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Goldman On A Greece And Portuguese Bankruptcy, Pardon "Sovereign Liability Management Exercise"
Goldman's Francesco Garzarelli adds fuel to the speculative PIIG fire:
Below are some reflections published yesterday evening on the unfolding events in Greece and Portugal. The thoughts on Greece add to what I wrote on 21 April (‘What to Make of the Greek Debt Restructuring Talk’). My thoughts on Portugal benefit from several discussions with the private and official sector in Lisbon last Wednesday and Thursday.
- We are broadly sticking to the investment strategy we laid out in January-March: a segmentation of EMU sovereign risk between the three ‘program countries’ and an ‘EMU kernel’ comprising the current AAAs and Italy/Spain/Belgium. The ESFS bonds –built on a pro-rata credit risk basis – are a reasonable (albeit credit-enhanced) expression of this ‘kernel’ risk. Total issuance by the EFSF will amount to EUR50-60bn over the next 3 yrs.
- Regarding Greece: We do not see a ‘haircut’ as a viable solution, particularly at this juncture, for a number of reasons: 1. The risk of potential financial ramifications (‘domino effects’) seem too large; 2. the level of debt that is sustainable will be guesswork until growth has stabilized and a primary surplus achieved; 3. the incentives for pursuing adjustment (in Greece and elsewhere) may wane if the debt stock is aggressively reduced; 4. finally, private-sector funding is unlikely to flow back at sustainable levels any earlier than under the current approach of conditional financial support.
- We continue to believe that a more viable solution would be to prolong the period over which Greece delivers its necessary adjustment, which would help the government to deliver. This would mean providing more funds to the sovereign to make up for redemptions, at least over 2012-13, and recapitalizing the local banks. The choice between involving the Euro-zone private financial sector through debt extensions, in order to divert funds from the existing program, or ‘topping up’ the existing conditional funding (and concomitantly forcing the Euro-zone financial sector to set aside more capital for sovereign risk in the event of future impairments), is ultimately a political one.
- We still do not expect to see sovereign liability management exercises in Ireland and Portugal. Bonds in these two sovereigns will, however, likely remain subject to higher volatility, reflecting decisions taken on Greece in coming weeks, in addition to local events (e.g., the Portuguese elections, approval of the support package, etc.).
- Over the next few years, it is likely that program countries will have between 40% and 50% of government liabilities held by the official sector. These securities could eventually be subordinated, or carry more favorable conditions than those available at the time in the private markets. This could represent a step towards the evolution of a ‘common bond’, with additional funding at the country level.
- For background, below is a chart on the Greek debt profile; see also this paper by our banks team, which discusses the extent of bank losses in the event of a ‘haircuts’ in the program countries (these take into account tax shields).
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The central bankers are not stupid, the level of debt will always be kept just barely "sustainable". These mother fuckers and their co-opted governments know exactly how to get blood out of turnips. Hedge accordingly.
No, they are not stupid but they are not gods, nor alchemists.
nationalize the fed, then erase the debt
Agree (with both comments). The debt is a fraud, just like the "wealth" on the books of the banks. Crash the system now, the sooner we do, the sooner compensation will find its way back to people that are actually worth a shit.
why nationalize it, just erase the debt and end it. its just an illusion that it is needed.
In the form of a large problem on Goldman's balance sheet?
+1000
It would only be a problem for the TBTF's. Hence it wont happen... until there is literally no other choice and everyone else has already been screwed over!
Probably more like OFF-balance sheet.
"We got no exposure." (wink wink)
Got to love the 'sovereign liability management exercises'.
'My thoughts on Portugal benefit from several discussions with the private and official sector in Lisbon last Wednesday and Thursday'
does he have inside information? do his sources like when its convenient?
AAA Spain and Italy (don't know enough about Belgium, though with all the EU money pouring to keep the fatcats in the EUP happy, no wonder it's AAA)... but Spain and Italy... if that is the kernel.... god help the EU.
