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Europe's Latest Rescue Deux Ex Machina: A CDO... SQUARED
Steve Liesman has just broken news of the latest European bail out mechanism which will likely push risk higher for at least a few hours. Why just a few hours? Because what according to Liesman the ECB is about to propose, is nothing short of not just a CDO, but a CDO SQUARED. We are still waiting for more information, but according to his description of what this last ditch bailout bazooka (before Eurobonds of course), is that the ECB will take the debt bought by sovereign governments and will issue EURs against EFSF/ESM bonds as collateral: this is in its simplest definition, a CDO Squared (because as we have described in the past, the EFSF is simply a CDO), which in turn means that the systemic leverage of the Eurozone is about to rise 8-fold. If you thought the capitalization of the ECB was bad before, you ain't seen nothing yet. Expect cubed and quadratic iterations by the end of the week when the half life of this latest bailout rumor dies out. Oh, and expect many more headlines out of Europe talking about bailouts and hyperinflation as noted earlier.
And here is the summary quotes from Bloomberg:
- SPECIAL PURPOSE VEHICLE TO ISSUE BOND, BUY SOVEREIGN DEBT
- PLAN IS TO USE EFSF SEED MONEY FOR EUROPE INVESTMENT BANK
- EUROPE PLAN IS FOR SPV TO ISSUE BOND, BUY SOVEREIGN DEBT
- DETAILED PLAN IS IN WORKS ON LEVERING ESFS MONEY
- PLAN IS TO USE EFSF SEED MONEY FOR EUROPE INVESTMENT BANK
In other news, this is what a diagram of the ECB will soon look like.
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Apply leverage on top of leverage for desired effect..check.
Look at what this has achieved in the past, as recently as 2007... fail.
So glad I stopped day trading. There's no way to compete with the constant flow of bullshit "plans". I'm short IWM - in a couple of months that will make me $$$.
Now we know why they won't allow Mr. Market to short them.
But Mr. Market will have his way with them nonetheless.
The EUR stalwarts thought I and many others had some sort of personal or emotional grudge (it's not personal, and I have no emotional fixation on any paper fiat, whether the EUR or USD) against the EUR whenever I've voiced the opinion that the EUR is doomed partly, but in no small manner, because the European Union is doomed, and vice-versa.
If they follow through on this, as it's being reported, it's night-night EUR, sleep tight.
Total, absolute, stark-raving mad insanity...that's what this plan is.
It's almost as if they're trying to implode the EU & EUR (hmmmm).
stressing the "almost." /lol/
sounds fusional...maybe they will have children.
One Bank to bring them all, and in the darkness bind them.
Stay strong, Barb. This market is so twisted I wouldn't use Ben B.'s money in it. The market is down a scant 8.5% year to date, not including dividends, while Europe is exploding, while LSAP is off, while China's market falls apart, while the DAX, FTSE, and CAC are all down 30%.....we're in the middle of the greater depression.....and yet....stocks are down just a mere 8.5%, which can be saved every other day by typing in "greece saved" rumor mill in google.
Seriosuly, who is buying all this horseshit at this stage of the game? Puh-lease, raise your hand for us if you're human and buy these rallies?
And there will be no S&P downgrade.....S&P just received a "WELLS NOTICE" from the SEC presumably for daring to take on the US GUBMENT...............
Good luck all....
Sorry to jump the line by replying: The EIB is an EU institution, not a Euro-Zone institution. It's senior executives, many of the eight key VP's, have been dying to make EIB the vehicle to launch a Euro-Bond. They've been agitating to do it for months. This latest "rumor" just shows innovation and doggedness of their part. Still trying. The positions at the top are plumb jobs filled with party loyalists for 10 year terms, rotating between EU nations. I would suppose the majority are extremely Europhile and majority socialist of various sorts. If they don't get a fiscal union then their dreams are crushed, one supposes. Who knows what outcome will result? No one. Some seem to do more thorough and frequent Bayesian updates than others, clearly. Others live on passion and hope. Oh, and change.
Is the EU constructing a bad bank?
