As ECB Finds Rating Agencies Have Suddenly Found Religion, It Prepares To Flip Flop On Accepting Greek Bond Collateral

Tyler Durden's picture

Well this was unexpected: the rating agencies, for years and years patsies of their highest paying clients, have suddenly found their conscience, if not religion, and adamantly refuse to bend long-standing rules which qualify the proposed Greek MLEC/CDO type rescue as an event of default. Per Bloomberg:  "The rating companies have signaled the plan would trigger because it is being done to avoid default, so couldn’t be considered voluntary, and because investors would be worse off than by holding the new securities." The ECB is so confused by this intransigence and unwillingness to bend to the will of the criminal cartel that earlier today the ECB's Novotny was complaining to Austrian TV about this unexpected demonstration of independence: "Debt rating agencies are being much tougher on potential private-sector contributions to Greece's debt woes than in past bailouts, European Central Bank Governing Council member Ewald Nowotny said on Monday. "We are conducting a very difficult conversation with the ratings agencies," he said."This is what we have to try to find: a way that on the one hand certainly involves banks without having this lead to a default as a consequence," he added. "I also must say it strikes me that the ratings agencies are being much stricter and more aggressive in this European matter than they were, for example, in similar cases in South America. I think this is something we will have to think over." As a result of all this sudden uncertainty, Bloomberg now speculates that the ECB will have no choice than to flip flop on its own adamant position of isolating defaulted collateral, and accept Greek bonds even in an event of default: “The ECB cannot remove liquidity from the big Greek banks,” said
Dimitris Drakopoulos, an economist at Nomura. “This discussion is a
waste of time. The ECB is going to back down in the end -- what can they
do?” he added."


Trichet put Greece’s fate in the hands of ratings companies when bank officials began saying in May the ECB, which has lent 98 billion euros ($142 billion) to Greek banks, would refuse to accept the nation’s bonds as collateral if any “burden sharing” by private investors produced a default rating. Growing support for a rollover by investors helped push the yield on Greece’s 2-year bond down 327 basis points in a week to 26.11 percent.

The loophole: make a "transitory" breach of your rules:

The ECB’s rulebook leaves the bank room to accept the defaulted bonds, saying only that rejecting them “may be warranted.” Trichet has already shown a willingness to skirt the collateral rules when he suspended minimum rating requirements on to give Greece and Ireland more breathing room.

Under a French-designed plan being used as a basis for talks with private investors, creditors would voluntarily agree to roll over 70 percent of bonds maturing by mid 2014 into new 30-year Greek securities backed by AAA-rated collateral. Under a second option, banks and insurers could roll over into new five- year bonds with no guarantee. ‘ S&P roiled markets yesterday, erasing the euro’s early gains, when it said the French plan would likely trigger a default rating, repeating assertions made by Fitch on June 15 about general debt rollovers.

The companies did leave Trichet with a way out, saying Greece may have to endure this pariah status only until the rollover was carried out. Fitch also said that despite the default issuer rating, its rating on Greek bonds themselves would stay above default.

Trichet’s dilemma is that he must either allow the ECB to accept the rollover and keep funding Greek banks, or risk scuttling a new aid plan that Greece needs to avoid default.

And so forth. The net result is that the ECB will ultimately have no choice but to bend its rules unless it wants a freefall run on the global bank, unless it manages to bribe the rating agencies with enough money created out of thin air, to make all the other money printed out of thin air, and soon to be collateralized with defaulted bonds, still valuable.

Is it any surprise then that this news that a key backstop of the European currency is now essentially bonds that have zero value, is sending the EURUSD higher?

We sure hope not.

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CrashisOptimistic's picture

This is an ongoing mistake.

People are doing logical analyses of a situation that will eventually be addressed through redefinition.  The ECB will manufacture the money and provide it. 

Period.  Germany will acquiesce.  "Default" will be redefined.

This detailed tracing of the logic of this and that is pointless.  A decision has been made.  Greece will be bailed out.  Words will be redefined to permit the ECB to create money loaned to Greece.  All the layers of obfuscation mean nothing.

That's why the Euro climbs.  The markets know it's all a charade.  The layers of detail are just to provide work for junior bankers.  The layers of detail are actually not important.  The end point is . . . money will be printed and given to Greece.  The markets know it.

Thomas's picture

Presuming that CDSs have a reason to exist--I am not convinced--one could argue that preempting their payout eliminated that reason.

Popo's picture

There is more to this than meets the eye.   Don't forget that a CDS contract is an agreement between TWO parties.   The banks who are whining loudly are just one side of the equation.  

There are some other (notably silent) parties who stand to earn billions from a Greek default.  

Or to put it another way:   There are other parties who stand to *lose* billions if the ECB prevails.

Who are these other parties?  Likely thousands of hedge funds,  and probably quite a few big banks including the squid.

But this "unusual" toughness on the part of the ratings agencies isn't likely to be some sudden 'love' for regulatory adherence,  as much as it is a 50/50 allegiance to parties on both sides of the table.  (Which suggests to me that some of those 'other' parties are likely to be very big players).

