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S&P Issues Statement On EFSF, Says "Almost Certain" European Governments Would Support CDO

Tyler Durden's picture


The first kicker in the just released S&P statement on the revised and AAA-rated EFSF is the following: "In our opinion, there is an "almost certain" likelihood that the EFSF's 'AAA' rated member governments would provide timely and sufficient extraordinary support to the EFSF if needed." So, uh, S&P is determining the fate of trillions worth of securities on the basis of a hunch, a whim, if you will. A strong one, but a hunch nonetheless. Swell. And the second kicker:  "If we lowered the ratings on one or more of the 'AAA' rated member guarantors, we would also likely lower the ratings on funding instruments that the EFSF had issued before the date of the downgrade, if the lower ratings on the member guarantor were to lead to less than 100% 'AAA' rated coverage for the relevant EFSF funding instrument." This, in the parlance of our times, is known as a springing downgrade, which sets off the kind of cataclysm that only AIG could achieve once the investing community realized it had a rating-based collateral schedule. So once again the fate of the free world depends on FrAAAnce. Swell2.

From S&P:


  • Guarantees from eurozone member states (members) continue to be a main factor underpinning the ratings on the European Financial Stability Facility (EFSF).
  • In our opinion, there is an "almost certain" likelihood that the EFSF's 'AAA' rated member governments would provide timely and sufficient extraordinary support to the EFSF if needed.
  • We are therefore affirming our 'AAA' issuer credit rating and assigning a short-term rating of 'A-1+' on the EFSF.
  • The outlook is stable.

Rating Action

On Oct. 28, 2011, Standard & Poor's Ratings Services affirmed the long-term issuer credit rating on the European Financial Stability Facility (EFSF) at 'AAA'. At the same time we assigned a short-term rating of 'A-1+' on the EFSF. The outlook is stable.


To assess both the quantitative and qualitative indicators of the EFSF's creditworthiness we apply our criteria, "Principles of Credit Ratings," published Feb. 16, 2011. Guarantees from European Economic and Monetary Union (eurozone) member states (members) continue to be a main factor underpinning the ratings on the EFSF. However, we also recognize that the EFSF has government-related-entity (GRE) characteristics, as outlined below. We see the EFSF as the principal source of emergency financing for its members. Loans are disbursed in tranches to a member experiencing difficult financing conditions, subject to the member's compliance with budgetary and other reforms in conjunction with IMF programs. In the future, fully guaranteed credit enhancements may be provided by the EFSF to member states that agree to implement specific measures, which may not necessarily be part of an IMF program.

In accordance with our criteria for guarantees and GREs, the ratings on the EFSF reflect Standard & Poor's opinion that there is an "almost certain" likelihood that its 'AAA' rated member governments would provide timely and sufficient extraordinary support to EFSF should it require support.Our rating on the EFSF is based on our view of its:

"Critical" role for its member governments. We consider the EFSF to be the cornerstone of the EU's strategy to restore stability to the eurozone sovereign debt market and to preserve confidence in the European financial system. The strategy is to provide conditional financing to member governments that are committed to pursuing a European Commission-backed program of fiscal and structural reforms (usually in conjunction with the European Central Bank and the IMF). In our view, member states will ensure that the EFSF can pay all its debt obligations on time and in full, given their recognition of the EFSF's importance in preserving investor confidence in eurozone sovereigns and eurozone financial sector creditworthiness; and

"Integral" link with its member governments. The EFSF's board of directors comprises senior, mostly ministry–of-finance officials, nominated by EFSF member governments. Unconditional, irrevocable, and timely guarantees from EFSF members rated 'AAA' by Standard & Poor's; or 'guarantees made by 'AAA' rated members plus liquidity reserves invested in 'AAA' rated securities will, in our opinion, cover the EFSF's potential liabilities.

The EFSF was established in mid-2010 by intergovernmental agreement among members. Its purpose is to raise capital-market funding to provide loans to members facing difficulties accessing funding from the markets at sustainable rates.