Or is that the outlying Kernel, with the UK as the Outlier's outlier (A Colnel) and then there is the Franco-prussian heart.
All very confusing, bound to fail.
ORI
http://aadivaahan.wordpress.com/2011/05/09/population-control-vectors/
Here is a piece out of Europe that see's the UK as the ultimate 'sick man of Europe', they also speculate on the US dollar falling 30% by this fall.
http://goldandsilverlinings.com/?p=935
Keynesian Euphemisms Bitchez!
Banksters do a wonderful job managing the economy. :roll:
I would like to lie to my creditors then get more money even though I couldnt possibly pay them back, and then get even more money and more money ---- this is a warped keynesian idea ---- screw the masses and benefit the few
SURE YOU CAN!
Make sure you can apply for 1 last credit raise of 10000$ and apply at 20 banks for a new visa card with a 10000 dollar limit ON THE SAME DAY!
200K easy and when they do a credit check none of them sees each other that day.
After that, I propose you to take the first flight to Mexico and stay there for a while :)
As we speak, the Floor managers are preparing a solution. When they've finished cleaning the toilets...
Sovereign Liability Management Exercise
SL(I)ME :(
Sovereign Management Liability Exercise
SM(I)LE (:
Which can be paraphrased as:
"Buy every bond we dump on the market because we don't want to carry the can".
Wouldn't it make more sense (i know sense is not common in this context), to quit with the throwing bad money after bad.
Why hasn't the euro-zone looked at setting up a TARP program. And instead of giving Greece a second round of bailouts, and then Ireland and Portugal, use the money to recapitalize the banks affected by the haircuts.
Perhaps this route is too direct and would cause the citizens of the euro-zone, to notice exactly why the countries are getting bailout, but if billions of Euros are going to be spent regardless, why isn't this even being considered?
Greece only has to learn to hold its breath up to 2022, according to the above chart. No problem for those minnows... if you saw the film 'The Deep Blue' by Luc Besson you would realize they are world champions at holding their breath, like sons of lost Atlantis!
Solution: Canada buys both failed states in a 2fer
With money loaned from the Fed.
Sounds like a solution
"2. the level of debt that is sustainable will be guesswork until growth has stabilized and a primary surplus achieved;"
Ha. HaHa. HaHaHaHaHaHaHaHaHaHa......................
You just can't make this stuff up.
How about this: ... We do not see a ‘haircut’ as a viable solution... Translated - haircut is going to happen 100% sure and now we are spinning sheeps wrong way for better sheep shearing results ...
Come on little sheeps: meeeeee meeeeeee!!
management exercises = energize the shredding machines
You have got to love that term "
"Sovereign Liability Management Exercise""These securities could eventually be subordinated, or carry more favorable conditions than those available at the time in the private markets."
This is an interesting statement...
Goldman can easily see 'haircuts' for the bankrupt people, never for central banksters.
Au contraire. The Fed takes a haircut every time it doesn't get paid back 100% on maturing MBS.
But that does not stop it from "reinvesting" 100% of face value.
Since we are heading there anyway, why not just jump the end and call "Full Sovereign Repayment Scheme"? Or maybe we should drop the "Scheme" part, too.
someone just got spooked, euro and gold just took a hit
Who comes up with all the politically correct new-speak concoctions?
Greenspan is on contract.....
Ministry of Truth
Just learn from countries like Argentina, greeks! Please say good bye (and go to hell) to the Euro!
Btw fuck the ECB, the IMF and the Fed.
See the positive side of the chart: After 2022 the profile maturity is awesome!
We continue to believe that a more viable solution would be to prolong the period over which Greece delivers its necessary adjustment, which would help the government to deliver. This would mean providing more funds to the sovereign to make up for redemptions, at least over 2012-13, and recapitalizing the local banks.
keep those zombies movin! rawhide! let the hoi polloi pay. yes, we're humane, here's the vaseline, ok?
A 'sovereign liability management exercise', or ... SLiME? Just like old times.