STEVE LIES MAN SAVES THE WORLD

So What Changed?

Well, yesterday afternoon there seemed to be a leak to CNBC’s economics reporter that something bold was being cooked up to deal with the debt crisis in Euroland without having to resort to 17 different parliaments for approval, using the European Investment Bank (EIB) as the conduit — establishing a Pan-European TARP plan, if you will.
Nothing has been officially announced, but according to a news article published by CNBC here is what this new structure could look like (there are lots of moving parts):

1. It would involve money from the European Financial Stability Facility (EFSF), a bailout vehicle created in 2010 to alleviate the sovereign debt crisis in Europe, to capitalize a special purpose vehicle that would be created by the EIB, a bank owned by the member states of the European Union.
2. The special purpose vehicle would issue bonds to investors and use the proceeds to purchase sovereign debt of distressed European states.
3. This could potentially alleviate the pressure on the distressed states and on the European banks that hold a lot of the distressed sovereign debt. The bonds issued by the special purpose vehicle could then be used as collateral for borrowing from the European Central Bank (ECB), allowing the central bank to make loans to banks faced with liquidity shortages.
4. They would buy bonds of the special purpose vehicle, and those bonds could be used to access liquidity facilities from the ECB.

Although the structure is complex, the underlying result is relatively simple. Banks would essentially be allowed to exchange their sovereign debt for debt issued by a special purpose vehicle created by the EIB capitalized with funds from the EFSF.

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