Guest Post: The Countdown To Sovereign Debt Write-offs Has Started

Tyler Durden's picture

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FreeNewEnergy's picture

Haircunts, bitchaz!

falak pema's picture

Germany is driving the "hair cut " train. If ECB decides to accept this stance, the train will move down this more realistic road. The ECB will supervise contagion risk. The apparent backing of the FED to this German plan now makes the plan the realistic route to go. 

Kudos to RM for having told us this at ZH....Let's see how this plays out. The linch-pin for avoiding EU meltdown is Spain...

monopoly's picture

Looks like stagflation to me. The worst of both possible worlds. Until inflation kicks in and roars like the Harley Palin was on. Embarrassing.

monopoly's picture

This is like a very slow death. Scary.

Quintus's picture
In other words, the losses suffered by the banks as a result of this proposed debt write-down will be made good by their respective Central Banks handing them more free money.  This is just re-organising the deckchairs on the Titanic.  Instead of, lets say, Greece owing Deutsche Bank €1bn, the Greek debt will be written off and replaced by the ECB handing Deutsche Bank €1bn to compensate them.  How does this help lower overall indebtedness?  It's just Global debt monetisation, basically.  Hyperinflation bitchez.
TheGoodDoctor's picture

QEIII for the European banks again?

monopoly's picture

If I were long stocks here, any stocks, good ones too, I would be very nervous now.


fonestar's picture

If I were long stocks I would be drooling on myself watching CNBC.  Not reading posts on ZH!

bankonzhongguo's picture

Well, I'm hearing some Greek lawyers and parliamentarians are seeking to subpoena GS, Paulson, and Blankfein with the intent to jail these guys on the former $25 billion.

Who would of thought the Greeks would do the job of the Irish?

Again, none of this will be heard on CNBC.

Surround the IMF on Greek territory and just suspend debt payments until someone goes to jail.  Meanwhile, expect to not borrow again - except from China.

TruthInSunshine's picture

Mr. Margin is giddy with anticipation. There are still many good assets to seize to offset so much leveraged ugliness.

Mr. Margin loves downhill skiing.

Mediocritas's picture

As was posted up on ZH earlier, the required eurodollar reserves to deal with marking Greece to market are already in the system thanks to QE2.

This train is ready to roll. All aboard!

TruthInSunshine's picture

Oh, Maximus, you should see the Coliseum!

We will tour, soon; first Greece, then on to Ireland, Portugal, Spain & Italy.

And only Zeus knows where to from there, yet again!

For our journey is just about to begin, Maximus!

Let us raise our chalices, and toast to the splendor of the mess Bernankopolous has made of global economies and finance, where we will freely pillage and plunder!

For by this time next year, we will be Kings, eating and drinking from gold vessels!

hambone's picture

Speaking of "write offs" - seems nows a good time to write off all those who bought any Pandora or LinkedIn ever making a profit on that one...the trashing is on!

hedgeless_horseman's picture

Don't forget GM!  On its way to ultimate support at $0 AGAIN!!!

hambone's picture

IPO crashapolooza!!!  The spectator event of the summer!

Armando Javier Finkeltein of the Boise Finkelsteins's picture

Pandora's box has been opened and she has an ugly box

treasurefish's picture

The question posed by the author if the IMF is prepared to do it's own restructuring sounds odd to me. (Later edit: I may have misread it, but I'll keep the questions open). I guess everyone has their masters. What exactly does it mean for the IMF to default?  SDRs become worthless?  Is that when we all go back to the gold standard?

carbonmutant's picture

Greeks need to start breaking some glass if they want the money...

gwar5's picture

The PIIGS are dead! Long live the PIIGS!


TruthInSunshine's picture

I still haven't found a truly catchy acronym that captures the full essence.




What about China & Japan? How am I going to work those in?

treasurefish's picture

(J)esus (C)hrist! (U) PIIGS (S)UK!


- Essence captured? Check.

- Catchy? Check.

I hereby coin.  Feel free to add France wherever you deem fit.

TruthInSunshine's picture


I forgot about France, too!



Which is worse - bankers or terrorists's picture

The ECB will have to be bailed out itself if Greece delivers a haircut.

When means the NY Fed bails out the ECB.


1inchRacker's picture

Zero Hedge, thanks for great articles such as these.

I live in France, and if I didn't have access to analysis such as this to counterbalance the BS we're fed in mainstream...they take a story, skim off 5% to look at, twist that to fit this or that slant and what you're left with is nothing short of downright lies. Thank you once again.

spanish inquisition's picture

The options are defauting like Iceland and rebuilding in 5 years or becoming a slave for the next 20. Will it work?

“Iceland should be humble and avoid advising other countries, especially when it comes to banking,” Sigfusson said. “What happened was an emergency situation which couldn’t be avoided.”

What it means is "Fuck yeah, do it!..(I just can't say so, otherwise they will invade our ass.)"

slewie the pi-rat's picture

i will take a number...

...ok, USA goes 9th. 

just wait till our turn?

gorillaonyourback's picture

1 quadrillion of derivatives, dat gonna sting

Mad Cow's picture

As it goes *poof* into computer bit heaven.

P-K4's picture

Good comprehensive article, well written.

"So if a bank took 100 million of 2 year bonds, and exchanged them for 80 million of 10 year bonds, they would take a write off of 20 million"  poses two questions: wouldn't the CDS costs be different for 10 year bonds ... and who expects Greece to remain in the EU ten years from now let alone two years from now?