Initially, the EFSF was limited to extending direct loans to members under individual Loan Facility Agreements. At that time, the rating on EFSF and the securities it issued under its medium term note (MTN) program reflected our view that guarantees made by 'AAA' rated members and liquidity reserves invested in 'AAA' rated securities would cover all of the EFSF's potential liabilities. Each non-borrowing member was to provide a timely, unconditional, irrevocable, and several guarantee of up to 120% of its own share of the bonds issued by the EFSF (the "over-guarantee"). Under this structure, EFSF members pledged a total of €440 billion in guarantees (about 6% of 2011 eurozone GDP), of which about 62% (€255 billion) were guarantees made by 'AAA' rated members. In our view, the face amount of 'AAA' guarantees effectively limited how much the EFSF was likely to borrow to on-lend to eurozone sovereigns.

On June 24, 2011, the EU Heads of State and Government agreed to increase the effective lending capacity of the EFSF to €440 billion through an increase in the maximum-guarantee commitments of member states to €780 billion (about 8% of 2011 eurozone GDP) and a related increase to 165% from 120% in the over-guarantee provided by each non-borrowing member. As Ireland, Greece, and Portugal are "stepping-out" guarantors, the level of maximum guarantees is reduced to €726 billion from €780 billion. We estimate that applying the over-guarantee of 165% to €726 billion gives the EFSF an effective direct-lending capacity of €440 billion. However, as 62% of the €780 billion in guarantee commitments is from 'AAA' rated sovereigns, we expect that the EFSF can borrow up to €452 billion without putting downward pressure on its 'AAA' rating.

The scope of EFSF activity has also broadened as part of a March 11 announcement to the effect that it may, exceptionally, intervene in the debt primary market.

At the eurozone summit held on July 21, 2011, the decision was taken to further widen the EFSF's scope of activity, allowing it to:

    Act on the basis of a precautionary program.
    Recapitalize financial institutions through loans to governments, whether or not they are program countries.
    Intervene in the secondary markets if European Central Bank (ECB; AAA/Stable/A-1+) analysis reveals exceptional financial-markets circumstances and risks to financial stability, and if EFSF members mutually agree to act to avoid contagion.

As a result, the EFSF will have new lending instruments that are designed to enable it to react in a timely manner to members' financing needs. As part of this, it will issue short-term debt under its current €55 billion issuance program. Based on our view of the program's documentation, we expect to be able to assign a 'A-1+' rating to this short-term debt.

These changes to the EFSF are encompassed in the amended EFSF framework approved by all member parliaments as of Oct. 14, 2011. Under the amended structure, EFSF potential issuance of bonds, notes, commercial paper, debt securities, or other financing arrangements (collectively, funding instruments) will be matched solely by guarantees made by 'AAA' rated members.

The requirement for liquidity reserves invested in 'AAA' rated securities will be removed. However, outstanding funding instruments issued before the amended EFSF framework--those relating to the Irish and Portuguese programs--will remain backed by unconditional, irrevocable, and timely guarantees from 'AAA' rated EFSF members and liquidity reserves invested in 'AAA' rated securities.

We consider that EFSF's use of funds it raises in the capital markets does not directly affect our issuer credit rating on EFSF--as long as these funds continue to be backed by guarantees made by 'AAA' rated members (amended framework) or guarantees made by 'AAA' rated members and liquidity reserves invested in 'AAA' rated securities (original framework).

On Oct. 26, 2011, EFSF members agreed to leverage the resources of the EFSF through investments, partly in special purpose vehicles (SPVs), which will provide risk insurance and/or conditional direct financing or investment in member states. We do not expect this will affect the ratings on the EFSF as long as EFSF's liability is limited to its equity-at-risk and not associated with the assets and operations of the SPVs. In our view, the EFSF's borrowing capacity will remain constrained, at €452 billion, by the amount of guarantees made by 'AAA' rated members.

However, if EFSF-funded financial support programs do not improve market confidence in the eurozone, and contagion puts 'AAA' rated members' ratings under pressure, this could indirectly affect EFSF's creditworthiness.

The EFSF has a limited life span and is not expected to enter into new loan agreements after June 2013. The incoming European Stability Mechanism (ESM) may assume the EFSF's prior financial obligations and commitments. We expect any outstanding EFSF funding instrument with interest or principal due after 2013 will remain secured either solely by guarantees made by 'AAA' rated members, under the amended EFSF framework, or guarantees made by 'AAA' rated members and 'AAA/A-1+' rated securities as defined under the original EFSF framework.


The stable outlook reflects our view of an "almost certain" likelihood of the EFSF's 'AAA' rated member governments providing timely and sufficient extraordinary support to the entity in the event of financial distress.

