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ESM, EFSF, Or EB. Will Any Of It Work?

Tyler Durden's picture




 

Via Peter Tchir of TF Market Advisors,

 

It appears that the market is cheering the move that the ESM will be implemented sooner than originally expected. That would be good if the ESM was materially different than the EFSF or if it was being done for some reason other than that the EFSF has been a total failure.

Imagine the applause when the EU decides to transfer the responsibility from the ESM to the EB (Eastern Bunny).

The EB is as likely to solve anything as the ESM is.

Fallacies about the ESM:

1) it can do more than the EFSF can - while that was true in August 2010 or whenever these were first announced, it is hardly true now. EFSF has been granted virtually all the same sort of risk taking (money giving) powers that the ESM has.

2) The ESM is "paid in capital" - yes, but minimal. Unless new documents come out the ESM was going to have actual capital of less than 10% and was going to rely on the guarantees and support of the members to issue debt in the market. Capital calls on the members by ESM seem slightly easier to make than under EFSF but the difference is only at the margin.

3) it could be 750 billion or a trillion. Since the very first EFSF announcement the headline number has been a bogus attempt to make things sound better than they are. Will there be "stepping out" members to reduce the amount? Will they try for a AA rating and thus be able to issue more debt in theory (while less clear in practice)?  Will debt strapped nations pull back from funding this?  Is it 100% voting so Finland would be happy?  Taking any EU headline number and dividing by 2 is a good starting point - remember the EFSF is already using up lines and who knows what else will be promised.

4) The ESM can be leveraged by the ECB?  Sure but as far as I can tell the ECB has been pretty good at finding loopholes to provide money to unworthy credit institutions for awhile. The questions are the same as leveraging EFSF. Will outside investors lend to a leveraged ESM? If the ECB lends to the ESM so it can leverage up and buy sovereign debt (including the bonds issued to make the capital contributions) what will have been done? As circular as it is, maybe that works or maybe that will be the ponzi that breaks the camel's back.

 

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Mon, 01/30/2012 - 16:25 | 2110692 zebra
zebra's picture

EEW!

Mon, 01/30/2012 - 16:25 | 2110695 LawsofPhysics
LawsofPhysics's picture

no, no, and no.  Cool I like easy pop quizes.  Exponential equations are indeed a bitch.  follow the purchasing power people.

Mon, 01/30/2012 - 16:28 | 2110708 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The Easter Bunny is totally gonna work.  Investors love Easter Bunnies!

Mon, 01/30/2012 - 16:31 | 2110722 oogs66
oogs66's picture

If they can harness the goose that lays golden eggs, problem solved

Mon, 01/30/2012 - 16:32 | 2110728 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Ask a Central Banker and they think they have.  Fiat is the philosopher's stone.

Mon, 01/30/2012 - 17:02 | 2110835 LetThemEatRand
LetThemEatRand's picture

They killed the goose that lays golden eggs when they transferred the wealth of the middle class to the oligarchs.  

Mon, 01/30/2012 - 16:42 | 2110767 The Limerick King
The Limerick King's picture

 

 

Can the ESM save Europe's ass?

Will ethanol soon replace gas?

Do Kleptocrats care?

Does Cramer have hair?

Will the Patriots drop every pass?

Mon, 01/30/2012 - 16:44 | 2110774 mayhem_korner
mayhem_korner's picture

 

 

LK, you know I'm a big fan...but you didn't have to throw that last line in there.  No down arrow, but a withheld green arrow from this Belichick fan.

Mon, 01/30/2012 - 17:49 | 2111019 Sudden Debt
Sudden Debt's picture

AND DO YOU THINK MONEY GROWS ON THREES?!!!....... actually.... it kind of looks that way these days.....

 

Mon, 01/30/2012 - 18:47 | 2111169 oogs66
oogs66's picture

It grows at press conferences

Mon, 01/30/2012 - 20:29 | 2111337 supafuckinmingster
supafuckinmingster's picture

Easte Bunny has been priced in.

Tue, 01/31/2012 - 04:13 | 2112061 lewy14
lewy14's picture

He said "Eastern Bunny", not "Easter Bunny". The dread Ost-Hasen.

Do not screw with happy fun Ost-Hasen.

Mon, 01/30/2012 - 16:26 | 2110696 SmoothCoolSmoke
SmoothCoolSmoke's picture

Contrary to popular belief:

 

"Talk is expensive"

Mon, 01/30/2012 - 16:26 | 2110699 Gubbmint Cheese
Gubbmint Cheese's picture

up up and away on dreams of unicorns..

 

 

Mon, 01/30/2012 - 16:30 | 2110719 Mr Lennon Hendrix
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Unicorns are so 2011.

Mon, 01/30/2012 - 16:44 | 2110777 fuu
fuu's picture

Hippocampi & Griffins.

Mon, 01/30/2012 - 16:26 | 2110700 TruthInSunshine
TruthInSunshine's picture

Blah, blah, blah...

...EU supporters (utopian smokers) desperately try to buy more time - a few months, maybe a year - before inevitably renders them discredited stooges, just like The Bernank.

It's all just an effort to literally " buy time."

 

Mon, 01/30/2012 - 16:31 | 2110717 Mr Lennon Hendrix
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Buying time...literally.

What would Einstein say about this?

Mon, 01/30/2012 - 16:38 | 2110753 TruthInSunshine
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I don't know, but he'd certainly think it's relative.

