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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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Tue, 10/11/2011 - 14:24 | 1761827 GeneMarchbanks
GeneMarchbanks's picture

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

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

Tue, 10/11/2011 - 14:26 | 1761879 Mike2756
Mike2756's picture

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

Tue, 10/11/2011 - 14:32 | 1761895 LawsofPhysics
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.

Tue, 10/11/2011 - 14:35 | 1761902 SheepDog-One
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.

Tue, 10/11/2011 - 15:37 | 1762172 NoClueSneaker
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 !

Tue, 10/11/2011 - 14:41 | 1761926 Chris Jusset
Chris Jusset's picture

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

Tue, 10/11/2011 - 14:15 | 1761829 Smithovsky
Smithovsky's picture

Where's the diagram?

Tue, 10/11/2011 - 14:31 | 1761893 tarsubil
tarsubil's picture

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

Tue, 10/11/2011 - 14:17 | 1761839 Ray745
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.

Tue, 10/11/2011 - 14:43 | 1761927 monkeyshine
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?  

Tue, 10/11/2011 - 14:18 | 1761842 rambler6421
rambler6421's picture

Confetti bitchez!

Tue, 10/11/2011 - 14:18 | 1761845 Lord Welligton
Lord Welligton's picture

Jesus, I give up.


Tue, 10/11/2011 - 14:39 | 1761913 wandstrasse
wandstrasse's picture

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

Tue, 10/11/2011 - 14:39 | 1761916 kito
kito's picture

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

Tue, 10/11/2011 - 14:43 | 1761930 tim73
tim73's picture

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

Tue, 10/11/2011 - 14:19 | 1761848 Mongo
Mongo's picture

credimus in debitum - In debt we trust

Tue, 10/11/2011 - 14:19 | 1761850 Fips_OnTheSpot
Fips_OnTheSpot's picture

'seed money' - lol.

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



Tue, 10/11/2011 - 14:20 | 1761852 buzzsaw99
buzzsaw99's picture

yeah, pimpco would like that.

Tue, 10/11/2011 - 14:20 | 1761853 agent default
agent default's picture

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

Tue, 10/11/2011 - 14:21 | 1761856 Seasmoke
Seasmoke's picture

this is so GROSS

Tue, 10/11/2011 - 14:22 | 1761862 Fips_OnTheSpot
Fips_OnTheSpot's picture

bilateral grossing?

Tue, 10/11/2011 - 14:23 | 1761864 Aunty Christ
Aunty Christ's picture

A European AMBAC...brilliant


Tue, 10/11/2011 - 14:23 | 1761865 Archimedes
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.

Tue, 10/11/2011 - 14:43 | 1761934 Chris Jusset
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.

Tue, 10/11/2011 - 14:24 | 1761866 boiltherich
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. 

Tue, 10/11/2011 - 14:29 | 1761887 SheepDog-One
SheepDog-One's picture

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

Tue, 10/11/2011 - 14:42 | 1761928 Poetic injustice
Poetic injustice's picture

No, by Friday they need fresh rumour.

Tue, 10/11/2011 - 14:25 | 1761869 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

So when Allianz fails who bails it out?

Procrastination bitchez!

Tue, 10/11/2011 - 14:52 | 1761958 JPM Hater001
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.

Tue, 10/11/2011 - 14:25 | 1761871 SheepDog-One
SheepDog-One's picture

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

Tue, 10/11/2011 - 14:25 | 1761872 Catequil
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!!!!!!!!

Tue, 10/11/2011 - 14:26 | 1761875 traditionalfunds
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

Tue, 10/11/2011 - 14:27 | 1761880 Dick Darlington
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.

Tue, 10/11/2011 - 14:27 | 1761883 SheepDog-One
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'.

Tue, 10/11/2011 - 15:15 | 1762061 F22
F22's picture

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

'nuts' indeed....

Tue, 10/11/2011 - 14:30 | 1761889 Lord Welligton
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?

Tue, 10/11/2011 - 14:33 | 1761897 SheepDog-One
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.

Tue, 10/11/2011 - 14:41 | 1761923 Lord Welligton
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.

Tue, 10/11/2011 - 14:34 | 1761899 LawsofPhysics
LawsofPhysics's picture

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

Tue, 10/11/2011 - 14:35 | 1761903 Caviar Emptor
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. 

Tue, 10/11/2011 - 15:41 | 1762201 Schmuck Raker
Schmuck Raker's picture

Just the TSA padding for their next budget request.

