood.

So, your business plan is to go and buy stuff that no one wants, that is unlikely to ever be in position to repay the debt, and you aren't even price sensitive?  The EFSF guys are getting very excited, they can tell this investor is on the hook, and now all they have to do is reel them in.  They explain that it is even better than that.  A couple of the big guarantors are in trouble themselves, but by buying their bonds we help ensure that they don't default.  Investor, now wishing they were anywhere but at this pitch, frowns, rubs hand over face, and asks for clarity.  Are you really telling me that some of the assets you purchase will be debt of the countries that are providing the guaranty?  The EFSF can smell a sale, and explains once again it is even better than that, and reminds the investor that not only will they be buying bonds of some of the countries that are providing the guarantees, but they will also be buying equity stakes in the banks of those countries.

The investor now just can't resist and asks what is going to happen if someone defaults.  For the first time EFSF is a bit confused.  They had been told this investor was a smart guy and they cannot understand why he would be asking such a dumb question.  The EFSF guys do a little wiggle of the head, put on their best perplexed look, and trying keep the disdain out of their voice as they ask what the investor means by default?  Investor, now beginning to enjoy this says he really wants to know what happens if something they bought defaults.  Now the EFSF guys are getting annoyed.  They explain the purpose of EFSF is to ensure these things don't default and besides, the banks and the ECB all own the same stuff so they can't default.  The meeting is breaking down now.  The investor is starting to get frustrated.  No longer any chance of getting involved in this fiasco, but really wants to know what the EFSF plan is if there is a default.  The EFSF guys have had enough, this investor is clearly an idiot, but out of politeness, explains one more time if there can't be a default, but if there was a default, they would just get more guarantees.  The investor is slowly losing his cool, and demands to know who is going to provide you with more guarantees if the guarantees come from the countries who are defaulting?  EFSF has had enough, and says with all due politeness, that clearly this deal is just too complex for you and they will have to go down the street to dumb bank who will instantly see the value of this and subscribe for a few hundred million.

Investor is left shaking their head and trying to reach Michael Lewis because they want to be in on the ground floor of the Big Short II.

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danger close here's picture

Good god copper down 6%, es should be

dasein211's picture

It will be. They kept this shit afloat for so long that when realization hits the panic will be epic. Gravity always wins. Be patient.

Smithovsky's picture

Forget ground floor, how do I get to the basement?

cat2's picture

Guarantee deflation.  Wealth to buy PM is disappearing fast.

danger close here's picture

Lots of money stuck above 1200; when this bitch drops, itll be a elevator

DormRoom's picture

SPX 1190 is support.. below that, and everyone/algos hits sell.

MillionDollarBonus_'s picture

It is typical for selfish capitalists to only care about PROFIT. The EFSF is not a GREEDY hedge fund - the EFSF was created to HELP struggling countries for free because they are compassionate. This is something right-wing capitalists can't seem to understand. Not everything is about profiting. Sometimes the government needs to take peoples' money by force to make sure it is distributed fairly - otherwise nasty corporations will keep all the money for themselves. Gifted politicians and political advisors can be trusted to make sure resources are reallocated FAIRLY, for maximum freedom, prosperity and upward mobility.

Smithovsky's picture

look, it's obvious to everyone here that you're only writing to agitate. someone says A, you say B.  it's getting pretty old. it would be fine if you actually believed it, then one could have a normal conversation with you, but you just love being a dick

fonestar's picture

MDB just likes the attention.  The lame sarcasm is lost upon those on the Yahoo Finance boards...

Manthong's picture

Looks like it's time for this gem again:

"I think it's called laughing as you sink."

Quixotic_Not's picture

No worries, once OWS elects Obama/Stalin 2012 there'll be free money for everyone!

Who needs those capitalist barbaric relics of pigish imperialists - Gold & silver are for the 1% bourgeoisie!

Now, where is my red flag...

Motley Fool's picture

It's satire and it's quite brilliant. Green from me. :)

11b40's picture

No question he loves the attention...but don't we all?

First time I ran across one of his 'contraian' posts, I spent 15 minutes on a pants-on-fire retort.  It was only after posting and continuing to follow the conversations that I realized I had been fooled....badly, too.

MDB is very well informed and very clever.  Otherwise, it would be impossible to thrust the spear with such expertise.  Now, I look forward to his posts, much in the way I appreciate WB7's socio/econo/political art.  In fact, maybe we should ask the Tylers to give him a masthead position from time to time ;-0

DormRoom's picture

@Million dude, I have Karl Marx bedsheets. I'm as left as you can get.


