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Greek 10 Years Pass 8% On Rumor Of Voluntary Bankruptcy
The Greek 10 Year (well technically 9.5 Year) just passed 8%, 8.003% to be precise.
The reason: increasing market rumors that the country is contemplating a voluntary debt exchange in which a portion of the debt will be cut, in essence an out of court bankruptcy but for a sovereign. How this will be accomplished and whether it is at legal per the EU charter is uncertain. What is rumored is that since the transaction would be voluntary between debtor and creditors, it would not trigger CDS thus an event of default will not have occurred. On the other hand total Greek debt exposure may end up being cut by about 25% or more, which would trim the country's interest outlays. As Greece is currently caught in a debt spiral in which its cost of debt is orders of magnitude over its growth rate, this would actually be the right thing to do. The question is if 25% of the total Greek debt of €305 billion is eliminated (there is $375 billion in debt and future interest for Greece alone), what will happen to the creditors, primarily European banks, and whether they have provisioned for over $100 billion in losses on the country. Furthermore, will this send a signal to the rest of the EU that out of court transactions are ok: how much debt will be eliminated in such a manner next time around when Portugal, Spain, Hungary, and everyone else that is comparably insolvent decides to "cut" some debt?
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this is a green shoot, right?
just recognizing reality. Now, if we can start doing the same for non-performing debt here in the US?
Woah Hellie...
Voluntarily Declare Bankruptcy? Brilliant!
Hire Goldman and follow Iceland's example;
First they loot a bunch of foreign banks...
Then they declared themselves bankrupt...
Then they set their island on fire....
Then they send the ashes back to the folks they looted....
Ta-dah!
Meets the GS morals and ethics test, no?
Yep, the EUR will surge against the USD and the proceeds from ForEx will be used to ramp this bitch of a market towards 12k. USD/EUR [1.4xxx,1.50xx] in the next month if GRE defaults. It would be a positive event for the EUR, not so much for export oriented countries like Germany. Well; life is tough.
Cheeky, we agree on this point.
Actually you are a cool dude when you're not trolling the site.
This, I'm beginning to convince myself, is the real crux of the issue.
This may happen, but initially the EUR will get trounced first into the 1.20 range. Gee, didn't we hear Goldman and JPM touting 1.20 EUR by October? Sure sounds like they are gonna work the plan now. After it hits their 1.20 target, Cheeky prediction of 1.50 EUR will happen so fast, after Germany bows to the masters, it won't be funny.
But don't forget about Trichet, who's deeply involved here. I'd guess that he may well have offered the Germans some quiet reassurance about exchange rates as part of the price of keeping the IMF off his turf.
Egad, Cheeky! I guess I should be happy that I just bought 500 more Euros here in Italy at about $1.35 (minus ATM fess, etc.).
Maybe I'll have another drink tonight at dinner, as this trip to Italy will be our LAST big expenditure for years.
The hammer comes DOWN later this year on our family spending, inc. foreign travel (sigh, I like traveling). The only reason I am allowing our foreign trips this year is because it is our 25th Anniversary. So, this year I will be a good guy (Happy Wife, Happy Life), and next year I will be a cold-hearted and Stingy Bastard!
Oh, yeah, another comment.
Financial crisis, what financial crisis?
Only thing I hear (in English) is how the tourists (mostly English now in Sorrento) are going to get home.
I have heard NOT ONE WORD about GS, corruption in the markets, gold, world recession, etc., etc.
And NADA about Greece...
Interesting point about the CDSs which, as per the typical contracts, state a material default must occur for said claim.
However, because these are of course OTC, not all CDSs state the same rules and have the same clauses in case of such default (voluntary or involuntary).
Im away from a BB but would be interesting to see how the spreads are doing today!
In fact most have standard documentation. Failure to pay, bankruptcy and restructuring are events of defauly. I would estimate well over 95%
"since the transaction would be voluntary between debtor and creditors"
What creditors are you referring to?
Ok, so 25% of all creditors are going to agree to a forgiveness?
Key is in what type of (almost) default it would be.
For the record i dont see this happening, but some sort of hybrid of a bailout is definitely in line, and obvs does NOT warrant any CDS claims on insurer.