Harlequin001's picture

This is what happens when governments refuse to give immunity to ratings agencies with regard to the consequences of their own faulty ratings...


Ghordius's picture

you shall not change debt agreements without involving Wall Street & the City of London, and therefore generate holy fees (remember the Dubai Bonds?)

malikai's picture

Very good points indeed.

I get the feeling this thing is like the little attention-starved girl who will stop at nothing to get you to pay attention to her. Perhaps it's misplaced, but my sense of it is that this whole thing is here to entertain us while some other theft is ongoing.

Marco's picture

Unless there is some TBTF patsy being set up solely to issue mountains of CDS's we don't know about, I don't think the CDS angle is a big part of this ... the volumes we know about pale in comparison to the actual debt.


AFAICS it's all about dumping as much of the Greece debt on the ECB as possible before the default, the ECB needs time and plausible deniability for this bailout of the private holders. Which is kind of hard if the ratings agency are already calling them on it now.

boiltherich's picture

"...there is some TBTF patsy being set up solely to issue mountains of CDS's..."

Just tell me how much it's going to cost me this time and when do you need the check. 

                                                                         John Q. Taxpayer

phungus_mungus's picture

They can call it whatever they want, color it however they like, but in the end this train wreck is going to happen. Everyone seems to be caught up in the notion that default is unavoidable. 

That's the stupidest thing on Earth. 


Greece will default, either now or in a few months... they can call it blue dog shit and wrap it in as many financial lingo terms they want. But but it will not change the dynamics of what is going to happen.



decon's picture

Anybody know about this guy linked below?  He's making some bold and interesting predictions!

Thomas's picture

Don't know how the pieces fit together but they are indeed and interesting collection of puzzle pieces.

The Profit Prophet's picture

I just went through the entire piece.....brilliant!

The ducks are indeed being lined-up for the introduction of a gold-backed SDR....printed with: "In Gold We Trust"

T.E.I.N. everyone!

boiltherich's picture

It is a lot of links to follow, but with patience and a little time reads like a plausible international thriller.  In fact, given the mess we are now in we are all on record here as speculating over the timing of the inevitable collapse and what will take shape in the aftermath, but we all have pretty much agreed that kick the can and extend/pretend is just buying time till a new system can be spit balled into place.  This shows that there is already an existing plan and that everything till now has been intentional as a precursor to the divorced currency and SDR system unfolding.  The only problem with it in my opinion is that the real plan is actually significantly more complex and the occidental currency bloc will I think end up as an "Amero" that combines Canadian resources, Mexican cheap labor, and US technology, military power, and scope of markets into a confederation of nations in all but name.  If you follow Dave's threads of thought through this is a major realignment of power throughout the world.  Worth keeping an eye on. 

slaughterer's picture

Any default will be temporary and partial.  Euro will climb, Greece will be bailed out, Russell 2000 will climb.  Stay long.  No crash coming.   Markets are unshortable.

THE DORK OF CORK's picture

Fuck those souless bastards - I spit on their empty dreams.

They have no vision - they are a nothing.

statlawyer's picture

market's going to scream higher tomorrow on no volume. I'm half tempted to cover all my shorts at a massive loss and go 100% long NFLX

phungus_mungus's picture

The market will go higher because the sun comes up... on this volume its suffering from improbable movements and is in no way any type of reflection of the economic reality we face today.



Popo's picture

At some point the "big short" will become so tempting that even the annointed banks won't be able to resist.  

You can ignore the amount of meat currently on the bone for a little while,  but at some point it starts to look very tasty.

Concentrated power has always been the enemy of liberty.'s picture

reading this stuff is like reading the parole board's notes on whether to let your rapist go free or not for good behavior.

CrashisOptimistic's picture


It's like reading those notes after you've been told there is no budget to keep him in jail.

You already know the final chapter.  How you get to that point really doesn't matter.

Greece will be bailed out to avoid contagion.  That's all you have to know.  How it happens . . . you don't need to know.

Quinvarius's picture

I would like the rapist to rape the parole board.

Milestones's picture

All the thing you don't get told in Econ. 101. Point on! My this is getting delicious.  Milestones

JustACitizen's picture

Old time credit guys (the kind that banks no longer employ) would tell you:

"Your first loss is your best loss."

Call it delicious irony.


ReactionToClosedMinds's picture

Great catch & post Mr Darden.

After being 'sued' in the North Americano fashion for their functional failings, the high priests of western credit standards are going to stand back for awhile and let eurobankers dangle in the wind for their arrogance & stupidity.

ISEEIT's picture

So go long EUR right?

Wish I could do that eeeeviil laugh thing. Ha-ha-ha.

buzzsaw99's picture

Ratings agencies work for Gollum, not the ECB.

Oh regional Indian's picture

Said on the earlier thread, ratings agencies are the devil's helpers. They helped make the mess that is the US of A and they'll take that contagion to the world.

Cui Bono accounting.


holdbuysell's picture

The entire bankster racket needs to bone up on this one:

Kübler-Ross model, also known as the five stages of grief.

