A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina

Reggie Middleton's picture

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rocky89's picture

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carbonmutant's picture

Orderly insolvency

pros's picture

This is all explained in Roubini's Bailouts or Bailins-

free pdf:


quite straightforward

a "bailin" is a restructuring where bondholders take a hit

a "bailout" is where somebody like the taxpayers (or taxpayers via the IMF) bail out the bondholders

There is extensive treatment of the Argentina case which verifies what Middleton is saying....

the Argentina case is the correct precedent to study in order to understand the present Euro crisis

Panafrican Funktron Robot's picture

I ultimately don't think a default of any of the EU currency participating countries is actually going to happen, I think the real ECB/Fed strategy is to bring the euro to parity (or even lower if necessary).  Euro/Dollar parity is neither unprecedented nor particularly undesirable.  I have a feeling this opinion might get junked/flamed, but if you just follow the numbers (and/or analyze the cost/benefit), it seems pretty obvious what's going on. 

Tic tock's picture

Right, but the whole point is that what is getting flushed now isn't worth rescueing. Sure, it's painful. But what is the point of capital efficiency at the higher levels except to influence 'wage' expectation. Flows of dollars have been crossing the globe for any reason you can name, often with thin economic rationale. Productivity of capital has gone exponential and investment has been due to inflation-driven demand. Now were caught between an artificially high price-level, chronic underemployment and strong overcapacity. The financial system as it stood is entirely structured around generating Return over Investment.. as incentive for getting dealmakers to create value. 

But things are different now, demographically we have housing stock that needs upgrading and maintainance, not expansion. Applying the same criteria to state-service related loans as to commercial, depends on both taking water from the same source- but if industrial expansion is lower than moderate (depending onwhere you are) then there is no strict reason why competition for capital should be forced. In a nutshell, the information economy allows for more directed value-creation which should then also be comparitively cheaper to fund.   

the grateful unemployed's picture

of course if the ECB holds those devalued Greek bonds the damage is limited to some balance sheet gimmicks (the risk gets spread around), those Argentine bonds were held largely by retail investors, Italians, widows and orphans. the real lesson i get from the Argentine problem, is that the (Merval) stock market recovered most of its losses, and if you took what little bond money you had left and bought stocks, you were made whole again. if i recall, the IMF wasn't welcomed in the Argentine mess, and some outside (regional) investors came in and bought stock. however in a synchronized global meltdown there won't be any deep pockets to come to the rescue, and while i know we're talking Greece here, we're also talking ultimately UST.

Reggie Middleton's picture

Keep in mind that Argentina was relatively isolated in comparison to this current malaise. the ECB will have to sweep Greece, Portugal and probably Spain, Ireland and maybe even Italy under that same rug. you'll run out of rug before you get to Spain.

the grateful unemployed's picture

you look at what happened to their stock market and what happened to their bond market, and you wonder if UST investors are laboring under serious delusions about the safety of their principle. i am looking for signs now that Wall Street is going to revalue stock assets, as they are nimble enough to hedge just about anything, and make a profit. a concerted effort to take the market lower would break the back of the Fed, should they be foolish enough to put QEII out there. what we could be seeing is the PPT going head to head with the institutions they use to put a bid under the market. and if the market crashes bonds won't be far behind.