Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

Reggie Middleton's picture

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ShankyS's picture

I have learned with Reggies posts to read the comments first after they have seasoned somewhat and then read the post. This helps. I'm not dissin his post. Just saying how I like to read them.

hbjork1's picture

Shanky:

IMO, the technical approach (renting) has great merit for survival at this particular time.  Ad nasium, I have posted about the Basilisk Lizard running on water. He puts his feet down correctly on the surface and very fast.  The PPS in some potentially profitable companies are continuing to rise but the game may change soon.   

My favorate real investment catagory is land (of which I don't have enough).  But land requires at least an intermediate size  commitment, long holding time and attention to its use. 

Thanks for the blog!

 

hedgeless_horseman's picture

If a soverign is the acting party it is not a crime.  Always has been that way, and it always will be that way, because the soverign defines crime.

It  explains why so many people migrate to government work, where they get to make the rules.  Better know by the brand name, power.

 

Anonymous's picture

mr prodi did it again in 2007 . he kept 6 billion funds from pension funds ( tfr ) stored in private company liabilities to finance the year deficit.that' s same scheme of france telecom but it implies all italians company's and all italian' s pensioners.law 296 of 2006

Anonymous's picture

... Moreover, one of the key reasons why such manipulations continued is the apparent ignorance of the EU's Eurostat, ...

It is widely known that Eurostat is absolutely the most corrupt branch of the EU. It is so corrupt that every time a whistle-blower emerges he/she is immediately sacked and given a gag-order and the findings of the EU's internal auditors are classified;

Members of the EU parliament can read a single, redacted, copy of the auditors reports, under observation of a guard, so they do not take copies!

Isn't Neo-Democracy great??

illyia's picture

Reggie. I wish you would do an expose' on Social Security - which I do believe is the most obvious Ponzi Scheme on earth - sitting right out there in every American's paycheck, like it is...

To me, SS is the very definition of a Ponzi!

Tic tock's picture

..Sure, it's a little worrying, all these extra billions that will have to be provisioned for. But in the scheme of things it's still a minor problem. French Public Funding may be a bit annoying, but it serves a purpose: eventually the Euro will switch to a cheese-based currency, something you can really smell. ..and who are these loans with anyway if not their own banks, who they just bailed out.. a non-event waiting to happen. 

jmc8888's picture

Looks like someone shined a fleshlight onto the twenty-seven pronged dildo. 

 

.......Good luck with the mess

Papasmurf's picture

And every prong occupied.

Gunther's picture

If my memory serves correctly, Belgium, Netherlands and Luxembourg had a hard peg or currency union before the euro. The interest rates there should have been similar. If the interest payment for the Netherlands goes down from 6% to 4% of GDP and in Belgium from 10.7% to 6.9% the Belgians have not been that savvy.
In Italy the interest rate 1993 was probably high due to memories of inflation and lack of trust. Coming into the more trusted Euro would reduce the risk premium and interest payment. Probably the hope was that the lower interest payment would lower the deficit to be ok.
A quick check would be debt/gdp levels and interest rates in the respective countries.
I have only Interest rates for Germany available right now; the 10-yer bond yielded
jan 93 7.13%, jan 97 6.24% and jan 2000 5.8%.  

There are several effects to consider; falling interest rate environment; falling inters rates due to economic convergence towards hard(er) money; real budget cuts and book cooking.

Anonymous's picture

Come on Ben, it's your move. Dead ol' Mr Rogers says , Can you say "Bailout"?

Anonymous's picture

What's new Reggie. They were too clever for their own good fibbing a bit to get into the euro, the regulators did not notice or were told not to notice, and governments spent and borrowed more than they should. Mind you this all happened long before the massive spending programs that were initiated he last years in response to the credit crisis.

And this is just Euroland. The UK looks even worse and let's not forget the US either. Surely this must lead to an onslaught on all currencies eventually.

So how on earth can ordinary citizens counter this? Their savings will be worthless? Interest rates on those worthless savings remain artificially low or too low to counter the devaluation of their currencies?

But riddle me this. For all the logical arguments that are presented here on Zerohedge for the doom and gloom that is around the corner I cannot understand how this could really turn out as badly as you guys are projecting. Surely if laymen like me can understand your arguments, then so can central bankers and finance ministers the world over. Even they would be affected. They cannot possibly be that short-sighted. A defunct economy has no value to them either.

Anonymous's picture

Gold is setting record highs in Sterling and Euro. Makes complete sense to me. Don't get caught with an IOU.

Anonymous's picture

So how on earth can ordinary citizens counter this? Their savings will be worthless? Interest rates on those worthless savings remain artificially low or too low to counter the devaluation of their currencies?

Having kids, bring them up well... and hoping the kids would reciprocate with care for their elderly parents. That is, if one can still afford to have kids. (Better sooner than latter.)

jimmyjames's picture

by Anonymous
on Wed, 03/03/2010 - 17:0

But riddle me this. For all the logical arguments that are presented here on Zerohedge for the doom and gloom that is around the corner I cannot understand how this could really turn out as badly as you guys are projecting. Surely if laymen like me can understand your arguments, then so can central bankers and finance ministers the world over. Even they would be affected. They cannot possibly be that short-sighted. A defunct economy has no value to them either.

***********************************

 

That's the root of it all--we have nothing to drive us economically--

No more bubbles to blow--

Beer will cost a dime--that will be a good thing--

The rest--not so good--

 

Postal's picture

Surely the Emporer wouldn't parade about downtown naked, would he?