Yeah, this is pretty much it. The EFSF buys bonds and so the participants are kinda owners pro rata in a CDO that contains bonds. However, there's no tranching that I can see. Not like Germany puts in more money and gets a senior cut of the repayments. That makes it more like a vanilla MBS pool.
This new SPV would be a real CDO. A squared CDO would be a vehicle built out of tranches, itself re-tranched.
If they do this right, they will aggregate sovereign bonds and then sell slices of them on seniority ranks, with differing yields and payment hierarchy...iow, a real CDO. That becomes the supranational securitization of sovereign debt.
Once those tranches are out there floating around, someone can then aggregate them and retranche and make the whole system blow the fuck up. I told Douchinger that if YOU didn't request the credit that the gov't would on your behalf.
Shouldn't be a problem. I am guessing everything they buy will be rated AAA.
Expect cubed and quadratic iterations by the end of the week when the half life of this latest bailout rumor dies out.
Polynomial bailout.
Look
Out
Below
(echo)....
Got this visual of a guy jumping out of a plane with just a financial calculator! LOL!
Assume a can opener (old econ joke)...
And still, no fundamental problems solved. Just a "fix". Toxins continue to flow infecting more and more.
So greek and italian yields jump on this news.... WE'RE SAVED!
more frosting on a pile of crap does not make it a cake...
ROTFL!!!!!
NOW you tell me...
As long as your preferred status guarantees that you only eat the frosting, it only rots your teeth.
Isn't there a "did they try this at Lehman" test somewhere in the CB manual?
Am I the only one not laughing? I really think they might be serious here.
"this is one of those times"
http://www.youtube.com/watch?v=O-yC_fOQ7vc&feature=related
They are definitely serious, 17 versions of serious and with lots of votes behind them despite their general disdain for constant injections of democracy into the deliberations. We've seen stranger things happen than a temporarily-successful Union that pulls every lever imaginable to get one more breath. It can go on longer than many imagine. And obviously there is a lot of Imagining going on. "Imagineering," laugh. Lots of these people, EU EZ psuedo-mandarins are intense political pros, but not really finanical pros. And they have political theories. Heard this bit before? Back when the currency union was founded?
Nothin' from nothin' leaves nothin'
You gotta have somethin'
If you wanna be with me
Nothin' from nothin' leaves nothin'
You gotta have somethin'
If you wanna be with me
Billy Preston, 1975
When the surgery turns radical, the underlying condition becomes more obvious.
Terminal.
I'm not sure humans will be in existance by the time this bailout gets paid off...we will have mutated into something else....
Intelligent beings, possibly. One can always hope.
Circular firing squad. Squared. :D
Yup. Circle jerk.
With concentric circles of participants ... a/k/a a 'euro jerk.'
Man, they got Liesman on the 'round the clock rumor machine. His cred is right about now...on par with that of the S&P.
Unreal...how far these guys are willing to sell their credibility down.
if by credibility you mean soul, then yes I concur.
The thing about Liesman is...he knows better. I wish my television had not recently turned into a radio, as I would have liked to have seen Liesman's face today as he pimped this shit.
His face still has that beady-eyed dead menace thing as before. As it turns out you've missed nothing.
Yep, pimping this shit is right, just to get the crowd from Luxembourg to stop auto-dialing. There's some seriously wonderful bureaucratic careers coming along, and jobs for the next generation, if they can just pull off this really big EU EZ thing and get some real "give us your money, punk" tax revenue headed their way. None of this Italian revenue to pay Italian debt...gotta hand some of that over, Guido! Consider it a fee to the EU EZ EIB, much like Citi might ordinarily charge...move along little man. I think it may well in the end appear like a bit of America by the time they're done, a sort of Norman Rockwell painting with Euro models. An interpretation of our deal where the money and rule-making all flow to this center of government, DC. It is extremely green this bit, because the lobbyists don't have to travel so far, nor the bag men. Really, it works.
"Hey Honey, we just got another Euro Mastercard in the mail. We are saved" :)
Steve LIESman is going to do shitarine commercials (shitarine being a butter substitute), wherein he'll take a big, juicy bite of feces spread on toast, and feign surprise as he tells his wife that "I can't believe it's not butter!"
