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Saturday, May 30, 2015

When Rescuers Suffer From The Rescue

The European Stability Mechanism (ESM) apparently has a problem; the same problem which everyday savers have.

At issue are about 80 BEUR which the shareholders/countries had invested as capital in 2012 and which need to be profitably invested without undue risk. That's more or less the same objective which I have with my investments. What works against my interests is that the ECB is holding interest rates so low. I am not the only one suffering from that situation; the ESM is, too!

In March of this year, the ESM had 52% of its managed assets in securities with negative yields, thereby eroding the paid-in capital (which ultimately comes from tax payers). The shareholders don't like this situation. What do they plan to do? Get this: the ESM plans to soften its investment guidelines so that can invest in higher risk & higher yield securities. All savers know that feeling.

The ESM is unlikely to go bankrupt if it now invests also in sovereign bonds of non-Eurozone countries and if it lowers the required rating from AA to A. But the irony of the situation is this: the ECB is holding interest rates low so that the ESM's borrowers can afford the interest payments which makes the ESM's loans safer but which also causes negative yields on a good portion of their paid-in capital.

Even though I have been tempted very much for quite some time, I have not yet reached the point of investing into riskier assets only to improve my yield (notably because, in the past, all such investments which I made eventually ended up with a negative return...). But if the ESM does it, why shouldn't I? They are the experts, aren't they?


  1. Moral of the story: investing in bonds, with the possible exception of buying on issue date and holding for the duration, is strictly for professionals. The rest of us must avoid it like the plague.
    It will also be interesting to see what non-eurozone bonds the ESM will buy. It will be an excellent indication of the political undercurrents.

  2. The experts are the people with a good or better track record of analysis and prediction. From the fiasco with the eurozone -- both in its construction and its post-crisis management, I would suggest that not following the recommendations or advice of those involved with the ESM would be wise.

  3. What are experts?
    How many experts with good intentions are left in the world?
    The world is an expanding hospital, with more and more patients, and illnesses, not only physical illnesses, also mental illnesses.
    This hospital is built by the experts, the patients are created by the experts, the goal is money, for the experts.
    Even money is a system, created by the experts.

    Experts are cultivated on universities.
    Universities are the final episode of an experts creating education system.
    The education system is built up as a pyramid, not upward, to the sky, like in ancient times, but downward, into the earth. As the complete contradiction of what once was true knowledge, insight, sanity, humanity.
    Deep down under rules darkness, materialism, psychopathy, mental illness, insanity and bestiality.

    Change starts with becoming aware of that sick system of which the ECB, ESM, Grexit, bailout, etc. are just symptoms.

    I do what I can to create insight about it, to create a change, to be a part of the change that has started, worldwide, and what needs more support because it is comparable with swimming against the current.

    Today the needed insight has been enlarged by your excellent question, Herr Kastner: "They are the experts, aren't they?"

    Thank you.