Mon, 01/30/2012 - 17:00 | 2110829 Liquid Courage
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OK, you (and redpill) got me going with that Haiku stuff on an earlier thread. Don't know how this stacks up re: classic form or anything, but ...

Time is God’s canvas,
Depicting what will transpire,
Man is an inchworm.

Crawling across its
Face, convinced he knows his fate
He sees not the frame.

God does not play dice,
Time and chance pervade the world
Of Men to what end?

Wise fools may fool the
Many, as seems right to them,
This, the way of Death.

And, about that Dam ...

The wall is mighty,
Yet unbending. Water is
Soft yet shall prevail.

Mon, 01/30/2012 - 16:31 | 2110721 mayhem_korner
mayhem_korner's picture

 

 

Endless Sheeple Money. 

Endless F---ing Sheeple Fiat.

As Cheech Marin once said..."it's all de same ting, man."

The EFSF has the benefit of failing before it got too big to fail.  :D

Mon, 01/30/2012 - 16:37 | 2110733 LouisDega
LouisDega's picture

Never heard of those bands. I heard of ELP. I saw them in the 70's in good ol' Nassau Long island.  That was some real good shit back then. We will never see talent like that again.

Mon, 01/30/2012 - 17:08 | 2110860 WonderDawg
Tue, 01/31/2012 - 01:25 | 2111938 StychoKiller
StychoKiller's picture

"Why do you think I believe what you've said?

Few of your words ever enter my head!"

Mon, 01/30/2012 - 16:34 | 2110735 carbonmutant
carbonmutant's picture

Forecasting an Easter Rally?....

Mon, 01/30/2012 - 16:36 | 2110737 Roy T
Roy T's picture

Obviously, I am not saying anything original, but it is still amazing the many ways a rabbit can be pulled out of the EZ hat.

I see we are rallying "off the lows", I am now long rabbits and hats.

Mon, 01/30/2012 - 16:34 | 2110738 distopiandreamboy
distopiandreamboy's picture

1 Euro may buy a loaf of bread today, 2 Euros will soon be needed to buy the same loaf.

Mon, 01/30/2012 - 16:35 | 2110739 CrashisOptimistic
CrashisOptimistic's picture

>>

If the ECB lends to the ESM so it can leverage up and buy sovereign debt (including the bonds issued to make the capital contributions) what will have been done? As circular as it is, maybe that works or maybe that will be the ponzi that breaks the camel's back.

>.

 

The key point.  These countries are not going to want to send significant money to this bizzare vehicle.  So what they will do is borrow money from the vehicle and use that borrowed money to fulfill their capital contribution requirement.

It's all insane.  If there were any humans left in the markets, the markets would reflect it.

 

Mon, 01/30/2012 - 16:36 | 2110742 Conman
Conman's picture

Does it really matter what europe does? Watching the market ramp up every day around 10:30 is making me queasey.

Mon, 01/30/2012 - 16:48 | 2110795 ebworthen
Mon, 01/30/2012 - 16:38 | 2110751 ebworthen
ebworthen's picture

European Stability Mechanism or ESB:

"The member states whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality."

Only needs to be approved by all 17 countries (expected July 2012, too late for Greece, if they make the deadline).

Has a maximum capacity of 500 billion Euros (maybe enough to float Portugal for a little, but never enough for Italy).

The Tooth Fairy may need to assist the EB, along with some Leprechauns; Odin has refused to discuss the matter.

http://en.wikipedia.org/wiki/European_Stability_Mechanism

Mon, 01/30/2012 - 16:39 | 2110757 tocointhephrase
tocointhephrase's picture

Europe and Stability in one sentance muwhahahaha

Mon, 01/30/2012 - 16:42 | 2110766 Reese Bobby
Reese Bobby's picture

How has such a bad plan gone so horribly wrong?

Mon, 01/30/2012 - 16:49 | 2110799 marcusfenix
marcusfenix's picture

will any of it work?

that is a rhetorical question, right?

 

Mon, 01/30/2012 - 16:59 | 2110826 lolmao500
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I'm sure German taxpayers are thrilled about it.

Mon, 01/30/2012 - 21:03 | 2111414 Zero Govt
Zero Govt's picture

German taxpayers seem oblivious 

the shops are rammed with happy Germans, the coin shops i've visited are not seeing much trade and the food and hotel prices are sky bloody high... Germans seem flush with cash and confidence at the mo

...fuck is that going to change this year

Mon, 01/30/2012 - 17:06 | 2110847 apu123
apu123's picture

Maybe the FED could let the PPT work the European situation, they did a good job levitating the market today.

Mon, 01/30/2012 - 17:12 | 2110882 web bot
web bot's picture

It's really starting to feel like the end game is upon us.... Watch what's coming in March...

Mon, 01/30/2012 - 19:35 | 2111225 youngman
youngman's picture

I don´t think they will wait till march and the bond payment date....it will fall apart before that...each day its Yes.... No..... Maybe..

Mon, 01/30/2012 - 17:55 | 2111041 NotApplicable
NotApplicable's picture

BS

Mon, 01/30/2012 - 20:30 | 2111341 supafuckinmingster
supafuckinmingster's picture

That should say "Easter Bunny has been priced in."

Mon, 01/30/2012 - 21:00 | 2111406 Zero Govt
Zero Govt's picture


"ESM, EFSF, Or EB. Will Any Of It Work?"

That's a €4.5 Trillion Euro Question ..a loaded question of firing electronic zeros at a negative (debt)

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