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RBS Joins Citi In Blasting "EFSF As A First Loss Insurance Guarantee" Plan
First it was Citi's turn, when earlier, via Willem Buiter, it explained in granular detail, how the EFSF's latest incarnation as a 20% first loss insurance fund, will be not a bazooka but a "peashooter." Now it is the turn of RBS' Harvinder Sian (yes, yes, the same guy who in February 2010 accused Zero Hedge of falsely concluding Greek banks are insolvent... ahem) to mock and ridicule the Guardian's blatant attempt to lift the EURUSD just so momos and piggybackers provided a convenient receptacle for assets that French banks were offloading beginning at 3pm courtesy of this bogus plant, since refuted by Dow Jones. Seeing how Harvinder works for RBS (and was protecting his bank's Greek bond exposure last year...how did that work out), don't expect much original thought. After all, the specter of no Christmas Party must put what few employees the bank has in a perpetually ill mood. That said he does provide a convenient echo chamber for those who have already said the original things ahead of him.His conclusion is sufficient: "If this is delivered alongside more detail on a harder Greek PSI and an early ESM adoption, then expect the crisis to get more elevated and seriously engulf the early-stage stressed Belgian and French markets. In the meantime, such news headlines will make for choppy price action and destroy low conviction trading positions." Hear that momos? This Bud's for you.
His thoughts, as previously regurgitated as they may be:
Stocks have rallied & bond futures are lower on a story reported by the UK Guardian newspaper that Germany and France agree to a €2 tn fund to calm the markets.
On the face of it, the €2 tn number is a good one. It is the number that we thought the EFSF had to be to calm markets. In this case however, it is only €2 tn from the insurance model that has been popularised by Allianz. The implied calculation from the story is that you take €440 bn and allow the EFSF to offer 20% insurance for losses on EGBs and you get a leveraged effect of €2.2 tn. In truth, the available resource of the EFSF is likely to be nearer €250 bn after the bailouts, so this number is likely nearer €1 tn.
We think the insurance model for the EFSF is conceptually interesting but practically makes little difference to the crisis.
(1) EFSF deployment is not in ready cash but in guarantees so will not have a firepower effect similar to ECB buying. (2) The solution will allow investors to switch from risky (for example) BTP and SPGB to new partially guaranteed paper, if the guarantee written properly, but does not do anything about the underlying solvency risks. I strongly disagree that Italy & Spain are facing only a liquidity crisis. (3) Creating a two tier market in EGBs risks destabilising current debt holders and impacting on third markets. For instance, Belgian paper can suffer as investors wait for the EFSF to de-risk their holdings here. (4) It helps kick the can down the road in providing market access for some time but that time is limited to either July 2013 when the ESM arrives, or as short as July 2012 if the ESM is brought forward. (5) The ESM remains a big negative for risk markets because for non-programme countries (i.e. other than Greece, Ireland and Portugal) that need future assistance it will look at institutionalising haircuts and in any case be a senior creditor. It is impossible to look past this and is a key component to the crisis.
Otherwise, the news story also mentions the bank recaps. There is confirmation on the a target 9% capital ratio and that the overall recapitalisation required will be closer to €100bn rather than the €200bn. It looks like this will be done via private capital, if not then by recourse to the sovereign, and if that fails then the EFSF. We think banks recap are not the root of the crisis and so without solving the sovereigns this achieves little in the big picture.
So, our overall assessment is that the policy position on Europe is a little clearer with (a) official preference for the EFSF-monoline; (b) Bank recaps being 1/2 the IMF number touted and not via Euro funds but mostly private and domestic sovereign. None of this will help solve the crisis.
In fact, if this is delivered alongside more detail on a harder Greek PSI and an early ESM adoption, then expect the crisis to get more elevated and seriously engulf the early-stage stressed Belgian and French markets. In the meantime, such news headlines will make for choppy price action and destroy low conviction trading positions.
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Um.. if you are insolvent, how do you "de-risk"?
Isn't everybody over there insolvent now?
They're just following the Bank of Countrylynched model?
Seriously. After 5 years of reading this various story line, I am bored and lethargic. I guess they wore me down. Fuck it turn it up on high boil.
The story is the same...it hasn't changed for 40 years. More problems? More debt and more money printing.
