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Is Titlos PLC (Special Purpose Vehicle) The Downgrade Catalyst Trigger Which Will Destroy Greece?

Tyler Durden's picture


By Tyler Durden and Marla Singer

The media world is aflutter with recent revelations that Goldman may have facilitated Greece in creating an SPV that "rebalanced" budget payments via an interest rate swap arrangement, which the NYT describes as "a currency trade rather than a loan, [which] helped Athens meet Europe’s deficit rules while continuing to spend beyond its means." For those curious to get a much more detailed perspective on the mechanics of not just this, but a comparable Goldman-facilitated transaction, we suggest the following article in Risk Magazine, which focuses on a similar prior deal completed over six years ago. Yet we are fairly confident that all this barrage of information is merely a Houdini distraction act: the prospectus of the February 2009 securitization deal clearly delineates the mechanics of the deal; it was full public knowledge. Of course, a Europe gripped by sudden chaos due to their aggressive and quick "bail out" response with no regard for public backlash, is now taking full advantage of this recent "discovery" to make it seem that Greece and Goldman were hiding even more information: Bloomberg reports that "Greece was ordered by European Union regulators to disclose details of
currency swaps it may have used to deal with the debts that threaten to
swamp its economy." Germany's CDU has gone one step further and claims that the "Goldman deal broke the spirit of Euro rules." Alas, this is nothing but more scapegoating while Europe tries to find its bearings and, if possible, back out of the bail out while finding more pretexts to throw Greece out of the euro zone entirely. If it takes a Goldman smear campaign, so be it.

However, where the rub truly lies, and where things for Greece may get very hairy fairly quick, is in the interplay between the rating agencies and the rating of the Goldman underwritten swap agreement securitization SPV known better as Titlos PLC. As one recalls, it was precisely the rating agencies that were the proximal catalyst that started the collateral call cascade that ultimately resulted in AIG's failure and subsequent bailout (ignoring for a moment the pent up toxicity on AIG's books: both AIG then, and Greece now, are in deplorable shape: the question is what will bring it all to the surface). So here are some recent facts: On December 23, 2009, Moody's downgraded Titlos, following the prior day's downgrade of Greece itself from A1 to A2 with a negative outlook. Fact: last week Moody's said it could further downgrade Greece to Baa1. Fact: the Titlos PLC rating mirrors that of Greece itself. Fact: according to Moody's "Framework for De-Linking Hedge Counterparty Risks from Global Structured Finance Cashflow Transactions Moody's Methodology" a counterparty can enter into a hedge transaction with an SPV and continue to participate in that transaction without collateralizing its obligations so long as it maintains a long-term senior unsecured rating of at least A2. When (not if) Titlos is downgraded again, and its rating drops below the A2 collateralization threshold, look for AIG's margin call driven liquidity crisis escalation from the fall of 2008 to spread to Greece. And that's not all. The Titlos SPV itself may be null and void should the rating of the National Bank of Greece, as the Hedge Provider, drop below a "relevant rating" as defined in the hedge agreement. Should Greece then be forced, at Titlos' option, to unwind the swap agreement, and be forced to cash out to the tune of €5.4 billion (net of the 107.54 issuance price), look for all hell to break loose.

Some background

On February 26, 2009, with Goldman Sachs as arranger, Titlos PLC, a Special Purpose Vehicle, issued €5.1 billion of notes at 107.54 (rated A1 by Moody's, no S&P rating) to finance its purchase of swap rights from the National Bank of Greece (NBG) as part of a securitization transaction, whereby Titlos paid the NBG over €5 billion in "novation consideration", while at the same time effectuating a fixed/floating rate payment arrangement with the Hellenic Republic. It is this last bit that has the panties of a collective Europe in a bunch, as the actual payments are not indicative of the "true" budgetary situation in Greece. Keep in mind that the actual interest rate swap was closed, very much publicly, on December 31, 2008 (from the prospectus: On 31 December 2008, the Hellenic Republic and NBG entered into an interest rate swap transaction governed by an International Swaps and Derivatives Association, Inc. ("ISDA") (Multicurrency – Cross Border) 1992 Master Agreement dated as of 25 July 2005.) There is nothing hidden here. The danger is elsewhere.

A graphic representation of the securitization arrangement from the prospectus is provided below.