Crab Cake's picture

"If Grandma had balls, she'd be Grandpa, wouldn't she?"

I do believe someone from the SEC was asking himself that very question...

Gordon_Gekko's picture

It's like pot calling the kettle black - LOL! The biggest Ponzi scheme of ALL - the biggest Ponzi Scheme in human history - is being run by none other than the United States. Do you know what it's called Mr. Middleton? Didn't think so - it's the US dollar. What Europeans are doing is NOTHING compared to what the US is doing.

Reggie Middleton's picture

Hey, I never said the US wasn't in on it as well.

Anonymous's picture

No kidding. But what most people don't see is that when it comes to the U.S. it's different.

You'll have the Banksters, right up against the Politicians. And it was the Pols who not only allowed the Banksters to continue to exist, but also gave them their bonuses. Courtesy of the U.S. Taxpayer.

The Banksters are guaranteed to pull this.

It's going to be one ugly showdown.

Anonymous's picture

This is all of vast interest. But what I really want a handle on is WHEN will the US systemic collapse occur. Is there still time to make a killing buying metals, or should I invest primarily in "negotiable" bullets?

Anonymous's picture

we're fucked, let's all move to mars!

Anonymous's picture

Happy 128th birthday, Chuckie P!

The greatest "financial innovator" of his day.

37FullHedge's picture

These shenanigans just keep getting better, I was reading a blog titled the sultans of swap its a similar take to this one but the angle is using public private reverse type mortgages for off book governments spending, In my view this area will be hiding all sorts of governments liabilities, These type of acts may explain why no regulations of this area is fourthcoming.

It all must blow up one day you couldnt make this stuff up.

 

A Man without Qualities's picture

In defense of the French, these pension transfers were done when these companies were state owned.  Maybe they were smarter than the British as they recognized these pension obligations would in the long term ruin these companies once privatized?  As it is, the markets were more aware of the cost of these, so any proceeds to the state would be reduced accordingly.  Therefore, this may have been the smart thing to do and the accounting treatment of the payments were not the crucial driver.  

But I am sure there have been all sorts of other clever tricks going on with French economic data for years, given de Gaulle's obsession with getting French GDP above the UK.

bokapita's picture

Complete tosh. These companies would have been unsellable unless  the French Government took off the pension liabilty. Everyone knew it too.

Reggie Middleton's picture

You seem to have a benevolent bent to you. Don't you find the timing of the French Telecomm swap/transfer a bit suspicious in that it dropped France's debt ratio just in time to quality for Eurozone status?

I know its just dumb coincidence, after all...

A Man without Qualities's picture

It is hard for me to answer that.  One the one hand, it is a large transaction, that does not appear to have been done on an arms length basis - the deals were too generous for FT and La Poste.  I do not know enough about French budget statistics to see how this compares, and frankly, I never take official French economic data too seriously, as I see little evidence of the implied efficiencies.  I agree that every nation undertook certain slights of hand to reduce deficits.  

However, I do believe that the net consequence of this action was beneficial and this was therefore the right thing to do.  In the UK, privatizations were done with scant regards to the pension obligations of the firms and as a result, left the businesses with an enormous burden.  By the late 90s, the markets were more focused on these issues, so the proposed future privatizations (partially done by FT, not yet in the case of La Poste) would have reduced the value of the sale to the state if the pension problem were unresolved. 

So, in conclusion, the answer is that the French were going to do something to reduce the debt ratio, so this was a far more sensible option that a shady swap deal - this does make economic sense.

bokapita's picture

"In the UK, privatizations were done with scant regards to the pension obligations of the firms and as a result, left the businesses with an enormous burden.'

 

This too is not true. The pension funds of the privatised UK utilities etc. were very well funded at the time of their floatation. It was subsequent contribution holidays by the privatised companies, VERY foolishly allowed by UK GAAP, that stoked the current deficits as well as recent stock market drops, and chnages in rules on pension fund taxation.

MarketTruth's picture

Burning down the house...

It's the end of the Euro as we know it, and i feel fine...

...and the meek shall inherit the Earth.

Dirtt's picture

Let's continue with lyrics found so prevalent in Rush songs.

Bastille Day...."La Guillotine shall claim her bloody prize!"

Problem Is's picture

Rush:

Is this what Leo and the Canadian bands do in their spare time?

Our first stop is in Bogota
To check Colombian fields
The natives smile and pass along
A sample of their yield

Wreathed in smoke in Lebanon
We burn the midnight oil
The fragrance of Afghanistan
Rewards a long day's toil

Almost sounds like the CIA's itinerary...

Then of course there is "Something For Nothing" off of the same album...

ShankyS's picture

Best comment thread yet on ZH +1000

It will all be settled eventually "by hatchet, axe and saw"

 

 

jeff montanye's picture

as we continue by force of arms to enforce the harrison narcotics act in afghanistan while importing alcohol (prohibited by their prophet) into same.  sheer genius.

Jim in MN's picture

 

OK, so who holds all of this sovereign debt?  What if it's just Western countries (through central banks and/or state pension and insurance funds) buying each others' debt?  "I'll keep putting the pap in your feeding tube if you keep putting pap in mine"...Or is it the world's creditor bloc, Japan/China/OPEC?

Let's play this out.  Who has to take the hit, either in artificially low rates for holding the risk or the default haircut?  Cut to the chase, the suspense is killing me!

Oh, uh-oh, you mean it's MY life insurance company?  You mean MY health insurance provider will start puking blood when the premium cash (the sweet, sweet premiums of the healthy) gets immolated in a sovereign default bonfire? 

Botheration.