Capitalism at it's worst.
http://seekingalpha.com/article/299891-the-eu-rescue-bid-what-does-it-me...
Illusion of choice
http://americanbuilt.us/images/toons/illusion-free-choice.png
Fed Pyramid
http://americanbuilt.us/images/toons/money-press.jpg
Because like the fine cocksuckers they are they stick it to you the dopey taxpayer you moron. Why do you think this site exists in the first place? Anywho throwing a ten million man Military under the bus strikes me as "rich indeed." I imagine deconstructing Time Warner Communications looks pretty easy if you've spent your whole natural life trying to take down the entirety of the North Korean intelligence complex. "Besides you might even have fun doing it!" as the ad says.
If you pretend you're not insolvent then tell people you're not insolvent
Easy.
You drive the correlation coefficient of your own survival with that of planet earth to 1.
BloomBS. I'm Charlie Parrot
"Stocks surged today on indications the recovery is strengthening"
That's a BloomBS flash, I'm Charlie Parrot
they all come around sooner or later don't they....
Insolvent; it's the new normal.
+1 for a very cool comic character
(3) Creating a two tier market in EGBs risks destabilising current debt holders and impacting on third markets. For instance, Belgian paper can suffer as investors wait for the EFSF to de-risk their holdings here.
Very good point, too me, the main one. even in the next 48hrs should sell on the fact with this.
So it's France and Belgium that will get reamed, as will Germany.
the esm was meant to replace the efsf not be in addition, right?
Please...dont try to follow this without a program. That'll be 8 euro. Thanks. Enjoy the show.
Ice9??? Peripheral bond markets could freeze up as investors wait to buy the new bonds with the free insurance.
that's why i think the banks are starting to freak, they are going to have to writedown losses at any case. This EFSF will cause other countries bond yields to blow out. Eastern Europe is going to be the main victim as will France and Belgium and Germany.
This kind of news could limit the XLF to only a 4% gain tomorrow instead of the full 5%. They had better be careful!
Meanwhile at the White House......
Obama calls Tim Geitner on his cell after reading this article..
"Hello its the Timmay here..
...ahhhhhh hello Tim its Barry here..
hey Baz, did you get your teleprompter back today yet?...surely you did not speak with out it, have you ever done a speech with out it?..
ahhhh sure, last thanksgiving to my children...they said I was terrible..
anyways Tim, what about these Zerohedge guys, they seem to know what they are talking about,
..that Banzai guy is always making fun of me Mr President so I don't like them, they think I am a midget
Listen Tim, I am getting the feeling around here that you and the baldy bernanke don't know what you are doing?...Ron Paul is starting to make sense
But as far as I know these guys did not go to harvard mr president...
ahhhhh ok, we cant hire them then...
And that ladies and gentlement is the fucking problem with these idiots that serve the Teleprompter
The end
'didnt go to Harvrd'
When I was a (poor) kid I wanted to better myself. I looked around at people who had succeeded to see if there were some clues about what one needed. What talents or common denominator characteristics were present among the 'successful'. I found quite a few common denominators.
But University education wasn't one of them.
Sadly the IQ 80's who work in politics don't realise this.
"choppy price action" = place yer bets, BiCheZ!
No one said it was going to be pretty. What? You wanted a Renoir? Gotta pay for that too BiTCH!
So you're saying Europe's screwed? Not news ... to anyone.
did he just cut and paste from zh? does he realize you aren't hiring? at least not with 7 figure guarantees?
Prince - America [1985]
http://www.youtube.com/watch?v=Yyh_U32gbOo
dont worry about it.. the Euro crashes and all of the sudden America is floating in new monies!
TSY to the MOON BITCHES!
DEATH TO ALL SHORTS!!
signed the FED
well. for a short while anyway...
PBS just said GS is going to 150 by February...lol.... And their analyst said Citi is perfectly safe bc Pandit is so wonderfully expanding Citi worldwide... I think I threw up
but at least you didn't lose your money eh...
If the strong want to lift up the weak,
As the Germans and French would the Greek,
It is best if such acts
Do not overly tax
The Teutonic or Gallic physique.
http://www.limericksecon.com
Translation - They owe us money and the plan is not going to have the impact of immediately funneling money to RBS and Citi. If we have to wait for a loss, then we may not get paid. As far as the sovereign issue goes, FUCK OFF, the point is to leave you all holding the bag.