Who in their right mind would voluntarily do this... I would assume they have protection either way. So, the countries fund their banks to turn the other way? Well, if that is the case I would pull out the spending if I were Greece and any other country. I have been saying his since Bearn Sterns, the bankrupt soveign or corp has the strong hand.
Hmmm. Well, good luck, Spain, Italy, Portugual, and Ireland in the warm up circle.
Well, as we've seen with the BAC-MER case... theres a difference between voluntary and 'pretty-much-forced-voluntary'.
Germany is in the latter of those 2 regarding the Greece bailout , though ultimately despite the national implications, the international (intra-EU) implications of telling Greece to fuck off would be even worse.
Though maybe this quasi-default from the Hellenic nation would consist of help from some other entity...
People laughed when G-Pap threatened Germany and when he said that Greece will set the conditions of its bailout and not the IMF, ECB or Germany. He knowns that if Greece goes bust EUR appreciation against the USD would kill Germany's industrial sector. Merkl, and for that matter EMU, are hostages of G-Pap, whether they like it or not. He knows that he can assfuck EU recovery by going BK. Not that he will go BK but he can use the threat as a leverage against the aforementioned institutions and Germany.
Definitely agree about Greece's power.
You do mean long run € appreciation correct? Cause short run i cant see how a defaulted country in the EU would bring a benefit to their currency...
One of the posters above wrote a pretty good three-sentence analysis of how EUR will behave. First it will drop somewhere in the 1.20xx range and then it will skyrocket to about [1.4xxx,1.50xxx]. The shock of a sovereign default [forced or not] can not be neglected and it will not be if Greece does decide to just default. But the 1.20xx EUR will be a buying opportunity for the big boys. Remember destruction of debt yields a stronger currency. Hell even if the said 25% write off of GRE debt actually realizes EUR will climb up against the USD on the long [3-6 mths] run. And that is not in EMU best interest. Also, about the possible role of Trichet and ECB; its pretty much sure they wont intervene in this matter. I say that because Trichets apathy when it comes to actually managing a sound and competitive monetary policy is only surpassed by his utter stupidity in all matters macro-economic.
True.
Hmm, should be fun to watch. Oh well, if I were Italy, Spain, Portugual, and France I would blowing the lid in the spending column.
Nothing like having dad's credit card. Charge it up, hell I would, stupid German saps.
Yup, that sums up CBs point just above... Greece has pretty much a blank check (monetary-wise, and) to do whatever it wants because it has the power of 'play by my rules or i go bust and your ass is gonna suffer'
I have been saying that for about 2+ years... there is no out.
I would increase spending if I were a country in Europe.
decision will have strong implication on other bellyup nations ... Greece is just a prototype to gauge feedbacks cuz it is the weakess of all ... agree with your pt regarding CDS claims
Debt is the problem - too much debt to service from cashflows
Tis the only solution !
A creditor wants the whole cow back but has to ask a hard question.
Is Half a cow better than none ?
Squeeze them all you want but the fact remains - They can't pay the interest nor the proposed interest on interest
A victimless crime like punching someone in the dark.
Ok, the question is who and under what terms will lend to G-Pap afterwards?
Exactly. The problem right now is not servicing the debt, it's financing the current budget deficit.
Maybe they can start paying civil servants in drachma IOUs that will rapidly be discounted against the Euro, but the likelihood that this will not result in riots is not good.
If this rumour does indeed come to pass, that would actually be good for equity markets near term. The only negative would be if it spread to another country utilizing the same strategy. Then you could start to see a strain on the global system. However, since we've heard no rumblings elsewhere of anything close to this magnitude, I'm pretty confident it will be isolated to Greece.
All in all, a good solution for Greece and the markets.
do you do anything but troll this site waiting to post your nonsense on every new topic?
Agreed. We need a banish button aside next to reply & junk.
Actually, here he is right, like it or not. Many will go long EUR on this rumor and buy USD when EUR reaches the desired level, which it surely will if enough speculators do this and if Greece actually defaults. Then the dollars which will be bought will be used in ramping the equities. It really is this, mind boggling, simple.
