agreement by EU leaders to force bond-holders to face a haircut should
an EU state become “insolvent” after 2013. I think this was done in an
effort to placate the many voices that are saying “no” to the state
bailouts. It sounds as if the leaders are responding; “We will fix this
problem now, but in the future will let the chips fall on the
bondholders back.”
That may sound like a reasonable approach. I see some unintended consequences. From the WSJ:
Creditors of euro-zone countries that face insolvency after 2013 will see their bond holdings restructured.
Okay, we get that. After 2013 holders of bonds of troubled countries get
hit. But what happens between now and 2013? Again from the Journal:
Ms. Merkel has stressed in that the proposal would affect only bonds issued from late 2013.
Wait a second. If bonds issued after late 2013 are at risk, does that
mean that bonds issued before 2013 are not at risk? That sure is what it
sounds like to me.
The bond market is going to call this bluff. There are Greek, Irish and
Spanish bonds that are trading at 9%, 7% and 5% respectively that are
the buy of a lifetime if I am reading this right. Who wouldn’t want to
buy a nice 9%, ten-year Greek bond that was also guaranteed as to
payment by the big hitters of the EU? A “fully” guaranteed bond would
trade closer to 3% than 9%.
So I am left confused by this development. Other questions:
-If the “at risk” provisions for all existing EU sovereign debt is
somehow eliminated you have to ask; who is making the promise that all
that debt is money good? The ECB? I would think not. We are talking of a
few trillion Euros if you add in Spain and Italy. You need a big stick
to guarantee that nut.
-What the hell is going to happen in 2013? By setting a “date certain”
situation where the status of a borrower changes from one day to the
next is just begging for a crisis. Depending on the circumstances one of
the countries could be blocked out of the credit market overnight. This
plan is a set-up for failure, not success.
It’s possible that I (and the Journal) are reading this wrong. We shall
see. It will show up in bond prices and CDS spreads. This could also be
something that later gets clarified. That will be interesting. The
headline for that might be:
Merkel Changes Direction“Current Debt Not Secure”
I think the EU finance ministers botched this up by including the, “Drop Dead In the Future”
policy. The markets will provide it’s own vote. There may be a knee
jerk up move for the Euro. Relief? I don’t like this development. I
would fade any rally.
Oh, some people think that some banks will be out of PIIGS debt, at least in 2013...
The Bloomberg spin machine; Ireland Wins $113 Billion Bailout as EU Ministers Seek to Halt Debt Crisis.
Get real. The Irish are putting up real money - 20% of the total from pension funds for a zero rate of return.
The headline should be revised to read Ireland Wins The Bullshit Lottery.
The 2013 is a line in the sand line I also think the EU will regret for a lot of reasons, one being it has the ring of appeasement tone about it.
well said
Bloomberg has been in particularly blatant "rah-rah" mode recently. To wit - their take on the .3% nominal increase in Black Friday sales, that currently is near the top of their home page:
http://www.bloomberg.com/news/2010-11-28/thanksgiving-weekend-sales-total-45-billion-as-shoppers-scoop-up-deals.html
I'm seeing it across several of the msm sites. Makes me think that things are not as hunky dory as they want to project by a long shot.
I get that good old down home propaganda feelin'.
and .3% nominal(!). correct for inflation and you're not feeling so dang flush anymore.
What I have found interesting about Bloomberg is that the headline is often completely refuted by the body of the article. It's almost as if the headline editor has a totally different agenda than the reporter.
You noticed that, too? And bloomberg.com also has the world's worst headline editors.
There's little doubt in my mind that the headline guys are very aware that, in this age of information overload, a HUGE number of readers just skim the headlines.
Big mistake.
Thank God.....I didn't think we would ever put the arm on that crowd....they know nothing! They have never suffered the hell-on-earth of dealing with starving Leprechauns.
LOL
I nominate knukles to negotiate/renegotiate all bank bailouts, not only on behalf of the Irish peoples but also all peoples..
knukles, do you think that Bloomberg pig can fly?......
A week or so ago delinated in open text here on ZH was my personal suggestion to Ireland's negotiating stance with the EU/IMF. It is based solely upon one singular, finite, inviolate principle which I do truly in my heart believe should apply, not just in this the Irish case, but all similar.
That principle is that there constitutes nothing within or by Nature or Nature's God that demands a people pay for the malfeasance of their elected government, its regulatory bodies, their public servants or criminal bankers chartered there by.
Thus, the singular and only negotiating position to be assumed is simply;
"Go fuck yourself."
The people shall not be raped for crimes they have not committed.
"Go fuck yourself."
To which the response already heard; "But but but, this may collapse the very EU and Euro, the Grand Experiment will fail!
"Go fuck yourself."
Dissolution shall be too costly!
"Why? Each entity therein already has a duplicated infrastructure, reconstituted and overlaid thereupon by the EU. Go fuck yourself."
Else so it shall go, night and day, into a seeming eternity. Layering upon an already insurmountable, devastating debt load, more of the same in order to reclaim a mere pity of a semblance, a falsely promised normalcy of life, liberty and happiness for the innocents which they themselves shall not approve.
T'is time to stand astride and yell; "Halt!"
I third the nomination, with complete confidence.