It is oddly curious that the Titlos transaction prospectus, which until recently could be hyperlinked from the Greek National Bank's website at the following location, has been mysteriously pulled. Note that not only the prospectuses but also the investor reports for the other (much more minor) GNB securitization deals Eterika PLC and Revolver 2008-1 PLC are fully accessible and available on the GNB site (and certainly worth the read). Zero Hedge has retained a copy of the Goldman Sachs arranged Titlos deal prospectus, which is presented in full below (we can provide pdf's upon request):


Those of you on a tight time schedule are in luck, for here is the summary version of the transaction courtesy of the only rating agency to have rated the deal (A1 at issuance): Moody's.

In December 2008, National Bank of Greece S.A. (“NBG”) (Aa3, Prime-1) entered into an interest rate swap transaction with the Hellenic Republic (the “Hellenic Swap”). On the closing date, NBG novated the Hellenic Swap to the  Issuer (subject to certain amendments to its terms) pursuant to a Novation Agreement. The initial purchase price paid by the issuer under the Novation Agreement was equal to the issuance proceeds of the Notes. At the same time, the Issuer entered into a Hedge Agreement with NBG comprising two swap transactions (Swap 1 and Swap 2), to exchange its cashflows from the Hellenic Swap for cashflows matching the interest and principal payments under the Notes plus a margin to cover the Issuer’s on-going expenses.

And some additional summary deal details from Moody's:

Issuer established in the UK

The Issuer is established as a bankruptcy remote vehicle incorporated in the UK.

Novation Agreement

The rights and obligations of NBG under the Hellenic Swap were transferred by NBG to the Issuer by way of novation pursuant to a Novation Agreement between NBG, the Hellenic Republic and the Issuer. The Issuer used the proceeds of the Notes to pay NBG the initial consideration for the novation. The Issuer will also pay deferred consideration to NBG to the extent of excess funds on each interest payment date after all items ranking senior in the relevant priority of payments are paid in full.

Greek legal counsel has opined that the Novation Agreement is valid and enforceable and that, on the basis that NBG was solvent as at the time of the novation, the Issuer’s rights under the Hellenic Swap could not be “claw-backed” following the insolvency of NBG. Further, they have opined that the novation will not be re-characterised as a secured loan, despite the fact that NBG retains a right of re-novation (see below).

Under the Novation Agreement, the Hellenic Republic has waived any right to set-off existing claims owing to it by NBG against its payments to the Issuer under the Hellenic Swap. Further, the events of default and termination events in the Hellenic Swap with respect to the Issuer have been modified in accordance with Moody’s Hedge Framework.

Here is the actual detail of the underlying swap: dear CDU and Angela Merkel -  we are fairly confident that you can afford Moody's as of circa February 2009, to not sound quite so indignant:

Hellenic Swap

The Hellenic Swap between the Issuer and the Hellenic Republic has a fixed notional amount of Euro 5.5bn and is scheduled to terminate on 20 September 2037. TheIssuer pays 4.50% annually and the Hellenic Republic pays 6 Month Euribor + 6.6025% semi annually. The Hellenic Republic (but not the Issuer) is required to gross-up for any tax in relation to its swap payments.In order to make scheduled payments to Noteholders, the Issuer relies on, among other things, the receipt of amounts payable to it under the Hellenic Swap. Payments under the Hellenic Swap are due to be paid on the same date as the corresponding payments under the Notes, giving rise to a potential operational risk.

Hedge Agreement for Swap 1 and Swap 2

The Issuer has entered into a Hedge Agreement comprising two swap transactions with NBG as Hedge Provider.
Swap 1 has a fixed notional amount of Euro 5.5bn and is scheduled to terminate on 20 September 2037. Under Swap 1, the Issuer exchanges a flow of floating rate receipts into a stream of fixed rate payments. By virtue of payments under the Hellenic Swap and Swap 1, the Issuer retains a net fixed amount semi-annually. The Issuer uses such net amount to (i) make fixed payments under Swap 2, (ii) make scheduled principal payments under the Notes and (iii) replenish the expenses reserve fund.

Swap 2 has a notional amount that tracks the amortising principal amount of the Notes and is scheduled to terminate on 20 September 2037. Under Swap 2, the issuer makes fixed payments in exchange for floating amounts that equal the interest due under the Notes.

The Hedge Agreement complies with Moody’s hedge de-linkage criteria for cash flow transactions1. Therefore Moody’s has not modelled the impact of NBG’s credit risk (as Hedge Provider) on the expected loss posed to investors.