Maybe it will happen that way, but when does the piper get paid? You can't wipe out 25% of all creditors without someone taking a hit. Who holds that 25% and, seeing it go to zero, how will they prop up their income? This is major asset deflation.
Basically, he's saying if one guy steals all the money from his creditors and gets away with it, it will be good, so long as no one else does it.
If they get away with it, EVERYONE ELSE WILL DO IT TOO. If Greece burns, they might think twice. Greece must burn for their sins. They should be expelled from the EU for this. Anything less and it's the end of the EU as we know it.
No, they should not be thrown out of the EU but EMU. Let them issue drachmas and peg it to the EUR in fix exchange. It would change nothing for the economies of the EMU members [IMHO it would only strengthen them once Greek crap is thrown out]. Or if they think they can solve their debt problem Bernanke style, they can float the exchange rate and hyperinflate their way out of debt. The same goes for Spain and Italy. Clearly you understand that throwing them out of the EU would reduce the "free" economic market place in which goods and services are exchanged by EU laws and regulations. And that would not be beneficial for nobody since that is THE reason EU and subsequently EMU were created.
Bears hate Harry Wanger. He caused quite a ruckus last summer over at Andy T's blog. I hated him too. See, I was "smart" and sold all my equities in July right before the next leg down P3 that all the chartists were calling for.
But he's been right since then - pretty much has the same philosophy as Leo K. - hold your nose and buy.
Anyway, disagree with him all you like, but he's a smart guy, not a useless troll like M. Bates...
How can you say it, with a straight face, that it will be confined to Greece?
ALL of these club med countries are going to default. Greece is just the first one.
Makes a deflationist feel all warm and fuzzy.
I suspect what will happen is the German govt will pay the German banks holding Greek debt to extinguish the debt. If Germany socializes the Greek debt held by its own banks it may evade the wrath of its own population. Banks go along, and may take a haircut, as otherwise they face the prospect of Greek default.
All Euro nations with banks holding Greek debt increase the amount of sovereign debt. The Greeks party on and the ouzo bottle gets kicked down the road.
One can only hope that the German populace will respond appropriately to this outrage by kicking the government to the curb.
That's basically what I'd guess, except that the German government may be avoiding a constitutional challenge or a difficult vote in parliament even more than popular anger.
Moody's going to come out and BS about a possible rating downgrade on Greece
Some members of the EU are more special than others...
Isn't this what the PIGS said?
How can dropping 25% of what you owe NOT a CDS default triggering event?
Basically, it's a backdoor bailout. An agreement between parties would not necessarily trigger the default clause.
Wait till the UST 5yr auction next week, I say it hits 3% easy. I only missed last months call by .05, let's see how it shakes out. Rates are definitely getting ready to rocket.
Seriously? Have we reached this level of Orwellian-ness where a 100B default is considered equity-positive? Is everything now equity-positive? If a giant asteroid plunges into the ocean would the SPX ramp up? It's just ridiculous. If Greece reneges on 100B in debt, it doesn't just disappear into the ether. Someone has to take that loss on their books.
Creditors will surely take a loss on Greek debt. The question here is; what percentage will be written off. Well even that doesn't matter since they can hide the loss in SIVs and there it can remain hidden indefinitely.
Totally...i guess the ironic thing is, after learning SPEs were what caused the US to revisit its accounting policies last decade (re Enron), i suppose its only time something similar happens in the EU before they will take a look at the IFRS standards (even though IFRS are more stringent than US GAAP anyway!)
Yes, SPEs not SIVs.
Sorry, i had a little brainfart.
If asteroid plunges into ocean causing billions in damages that would be hugely equity-positive: all the companies will make gazillions rebuilding, banks will make gazillions on the new loans/fees, etc. and no one need recognize any losses from the destruction.
Correct, but for the wrong reasons. Don't forget the primary directive:
/BEGIN
ALGO #1
IF an asteriod wipes out most of the population and some of the exchanges too
THEN trading volume will likely be low
EXECUTE ALGO BUYBUYBUY
/REPEAT
Sorry about all those dead people....
