From The Telegraph:
Europe's €1 trillion (£854bn) rescue fund has been forced to buy its own debt as outside investors become increasingly concerned about the worsening eurozone sovereign debt crisis.
The European Financial Stability Facility (EFSF) last week announced it had successfully sold a €3bn 10-year bond in support of Ireland. However, The Sunday Telegraph can reveal that target was only met after the EFSF resorted to buying up several hundred million euros worth of the bonds.
Sources said the EFSF had spent more than € 100m buying up its own bonds to help it achieve its funding target after the banks leading the deal were only able to find about €2.7bn of outside demand for the debt.
How people can still refer to the EFSF as a €1 trillion fund when it is quite clear that the 'fund' has no money of its own and struggles to raise €2.7 billion is a mystery to me.
Monday, 14 November 2011
Didn't Robert Maxwell get into trouble for doing something like this?
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5 comments:
All seems vaguely incestuous, does it not?
It's even worse than Maxwell - at least he stole real money. This is an out and out confidence trick. The shell game as practised by capricious functionaries and scurrilous self-serving politicians.
JH, worse than that.
L, a con trick indeed, as is all banking or government to some extent but this is rubbing our noses in it.
They allowed the media along to wrongly report that the EFSF was a fund. The media just went along with it and some of them still think that it is a fund containing E1 trillion. Even the ability to leverage the borrowing capacity of the facility up to E1 trillion hardly looks credible.
If France's triple A goes and it will, the EFSF triple A will go with it. So buying current triple A paper from the EFSF is almost certain to be downgraded within 6 months to a year. The market may shrug off the loss of EFSF triple A status, they did in the U.S. A continuing credible German guarantee may see the market treating the paper as de facto triple A, no matter what the rating agencies do. Alternatively, investors could take a big capital loss and have to recognise the loss in marking to market. Therefore, there is a lot of uncertain risk behind the EFSF.
Every EZ member stands behind the EFSF bonds as a guarantor. So we have EZ members completely locked out of private capital markets. We also have large states such as Spain and Italy who can only borrow at high yields. Yet, they are the also the ones who take a share in guaranteeing the EFSF paper. Not such a great deal is it. In reality, Germany are effectively the only guarantee behind the EFSF. Probably better then to just invest directly in German bunds, albeit at a lower yield. However, they are likely to prove more liquid than the EFSF bonds and as a consequence are easier to exit.
The worm Ouroboros.
I suppose that if they 'kite-fly' it around often enough, it will be a 1 trill sovs fund?
Alternately, perhaps they've homed in on that as their probable liability?
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