Our rating and outlook on EFSF are based on our view of the guarantees on EFSF liabilities that 'AAA' rated members provide, as well as on our opinion of EFSF's critical role for and integral link with its members.

If we lowered the ratings on one or more of the 'AAA' rated member guarantors, we would also likely lower the ratings on funding instruments that the EFSF had issued before the date of the downgrade, if the lower ratings on the member guarantor were to lead to less than 100% 'AAA' rated coverage for the relevant EFSF funding instrument. However, despite the reduction in the number of 'AAA' member guarantors, the ratings on such funding instruments could remain at 'AAA', if we saw that additional credit enhancements were in place to offset the lowering of the sovereign rating, so that coverage that we viewed as commensurate with a 'AAA' rating was maintained.

The same is likely to apply to EFSF funding instruments issued after the downgrade of one or more of the 'AAA' member guarantors. Although full coverage that we viewed as commensurate with a 'AAA' rating could be maintained, the EFSF's lending capacity would be reduced under these circumstances.

We could lower our issuer credit rating on the EFSF if the total of EFSF's liquid 'AAA/A-1+' rated securities and its guarantees made by 'AAA' rated members were to become less than the total of its outstanding funding instruments.

In general, we expect the outlook on EFSF's issuer credit rating to reflect the outlook on the sovereign ratings of its weakest 'AAA' guarantors.


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Fri, 10/28/2011 - 12:21 | 1821214 Deadpool
Deadpool's picture

the raters have always been glorified weather men. it's a farce.

Fri, 10/28/2011 - 12:50 | 1821318 slaughterer
slaughterer's picture

Does France have an inside man at S&P?  I do not understand how the USA is AA+ while France stays AAA. 


Market will look at AAA long-term rating without reading the fine print: rally time. 

Fri, 10/28/2011 - 14:45 | 1821977 falak pema
falak pema's picture

'cos France has 300 types of, and say "cheese"!

Fri, 10/28/2011 - 12:52 | 1821328 NotApplicable
NotApplicable's picture

Farce? Do you have any idea how hard it is to maintain plausible deniability in the face of this disaster? Why, without them managing expectations the way they do, just think of the uncertainty that would displace the calm, yet irrational apathy we see today. They're doing God's work, I tell ya.  ;-)


Basically, they're saying "Governments, how the fuck do they work?"

Fri, 10/28/2011 - 12:21 | 1821218 jcaz
jcaz's picture

So much for the objectivity of rating services-  they're now admitting themselves that they're just pimping the system.

Very nice.

Fri, 10/28/2011 - 12:23 | 1821229 Boilermaker
Boilermaker's picture

<golf clapping>

Fri, 10/28/2011 - 12:55 | 1821343 NotApplicable
NotApplicable's picture

Well, since there's truly no such thing as objectivity, it's better that the facade crumble, no?

Fri, 10/28/2011 - 12:22 | 1821220 Boilermaker
Boilermaker's picture

It's somewhat possible that maybe they will potentially agree to it!


Fri, 10/28/2011 - 12:22 | 1821222 tsx500
tsx500's picture


Fri, 10/28/2011 - 12:45 | 1821224 GeneMarchbanks
GeneMarchbanks's picture

Sarkozy will fuck this up. As a result of Berlusconi fucking up Italy. Then we'll see FrAA-nce.

Fri, 10/28/2011 - 13:09 | 1821418 Market Efficien...
Market Efficiency Romantic's picture

Oh yeah, he already seemed pretty worn out after those long debates. Bu to be serious, you know, why it is spelled Fr-A-nce, even AA overrates them once the death spiral confronts the gap between the aspiration and the illusion of being a world power.

Fri, 10/28/2011 - 12:22 | 1821225 fuu
fuu's picture

What did they find in those raided S&P offices?

Fri, 10/28/2011 - 13:05 | 1821398 gatorengineer
gatorengineer's picture

I would guess coke residue and some slightly soiled hooker panties.....

Fri, 10/28/2011 - 13:05 | 1821399 gatorengineer
gatorengineer's picture

I would guess coke residue and some slightly soiled hooker panties.....

Fri, 10/28/2011 - 12:22 | 1821226 LawsofPhysics
LawsofPhysics's picture

Lower the rating on the Earth and just be done with it already.  Paper-pushing fucknuts.