Tue, 10/11/2011 - 14:39 | 1761906 tim73
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.

Tue, 10/11/2011 - 14:38 | 1761908 hambone
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.

Tue, 10/11/2011 - 14:38 | 1761909 kahunabear
kahunabear's picture

Just believe!

Tue, 10/11/2011 - 14:46 | 1761944 Chris Jusset
Chris Jusset's picture

Have faith!

Tue, 10/11/2011 - 14:39 | 1761915 Forgiven
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?

Tue, 10/11/2011 - 14:44 | 1761935 Dick Darlington
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.

Tue, 10/11/2011 - 14:44 | 1761937 Lord Welligton
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.

Tue, 10/11/2011 - 14:51 | 1761954 Jim in MN
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':


Tue, 10/11/2011 - 15:02 | 1762013 Lord Welligton
Lord Welligton's picture


And are the insurance and pensions companies net buyers of CDS from the banks who are hiding their liabilities.

Tue, 10/11/2011 - 19:17 | 1763359 Amish Hacker
Amish Hacker's picture

That was the story that left me gasping for air, because very soon a lot of people who think they're safe are going to find out they aren't, except in the most mythical of senses. Yet when there was a suggestion a few years ago to move OTC derivatives onto some sort of exchange, with central clearing, Greenspan and others argued that no regulation or oversight of derivatives was necessary, since only financial geniuses traded in them. No need for Big Brother to protect the public from something they knew nothing about and weren't involved in.

An education is what you get when you don't get what you wanted.

Tue, 10/11/2011 - 14:43 | 1761932 SheepDog-One
SheepDog-One's picture

I think their biggest fear here is actually getting this new AIGx10,000 in place....then theres no more rumors of plans for planning of deals to drive markets daily anymore!

Just back to old boring bankrupt Europe and bankrupt USA.

Tue, 10/11/2011 - 14:46 | 1761943 Lord Welligton
Lord Welligton's picture

And on day 1 the "AIGx1000" is bankrupt.

Tue, 10/11/2011 - 14:45 | 1761939 mynhair
mynhair's picture

It's a plan; must be bullish.

Can I haz face rip now?

Tue, 10/11/2011 - 14:53 | 1761956 hambone
hambone's picture

No face rip for you...plan must be "rumored" plan, not actual specific plan (actual plan sounds kind of stupid, rumored plan entails unknowable mythical and potential brilliant solutions)...

Cue Liesman in 3...2...1...

Tue, 10/11/2011 - 14:58 | 1761993 mynhair
mynhair's picture


But it floats!

Tue, 10/11/2011 - 15:09 | 1762043 hambone
hambone's picture

I prefer levitate over float (too many negative connotations around "floaters").

Tue, 10/11/2011 - 14:45 | 1761941 pauhana
pauhana's picture

Sounds very unstable to me.

Tue, 10/11/2011 - 14:51 | 1761953 PulauHantu29
PulauHantu29's picture

Hey, the Allianz CEO has to make a living, right?

And don't forget those naughty ( but lots of fun!) annual parties:

<<Prostitute-filled sex party was reward for German insurance salesmen

Munich Re insurance giant admits 'incentive trip' to Budapest's Gellert Baths was a sex junket>>


Shame the taxpayers can't be there to join the fun they are paying for....shame.

Tue, 10/11/2011 - 14:53 | 1761959 wesa
wesa's picture

Allianz is the parent of PIMCO, I believe.  Their definition of "insurance" brings up a lot of questions.

Tue, 10/11/2011 - 14:53 | 1761960 M.B. Drapier
M.B. Drapier's picture

I know, I know, no-one cares. But this is ... not abundantly convincing:

But Achleitner said questions about European Union treaties that ban sovereign governments from directly guaranteeing the debt of other members

First questionable statement. It's Article 123, the no-ECB-bailouts clause, which has a loophole for indirect purchases. Article 125 has no such language.

have since been resolved. Exemption clauses for emergencies would get around those restrictions, he said.

Are we referring to Article 122 here? Does the Greek public debt strike you as a (literal) natural disaster? Or as an exceptional circumstance, outside Greece's control?

Tue, 10/11/2011 - 15:12 | 1762056 PulauHantu29
PulauHantu29's picture

Rules?...How irrelevant!

Tue, 10/11/2011 - 14:54 | 1761963 Jim in MN
Jim in MN's picture



Does Allianz' timing in coming forward now have anything to do with your breaking news last night?