Liesman is my favorite comedian on Comedy News Business Central (CNBC)
http://www.eib.org/about/structure/shareholders/index.htm
About:
"Under its Statute, the Bank is authorized to have maximum loans outstanding equivalent to two and a half times its capital which is contributed by Germany, UK, Italy, Spain and France....150 of the 230B or so of capital commited. Implies somthing like 150B of lending capacity net of loans to be distributed?
Each Member State’s share in the Bank’s capital is based on its economic weight within the European Union (expressed in GDP) at the time of its accession"
Public relations nightmare. They wouldn't intentionally step on this landmine unless there was no where else to go!
but that other place to step means giving up power and they will not do that.
At The End, all this kabuki theater will result in "the real debts" being transferred to a supposedly solvent extra-legal entity who will generously dictate terms to the peoples of Archaic Lands.
What a farce.
U just back from Mordor there, Frodo?
So then, buy the gold dip right?
Shouldn't I wait for gold prices to settle a bit? Is it possible gold hits $1418 sometime before ECB actually DOES something? And if so, what probability do you assign to that possibility?
Good luck with the "settling" of gold prices anytime soon.
What's your objective? Are you looking for an entry point to trade paper gold? Good luck with the knife-catching, market-timing, technical chart-reading stuff.
If you're buying physical, to have and to hold 'til death do you part, forget about today's price and think about DCA over time.
My two cents.
Objectives:
1) ST trade with 1% of capital
2) studying ZH comment section predictions
Well, good luck. Read intently, and not just here at ZH. It's not an advisory forum.
Yes it is. ZH comments boards are a source of crap advice dressed up as wisdom, and oftentimes newbies take the other side of our trades, which is good.
What collateral?
Some souvlaki on a day old pita?
Nothing will be accomplished in Europe... The Southern (+France) politicians still refuse to acknowledge the severity of their problems, the Northern policians don't have the political support to do more bailouts. Combine this with 1) a central bank that refuses both money printing and defaults 2) a retarded US Treasury Secretary who has 0 credibility left in his own country and who is outright hated in the rest of the world but still thinks it is necessary to give others advice 3) an IMF that puts pressure on the situation but does not have the money/capability to enforce anything and more drama is guaranteed.
I'm missing something. The present state of play is that the ECB is buying the Euroland junk on margin (12b capital agianst 225b Debt purchases to date - i.e. printing money). This has to happen before Greece defaults since that would put the ECB capital in the red by 8b ;) Once the EFSF gets the go ahead (post ratification) then the funding countries are supposed to fund the EFSF (not just guarentees) with hard cash, returning the ECB's cash for the purchased junk. This new cash in turn will purchase more Euroland junk bonds at heavy discounts, then put them back to the ECB at face value for Euros?
But isn't the key that the EFSF needs to have cash,i.e. good funds from funding nations up front? That is a big IF. As we know from Peter T, the cash ain't there. So the bond buying can not begin.
Now what is the new aspect of this new plan, other then a different rearangement of words?
Anyone?
print
At least you miss 1 thing => ECB has a "sterilization program" that equals the size of their bond purchases, so net, no money is printed (ppl will junk me for this, but it is the truth)
Rest of the post, i need to reread a couple of times :)
recycled printed currency units to buy currency units to manipulate rates on printed currency units is printing. buy shares of HP 'cause post Geitner's proposal last week to print...they're going to print and print and PRINT.
I think you are not from Europe :) Seriously, the ECB is NOT printing and Geithner's advice will not be followed, on the contrary... Geithner came to Poland recently, they (EU/ECB-leaders) listened politely to the guy for 30 minutes, then gave him the finger and continued the meeting without him...
Lux fin min: "He better gets his own house in order"
Dutch fin min: "EU-solutions are made by Europeans"
German fin min: "Printing solves nothing"
Etc.
If that's the case, and the Eurotrash isn't listening to TT Timmy, then why is Lisman (the Entertainer/Tool/Village Idiot/Geithner lackey) getting the juicy leaks from his buddies inside the Fed about the new European Plan to save the Euro/Continant/Planet/Universe/Whateverelse?