Fri, 10/28/2011 - 12:23 | 1821227 Sam Clemons
Sam Clemons's picture

Free world?

Fri, 10/28/2011 - 12:32 | 1821256 Schmuck Raker
Schmuck Raker's picture

Not where I grocery shop.

Fri, 10/28/2011 - 12:24 | 1821231 Deadpool
Deadpool's picture

bet France wishes De Gaul got their gold back from Nixon even more now.

Fri, 10/28/2011 - 12:24 | 1821235 SheepDog-One
SheepDog-One's picture

Theyre now micromanaging so hard they had to release this 'news' just as the DOW was down -40...immediately back up to green again, job well done.

Fri, 10/28/2011 - 12:26 | 1821238 vegas
vegas's picture

The only thing you can count on the French for is surrender; they have always been pretty good at it.

Fri, 10/28/2011 - 12:29 | 1821245 Tsar Pointless
Tsar Pointless's picture

You mean kinda like the majority of Americans have surrendered to their debt masters?

I guess we won the wars, but lost the battle.

Usually it's the other way around.

At least we're unique in that respect.

Fri, 10/28/2011 - 12:38 | 1821280 vegas
vegas's picture

Nobody in the world can beat Amerikans when it comes to taking on debt they can't repay. Problem is, the world continues to lend the dolts the money. Go figure.

Fri, 10/28/2011 - 12:47 | 1821307 LawsofPhysics
LawsofPhysics's picture

Actually, many foreigners have stopped lending the U.S. money and stopped buying treasuries and bonds.  Problem is, Ben has a printing press.  Time to negociate with China for just how much the reserve currency is worth to them.  Call their bluff, they don't want it and why would they when oil-producing countries are already taking other currancies for oil anyway.

Fri, 10/28/2011 - 12:28 | 1821242 Tortfeasor
Tortfeasor's picture

UPDATE: From this date forward, the rating of 'AAA' is no longer in use.  The highest rating given by any rating agency shall be 'AA+', and all other ratings shall be adjusted upwards accordingly.

Fri, 10/28/2011 - 12:30 | 1821249 Schmuck Raker
Schmuck Raker's picture

"In general, we expect the outlook on EFSF's issuer credit rating to reflect the outlook..."what could possibly go wrong?

Fri, 10/28/2011 - 12:30 | 1821250 gwar5
gwar5's picture

No problemo. The TBTF can always force out the top guy at the agencies and get somebody who will get it right.  The NWO is at stake dontcha know.

Fri, 10/28/2011 - 12:34 | 1821263 disabledvet
disabledvet's picture

This reminds of the scene in the movie Fletch where he's reporting on police corruption...the police come, throw him in jail, the chief of police comes down, points a gun at his head and Fletch says "thank God! The police!" the rest of the story is fairly straightforward.

Fri, 10/28/2011 - 12:35 | 1821267 Amish Hacker
Amish Hacker's picture

"member governments would provide timely and sufficient extraordinary support"

These clowns are leaving the landing lights on for Amelia Earhart.

Fri, 10/28/2011 - 12:36 | 1821271 oogs66
oogs66's picture

so the Eurobonds wouldn't be AAA :D

Fri, 10/28/2011 - 12:37 | 1821272 lolmao500
lolmao500's picture

So they won't downgrade France tonight? Awwwwww.

Fri, 10/28/2011 - 12:48 | 1821308 Belarus
Belarus's picture

No, at best S + P hs said France won't be under review until end of year. 

Fri, 10/28/2011 - 12:37 | 1821273 Belarus
Belarus's picture

"In our opinion, there is an "almost certain" likelihood that the EFSF's 'AAA' rated member governments would provide timely and sufficient extraordinary support to the EFSF if needed." 

So, they are saying Germany will go all in after witnessing the money-pit that Greece has been and will continue to be....just as Italy and Spain are joining the Greek ranks? 

At any rate, this is exactly why stocks will rally into the year-end. No one in the world believes that assets won't be saved at any and all costs...along with the EURO, etc. 

And intermidate and long-term they would be right, even if Germany and France leave the EURO, about assets being saved at any and all costs--there is no reason to ever fear real assets like silver, oil, agricultrual, and even banks for that matter. There is no reason to short anything anymore.....all collasping debts will merely be pushed up against with ongoing and endless central bank printing until objective is achieved (which eventually is runaway inflation impossible to stabilze without setting off the next great depression). Even a failed bond auction just means more money printing. 

