This page has been archived and commenting is disabled.

Europe's Latest Rescue Deux Ex Machina: A CDO... SQUARED

Tyler Durden's picture


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:


In other news, this is what a diagram of the ECB will soon look like.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 09/26/2011 - 14:14 | 1712104 ZeroPower
ZeroPower's picture

Apply leverage on top of leverage for desired effect..check.

Look at what this has achieved in the past, as recently as 2007... fail.

Mon, 09/26/2011 - 14:19 | 1712146 Barb Dwire
Barb Dwire's picture

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 $$$.

Mon, 09/26/2011 - 14:26 | 1712183 Ahmeexnal
Ahmeexnal's picture

Now we know why they won't allow Mr. Market to short them.

But Mr. Market will have his way with them nonetheless.


Mon, 09/26/2011 - 14:44 | 1712219 TruthInSunshine
TruthInSunshine's picture

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).

Mon, 09/26/2011 - 14:48 | 1712301 LeBalance
LeBalance's picture

stressing the "almost." /lol/

Mon, 09/26/2011 - 16:03 | 1712666 falak pema
falak pema's picture

sounds fusional...maybe they will have children.

Mon, 09/26/2011 - 15:35 | 1712514 SWRichmond
SWRichmond's picture

One Bank to bring them all, and in the darkness bind them.

Mon, 09/26/2011 - 14:50 | 1712308 Belarus
Belarus's picture

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? 


Mon, 09/26/2011 - 15:32 | 1712268 Translational Lift
Translational Lift's picture

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....

Mon, 09/26/2011 - 22:44 | 1713701 Ropingdown
Ropingdown's picture

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.

Mon, 09/26/2011 - 15:05 | 1712380 carbonmutant
carbonmutant's picture

Is the EU constructing a bad bank?

Mon, 09/26/2011 - 15:42 | 1712552 trav7777
trav7777's picture

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.

Mon, 09/26/2011 - 16:57 | 1712922 spanish inquisition
spanish inquisition's picture

Shouldn't be a problem. I am guessing everything they buy will be rated AAA.

Mon, 09/26/2011 - 14:14 | 1712112 mayhem_korner
mayhem_korner's picture

Expect cubed and quadratic iterations by the end of the week when the half life of this latest bailout rumor dies out.

Polynomial bailout.





Mon, 09/26/2011 - 14:29 | 1712198 Bastiat
Bastiat's picture

Got this visual of a guy jumping out of a plane with just a financial calculator!  LOL!

Mon, 09/26/2011 - 14:45 | 1712281 Jim in MN
Jim in MN's picture

Assume a can opener (old econ joke)...

Mon, 09/26/2011 - 14:14 | 1712113 CClarity
CClarity's picture

And still, no fundamental problems solved.  Just a "fix".  Toxins continue to flow infecting more and more.

Mon, 09/26/2011 - 14:15 | 1712119 Chuck Bone
Chuck Bone's picture

So greek and italian yields jump on this news.... WE'RE SAVED!

Mon, 09/26/2011 - 14:15 | 1712121 LongSoupLine
LongSoupLine's picture

more frosting on a pile of crap does not make it a cake...

Mon, 09/26/2011 - 14:17 | 1712133 mayhem_korner
mayhem_korner's picture


Mon, 09/26/2011 - 14:26 | 1712182 bigdumbnugly
bigdumbnugly's picture

NOW you tell me...

Mon, 09/26/2011 - 15:31 | 1712488 ThirdCoastSurfer
ThirdCoastSurfer's picture

As long as your preferred status guarantees that you only eat the frosting, it only rots your teeth. 

Mon, 09/26/2011 - 14:16 | 1712127 mayhem_korner
mayhem_korner's picture

Isn't there a "did they try this at Lehman" test somewhere in the CB manual?

Mon, 09/26/2011 - 14:17 | 1712138 GeneMarchbanks
GeneMarchbanks's picture

Am I the only one not laughing? I really think they might be serious here.

Mon, 09/26/2011 - 15:19 | 1712429 Drag Racer
Mon, 09/26/2011 - 22:54 | 1713708 Ropingdown
Ropingdown's picture

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?