I can see many of the restructured bonds making their way into American pension plans courtesy of Frank-Dodd (i.e. providing cover). It'll be called the "Build Europe" bond with interest rates subsidized by the IMF.

TheProphet's picture

Well, even if they could get CDS protection on the bonds, the ECB will not allow them to use the bonds as collateral.


Commander Cody's picture

If Greece default is not such a big deal, then why is it such a big deal?

XitSam's picture

Q: Why are all these negotiations done behind closed doors?

A: If the serfs knew what was going on, the hangings would begin tomorrow.

taraxias's picture

Oh sure, everything is contained, just print some more CB money, hand it to the banks and everything will be okay.

What a crock of shit !!!!!

It's derivatives baby, derivatives, trillions and trillions of them. Deal with that......

Jack Sheet's picture

Interesting perspective and worth posting but most of it appears to be speculation. Where are the author's sources ? Greek Deep Throat ? DSK's attorneys? Treeshay's secertary?

oogs66's picture

sadly most things are just available on public sites and through some knowledge of credit, but the media has no interest in giving full details on what people said, except for ZH.  check some old zh and ransqwak headlines and you will see most of it. the rest is that some people did do credit for a living.  some posts here on nuclear power were amazing and correct, but were from different sources, because that was their area of expertise.  its why an open site like ZH blows away traditional news sources


swissinv's picture

fully agree - you speak out of my soul... a residual risk is still inherent though

YHC-FTSE's picture

Papandreou was a director at Goldman? It's not listed on his CV. That, I didn't know and it makes so much sense now why GS was instrumental in hiding Greek debts from budget overseers then charged hundreds of millions of euros for the work. He's also got 27 Billion dollars worth of CDS with IJ Partners to look forward to (If he isn't hung for treason), when he leaves office. 

Slipmeanother's picture

The USA and Wall St need to understand this: Europe continues to be the worlds leading economic and trade grouping having both the largest savings and political stability, It is the economic and trade group with the most multilateral experience. In addition thanks to the Euro the EU has the only real credible alternative reserve currency. The recent support and bi-lateral meetings with the BRICS countries has seen dollar to Euro diversification by the BRICS--headed by China. Without the Euro the BRICS would be condemned to suffer Washingstons unipolar world. So de-facto its the Euro which breached the Dollar wall, a breach that now the BRICS are enlarging using their wealth to stimulate the Euro as an alternative to the Dollar. No amount of BS spin from Wall St or the City of London can change the facts. Forget about the BS, the Euro is here to stay and the crisis has strengthened the EU institutions far quicker than would have been possible without it---watch and learn

Noah Vail's picture

Is that all? Anything else you'd care to add to your prepared and oft repeated remarks?

Buck Johnson's picture

We truly don't know how much debt they are in trouble with.

Wolf in the Wilds's picture

With respect to CDS,  I think the DTCC data is incomplete.  The key is CDS done before the Big Bang event in 2009.  BIS data indicated that there were Eur41b exposure to Greece sitting in the US.  And the bulk of the exposure is indirect (ie through credit derivatives).  I believe that these exposures were created pre-crisis through credit CDO products that were placed to US investors during 2005-2007.  These generally have a maturity of 5-7years making them mature during the next 2-3years.  This will pose a problem for a voluntary extension of maturity.  The banks who sold these CDOs will be holding bonds against it.  If these bonds are extended, then the risk attached to the bonds will no longer be hedged as the derivatives expire.  Eur41b is not a small sum.  It represent 16% of the debt outside Greece.  Without this participation, I cannot see how a voluntary debt exchange can work.


Tjemme's picture

Great article!
(*) I agree that the term 'private sector participation' has probably enabled a political discussion of default. And ECB insistence that a default is unacceptable has probably created the time to properly prepare for a default.
(*) But I am not fully persuaded by the other comments:
- The IMF insisted on a guaranteed one-year financing. This suggests that they may not participate if European governments only want a few months delay. But, yes, IMF is unlikely to be spoilsport.
- I think the main problem for the ECB is that they don't want to have defaulted securities as collateral. Restructuring into higher-grade debt needs to accompany a default.
- Most banks can handle defaults? Perhaps most European banks can handle a default of the Greek government, but regulatory exclusion of sovereign exposure from concentration risk leaves the Greek banks vulnerable. Indeed, their capital flight suggests that they need a parachute sooner. To avoid a Lehman, banks need to demonstrably handle defaults of Greek banks as well. Perhaps a 'stress test', just for Greece?
- Contagion risk handled by a bigger plan? I am not sure politicians are ready for this. I personally think contagion risk (at least as described by the ECB) is primarily a (hopefully manageable) investor issue. If Europe can't even avoid a small Greek default, investors realise Portugal and Ireland also need to stand on their own feet. Yes, rating agencies are known to be slow, but if Greece can, at this time, still cause downgrades of French banks, it is clear that we need as much preparation time / clarity as possible.
- Greek politics. one interpretation of 'tough conditions' is that Greece urgently needs to make some major changes. This requires maximal pressure and Greek political support.
- CDS. Some people suggest that only CDS only has a notional of EUR 5bn. I agree with Wolf that this exposure may well be bigger (

JohnsonSmith's picture

I found your article very nicely compiled with good content. Thanks for sharing the updates regarding Greece debt. Instant cash