It's no wonder why the QE trade has been well underway....because it doesn't matter when it happens again, it just simply will at some point. And that is all that matters when world-wide cash flows don't and can't support world-wide debts. China will continue easy money, the U.S., etc. depsite whatever clusterfuck happens in Europe. The only thing Europe might achieve is a better entry point into solid assets.


Fri, 10/28/2011 - 12:56 | 1821346 reload
reload's picture

I am almost certain I posted the cheque,

I am almost certain I will not come in your mouth.

Fri, 10/28/2011 - 12:38 | 1821278 trampstamp
trampstamp's picture

Let's see what Moody's says. They may not see it this way.

Fri, 10/28/2011 - 12:39 | 1821283 lolmao500
lolmao500's picture

That how you freaking protest. That's how you show who's a slave and who's not.

Veterans with AR15s protecting Occupy Phoenix

Fri, 10/28/2011 - 12:39 | 1821288 Caviar Emptor
Caviar Emptor's picture

Amidst our 'consumer renaissance': Whirlpool announces laying off 5,000, most since 08.

Fri, 10/28/2011 - 12:42 | 1821290 Caviar Emptor
Caviar Emptor's picture

Amidst austerity for the 99%, prosperity for the 1%:


Italian govenment buys 19 Maserati supercars despite austerity cuts


Italy may be in the midst of a savage austerity drive but that has not stopped defence ministry officials ordering a fleet of armoured Maseratis to ferry themselves around Rome.

Fri, 10/28/2011 - 13:01 | 1821376 Schmuck Raker
Schmuck Raker's picture

That's Stimulus. And that's beneficial for your lawn.

Fri, 10/28/2011 - 13:04 | 1821393 Market Efficien...
Market Efficiency Romantic's picture

Google pictures of Italian Lamborghini police cars. No, not kidding, seriously, they only want to make sure they capture escaping sports cars such as politicians in their government-leased Maserati.

Fri, 10/28/2011 - 12:43 | 1821292 Manthong
Manthong's picture

Likely probability of assumptions based on the possibility of projections regarding plans for future conditionalities and optimistic assessments.. for sure.

Fri, 10/28/2011 - 12:49 | 1821314 Caviar Emptor
Caviar Emptor's picture

I knew things were about to start changing fast, but this is ridiculous: 

It's a Girl! British royal succession rules to change

Fri, 10/28/2011 - 13:00 | 1821372 NotApplicable
NotApplicable's picture

Once a Catholic heads the Church of England, I'd say that after nearly 500 years, the Counter-Reformation will be complete.

*goes for popcorn*

Fri, 10/28/2011 - 12:50 | 1821316 LawsofPhysics
LawsofPhysics's picture

Well I don't think I would enter into a contract with anyone who was "almost certain" they would pay for my services.  Bye bye paper.

Fri, 10/28/2011 - 12:50 | 1821317 machineh
machineh's picture

'As 62% of the €780 billion in guarantee commitments is from 'AAA' rated sovereigns, we expect that the EFSF can borrow up to €452 billion without putting downward pressure on its 'AAA' rating.'

Implicitly, S&P assumes that €452 billion of EFSF debt issuance has no effect on the AAA guarantors. Is that realistic?

This enormous volume of supply is likely to raise borrowing costs for all European sovereigns, including the AAA ones. Higher borrowing costs add to fiscal deficits and accelerate the rise in debt-to-GDP ratios.

How can S&P's static model ignore this rather direct dynamic linkage? Something is wrong with this picture!

Fri, 10/28/2011 - 12:50 | 1821319 Epicurus
Epicurus's picture

In case you haven't picked this up yet. Here's the link to an explanation on the EFSF (Q&A format).


Fri, 10/28/2011 - 12:52 | 1821330 YesWeKahn
YesWeKahn's picture

They didn't say "outlook positive", it's pretty positive.

Fri, 10/28/2011 - 12:52 | 1821334 slewie the pi-rat
slewie the pi-rat's picture

case study in how ratings agencies and the banksters who (wink-wink) are subject to their ratings under (wink-wink) generally acceptepted accounting rules build CONFIDENCE in their wunnerful, wunnerful TBTF pyramides du papier

if someone from S&P were pitching this to me, i would think throughout the presentation:  even this doucebag wouldn't touch this festering mess of criminality and fraud with a 10-ft. pole! 

see you in oakland, BiCheZ!  goooooo raiderz!