Mon, 09/26/2011 - 14:18 | 1712141 pauhana
pauhana's picture

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

Mon, 09/26/2011 - 14:18 | 1712142 Timmay
Timmay's picture

When the surgery turns radical, the underlying condition becomes more obvious.


Mon, 09/26/2011 - 14:18 | 1712143 papaswamp
papaswamp's picture

I'm not sure humans will be in existance by the time this bailout gets paid off...we will have mutated into something else....

Mon, 09/26/2011 - 15:25 | 1712458 Going Loco
Going Loco's picture

Intelligent beings, possibly. One can always hope.

Mon, 09/26/2011 - 14:20 | 1712149 mayhem_korner
mayhem_korner's picture



Circular firing squad.  Squared.  :D

Mon, 09/26/2011 - 14:22 | 1712159 pauhana
pauhana's picture

Yup.  Circle jerk.

Mon, 09/26/2011 - 14:26 | 1712184 machineh
machineh's picture

With concentric circles of participants ... a/k/a a 'euro jerk.'

Mon, 09/26/2011 - 14:20 | 1712150 Cdad
Cdad's picture

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. far these guys are willing to sell their credibility down.

Mon, 09/26/2011 - 14:24 | 1712168 GeneMarchbanks
GeneMarchbanks's picture

if by credibility you mean soul, then yes I concur.

Mon, 09/26/2011 - 14:25 | 1712181 Cdad
Cdad's picture

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.  

Mon, 09/26/2011 - 14:37 | 1712241 GeneMarchbanks
GeneMarchbanks's picture

His face still has that beady-eyed dead menace thing as before. As it turns out you've missed nothing.

Mon, 09/26/2011 - 23:03 | 1713723 Ropingdown
Ropingdown's picture

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.

Mon, 09/26/2011 - 14:22 | 1712157 tkinfo
tkinfo's picture

"Hey Honey, we just got another Euro Mastercard in the mail. We are saved" :)

Mon, 09/26/2011 - 14:35 | 1712230 TruthInSunshine
TruthInSunshine's picture

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!"

Mon, 09/26/2011 - 14:23 | 1712163 GenX Investor
GenX Investor's picture

Liesman is my favorite comedian on Comedy News Business Central (CNBC)

Mon, 09/26/2011 - 14:24 | 1712171 SDRII
SDRII's picture



"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"

Mon, 09/26/2011 - 14:25 | 1712177 CapitalistRock
CapitalistRock's picture

Public relations nightmare. They wouldn't intentionally step on this landmine unless there was no where else to go!

Mon, 09/26/2011 - 14:54 | 1712324 LeBalance
LeBalance's picture

but that other place to step means giving up power and they will not do that.

Mon, 09/26/2011 - 14:26 | 1712185 bankonzhongguo
bankonzhongguo's picture

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.




Mon, 09/26/2011 - 14:33 | 1712221 mayhem_korner
mayhem_korner's picture

U just back from Mordor there, Frodo?

Mon, 09/26/2011 - 14:26 | 1712186 L G Butz PhD
L G Butz PhD's picture

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?


Mon, 09/26/2011 - 14:31 | 1712210 mayhem_korner
mayhem_korner's picture

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.

Mon, 09/26/2011 - 14:37 | 1712242 L G Butz PhD
L G Butz PhD's picture


1) ST trade with 1% of capital

2) studying ZH comment section predictions

Mon, 09/26/2011 - 14:56 | 1712333 mayhem_korner
mayhem_korner's picture

Well, good luck.  Read intently, and not just here at ZH.  It's not an advisory forum.

Mon, 09/26/2011 - 15:30 | 1712484 Going Loco
Going Loco's picture

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.

Mon, 09/26/2011 - 14:29 | 1712200 wombats
wombats's picture

What collateral? 

Some souvlaki on a day old pita?

Mon, 09/26/2011 - 14:31 | 1712208 HpDeskjet
HpDeskjet's picture

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.

Mon, 09/26/2011 - 14:32 | 1712209 Peter K
Peter K's picture

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?


Mon, 09/26/2011 - 14:33 | 1712223 Deadpool
Deadpool's picture


Mon, 09/26/2011 - 14:34 | 1712224 HpDeskjet
HpDeskjet's picture

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 :)

Mon, 09/26/2011 - 14:37 | 1712243 Deadpool
Deadpool's picture

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.