In other words, sounds like this plan is coming together in at the US Treasury/New York Fed.
And to quote Hannibal Smith:" I just love when a plan comes together."
Easy => there are 17 countries involved... Halve of them "want" a "solution" by receiving money (the leakers) from the other halve (the ones that will deny everything soon).
It's all about politics => leaking "solutions" puts pressure on the paying countries to meet market expectations... The ones that leak can say: "Yes, we want to solve it, but they spoil it"
True: For now the EFSF is an empty whole lot of nothing :) Only a few billion has been raised (last week there was an auction with 15y EFSF bonds to fund Ireland/Portugal that went VERY very poorly). S&P already said that they will downgrade some EU-AAA countries if they become more exposed to/responsible for the PIIGS funding. So I expect nothing from all this talk...
53:1 Au to Ag. get it while supplies last. this back to school sale won't last long.
Just clarifying...by "it" you mean Ag, correct?
hellz yeah, blurg!
seriously. it's time for public hangings! everyday. another rumour, and another, and.....! those fools don't realise how stupid they look, while everyone in the audience laughs and waits for the next act! the everlasting puppet show!
Football season is in full swing, new season of Dancing with the Stars is underway, MLB playoffs about to begin, iPhone 5 set for imminent release and Gears of War 3 for Xbox just launched...
Unfortunately, we don't live in the 1700s anymore where public hangings and gentleman's duelings took place on a regular basis.
All they they have to do is to tell us that for the next 2 weeks we are going to be ranging in euro from 1.335-1.35
So at least some of us can be making money without fear of crash, then can change the range to something else. But they msut warn us first.
Dispair must be Epic! SO will be the RESET!
They're trading piles of shit for piles of dung.
Now entering the quote stuffing and bid lifting phase of this engineered "bullishit" move. Looks doomed to me.
And right on cue...the sell programs....
It's foolproof! LOLOLOLOLOLOLOLOL
SPECIAL PURPOSE VEHICLE TO ISSUE BOND, BUY SOVEREIGN DEBT
who the fuck would buy this offering? I want to see the prospectus. especially the risk section and use of proceeds fine print. oops, there's that word again "P.R.I.N.T." 53:1 au to ag won't last long.
it's an EU-wide bond aggregated of sovereign bonds. If the bonds they sell are effectively tranched, then yeah, this is a pan-euro CDO
Clearly the objective here is to be able to bail-out the PIIGS without OBVIOUSLY printing money. This is evidently necessary to satisfy the Germans.
This mechanism will do the trick nicely - for a year or two. When the inevitable defaults occur, the ECB - leveraged to the gills and stuck with piles of worthless collateral - will have no other choice than to print like mad.
No it woun't do the trick nicely. At the end of the day, someone has to by this new repackaged shit from the EFSF/EIB or who ever issues it. They will be buying PIIG junk bonds from a not fully funded SPV, wrapped in a AAA rating (if lucky) backed by a non PIIG guarentee, i.e. non PIIGS will compensate them if the whole SPV goes tits up. What are the chances of this happening?
I think they are hoping that people borrow. Or that they can do what the CDO market did which is offload severe risk in certain components for an aggregation and tranching across better debts.
This SPV will *only* work if it buys German bonds and other "solvent" nations' issues to go into the package. Otherwise, you are getting an aggregation of defaulting nations, kind of as Tyler says, like a CDO^2, created out of equity tranches.
The issue here is clear- credit is not growing and MUST grow. They are trying to figure out ways to jumpstart credit growth. If you read into hypertiger's blog, there's another explanation of it and how the entire stimulus plus QE efforts of the world only kept money supply flat. IOW, it's EXACTLY as I described when I said that "Ben is printing the coupon." He is not spinning up new money in the aggregate, merely replacing debt as it extinguishes.
This won't fix the economy in the aggregate, because the geophysical forces that have caused growth to stop will not have themselves printed away. Consumers could idiotically request double the money supply tomorrow in a borrowing orgy and that would not print more oil. DebtMoney is not a driver; it is a parasite that most follow the real world
Ok, when the fuck is the market going to capitulate down to the next stopping point? i.e. dow 9000, I am getting bored waiting for the end of times
So the eurozone is merely a suicide pact?
no, the ECB is the merc of the Fed and Bundesbank. it's a hit not a suicide.