Fri, 10/28/2011 - 12:55 | 1821345 slaughterer
slaughterer's picture

Every fucking dip will be bought from now till EUR/USD 1.50 Christmas. 

Fri, 10/28/2011 - 12:56 | 1821349 Mr_Wonderful
Mr_Wonderful's picture

Fitch says acceptance of 50% haircuts on Greek debt would constitute default. Bloomberg reports

Fri, 10/28/2011 - 13:01 | 1821377 NotApplicable
NotApplicable's picture

Well, that's just like... their opinion, man.

Fri, 10/28/2011 - 13:39 | 1821559 Market Efficien...
Market Efficiency Romantic's picture

Right, and remember they pulled that 'opinion' pardon card before, nicely engineered by lawyers, when they had to face the US congress.

Will be intersting to see, how such opinions by just the agenicies that also serve prime hedge fund clients with early info will be brought into the trials challenging the ISDA overrruling of any credit event criterion.

Fri, 10/28/2011 - 13:00 | 1821373 Market Efficien...
Market Efficiency Romantic's picture

With the leverage risk, the missing EUR sovereigns commitment to credit liabilities and the missing ability to talk straight, the markets will only fund the EFSF at relatively high cost. So, whatever the rating may be, the EFSF will soon become a pretty impractible instrument. That combined with the daily escalating situation in Italy and Spain will rather soon teach the European political establishment that risk cannot be engineered away and that political talk in the world of capital markets neither solves a problem nor calms the participants. Instead they will learn the hard way that such manipulative behavior is penalized, leading to greater cost than would have initially been necessary.

Well, maybe not the best idea to have laymen get trained on the job.

Fri, 10/28/2011 - 13:14 | 1821439 slaughterer
slaughterer's picture

Market Efficiency: +1 (Green Tick).   Nicely stated. 

Fri, 10/28/2011 - 13:04 | 1821394 Schmuck Raker
Schmuck Raker's picture


More good news:

"The current problem lies with European banks, traditionally important players in trade finance, which support an estimated 80% to 90% of trade. But they are struggling to obtain the dollar funding they need, given that around 75% of world trade is greenback-denominated. Some, notably BNP Paribas and Societe Generale, are also reducing their trade lending as part of their broader de-leveraging. Overall trade finance lending is down 6% year-on-year, according to Dealogic figures. As a result, prices are rising." -WSJ Global trade faces a financing crunch

Fri, 10/28/2011 - 13:19 | 1821459 Market Efficien...
Market Efficiency Romantic's picture

That will be interesting to see. But as EADS the major defence contractor and parent of Airbus has mentioned previously, they increasingly disintermediate commercial banking or at least European commercial banking in the process, which may or may not be so smart in the long run. But it's a fact. European banks played an important role in the trade game and were therefore protected by national governments, until these governments now realize they will have to sacrifice something and are ready to shoot the banks (at least the majority) for political survival.

JPM as Europe's new preferred council will sure be happy to hear. Finally, the JPM / FED joint-venture has gained control over the macroeconomic and political development in Europe.

Sat, 10/29/2011 - 18:30 | 1825146 Schmuck Raker
Schmuck Raker's picture

Thanks for the reminder that many large corporations are taking it upon themselves to provide financing to customers. A Boeing for instance.

I'm curious to see if Google should follow through on any scheme to fund a Yahoo deal(for a competitor even?) how it works out for them from the financing angle, and strategically.

Fri, 10/28/2011 - 13:23 | 1821477 Curtis LeMay
Fri, 10/28/2011 - 13:25 | 1821484 JR
JR's picture

Ah, the holes in the agreement, the cluster of central banks (member governments), the triggers. It’s S&P’s hunch that the banks will pay, but if the banks don’t pay for this agreement it goes back to the taxpayers. And if it does the taxpayers will throw out their politicians… In reality, the banks never have any of their own money…it’s our money and our grandchildren’s money. That’s what they’re playing with.

Maybe it’s oversimplification but here are the dominoes: Greece hitting French banks, French banks hitting European reserve promises, European reserve promises hitting the IMF, the IMF hitting the U.S. Federal Reserve, and the U.S. Federal Reserve hitting U.S. taxpayers.