Mon, 09/26/2011 - 15:23 | 1712448 HpDeskjet
HpDeskjet's picture

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"


Mon, 09/26/2011 - 15:42 | 1712556 Peter K
Peter K's picture

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."

Mon, 09/26/2011 - 15:49 | 1712593 HpDeskjet
HpDeskjet's picture

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"

Mon, 09/26/2011 - 14:42 | 1712267 HpDeskjet
HpDeskjet's picture

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...

Mon, 09/26/2011 - 14:31 | 1712214 Deadpool
Deadpool's picture

53:1 Au to Ag. get it while supplies last. this back to school sale won't last long.

Mon, 09/26/2011 - 14:36 | 1712234 mayhem_korner
mayhem_korner's picture

Just "it" you mean Ag, correct?

Mon, 09/26/2011 - 14:41 | 1712263 Deadpool
Deadpool's picture

hellz yeah, blurg!

Mon, 09/26/2011 - 14:34 | 1712225 sabra1
sabra1's picture

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!

Mon, 09/26/2011 - 14:38 | 1712247 baby_BLYTHE
baby_BLYTHE's picture

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.

Mon, 09/26/2011 - 14:34 | 1712226 PicassoInActions
PicassoInActions's picture

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.

Mon, 09/26/2011 - 14:36 | 1712238 TradingJoe
TradingJoe's picture

Dispair must be Epic! SO will be the RESET!

Mon, 09/26/2011 - 14:38 | 1712248 ZeroPoint
ZeroPoint's picture

They're trading piles of shit for piles of dung.


Mon, 09/26/2011 - 14:39 | 1712249 Cdad
Cdad's picture

Now entering the quote stuffing and bid lifting phase of this engineered "bullishit" move.  Looks doomed to me.

Mon, 09/26/2011 - 14:40 | 1712255 Cdad
Cdad's picture

And right on cue...the sell programs....

Mon, 09/26/2011 - 14:39 | 1712252 buzzsaw99
buzzsaw99's picture


Mon, 09/26/2011 - 14:39 | 1712254 Deadpool
Deadpool's picture


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.

Mon, 09/26/2011 - 15:47 | 1712589 trav7777
trav7777's picture

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

Mon, 09/26/2011 - 14:52 | 1712274 Bam_Man
Bam_Man's picture

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.

Mon, 09/26/2011 - 15:21 | 1712436 Peter K
Peter K's picture

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?

Mon, 09/26/2011 - 15:57 | 1712643 trav7777
trav7777's picture

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

Mon, 09/26/2011 - 14:45 | 1712280 boom goes the d...
boom goes the dynamite's picture

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

Mon, 09/26/2011 - 14:46 | 1712285 oogs66
oogs66's picture

So the eurozone is merely a suicide pact?

Mon, 09/26/2011 - 14:49 | 1712305 Deadpool
Deadpool's picture

no, the ECB is the merc of the Fed and Bundesbank. it's a hit not a suicide.

Mon, 09/26/2011 - 14:46 | 1712289 crzyhun
crzyhun's picture

This is ludicrous!! What massive stupidity!!! Only the most deluded can ever believe this will ever work out.

Mon, 09/26/2011 - 14:53 | 1712321 Deadpool
Deadpool's picture

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.

Mon, 09/26/2011 - 14:46 | 1712290 Absalon
Absalon's picture

Expect cubed and quadratic iterations


You mean quartic.  Quadratic is second order.  Fourth order is quartic.  You could go whole hog and say exponential.

Mon, 09/26/2011 - 14:48 | 1712299 Deadpool
Deadpool's picture

go quartic yourself! exponentially!!

Mon, 09/26/2011 - 14:47 | 1712296 Surly Bear
Surly Bear's picture

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.

Mon, 09/26/2011 - 14:51 | 1712309 Deadpool
Deadpool's picture

welcome to the party, pal. we were doomed from birth. original sin and all that. did you think your generation was exempt?

