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Shifting To Short-Term Funding For EFSF Is A Sign Of Weakness

Tyler Durden's picture




 

Comments from the EFSF's CEO Klaus Regling that they will issue short-dated debt to ensure they will be ready to help - for instance, Italy - is extremely worrisome and smacks of desperation in our view. Peter Tchir of TF Market Advisors agrees noting that shifting to shorter term funding for EFSF is a sign of weakness and creates real risk of contagion much sooner than if they stuck to the higher cost, but longer term funding programs. The dramatic widening in EFSF spreads that has occurred since some clarity on risk transfer, post EU summit, was made suggests market participants are extremely skeptical also.

 

I am really not sure how this is good news.  Is there any doubt that the EFSF could issue short dated paper at low yields?  No.  What does this do?  Keeps cost of funds down, but not sure how you leverage this - you can't.  Second loss risk couldn't be based on short dated first loss risk.

 

All this would do is shift the roll risk from the country in need to the EFSF.  I'm really not sure that is a smart decision.  Save 2-3% in coupon in order to increase roll risk and ensure contagion?

 

This is clearly a "banker" solution and not a "trader" solution.  I think this is a bad development.

 

On a side note, more and more banks are taking decent write downs on Greek debt, and guess what? The world didn't end.  The shares aren't even that affected because they have been trading at a discount to book for over a year to reflect the mis-marking of these positions.  How much better off would the system be if they had let Greece default a year ago?  Time and again, no one addresses the problem, no one attempts to truly "fix" it, properly, with the costs associated with it, even though in hindsight, it would have been the right decision.

 

Shifting to shorter term funding for EFSF is a sign of weakness and creates real risk of contagion much sooner than if they stuck to the higher cost, but longer term funding programs.

 

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Thu, 11/10/2011 - 16:17 | 1867357 bnbdnb
bnbdnb's picture

Weez neez zee moneyzz now! Nein Nein!

Thu, 11/10/2011 - 18:25 | 1867985 knukles
knukles's picture

This is fucking insane!
Now turning this piece of shit into a S&L invested in junk country bankrupt might as well be debt funded by the same fucking issuers to buy their own bankrupt fucking debt.  With a maturity mis-match.

This gets worse every iteration.

Thu, 11/10/2011 - 16:23 | 1867384 Odin
Odin's picture

No 3pm pump today, maybe they've finally given up... Freefall bitchez

Thu, 11/10/2011 - 16:30 | 1867412 Odin
Odin's picture

oops, spoke too soon, here it is...

Thu, 11/10/2011 - 16:41 | 1867474 Cdad
Cdad's picture

Aaaaaand...it's gone.

Thu, 11/10/2011 - 16:24 | 1867388 Cdad
Cdad's picture

Again today, there is the stink of desperation over this entire market.  I'm talking the US equity market.  It looks absolutely sick, weak....as it should.  The criminal syndicate has gone to the well one too many times here...trying to engineer rallies on absolutely nothing.  You can see it all over the market.  Volumes down yet again.

Attempts to short down inverse ETFs [ie create synthetic buyers] are not working.

The oil trade has reached the absurd...another Wall Street attempt to prop up the oil sector.  Again, there are no shorts left to Buy the Plunge.

And in Europe...talks shifting towards involuntary expulsions.

Stick a fork in it, folks.  Sell it.

Thu, 11/10/2011 - 16:30 | 1867416 sabra1
sabra1's picture

imagine how many JPM oil tankers are out there doing circles!

Thu, 11/10/2011 - 16:36 | 1867445 GeneMarchbanks
GeneMarchbanks's picture

'The oil trade has reached the absurd...another Wall Street attempt to prop up the oil sector.  Again, there are no shorts left to Buy the Plunge.'

http://www.zerohedge.com/news/iran-and-iran-here-weekly-us-naval-update

Those ships are a little too active...


Thu, 11/10/2011 - 17:35 | 1867781 reload
reload's picture

The ramp jobs are buying less time aren't they? But they make it properly hard to trade. My p&l has been a bit too wild of late, which is what happens when I think "this is so shit, It must puke"

Huge volume in eurostox options today. DB loading up with nov put spreads & unknown buyer of a clip of 75k dec far out of the money puts. Not everyday stuff.