Thank you, nmewn.
Les knows his shit in the bond space...to be in the gallery watching him speak for the disenfranchised masses, who only watch the pimping spectacle of stock indices day after day, would be a delight for me and would leave the thieving bastards babbling like new born babes.
People have to understand what is and what is not sustainable. Clearly, saying "Go fuck yourself" is stating that it's not sustainable!
The longer we pretend that this is all sustainable the greater will be the reckoning. It's also up to us to not let these people get away lying about what is and what is not sustainable (though they never seem to mention anything that is unsustainable).
this sad putting off until tomorrow (sorry, late 2013) what you should do today (sorry, late 2008) is just prolonging and deepening the agony, not avoiding disaster "until things get better."
bad banks stay bad and get worse. what makes them bad is belief they will be made whole by the taxpayer (of some nation).
receivership is all they deserve, but, far more importantly, receivership is the only thing that will cure what ails them.
no depositors or counterparties lose money. only the ones most to blame for the errors do: management, stockholders, bondholders. and only with the subsequent transparency and unencumbered balance sheets can the financial system and the larger economy begin to recover. for more detail, chapter and verse, please consult john hussman.
"Question : if Control is Absolute, why does Control need to control? Answer : Control needs Time." - WSBurroughs
this has nothing to do with 'saving' the system. this is a controlled demolition in slow motion in order to control the mechanisms from which the debris is taken away/'disappeared' and a new edifice is constructed.
the timing of QE2 and this Irish 'bailout' is not a coincidence. it's an open secret that the Irish banking system is a veritable pandora's box overstuffed with fraud. they're covering it up while they still have a chance.
the mad tinfoil hatters' worst fears are becoming realized before their very eyes.
I second that nomination.
I will gladly pay you tuesday for a hamburger today.
Ok....just put the price and the coupon rate into escrow...and BTW, you cant eat the burger till I cash out the escrow.
I'll take that deal, too.
It is my read of her that private bondholders starting in 2013 will share loss on potential "future" euro zone crises.
In a nod to investors who have sold Irish government bonds and other peripheral euro zone debt partly on her comments that banks and investors should share in the risk, Merkel said market forces would benefit a future permanent crisis mechanism.
"This is not about the crisis mechanism from now until 2013 having something in it changed. That will remain as agreed. This is about a future crisis mechanism. Neither is it about bonds that come under the old, temporary crisis mechanism," she said.
"We are of the opinion that market mechanisms, in other words different interest rates, will impose discipline," the chancellor said.
Higher risk...higher rates...who knew ;-)
Oh fuck! That's how it works!
(whimpering, moaning sounds as he rolls into shivering fetal position)
"(whimpering, moaning sounds as he rolls into shivering fetal position)"
Accompanied by a primal scream on this end ;-)
Don't suffer here...you can always move over to the the Sharia system.
?
It all depends when the first domino is actually allowed to hit the table. Were the politicians and bankers not so pusillanimous in spirit and had let Ireland default I think they would find that the bond-holders and bankers are just as scared as eveyone else and something could have been worked out. But so long as they only kick the can down the road it only gets worse. If they wanted to play hardball with the derivatives they could really get to a solution quickly but again there is no will to do anything other than extend and pretend.
With Irish luck...there is always a pot of gold at the end of the rainbow...right? or, maybe in this case, a pot of spuds.
I grew up with a roll of toilet paper on the shelf that had green shamrocks and 'The Luck O' The Irish" printed on it. Profound when you think about it.
EU: Maybe not this time but next time...well, after 2013...OK after late 2013...we will really mean business.
This is beginning to look like the EU equivalent of the UN's: If you don't stop X one of our committees will write you a nasty letter expressing our collective displeasure.
Isn't it only senior bondholders protected?
LOL
Ya'll ain't been listenin', son; ain't nobody left alive lest you the king or his banker.
Something in the details was going to trip them up and reveal that CERTAINTY is no longer the policy of the EU.
Invest on the basis of that.
Listen carefully to the interpreter waving his hands madly about his head as he attempts to translate the secret policies wrapped within the silent incantations of the unequaled, unelected tone deaf representatives of the silently ignored minions when relayed to us by the newly established position of deaf, dumb and mute public relations spokesperson appointed under the newly enshrined regulation awaiting passage into law of the 17,344 page Europeans Pretending to Be Without Disabilities Act; consult with a party truly disinterested in your welfare before you invest.
Honest to God, these people are fucking crazy.
I see something else in the way of unintended consequences. If EU sovereign debt is tacitly backstopped "until late 2013", doesn't this incentivize the various governments to issue as much debt as possible before then, knowing that the market for their bonds will dwindle to nothing once the implicit guarantee expires?
And doesn't this encourage the weaker states to hurry up and get on with their financial collapses, so that the senior holders of their debt get out unscathed? Because, let's face it, after this stage of the debt crisis is smoothed over, all those wrecked governments will continue to need access to the international debt markets.
Absolutely
In-doubt-it-debt-ly!
Come to think of it, there is after all some true physical and economic elegance to it all in that it's a self-perpetuating cluster-fuck that doesn't end until the last citizen pays his last thithe to the last collector and then they all just fucking starve whereupon the last cockroaches and rats have the last bites wins.