Inventory rebuild would also be massive, again confirming the equity positive consequences of the asteroid.
After thinking long and hard about it, I have come to the conclusion that a 25% reduction of debt is also the best decision for my personal finances. (Without any corresponding drop in my FICO score , of course)
Hell, maybe even 50% if I can get away with it.
Which politician do I call to structure such a thing?
Call the one you donated $100,000 to.
Oh, you didn't donate that much? Tsk tsk... poor planning on your part.
First, you have to figure out how you can endanger Deutsche Bank's solvency with your debt.
I don't quite understand why the EUR would appreciate on the USD if Greece had a pre-packaged bk.
Wouldn't such an event cause a lack of faith in the Euro? Also, wouldn't that just make anyone else close to Greece's problems harder to borrow cheaply?
Seems like this would be the spark that would cause a downward spiral of rising borrowing rates. Leading to more quasi-default.
I dont see why would such a structured BK deal damage the EUR. EUR is just a mean of exchange nothing else. It would, however, increase GRE debt service and borrowing cost to Argentina 2001 levels. The underlying point here is, that XX% of EUR denominated debt will be destroyed and that mean the currency will appreciate. That is if one follows the basic rules and laws of economics, but if you follow psychology of the market; hell anything can happen. Also pre-packaged GRE default would cause money out-flow from Greek economy and make it even more weaker. Remember, even-though we discuss joint monetary union that is not what will lead the movements in the currency markets nor debt markets. Both will look at Greece as a sovereign nation and not a representative part of the economic and monetary structure as a whole. IMHO that is the game plan here.
Thanks for the follow-up.
It's tough for me to wrap my head around. I do understand that less supply will cause appreciation. If Greece were the only bad apple in the bunch I think it would be easier for me to be comfortable with the fact of appreciation.
What Me,
I'm more with you on this one. Greece is allowed to default and give everyone owning their debt a 25% haircut with reissued bonds. That calls into question the ability of the ECB to solve any of the PIG problems. Seems to me that the result would be a pretty quick sale of of the bonds of PIG plus France and any other EU weakling. When those bonds hit the market, does it cause the currency to increase in value? All of the "excess currency" will be trying to get into something else, not Euro. Maybe I'm not clever enough to see it otherwise. However, if default strengthens a currency, why are Zim Dollars getting cheaper still?
Ultimately this comes down to 1) who is taking a haircut? and 2) will they even have to realize a haircut based on accounting chicanery?
I'm not sure if I would buy euros here because this appears to be a backhanded attempt at contract abrogation. So, if the rule of law does not exist, why would someone support a currency that represents a lawless union? The twilight zone continues. Perhaps in the long run having lower debt would lead to a strong(er) currency, but in this case, it wouldn't be about the pure quantitative effect of eliminating debt, but rather about a lack of confidence in the union going forward, whether based on diminished prospects in general or just mistrust due to the reason I mention above.
It does, however, fit in with the premise of nothing ever being allowed to go down, or fail, ever, with no one taking a haircut and green shoots in perpetuity. All on the backs of taxpayers. Sounds like a world co-op dictatorship.
So, in plain english, it comes down to this: Greece wants free money from the rest of the EU so they don't have to change their ways. Subsidies, not loans. And they are willing to crash their neighbors' banks if necessary to get it.
Sounds like a raging case of adolescent entitlement blown up to a national scale.
Welcome to the 21st century.
It seems like moral hazard has become the central tenet of the modern state. Everything they do these days is built around trying to corral and control the moral hazard they themselves created, and failing miserably, all the while pretending that modern society is better, more "advanced", more "enlightened" than that of half-a-century ago.
Until they change the rules again, [the country] which defaults first, laughs last.
A haircut is preordained. Going to go global! It's all the rage. We just don't acknowledge it yet.
Exactly. Bankruptcy is not the problem. Bankruptcy is the solution.
Whether in court or out, I think a restructuring would trigger the CDS default. Cutting the debt is the best solution, the only real solution in fact. They should still be kicked out of the eurozone thogh to preserve the Euro.