This is ludicrous!! What massive stupidity!!! Only the most deluded can ever believe this will ever work out.
so therefore you must look from the outside in and wonder who gains from a DELIBERATE attempt to fail...hint: FED. we're thru the looking glass now, Alice. Remember the Marshall Plan brought all European gold to America. The Bernake plan will do likewise, unless China fucks it up and then they win. there will be blood.
Expect cubed and quadratic iterations
You mean quartic. Quadratic is second order. Fourth order is quartic. You could go whole hog and say exponential.
go quartic yourself! exponentially!!
Oh, I see. If it were just the Greeks the world say 'fuck you,' and let them go, but since it's everyone, everywhere we should all be on board for saving everyone from themselves. Tell me if my logic is off. We're fucking doomed.
welcome to the party, pal. we were doomed from birth. original sin and all that. did you think your generation was exempt?
Original Sin? Isn't that the SPV used to keep minorities and women down? BTW, comparative religions 101 was never my strong subject.
CDO Squared??? That must be good enough for CMG to hit $1500!!!!!!!
Check the put buying there. It would auger for shares priced considerbly less than your suggestion.
Gold is interesting right now. Its been hugging the 1600 handle, give or take, for hours. If one is accumulating, this gets boring. But if you're short, you gotta be feeling a little itch in that trigger finger about now
Hey I did. Sold my GLD puts for a tidy profit. Still think GLD is shit paper that will implode, with hedge funds making a killing shortside off the retail dupes.
Looks like 11,000 and 1150 are going to hit in short order. Collapse, what collapse, last week didn't happen.
Dow 11,000 is ending up to be a massive fortress to be held at all cost. There is just no way this market is actually trading at this level because traders want it to be so.
Just a minor bounce back day... Looks like the charts may setup for another rollover later this week. I would say the 10 and 20 dma's will be resistance....
Some shadowy offshore funds will buy the CDOs -- Timmy went over there to tell them about the "Household Sector." It will be all leverage through GS and their international cohorts and backstopped by the CBs. Shadow QE.
The word delusional seems to come to mind.
Fucking IDIOTS.
First of all, excuse me while I barf.
<gack>
OK. Now this here plan, the way I see it, is to take a whole lot more capital from the Germans, French, even Italians, despite their current debt/exposure situations. This capital, paid for by the helpless (???) taxpayers of Europe, will be used as 'seed money' for a extra-legal Special Purpose Vehicle which will issue 'bonds' while taking failing sovereign debt from Eurozone nations.
The 'seed money' is enough to pay interest on these 'bonds'. The 'bonds' themselves, however, can NEVER EVER be paid back.
Thus, the 'debt' of 'Europe' is collateralized and simply disappears. Er, is rolled into interest bearing instruments that pay holders to not ask for their principal back, ever. Central banks, Goldman, and other stooges may or may not actually put up the principal when 'buying' these 'bonds' because of course they could be bought by counterparty SPVs that also cease to exist if principal is ever ADMITTED to be lost. Which might or might not ever happen.
Is that pretty close? OK, now I need to throw up again.....
so how exactly do I short the ECB then?
Short the Euro by buying Dollars.
When this CDO thing blows up 12-18 months from now, the ECB will have to bail itself out via the printing press.
http://market-ticker.org/akcs-www?post=194854
I think I am going to need a flow chart to detail this. Originally, the EFSF was going to issue bonds to non pig european countries for Euros and then loan that money to the pigs. If the pigs did not pay, the non pigs would cover the default loss. Because the non pigs are also bankrupt and won't be able to issue gov bonds in the general market to support the efsf, the ECB will come in and give them cash against the EFSF bonds as collateral.
So basically any amount defaulted on by the piggs to the efsf will have to be covered by the non pigs which who will then default to the EFSF. Simulaneously, the non pigs will default to the ecb. Therefore the net effect is money printing by the ECB = to the amount defaulted on by Pigs? Anyone actually understand the logistics of this other than the ending effect of printing?