Mon, 09/26/2011 - 15:15 | 1712415 Peter K
Peter K's picture

Original Sin? Isn't that the SPV used to keep minorities and women down? BTW, comparative religions 101 was never my strong subject.

Mon, 09/26/2011 - 14:47 | 1712298 adr
adr's picture

CDO Squared??? That must be good enough for CMG to hit $1500!!!!!!!

Mon, 09/26/2011 - 14:53 | 1712320 Cdad
Cdad's picture

Check the put buying there.  It would auger for shares priced considerbly less than your suggestion.

Mon, 09/26/2011 - 14:51 | 1712311 Sophist Economicus
Sophist Economicus's picture

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

Mon, 09/26/2011 - 15:05 | 1712376 Sequitur
Sequitur's picture

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.

Mon, 09/26/2011 - 14:51 | 1712312 adr
adr's picture

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.

Mon, 09/26/2011 - 15:10 | 1712398 clones2
clones2's picture

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....

Mon, 09/26/2011 - 14:55 | 1712323 Bastiat
Bastiat's picture

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.

Mon, 09/26/2011 - 14:55 | 1712328 Bansters-in-my-...
Bansters-in-my- feces's picture

The word delusional seems to come to mind.

Fucking IDIOTS.

Mon, 09/26/2011 - 14:57 | 1712341 Jim in MN
Jim in MN's picture

First of all, excuse me while I barf.


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.....

Mon, 09/26/2011 - 14:58 | 1712345 doggings
doggings's picture

so how exactly do I short the ECB then?

Mon, 09/26/2011 - 15:13 | 1712405 Bam_Man
Bam_Man's picture

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.

Mon, 09/26/2011 - 15:01 | 1712361 AndrewJackson
AndrewJackson's picture

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.

Mon, 09/26/2011 - 15:02 | 1712363 Forgiven
Forgiven's picture

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!

Mon, 09/26/2011 - 15:03 | 1712369 Sequitur
Sequitur's picture

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.

Mon, 09/26/2011 - 15:04 | 1712374 carbonmutant
carbonmutant's picture

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

Mon, 09/26/2011 - 15:04 | 1712375 mayhem_korner
mayhem_korner's picture



"Can I have ten thousand marbles please?"


Mon, 09/26/2011 - 15:07 | 1712385 firstdivision
firstdivision's picture

These rumors from "well placed sources" is just so that those in the know can sell the faux rally. 

Mon, 09/26/2011 - 15:07 | 1712387 The4thStooge
The4thStooge's picture

how long are they going to be able to keep pissing on the markets boots before people realize it isn't raining?

Mon, 09/26/2011 - 15:08 | 1712392 Peter K
Peter K's picture

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.

Mon, 09/26/2011 - 15:19 | 1712428 Deadpool
Deadpool's picture

rearranging the deck chairs on the Titanic.

Mon, 09/26/2011 - 15:54 | 1712627 falak pema
falak pema's picture

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.

Mon, 09/26/2011 - 15:52 | 1712622 magpie
magpie's picture

Calling it Metallurgische Forschungsgesellschaft again might be politically incorrect.

Mon, 09/26/2011 - 15:57 | 1712635 falak pema
falak pema's picture

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...

Mon, 09/26/2011 - 16:05 | 1712676 ThirdCoastSurfer
ThirdCoastSurfer's picture

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? 

Mon, 09/26/2011 - 16:34 | 1712805 metastar
metastar's picture

Would you like a beverage with your leverage?


Mon, 09/26/2011 - 16:42 | 1712847 Atch Logan
Atch Logan's picture

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

Mon, 09/26/2011 - 16:48 | 1712877 Atch Logan
Atch Logan's picture

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.

Mon, 09/26/2011 - 19:23 | 1713247 magwal46
magwal46's picture

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!

Mon, 09/26/2011 - 19:25 | 1713252 magwal46
magwal46's picture

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!

Mon, 09/26/2011 - 22:18 | 1713661 Buck Johnson
Buck Johnson's picture

This is such a bad idea.  We are going to see europe go into hyperinflation before too long.

Mon, 09/26/2011 - 23:47 | 1713773 honestann
honestann's picture

predators DBA government
predators DBA corporations
predators DBA central banks

Do NOT follow this link or you will be banned from the site!