S&P Reminds Europe Of Its Toxic Catch 22, Warns EFSF Expansion Will Lead To More Sovereign Downgrades, Rendering EFSF Itself Useless

Tyler Durden's picture

Finally, little by little, the fog of toddler-like euphoria over any and every most recent European bailout plan is starting to lift, this time with the S&P finally speaking up and reminding everyone of what they already know: namely that an expansion of that now-daily deux ex machina, the EFSF, will "potentially trigger credit rating downgrades in the region, a top Standard & Poor's official warned. David Beers, the head of S&P's sovereign rating group, said it is still too soon to know how European policymakers will boost the European Financial Stability Facility, how effective that will be and its possible credit implications....But he said the various alternatives could have "potential credit implications in different ways," including for leading euro zone countries such as France and Germany." Get that? As Zero Hedge said back on July 21, the European bailout Catch 22 is now once again front and center, namely that any expansion in the EFSF will lead to a downgrade in one of the two Eurocore countries, France or Germany, and should France get cut from AAA (which it will), the entire burden of footing the European bailout bill will fall on Germany. And if Germany is also downgraded to AA, kiss your SPV CDO goodbye, and with it Europe. Which means that while we will hear many more threats by both and against S&P, more posturing that the EFSF will be enhanced to tens if not hundreds of trillions with virtually unlimited leverage, however idiotic those may be, the end result is just one: whether or not Germany risks a full blown government collapse by instituting the only thing that has a chance of containing the crisis - EuroBonds. Of course, shoul those come to be, the German Pirate party will very soon have an absolute majority in the German parliament... and shortly thereafter in various previously unheard of beer halls.

Some choice S&P quotes from Reuters:

"There is some recognition in the euro zone that there is no cheap, risk-free leveraging options for the EFSF any more," Beers told Reuters.


"We're getting to a point where the guarantee approach of the sort that the EFSF highlights is running out of road." Beers said in an interview late on Saturday.


Beers declined to comment on implications of each of the scenarios for boosting the EFSF.

However, one option could involve backing up the fund with money from the European Central Bank, eliminating the need for politically unpopular cash injections from hard-up European governments.


That solution, although potentially reducing the impact on sovereign ratings, would probably increase liabilities in the ECB's balance sheet and possibly leave euro zone countries on the hook for restoring the bank's capital in the event of losses caused by an euro zone default.


Leveraging the EFSF could also result in a downgrade of its own AAA credit rating.


S&P, which cut Greece's credit rating deeper into junk territory in July, believes European policymakers are also finally realizing that Greece's debt restructuring will take place with significant haircuts.


"Therefore, there are going to be some banks that might require additional capital," Beers said.


S&P believes, however, that banks can still raise money in the market rather than relying only on government support.


"The banks have to go out and talk with potential investors. There have been interesting developments this year, certainly banks in Europe have been raising capital," Beers said in the interview.


"If governments are unable to focus on the long-standing impediments to growth, then austerity alone is not going to give you growth," Beers said, citing the case of Italy.


He also had a warning for Germany. Many economists, he said, had initially overestimated the country's growth performance for this year and are finally realizing that its fate is "inexorably linked to that of all its neighbors."

So yes. Catch 22 coupled with a lose-lose outcome. And Chinabot is buying the EURUSD, again, why?

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Earl of Chiswick's picture

That's some catch, that Catch-22.
It's the best there is.

nevadan's picture

Of course, shoul those come to be, the German Pirate party will very soon have an absolute majority in the German parliament... and shortly thereafter in various previously unheard of beer halls.


lol...ka-putsch bitchez


nmewn's picture

He just couldn't resist could he ;-)

macholatte's picture

my personal fav.....

          the fog of toddler-like euphoria

I can hear the theme from Jaws playing in the background

Thumbs up Tyler.

Silver Bug's picture


Wow the Globe and Mail is up to their garbage again, David Berman a so called "Journalist" writes a pure hit piece on Gold. It is laughable to say the least, and utterly filled with holes. You can see this nonsense linked:


When clowns like this start touting Gold, that is your que to get out of dodge!


scrappykoala's picture

I dont see the whole point in is it a safe investment as it will never take a two day beating. I dont care about that. If you can not handle two days of down then you should not be in any market. Im here to make money so two days down is not much of an issue to me or two weeks. I know its going back up and its not going to zero so it is a fantastic thing to ride. These up and down swings of major amounts is a good time to make money in the short term while holding on to it in the long term.

Let me give you an example. Lets say you know for a fact that the s/p is going down for the next 18 months. Ok fine then why not hold on to that position over night in the hopes that next week you make some serious cash if you dont you hold on longer because you know your over all strategy is correct. Hell leverage up. Dont sell by gods all mighty if anything just swithch a few grand at a time and leverage up. NOT ON MARGIN EVER!!!!!

As time goes on you make your money and begin leveraging down.

Not a hard concept and an easy one to live with.

FunkyMonkeyBoy's picture

Just saw DOW futures jump 70 points in 1 second. Ha.