  1. Denial — "I feel fine."; "This can't be happening, not to me."
    Denial is usually only a temporary defense for the individual. This feeling is generally replaced with heightened awareness of possessions and individuals that will be left behind after death.
  2. Anger — "Why me? It's not fair!"; "How can this happen to me?"; '"Who is to blame?"
    Once in the second stage, the individual recognizes that denial cannot continue. Because of anger, the person is very difficult to care for due to misplaced feelings of rage and envy.
  3. Bargaining — "Just let me live to see my children graduate."; "I'll do anything for a few more years."; "I will give my life savings if..."
    The third stage involves the hope that the individual can somehow postpone or delay death. Usually, the negotiation for an extended life is made with a higher power in exchange for a reformed lifestyle. Psychologically, the individual is saying, "I understand I will die, but if I could just have more time..."
  4. Depression — "I'm so sad, why bother with anything?"; "I'm going to die... What's the point?"; "I miss my loved one, why go on?"
    During the fourth stage, the dying person begins to understand the certainty of death. Because of this, the individual may become silent, refuse visitors and spend much of the time crying and grieving. This process allows the dying person to disconnect from things of love and affection. It is not recommended to attempt to cheer up an individual who is in this stage. It is an important time for grieving that must be processed.
  5. Acceptance — "It's going to be okay."; "I can't fight it, I may as well prepare for it."
    In this last stage, the individual begins to come to terms with her/his mortality or that of a loved one.

So, I'd say they're still at stage one, in denial that their beloved system is broken beyond repair.

buzzsaw99's picture

1. Irrational Exuberance

2. Fear

3. Extortion

4. Looting

5. Diversion


Stage 4 right now.

PulauHantu29's picture

+1. Thank you for taking the time to post the Five Stages. I forgot two of them. The other book Greeks might want to get a hold of is The Grief Recovery Handbook. It may help some of their pain ...alot.

PulauHantu29's picture

Rating agencies? You mean those companies that rated Subprime worthless C-R-A-P as Tripple AAA?

I was hoping they would be out of business now since even Bill Gross calls the rating agencies "worthless."

tom a taxpayer's picture

Yes, it's a sickening spectacle. The rating agencies, one tentacle of the criminal octopus, telling Eurobankstas, another tentacle how to behave.

Godfather: "How did things get so far? I don't know. It's so unnecessary...

When did I ever refuse an accommodation?"

Reptil's picture

It's the pigmen in Brussels finally realising their betrayal did not earn them the penthouse.



boiltherich's picture

Ratings agencies were simply bought and paid for both by the banks that wanted to sell at unbelievable profit the crap they invented as AAA paper, and by AIG which knew the paper was not but as long as the ratings were there they could point their fingers at someone else and say look it was not our fault we were duped by false ratings like everyone else.  They knew the CDO's were shite on a stick but did not fear jail for fraud because the legitimacy the ratings agencies provided.  They did know it would kill AIG, but that was no problem, either the losses would be wiped clean in Bankruptcy court and they would keep their jobs and start all over again, or they would be bailed out as too big to fail, either way there was just too much wealth to steal for them to resist.  Greed is good remember? 

THE DORK OF CORK's picture

What exactly is the ECB , me thinks it is the servent of the power behind the nothing.

The ECBs function is to pretend that Fantasia has boundaries.............. .

What is the nothing ? - its the emptiness that is left, it is like a despair - destroying this world

But why ?  - because people who have no hopes are easy to control  and who ever has the control has the power..............


Ghordius's picture

You are barking up the wrong tree - the ECB is working as designed

THE DORK OF CORK's picture

Yes I am afraid it is - I have experienced the nothing.

Ireland once was and is now no more - It is a devestating blandness.

I fear nothing can stop it now - nothing will be left , not even the memories.


RobotTrader's picture

Any and all dips this week are to be bought with utmost urgency.

As long as the 200-day holds fast.

I see that both EUR and AUD are down in Asia trading, yet ES is still pinned around 1335.

If this is a false bull move, then the financials will start underperforming, retail stocks will turn tail and head south, and any slight weakness in EUR and AUD will result in immediate panic selling in risk assets.

Right now, EUR weakness is not having much impact, so I assume the bull trend is still intact for now.

And if gold re-takes $1,500, then stock market weakness is an impossibility.

And absolutely nothing bad can happen as long as LULU is over $100.  LOL.....

ISEEIT's picture

Okay Robo. Everybody dumps on you for some reason. I've got to give you a little love though because you definitely are not a quitter. It does my heart good to see EUR drop under 1.45. I'm a little less poor now. Off the cliff for AUD as soon as EUR/USD dips below 1.40.

That is (I think, and I don't really think all that good) when the fun starts.

B.T.W Nice you know whats!

steveo's picture

This was just too tasty, I had to post.

Cable pinged off an important, and clearly defined Bernoulli channel.

This should drive down ES, and EURO is also following down, which has been the 8000 lb deception chimpanzee in the room--i.e. GBP and Euro have been manipulated opposite each other last week, very odd.

disabledvet's picture

i've just stumbled on the "secret practice session" for Wall Street vs Euro Land.  Shhh, don't tell anyone: