The Latest Incarnation Of The European CDO Cubed Bailout "Swiss Army Knife": A Multi-Trillion Insurance Policy

Tyler Durden's picture

A few weeks ago Steve Liesman ramped stocks higher for the day after he released a subsequently disproven rumor that the EFSF would become a CDO square, recycling private investments into sovereign debt. Well that rumor is now dead and buried, so it is time for the next one involving that uber multi-functional Swiss Army Knife which is the EFSF, and apparently has an infinite+1 number of applications, none of which involve actual cash funding. The source of this latest brilliant idea is Pimco parent, Allianz, which has trillions in fixed income exposure all over the world, so it is no wonder it is pushing hard for the world's taxpayers to bail it out. Only instead of a recycling cash, this time the EFSF will become Fed-Lite, "insuring" trillions in debt.

From Dow Jones:

  • Allianz plan can insure EUR 3tln of bonds without increasing EFSF
  • EFSF bond issuance plan gaining traction in Europe according to Allianz
  • EFSF plan would insure portion of sovereign bonds according to Allianz
  • Goal is to have EFSF insurance plan approved by G-20 meeting according to Allianz

More from Dow Jones:

With time running out to finalize the euro zone's bailout fund, a plan by giant German insurer Allianz to turn the fund into a bond insurance program is gaining traction, the company's top executives said Tuesday.


The proposal to turn the European Financial Stability Facility into a institution that protects investors against a portion of losses has garnered support from other major European insurers and banks in the region, Paul Achleitner, the proposal's architect and a member of Allianz's board of management said during an interview with the Wall Street Journal and Dow Jones Newswires. After initial setbacks, the plan is now also being taken seriously by euro zone governments, Achleitner said.


With EUR450 billion invested in European assets, Allianz is the continent's largest investment institution.


"Don't use the EFSF as a lender, use it as a bond insurer," said Achleitner, who added that his plan would expand the impact of the EFSF, which currently has a lending capacity of 440 billion euros, to cover more than EUR3 trillion in bonds. That estimate assumes that 20% of the debt issued is insured and that it draws upon the full EUR780 billion that euro-zone governments have agreed to guarantee as backstop to the EFSF.


Achleitner, who was flanked by chief executive Michael Diekmann, said Allianz SE has been working closely with Deutsche Bank on the proposal in what have so far been mostly closed-door discussions. The program has the support of other insurers like MunichRe and some big French banks, among others, he said. It has recently been promoted by Goldman Sachs International Chairman Peter Sutherland.


With those institutions' support, Allianz is in close consultation with members of the so-called "troika" -- the European Central Bank, the European Union, and the International Monetary Fund, Achleitner said.

Why now?

When it was first proposed six months ago, Allianz's plan was dismissed by the German government, the biggest and most influential contributor to the EFSF. At that time, people familiar with the German government's thinking said the proposal was too unwieldy and faced legal hurdles.


But Achleitner said questions about European Union treaties that ban sovereign governments from directly guaranteeing the debt of other members have since been resolved. Exemption clauses for emergencies would get around those restrictions, he said.

Good to know that legal hurdles are promptly removed when the survival of the banker class is at stake.

At this point it is stupid to even comment on these ridiculous daily releases. Issue bullshit rumor, rinse, repeat, and so on until the latest portion of bullshit sticks to the wall for at least 24hours. Then start process all over again.

At some point someone may actually ask what happens when the insured capital needs to be funded, and just how the €3 trillion in losses will be made whole, because as usual, it is not a liquidity, or even a confidence, it is and has always been a solvency, read lack of cash flow, issue.

As a reminder, this is the Liesman rumormill from September 26:


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

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GeneMarchbanks's picture

Can't keep up with the rumor derivatives market, eh Tyler?

Wait a second, is this the AIG 'business' model?

Mike2756's picture

That's what i thought, how can they lose?

LawsofPhysics's picture

My god, this is AIG x1000 plus the ultimate in mark to myth accounting.  Can this get any more foolish?  So long as it allows me to purchase more assets of real value, I am willing to bet yes.  Thanks Tyler.

SheepDog-One's picture

I think it gets real dangerous when the Maniacal Monetizers see all theyre doing is allowing the peasantry time to stockpile more pitchforks and ropes.

NoClueSneaker's picture

There is enough beer & pig claws in Bavaria. "Monetizers" mentioned in the newest mega-ponzi vision all sit in München, respective Bavaria. Same as american occupation forces headquarters for Middle East & Africa.

Münchener Rück ( Warren Buffet ), Allianz-Pimco, Siemens, Deutsche Telekom, Hypo RE ( german Countrywide ), all the shit protected with the "law & order" mind set of the Junker/brownshirts.

Pretty much the same bunch of degenerated idiots as 120 years ago, when TPTB created the anihilation machine.

Prosit !

Chris Jusset's picture

This is a hybrid model combining the best of AIG and ENRON ...

Smithovsky's picture

Where's the diagram?

tarsubil's picture

Yeah, is this some kind of bust? Yes, it is very impressive.

Ray745's picture

Let's become the equity tranche of a CDO^2, woohoo!!!  Germany has already said they won't do this, as all it does is make the liklihood of losing their portion of the EFSF guarantee way more likely.

monkeyshine's picture

LOL, gotta love it. The Germans are afraid of losing their first in line creditor position.  What does that say about their real feelings?  Or their real motives?  

rambler6421's picture

Confetti bitchez!

Lord Welligton's picture

Jesus, I give up.


wandstrasse's picture

I cannot give up, because I have not even tried.

kito's picture

im really getting the sense this is going to be a long haul.....

tim73's picture

Jesus does not like quitters :) And the wine is free btw.