The fact that I feel like I am in a calculus based physics class right now is proof enough for me that this pile of garbage will fail horribly like all previous bailout announcements. Completely agree with zerohedge on the half life of this statement.
That's all well and good. But when is Direxion going to make a 3x Bear on this CDO^n? When they do, I'm on that train!
Anytime I see "SPE" or "SPV" in a financial transaction, you need to be on the lookout for fraud. Think former FASB 140 and moving garbage assets "off-balance sheet" to an SPE merely because some patsy purchases a small interest in the "asset," purportedly conferring separate ownership. It's outright balance sheet fraud.
I cannot figure a reason for a Eurozone SPV, except a bogus shifting of liabilities to a standalone entity, thereby trying to eliminate recourse when the SPV blows up.
Of course this will do nothing to fix the problem of the underlying sovereign debts the SPV is buying. You know, thinking this through, this rumor can't be true. An SPV solves nothing.
Greece's debt crisis odyssey
Greece and its lenders are locked in discussion. The "Troika" of lenders - the European Union, International Monetary Fund and European Central Bank - say Greece must take more painful steps to cut its borrowing. But Greece faces riots and mass protests on the streets of Athens. The government could lose its grip on parliament - only 155 of 300 MPs backed the last round of austerity in June. At stake is the next 8bn euro tranche of bailout money, which Greece desperately needs to avoid total crisis. Starting from the top, follow the decision tree to decide what happens next
http://www.bbc.co.uk/news/business-14977728
"Can I have ten thousand marbles please?"
These rumors from "well placed sources" is just so that those in the know can sell the faux rally.
how long are they going to be able to keep pissing on the markets boots before people realize it isn't raining?
And now they got the European Investment Bank involved. For God's sake, why?
I understand that there is a problem with EFSF issuing bonds to purchase PIIG debt with the proceeds. But if this role is given to the EIB, then why is the EFSF needed. Why don't the NonPIIGs just fund the EIB instead?
Unless the point of this excersize is to confuse the cat.
rearranging the deck chairs on the Titanic.
No, no, no this is captain Nemo play, Twenty thousand leagues under the sea. Epic stuff...Watch out for the giant squid in this story.
Calling it Metallurgische Forschungsgesellschaft again might be politically incorrect.
Where is Helen of Troy, where is the face to launch a thousand financial ships, this is Europa land's death wish like the invasion of Troy, the giant CDO squared to take on all comers. Helen, I will all for you...Greece...oh, Greece...
Let me see if I have this right. The PLAN is to use the EFSF MONEY to create a EUROPE INVESTMENT BANK. The bank will create a SPV to issue BONDS to buy SOVEREIGN DEBT.
In this way, just like a home loan, they can put 20% down to borrow 100% and start a bank, not a family. Then the bank can then borrow money and buy the debt of the family members, not furniture.
It's like buying a house with an attached second mortgage, right?
Would you like a beverage with your leverage?
http://adsoftheworld.com/files/images/EFFEN-Flight-Attendant.preview.jpg
Sorry, Tyler, but I don't think that you can rescue a Deux Ex Machina. A DEM is the end result. There is no more. Seek further for saving economic problems. LOL
You all need to call up little Mikey with his Princton algros (to the ignorant, "formulas"); maybe he can solve the problem. Don't be going to Deux Ex Machina for your help: you don't get this shit.
I'd be lying if I said I understood all this. Not even sure what ecad means.
On the surface it looks like it will lead to massive currency collapse for any currency, sovereign entity involved. Another Weimar republic redux.
Can someone simplify with a flow chart?
What to do, short the euro and other currencies, add PM's?
Long dollars (ugh)?
Someone pls help!
I'd be lying if I said I understood all this. Not even sure what ecad means.
On the surface it looks like it will lead to massive currency collapse for any currency, sovereign entity involved. Another Weimar republic redux.
Can someone simplify with a flow chart?
What to do, short the euro and other currencies, add PM's?
Long dollars (ugh)?
Someone pls help!
This is such a bad idea. We are going to see europe go into hyperinflation before too long.
predators DBA government
predators DBA corporations
predators DBA central banks