Brilliant macro analysis. Pardon me for peeing in the soup, but we are talking about Greece. If cutting your debt load by 25% feels good, why wouldn't it become an annual rite of spring, like dancing around the May Pole, or molesting the sheep?
It would become the "new normal" pretty damn quick.
Greece’s finance minister on Tuesday shrugged off soaring yields on government bonds, saying the country would be able to borrow next month “either from the markets or from our [eurozone] partners”.
Sounds like some premium quality ouzo to me.
Let's not lose sight of the Big Picture by focusing on the pixels. The fact is that we are just coming out of a huge asset bubble, fed by insane amounts of cheap central bank credit. That credit created a financial mirage, and led markets to believe that the overall level of wealth was much higher than what existed in reality.
Like a caravan of inexperienced travelers making its way through the desert, that mirage led everyone to believe that the oasis was in sight, and they all celebrated by drinking excessively from their water rations. But now the mirage has faded away, and in order to reach the oasis water rations must be drastically reduced.
The world's financial system is under strain because the financial economy remains divorced from the real economy. But the illusion of wealth is fading away, as reality imposes itself on financial markets. And this occurs just as the welfare state Ponzi schemes, created by western governments in the post-war period, approach their inevitable collapse.
If you will permit me to change analogies in mid-essay, consider the most recent Eyjafjallajökull eruption, which comes almost two centuries after the previous eruption. All during that time, pressures and imbalances were building up underground, unseen and unnoticed by human beings, until the resulting disequilibrium finally manifested itself in an explosive eruption.
In a similar manner, since 1945 the western world has followed an economic model based on over-consumption and under-investment, i.e. excessive government spending and taxes. In 1971, the build-up of pressures forced the leading player to repudiate the gold standard, which paved the way for central banks to offset those pressures by injecting ever-increasing amounts of credit into the financial system; but that only resulted in extending the imbalances throughout the financial system, and creating an even greater build-up of pressures.
When the most recent, and by far the most significant, financial eruption occurred in late 2008, governments stepped into the breech with every resource at their disposal; the only action they failed to take was the one that might have made a difference: transforming the economic model which led to the build-up of pressures, and ultimately the eruption. Given that their flawed economic model continues in force, this Big Picture analysis suggests that the primary financial eruption, when it comes, will be greater than that of 2008 by many magnitudes. So long as the pressures continue to build, it is only a question of when and where they will find relief.
Were Greece to default, and dramatically scale back its government expenditures, this would be very healthy development for the long term. Greece's problem is that too many people are working in a non-productive capacity, i.e. they are shuffling papers in a government bureaucracy rather than working in a factory or shop and producing real goods or services. Slashing government payrolls would not directly impact the real economy, because these people are not producing anything of real value. It would, however, have a significant impact on measured GDP because the statistics assign value to the non-productive efforts of bureaucrats.
But politicians are only concerned with the next election, and for them the long-term consequences merit little more than lip service. They are too busy plugging every leak in the ground where the next eruption might occur to even consider that the long term has arrived on their watch. In my mind, I envision hundreds of them scurrying about the crater of Katla, rushing to plug every hole where steam begins to escape and congratulating themselves on their heroic efforts. Then suddenly the eruption comes, and all those scurrying busybodies disappear forever.
In the final analysis, the illusion of wealth consists of promises which have been made to people, and the crisis is caused by the impossibility of living up to all those promises. Politicians insist that they will cut spending, after the election, even while insisting that no one will have to take a loss (except for the rich). And in the meantime, the pressures created by the disequilibrium between the real and financial economies continue to build up, and the eventual eruption promises to be of an ever-increasing magnitude.
Good stuff. It's great to see someone who gets it.
Whoa! This really sank the Euro.
plastic debt - plastic bankruptcy
creditors wl be reimbursed fm CDS and shud be more generous to greece - how abt to make it 50% ?
Maybe Greece should just join up w/ Turkey. Take care of the whole Cyprus issue at the same time. As a concession, Turkey turns the Hagia Sophia back into an Orthodox Church.
EURO continues to get a lot of support ...
But USD index chart continues to give bullish warnings.
Euro chart:
http://www.zerohedge.com/forum/latest-market-outlook-0