Yet Another Rectal Bleed

The story in Europe just keep getting better, now there is a story about language being removed from the proposed/draft EFSF (European Financial Stability Facility) Bond Prospectus.   This particular language deals with an “explicit warning to investors that the euro could break apart or even cease to be a “lawful currency” entirely.”

This particular language had been inserted by the lawyers charged with drafting this document, what were they thinking?  They were probably confused since they were used to drafting prospectus for commercial entities, where the documents are legally required to convey germane, pertinent, and fiduciary facts to prospective purchasers.

The report goes on and states that management, who ever they are, had not approved the clause, no surprise there; the surprise appears to be for the purchaser.  Well what a welcome breath of fresh air on the part of the European Union in particular the people associated with this program.  Why would any one in their right mind purchase any of these instruments at any where close to par value?  These instruments are nothing more than unsecured junk.  I might be inclined to look at these investment if they were discounted such that their yield was somewhere north of 15 percent.

The EFSF is a “Special Purpose Vehicle”, word that should strike terror into the heart of every citizen.  The 27 member states of the European Union agreed in May 2010 to create this monster via incorporation, and it only exists as long as it has debt outstanding.   The European Investment Bank (EIB) was chosen as agency to provide treasury management services and administration support through a service level contract.

Theoretically the emission (bonds or some other type of instrument) would be backed by full faith and credit of the European Central Banks primary members, those that share in the profits that the bank generates.  The 17 National Central Banks (Germany (18.9%), France (14.2%), and Italy (12.5%) are on the hook for 45.6%) in proportion to their share of paid-up capital.  There are other members of the bank, they do not share in the profit of the bank, but do have funds deposited at the bank, primarily for international banking account transactions, clearances and guarantees.

Every day Europe is looking more and more like a house of cards.