Did someone else over there in Germanland stick a CDS nuke up their butt cuz it 'felt so good', and now they hear ticking and feel kinda ill?  Massive, massive exposure anyone?


Tue, 10/11/2011 - 15:04 | 1762020 Lord Welligton
Lord Welligton's picture

Or were they depending on getting paid on the CDSs they bought?

Tue, 10/11/2011 - 14:56 | 1761981 Phillycheesesteak
Phillycheesesteak's picture

So it looks like, with the unfolding of the Iranian backed terror plot, the U.S. has the green light to go to war with Iran now.

Tue, 10/11/2011 - 14:59 | 1761999 carbonmutant
carbonmutant's picture

The opportunities for exploitation are endless....

Tue, 10/11/2011 - 15:01 | 1762004 Sokhmate
Sokhmate's picture

My Swiss army knife (the physical type) will outlast the ESFS type, and the dollar, for that matter.

Tue, 10/11/2011 - 15:02 | 1762011 Hedgetard55
Hedgetard55's picture

Too late, we have already passed the event horizon and will continue to be sucked into the debt black hole. They can try to shift the debt, hide the debt, obfuscate etc. but it will do no good. They can either default or print to currency destruction.

Tue, 10/11/2011 - 15:10 | 1762048 papaswamp
papaswamp's picture

Who is going to hang their ass out for this one? Crap Italy is already saying fuck no to the new budget and Greece just wants the money BEFORE the decide on implimenting any more 'austerity' (which I suspect hasn't really taken place). Heck the Troika 'investigators' are already mumbling Greece won't make it. 

Comedy of Errors...

Tue, 10/11/2011 - 15:24 | 1762092 adr
adr's picture

Dammit man I just want to use the same bullshit to get rid of my debt. I want to create a second SPV paper me that can hold all my debt and the real me gets to keep all my stuff. I'll even help the economy. I'll go buy a new car, a new 70" TV, even add on a few thousand square feet to my house. Man I'll be the most popular guy in town. I'll make it rain like a detrit rap star.

Paper me will be screwed but he'll be backstopped by some sort of trillion dollar rescue fund that can be tapped in 2314 to pay for all the debt.

Fuck it man let's all party like billionaires, we don't gotta pay!!!! We just have to pop out a few kids and let them worry about it.

Tue, 10/11/2011 - 20:00 | 1763519 Buck Johnson
Buck Johnson's picture

Thats exactly how they have it set up.  They are trying not to take their fiscal medicine because it's to horrible.

Tue, 10/11/2011 - 15:47 | 1762238 Finance Addict
Finance Addict's picture

The EFSF has got more moves than the latest dancehall craze. Everybody and his mother has a plan for how it can save *their* skin:

Tue, 10/11/2011 - 16:15 | 1762424 Yancey Ward
Yancey Ward's picture

Can the EFSF get the nasty hard water stain out of my toilet?

Tue, 10/11/2011 - 18:36 | 1763188 AngryGerman
AngryGerman's picture



btw, allianz pretty much is the center on the Deutschland AG,  i.e. it has stakes in all important German companies.


This is the end, my friend, the end...

Tue, 10/11/2011 - 20:27 | 1763606 Market Efficien...
Market Efficiency Romantic's picture

Co-German here, I guess the power of the Swiss connection (Achleitner and Ackerman) and their mastermind Dibelius has worn off. They have disappointed Merkel too often. Since Weber's preemptive resignation, one could observe the separation of Merkel and the Swiss connection. Don't count on their influence now, I would rather bet on them opportunistically grabbing any early straw from Merkel towards a solution. The power play has definitely siwtched to her side.

Tue, 10/11/2011 - 20:12 | 1763556 Market Efficien...
Market Efficiency Romantic's picture

again only a sidenote, but guess what position Achleitner held before turning Allianz CFO, GS co-head Germany. There you have the exploitation of the GS-started motion, driven by GS alumni. Wait for Draghi to jump in, if governments refuse to join the plan.

The difference between the US and EU is that GS has not infected EU governments as badly as in the US, so they need to pressure via corporate lobbying and if needed take the ECB detour.

Tue, 10/11/2011 - 20:18 | 1763576 Market Efficien...
Market Efficiency Romantic's picture

if you don't believe in the GS motion, lookup European GS alumni and wait for further PR. Guess why Sutherland was promoted to head of partnership committee. The European network needed executive firepower just when the bomb was about to explode.

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