Greece is one domino; Italy, however, is a chain of dominoes.

In the meantime, ZIRP and Fed printing are creating boomerang inflation throughout the world. All of this discussion takes into account that they are telling the truth about the debt problem; but what do Italy’s books really look like?  You can almost assume they’re all lying to protect their interests.  They haven’t told the truth since this began.

In the case of America, Nathan Martin of Nathan’s Economic Edge wrote today: “Yesterday was a sad, sad day for America, did you miss it?  What the media and your government didn’t tell you yesterday was that America’s advertised debt (reality is WAY higher) surpassed 100% of the nation’s GDP.

“No, all you heard on the news was that trumped up GDP supposedly ‘grew’ by 2.5%. But remember, debt is money inside of the central banker box, and thus it is the growth of debt/money that you are seeing as ‘growth.’ Do not believe the lies, remember that lying is a cooperative act, do not give the purveyors of fraud permission to lie!”

Fri, 10/28/2011 - 14:05 | 1821699 Market Efficien...
Market Efficiency Romantic's picture

I fully agree, but its not stupid maneuver, it's economic geo-politics by the corporate world played on the backs of the American public. If it plays out for them, the US economy will benefit as it does from any depreciation, but this is no longer a game of comparative advantages among countries but instead of comparative advantages of classes of society.

Back in school (in Europe), I always wondered, how everyone around me was exstatically enjoying currency appreciation, as it would make shopping abroad so cheap and at the same time, news stories suggested that the depreciation would hurt the economy.

The game by the FED is nothing else than the pursuit of comparative advantages, legitimized by the attribute national comparative advantages, but in fact it is a shift of wealth between capital and labor. I have no political motives in this discussion, I just dislike the cheekiness by pseudo-public institutions to ask the hard working people for a sacrifice to fight for a better future for them.

My only criticism is that I believe the growth required to maintain the society and global wealth will in the medium term be endangered, as no working individual will be willing to play that game.

 But in the end, that only indicates the psychopathic and sociopathic personality trades representing much of the elite capital. Even the clearest sign of eminent risks to their relative wealth from public uprising will not keep them pursuing the accumulation of further relative wealth that only is of value in terms of competitive signalling, but has no consumptive meaning. Like Manson, enjoying his reputation among criminals even at the price of getting caught and paying with life for that reputation.

Fri, 10/28/2011 - 13:34 | 1821529 Market Efficien...
Market Efficiency Romantic's picture

Maybe, I am a little slow to realize, but it increasingly appears as if European sovereigns believe they that intrinsic insurance is cheaper and less prone to speculative attacks than market insurance. Such an assumption could only come from bureaucrats.

I am really curious how Europe's attempt to take out the rating and insurance function with a flat self-insurance will play out. My guess: Economics 101 tells you, it won't work and even if it was theoretically feasible, the markets will in practice distrust this structure and require higher prices along with siphoning off the arbitrage opportunities. Costly game to play for Europe.

Also, from a portfolio theoretical perspective, even systemic counterparty risk is superior to centralized political risk guaranteed through one entity.

Fri, 10/28/2011 - 14:05 | 1821705 Mr_Wonderful
Mr_Wonderful's picture

One Trillion Euro will balloon to ten to fifteen over the next 2-3 years.

Remember TARP? They defrauded it up to like 15 Trillion after starting out innocently by 750 Billion (Goldman/Treas. Sec. Paulson). That´s how they do it.


Fri, 10/28/2011 - 14:59 | 1822059 aldousd
aldousd's picture

am I correct in reading it to mean this: "everyone is so scared of what would happen if this weren't AAA that we're confident they'll behave as we'd expect a AAA rated entity to do. Therefore, we decalre the self fulfilling prophecy fulfilled, with a stable outlook."


or am I missing something?

Sat, 10/29/2011 - 00:47 | 1823742 Grand Supercycle
Grand Supercycle's picture

Bullish USD weekly/monthly and bearish SP500/DOW monthly charts will eventually ensure a reversal of the equity uptrend and a significant dollar rally.


Sat, 10/29/2011 - 13:20 | 1824410 mhjhnsn
mhjhnsn's picture

So, S&P makes it official that France is TBTF?

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