Mongo's picture

credimus in debitum - In debt we trust

Fips_OnTheSpot's picture

'seed money' - lol.

..and of course the details are "in works"



buzzsaw99's picture

yeah, pimpco would like that.

agent default's picture

CDO^3? Sounds like one hell of deal.  Where do I sign up?

Seasmoke's picture

this is so GROSS

Aunty Christ's picture

A European AMBAC...brilliant


Archimedes's picture

Man these Bankers, Brokers, Fund Managers and Politicians have no shame. They will stop at nothing to protect their Oligarchy. The only way this ends is in Blood. French Revolution 2.0 to commence in the next few years.

Chris Jusset's picture

They will stop at nothing to screw the taxpayers.  There's no end to this bullshit:


It is no wonder Allianz is pushing hard for the world's taxpayers to bail it out. Only instead of a recycling cash, this time the EFSF will become Fed-Lite, "insuring" trillions in debt.

boiltherich's picture

"Only instead of a recycling cash, this time the EFSF will become Fed-Lite, "insuring" trillions in debt."

In other words more leverage.  And if there ever is a call on that insurance policy more leverage yet. 

SheepDog-One's picture

In other words, by Friday they'll need another new bailout plan?

Poetic injustice's picture

No, by Friday they need fresh rumour.

Lord Peter Pipsqueak's picture

So when Allianz fails who bails it out?

Procrastination bitchez!

JPM Hater001's picture

Wait- I know the answer to this one.

The Golden Valley Country Club.

They cant afford to lose that many members.

SheepDog-One's picture

The only point is to tightly chain the entire Eurozone together as 1 for orderly non troublesome takedown.

Catequil's picture

"seed money" and then "money grows on trees" ? hehehe :)

this is f**king leverage workaround... cure debt with more debt, and leverage with more leverage?

madness!!! I WELCOME the Fragmentation as opposed to Globalisation, if that will get us rid of the status quo!!!!!!!!

traditionalfunds's picture

Surprise.  Surprise. The squid lives.

Paul Achleitner -- After working at the consulting firm Bain & Company and the investment bank Goldman Sachs , where he was a managing director of the Germany subsidiary, in 2000, he joined the Management Board of Allianz AG

Dick Darlington's picture

Hahahaa, so now the INSOLVENT EUROPEAN BANKS AND INSURERS will make the decisions how the Lisbon Treaty breaking, tax payer robbing CDO will use it's "funds". It's getting beyond ridiculous, twilight zone type of utter bull shit!

No wonder the european political utopia and the captains of the Titanic are so fookin lost in the sea of debt and insolvency... Bankers and insurers have made BAD BETS and now they tell out in the open how they should be bailed out. Wow, just fookin wow.

Someone, anyone, please pull the fookin plug before these insolvent idiots will make the problems 3 trillion bigger than they are now.

SheepDog-One's picture

I dont think anyone is buying it, this is the last dying gasp.

Multi trillion dollar insurance policy where the bankrupt backstop the bankrupt billionaires losses...uh yea so who pays for that?

Like Patton said 'nuts'.

F22's picture

Couldn't agree more, but it was actually Brigadier General Anthony C. McCauliffe.

'nuts' indeed....

Lord Welligton's picture

Greece to run out of fuel?

Absolutely no chance of economic growth.

No chance of reapying any debt.

Where does that leave the EFSF?

SheepDog-One's picture

Well, at worst theres always more opportunity for 'carrot and stick' market driving rumors again....really its the best thing theyve got.

Lord Welligton's picture

market driving rumors again....really its the best thing theyve got.

I had thought that deep in the background a grand plan was being hatched.

They would come out one day and stun the world.

Now I am convinced that they are a bunch of headless chickens who just realised that the chicken coop is on fire.

LawsofPhysics's picture

There they go again, talking about "seeds" without any soil.

Caviar Emptor's picture

It's all ok: an Iranian terror plot was just uncovered in the US. We're saved! We can have another war now that Libya is winding down. 

tim73's picture

What it is with politicians today? How the fuck they are so imbeciles, stupid parrots, implementing every stupid policy they can think of. "Yeah, give banks more free money! That should do it!". Mindbogglingly stupid!

Where are the roosevelts and churchills of today? If space aliens lands next to your house, just don't point to our current leaders, please. JUST DON'T DO IT! Try to convince them to leave asap because this Planet Stuck On Stupid is not worth the trouble.

hambone's picture

Of course this is going to the solution (for now) - don't fight the inevitable...debt was always going to beget more debt.  C'mon, everybody on ZH should know by now that the Keynesian / Ponzi experiment will be taken from the ridiculous to the ludirous to the fanciful to the magical to the nexus of fairy tales...and still when all games seem played, all future demand seems pulled, all possible confidence lost...expect more.

Forgiven's picture

A successful entrepreneur friend once told me, "Beware of affirmations."  With that in mind, I have to wonder why Allianz would want to insert itself into EFSF mix?  Could they be the Black Swan?  Do they have more to lose than gain if EFSF expansion doesn't happen?  Is their ass somehow in the wringer?

Dick Darlington's picture

Pimco parent, Allianz, which has trillions in fixed income exposure all over the world, so it is no wonder it is pushing hard for the world's taxpayers to bail it out.


I think that should answer your question. Add all the insolvent banks, especially the French banks which DON'T NEED MORE CAPITAL, to the soup and you have confirmation.

Lord Welligton's picture


While all the attention has been on the banks having to write down sovereign debt we have heard nothing from the insurance and pensions industries.

They are most likely marking sovereign debt to maturity in some asset/liability matching model.

Jim in MN's picture

As ZH broke last night, it is even worse: potentially pervasive, concealed sovereign debt derivatives which 'aren't supposed to exist':