Fascism you can believe in.

fdisk's picture

Yeap, it was clear on Friday, that's why I didn't short S&P, -

rebound time, nothing goes down in the straight line..

fdisk's picture


"the EFSF, will "potentially trigger credit rating downgrades in the region, a top Standard & Poor's official warned."

S&P bitchez scared their downgrade will means shit if EFSF
expanded.. Like EZ have other options? Like what? breakout
and go back to wood burning economy from Siberia?

Is anybody capable of shut the f*ck down this criminal agency?

Too much f* noise.. Go back to company bonds and notes ratings..

Who the f*ck you think you are?

Spitzer's picture

This is good. It gives the ECB more reason to scrap EfSF and bring down Bretton Woods 2

Divided States of America's picture

Well something just happened, everything spiked up....except Gold and Silver

Anticipation of something being announced before Asia opens

Racer's picture

no, not anticipation... insider dealing on news that only the rich know and will profit from at the expense of the 99% of the rest of the world

bob_dabolina's picture

Pound fest in PM continues.

Gold down another 20 and silver was down as much as $2 this evening

There must be a margin hike in 3 weeks.

Hulk's picture

Hey Bob, if you keep gloating, I am going to have to go short 5 Au and 5 Ag contracts, and that will be the end of your PM downtrend...


Edit: Notice that just the threat on me going short has brought the PM's off their bottom...

Edit #2. PMs green Bob, my work here is finished...

tmosley's picture

Yes, and the pounding is likely to continue until Wednesday, at least.

Everything is going as planned.  But you are too arrogant of a prick to see that.  Funny that you were too scared to be short over the weekend.  You've got the conviction of a wet napkin.  It's going to be even funnier when volatility doubles "unexpectedly" one day, and it moves against you, turning your regular 50% gain/loss in a day to a 100% gain/loss in a day.  That is, if that hasn't already happened.

nmewn's picture

"Yes, and the pounding is likely to continue until Wednesday, at least."

Exactly. BTFD...nothing has changed.

The debt didn't vanish over the weekend. Forty two percent of people are still riding in the cart instead of helping pull the cart (paying zero income taxes). And another government shutdown loometh over spending something that is absolutely not there to spend.

The good news is...granny's check will never enter into any discussion with the WH ever again...by fiat!!!...ROTFL!!!

tmosley's picture

Note that I am extremely bearish on paper gold and silver, but extremely bullish on physical.  Bob has (supposedly) benefited from shorting these products while ridiculing me for having those positions, even though they are the exact same as his supposed positions, absent the fact that he doesn't own any physical.  Laughs all around, though I don't think he will be laughing as the volatility increases dramatically both to the downside (where he makes money) and to the upside (where he loses everything).

Hulk's picture

We should follow Bob's lead and short paper to offset our physical holdings for those parabolic overbought conditions...

bob_dabolina's picture

I go into and out of gold tmosely. I can cover a short just as easily as I can put one on.

(And physical follows paper, just fyi) So being bearish on paper is bearish on physical and one day you'll figure that out.

You have two price targets so you can brag about your calls either way. Here are your two price targets for silver for example




So as long the price moves toward either of those targets you're "right" and can say "ninny ninny ninny I was right"


tmosley's picture

Nope, that's bullshit.  You are the only one who ever said that I called for $70 silver.  Paper silver is going to ZERO, upon a decoupling event.  Physical silver will be closing on parity with gold at that point, as industrial panic sets in.  The fact that you can't even acknowledge, much less understand the argument points out you intellectual shortcomings.

You, on the other hand, make directional calls in a super volatile market, and then come out on any day that PMs go in the direction you favor and claim to be "right", and then go on to claim that you made a 20X return shorting PMs while both paper and physical rose by more than 100%.  

Then you brag about 50% daily volatility in your portfolio, as if that is something to be proud of.  How fucking stupid can you get?

LetThemEatRand's picture

"Forty two percent of people are still riding in the cart instead of helping pull the cart (paying zero income taxes)."


Yes, the problem is the middle class and poor people not paying enough income taxes, and granny with her extravagent SS check that she and/or grandpa paid taxes for their entire lives.  The problem most certainly is not Jamie and Lloyd and Rupert and Dick and Angelo and Richard and...  They are private businessmen and therefore they do wrong only because of goverment.

bob_dabolina's picture

I stayed short gold over the weekend, I sold APA longs because I was nervous going into the weekend that Europe would implode. 

Thanks for reading my blog though tmosely, read closer next time.

Thinking about covering now though that you think the selling will continue. If you're saying the selling is likely to continue it must be time for a rip your face off rally.

tmosley's picture

I don't read your dumbass blog.  I did, however, catch your little exchange with Trav here where you said that you were too much of a coward to hold to your convictions over hte weekend.  Three whole contracts?  Might as well have had nothing.  What did you make?  1.5%?  Big fucking deal.

You have no idea what is going on, and you are going to lose LITERALLY EVERYTHING because of it.  I look forward to it.