Thu, 11/10/2011 - 16:27 | 1867399 Spitzer
Spitzer's picture

why doesnt Timmy G just buy into the ESFS ? If that is what needs to be done ? it already cost them MoFo global

Thu, 11/10/2011 - 16:31 | 1867422 carbonmutant
carbonmutant's picture

Searching for the greater fool...

Thu, 11/10/2011 - 16:33 | 1867426 A Man without Q...
A Man without Qualities's picture

The credit crunch hit the US when the banks were no longer able to secure funding for their off balance sheet SPVs, forcing them to take the assets back on balance sheet.  If the ECB is not acting as a lender of last resort to the EFSF, what happens if they cannot roll-over the funding?  

 

It seems like the EFSF concept is a clever idea, apart from the fact it doesn't work in practice, a bit like the Euro project.

 

Europe is going to be in a severe recession by the time the Germans realize the only option is for a QE type operation by the ECB

Thu, 11/10/2011 - 16:37 | 1867455 youngman
youngman's picture

Both the USA and the Eu are going to short term.....that is dangerous...this could change very quick and go balistic...but hey...gold and silver are down...WTF

Thu, 11/10/2011 - 16:45 | 1867502 ivars
ivars's picture

Corrected the y axis scale mistake on Gold 2011-2017 prediction chart:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&p=35049#p35049

Now the maximum at gold bubble break - November 2016 - is about 11300 +-10% USD.

Thu, 11/10/2011 - 16:46 | 1867508 Big Ben
Big Ben's picture

Borrowing short term and loaning long term. Isn't that what got MF Global into trouble?

Thu, 11/10/2011 - 17:24 | 1867722 Lux Fiat
Lux Fiat's picture

Duration mismatch caused plenty of problems for a lot of other financial institutions/casinos back in late 2008 as well.  Edward Harrison and others have been all over this.  It boogles my mind that the EFSF is lookin at going this route.  Desperate doesn't even begin to describe their planned action along these line.

Thu, 11/10/2011 - 16:50 | 1867532 Lord Welligton
Lord Welligton's picture

Comments from the EFSF's CEO Klaus Regling that they will issue short-dated debt to ensure they will be ready to help - for instance, Italy - is extremely worrisome and smacks of desperation in our view.

Sweet Jesus.

I never thought they would go for that.

If they have become that desperate it is definitely time to take all of your money out off the banks and .........

1. Buy tinned and dry food.

2. Buy small gold and silver.

3. Get to know your neighbours.

Thu, 11/10/2011 - 17:07 | 1867624 kaiten
kaiten's picture

Yeah, and I would also add that shifting to FED financing the US government is a sign of weakness.

Thu, 11/10/2011 - 17:19 | 1867687 Belarus
Belarus's picture

This is off topic a bit but i was watching the Jim Richards interview on Max Keiser and interestly he explained why the EURO is so strong depsite it falling apart: "It's in China's and the U.S. best interest for a strong EURO, if that's what they want they're going to get it." 

But how does America and China keep the EURO strong without flooding the EZ with money? I agree with the principle in what in the best interest of China and America, but how in the world do they go about getting what they want? 

Thu, 11/10/2011 - 17:26 | 1867733 NEOSERF
NEOSERF's picture

Would someone please give me a point by point overview of exactly what "the collapse" is going to look like because at this point it would seem that with all the lying, ignoring of law, rumors etc that this might just be as good as it gets...maybe this is the collapse.  Dexia went down and it was a blip.  Italy bonds over 7% and it was one day.  Leaders leave and a day later no one cares.  As long as someone is buying bonds with any fraudulent, illegal vehicle, no one seems to care and so maybe this is the "bottom"?

Thu, 11/10/2011 - 17:28 | 1867743 Belarus
Belarus's picture

NEOSERF, we're all trying to figure out how this ends: debt repudiation or hyperinflation. It's a bitch I know. 

Thu, 11/10/2011 - 17:39 | 1867801 delacroix
delacroix's picture

debt repudiation/hyperinflation, seem like 2 sides, of the same coin

Thu, 11/10/2011 - 18:15 | 1867924 Marco
Marco's picture

Or ... austerity, mass defaults and anarcho-capitalism/neo-feudalism.

Thu, 11/10/2011 - 18:27 | 1867996 technovelist
technovelist's picture

What an optimist! If only it would turn out that well...

Thu, 11/10/2011 - 21:37 | 1868502 Nightblade
Nightblade's picture

haha it's a bad dream and I swear I am waking up any minute now

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