But a leverage EFSF is a vehicle for the French to recapitalize its banks on Germany's dime.  It doesn't solve structural imbalances.  It's another synthetic financial instument to redistribute wealth from taxpayers to bankers.  If Germany goes along with it, it's carte blanche for French banks to rape Europa in the future.  In the long run a leverage EFSF will likely hurt, rather than help Europeans, especially if you are German.

The Limerick King's picture

EFSF = Euro Fraud Smokescreen Fund

lasvegaspersona's picture


bedsheets...that's funny

slaughterer's picture

MDB is getting less subtle (i.e. "Gifted politicians") but his sarcasm is just as much appreciated as a Kliben cartoon.  (MDB = +1 from me, as always)

Lord Blankcheck's picture

You sure he isn't  Barry "TOTUS" Soetoro?

fonestar's picture

No penmanship or prose.  You're not even funny.... just lame and pathetic.

Clayton Bigsby's picture

Judging from the other replies, this is actually the intended statement and not a satire?  Seriously?  How's the weather over there at Zucotti Park, deadbeat?

Don Birnam's picture

Nah, it's simply his shtick here on ZH. Million Dollar is a veteran of the Borscht Belt. His routine goes way back.

Silver Pullet's picture

MDB sounds like a character out of Atlas Shrugged.

piceridu's picture

MDB...keep 'em comin! You have me looking for your posts now. This lounge show gets better and better every night.

Random_Robert's picture

"Gifted politicians and political advisors can be trusted to make sure resources are reallocated FAIRLY, for maximum freedom, prosperity and upward mobility."

-Yup, where are Goering, Goebbels, and Himler when you really need them...?



slaughterer's picture

SPX 1190 is maximum option pain for tomorrow and support.  It will be hit and maintained.

srsly-wtf's picture

Gravity wins unless you're a bubble filled with Helium or hot air, can't decide which is more appropriate here. 

Harlequin001's picture

That's the most sensible thng you've said yet...

jdelano's picture

this is brilliant.  My favorite post of the week.

doomz78's picture

The dow and S&P 500 are rallying.. lol  What the hell is going on?   Maybe it's hope for todays european meeting. hahah  I dont know.

adrin's picture

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Jim in MN's picture

I can't seem to face up to the facts
I'm tense and nervous and I can't relax
I can't sleep, 'cause my bed's on fire
Don't touch me, I'm a real live wire

Psycho killer, qu'est-ce que c'est?
Fa, fa, fa, fa, fa, fa, fa, far better
Run, run, run, run, run, run away
Psycho killer, qu'est-ce que c'est?
Fa, fa, fa, fa, fa, fa, fa, far better
Run, run, run, run, run, run away
Oh-ho-ho-ho, aye-yi-yi-yi-yi, ooh

--Talking Heads, Psycho Killer

TheLooza's picture



AND FT Dutifully reports:

 - Private Investors Independently Evaluate EFSF fund for Participation

 - Investor To Potentially Contribute 243 Billion   [Random number that sounds like it is based on a non-random number]

And..Now we Do Melt up Dance.

Bring out the French Virgins for faucking!

slaughterer's picture

Well, if the "investor" with the $243b is our bath-tub letch from Omaha, then BRK will be downgraded in a week or two by at least S&P and Fitch (BRK owns Moody's).  (After all, Warren has some significant Euro investment).  But I suspect it is actually PIMCO.  

Jim in MN's picture

Either way, it ends up in 'Life During Wartime'

We dress like students, we dress like housewives
Or in a suit and a tie
I changed my hairstyle so many times now
Don't know what I look like

machineh's picture

I guess 'reflexivity' [pace Soros] and 'circularity' ain't the same thing.

Let's break the Bank of Europe! 

fonestar's picture

And of course Gold and Silver sell off massively.  Yep, makes perfect sense folks, people are just anxious to dump their Gold right now!!

srsly-wtf's picture

The PPT draws a line at 1200 S&P it appears.....even if the music stops!

bnbdnb's picture

I want whatever the EFSF is smoking.

Irish66's picture

Nice way to understand this

The Limerick King's picture



The EFSF is a fraud

A monster just like FrankenDodd

The Kleptocrat game

 Is always the same

They get rich while the sheep get the rod.

Village Smithy's picture

Priceless Mr. Tchir.

Grand Supercycle's picture

NASDAQ megaphone pattern on daily chart indicates big move ahead.

USD weekly chart remains bullish and as predicted for some time further dollar upside expected.

Sutton's picture

A hedge fund created specifically designed to overpay for bonds.

Sounds like a Bernanke project.