Edit: Also, nice revisionist history there.  I said on Thursday that the decline would continue into options expiration, and I would make my monthly buy there.  You still claim that I am always, and 100% absolutely wrong, yet I keep getting everything right.  Such overly emotional sentiment is a great shining beacon saying "BEHOLD, I, BOB_DABOLINA, AM A LOSER!"  You are so invested in hating me that you will lose everything.  What can I say, I LOVE IT!

Edit #2: One more quick thing, it's still funny how you can't understand what "volatility" is, considering I have been calling for "infinite volatility" since February, when volatility was quite low.  Yes, that, in fact, means lots of "rip your face off" rallies.  But you are too stupid to understand that.

This is a traders paradise.  For now, anyways.  Since you refuse to understand what is actually happening, you will be taken totally by surprise by a COMEX default, at which point you will lose everything except for your straight up shorts (options don't pay off in a default, unless you are selling them in which case you get the cash, but your underlying is still rendered worthless, which is fine if you are naked).  Problem is that any method you have of making money off of a default in paper requires you to set yourself up to be totally vulnerable to a sharp rise, which WILL come.  As such, the only way to win is with PHYSICAL.  But you are, again, to arrogant and stupid to understand that.  All the better for my entertainment.

Catch-22's picture

I should have gotten the first post... bitchez. 

Piranhanoia's picture

You know you couldn't have because of Catch-22. 

snowball777's picture

ECB can't print. Sovereigns can't pony up either. Those swap lines will be burning up. But those banks don't need recap anyway...


"...had initially overestimated the country's growth performance for this year and are finally realizing that its fate is "inexorably linked to that of all its neighbors."

Austerity for me? Austerity for you!

max2205's picture

Well that allows the can to be kicked another , say, two weeks

Caviar Emptor's picture

As I said earlier, going forward all forms of stimulus, monetary via Fed/ECB and fiscal will be muted. Those who profited from the money-printing orgy of the last 30-40 years are satisfied, their power is secure. They don't need to pump the markets anymore, they've bailed. 

It will now go the other way: massive cutting of everything from law enforcement, ambulances, health care, disaster relief, road repair, prisons, courts, food inspections, disease control, scientific research, education, financial regulation agencies, environmental protection etc....


scatterbrains's picture

I can not disagree with what you see for the future, but let me ask... do the cops go rogue and start robbing and looting in this world where their pensions get erased ?

Bobbyrib's picture

They would have to be crazy to cut law enforcement..

tumblemore's picture

They'll have private security for themselves while crime will keep the tax-slaves distracted and fearful -  back to Babylon.

Racer's picture

And did that nice piece of BAD news make the futures soar?

sct's picture

Gainesville Coins is currently performing routine updates to the website in an effort to improve your shopping experience. We apologize for any inconvenience. If you need assistance, please contact a member of our staff at 813.482.9300. The website will be down from 6:00 PM September 25, 2011 - 9:00 AM EST September 26, 2011.

FunkyMonkeyBoy's picture

'Bout time all the bullion dealers got together and organised their own price discovery method (one based on supply and demand). They know what a crime COMEX is, so they shouldn't play that game otherwise their lively hoods could be shot to pieces overnight.

fdisk's picture

WTF is wrong with GOLD, down 20$ again? Those guys are good,
pushing paper down, while collecting real stuff, easy money.

DeadFred's picture

The euro, stock futures and gold all move together. Just based on the size of the market the euro is in the driver's seat

Piranhanoia's picture

You can stop flying. In return we just want you to like us.

fdisk's picture

My Indy on 8h showing it's a bottom for GOLD
1610-1640 high traffic area
Going to fly soon.

Booyahh, watch and see!!!

warchopper's picture

Whenever someone says, "Booyahh", there should be some algo that seeks it out and destroys it.

DosZap's picture


Agreed, absolute bottom(barring WORLD meltdown), $1,584.00...........

We will be over $2k (my prediction by end of year, maybe sooner.)

Silver.........nuther story,damn good shot at $25/$27.00 coming, and intend to load up.

Socratic Dog's picture

It just hit $1,570.  Does that mean world meltdown?

tmosley's picture

Looking that way.

Hopefully the COMEX goes first.

Real Estate Geek's picture



Intellectual Property Rights As Fleeting As The Scent Of Jasmine, Mayfly's Wing In Autumn



TradingJoe's picture

Sept 30 is end of month AND quarter, eh? WINDOWDRESSING baby "we need to get paid, bro's" :)))! Rally will fade, be sold into it etc etc!!!

sheeple2012's picture

fa-yooo-chas.... ripping

fdisk's picture

GOLD will stop dropping ones 8AM eastern Time f*cking will cease.. Watch 7.30-9.30 AM action, ones Goldman/JPM not able to push it any lower, that be it.

DJ MARKET TALK: " Singapore AUG Manufacturing Output likely + 13.8%" "depression" bitchez..

msmith's picture

Bearish price action for Gold last week.  Here is an interesting bearish bias analysis after a short term upcoming correction. http://bit.ly/pN2otj

fdisk's picture

From 27!!! commodities list here


(Look on the right table % change if red = down)

9 are down (Most PM's) Deflation my a$$, rather manipulation.