The full Moody's New Issue Report can be found here.

Digging Deeper

So much for the smoke and mirrors. Everything that Europe is now complaining about has been public for about one year. Granted, it is extremely disingenuous of the entire European financial cavalry to bring attention to it now that they are looking for a scapegoat in backing out of the Greek rescue.

But that's the headlines for popular consumption. Reading between the lines reveals something quite nastier.

On Christmas Eve eve, with very little fanfare, Moody's quietly downgraded not just Greece From A1 to A2, but Titlos from A1 to A2 as well.

Paris, December 23, 2009 -- Moody's Investors Service has today downgraded to A2 from A1 the rating
of the notes issued by Titlos plc. This rating action follows Moody's
downgrade of the foreign and local currency ratings of the government
of Greece to A2 from A1 on 22 December 2009.
Moody's rating for
the Titlos plc transaction is linked to the rating of the the Greek government
on a one-to-one basis.


Issuer: Titlos plc


Downgraded to A2 from A1;
previously Placed Under Review for Possible Downgrade on Nov 9,

This transaction, which closed in February 2009, represents
the securitisation of a swap agreement (the Hellenic Swap) originally
entered into between the National Bank of Greece, S.A.
(NBG) and the Greek government. The issuer relies on payments by
the Greek government under the Hellenic Swap in order to pay amounts falling
due under the notes.

The issuer is also a party to two swaps (the NBG Swaps) entered into with
NBG for the purpose or matching payments under the Hellenic Swap to payments
of interest and amortising principal required under the notes.
On 22 December 2009, NBG's deposit and debt ratings were downgraded
to A1 from Aa3. However, the NBG Swaps fully comply with
Moody's criteria for de-linking hedge counterparty risks from structured
finance transactions and, therefore, the rating action in
respect of NBG has not influenced the rating action on the notes.

The principal methodology used in rating and monitoring the transaction
is "Framework for De-Linking Hedge Counterparty Risks from Global
Structured Finance Cashflow Transactions" May 10, 2007, which
is available on in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website. Further information on Moody's analysis of
this transaction is available on

So we decided to dig into Moody's "sub-directories" to pull this fabled "Framework for De-Linking Hedge Counterparty Risks from Global
Structured Finance Cashflow Transactions" which is the golden grail on how Moody's evaluates all structured finance transaction. The full 46 page report can be found here for those who have gobs of time to sift through the definitions and trigger clauses. Luckily, law firm Orrick (anchor tenant of 666 Fifth Avenue which will soon be making some pretty serious waves in CMBS land when the property defaults, but that is a story for another day) has provided a cliff notes version of the Moody's report. What immediately drew our attention is the definition that Moody's gives for threshold eligibility for counterparty rating "without the need to collateralize the underlying obligations":

The Moody’s Criteria permits a hedge counterparty to enter into a hedge transaction with an SPV and continue to participate in that transaction without collateralizing its obligations so long as it maintains a long-term senior unsecured rating of at least A2 and a short-term rating of P-1 (or, if such hedge counterparty has only a long-term rating, at least A1) (the “Moody’s First Trigger Required Ratings”).

Unfortunately for Greece, one more downgrade of either Greece itself, or, much more relevantly, of Titlos, and here comes the collaterialization brigade, demanding excess collateralization margin sweeps. For a country caught in a liquidity crunch, this is not a welcome development. Images of a defunct AIG promptly come to mind.

Digging even deeper

In addition to the nightmare scenario of having to start posting collateral on Titlos, the even nightmarier scenario is that Titlos itself may well have the right to unwind the transaction if certain trigger thresholds are met. Continuing from Orrick:

Within 30 business days of a downgrade of a Moody’s rating to the Moody’s First Trigger, the hedge counterparty is required to either (i) post the “Moody’s First Trigger Collateral Amount” (described below), (ii) obtain a guaranty from a guarantor rated not lower than the Moody’s First Trigger Required Ratings, or (iii) transfer the hedge transaction at issue to a replacement hedge counterparty rated not lower than the Moody’s First Trigger Required Ratings (or to a replacement hedge counterparty that does not satisfy the Moody’s First Trigger Required Ratings but is rated at least P-2 and A3 (or at least A3 if it has no long-term rating), provided that any such replacement hedge counterparty immediately posts collateral in an amount equal to the Moody’s First Trigger Collateral Amount).

Within 30 business days of a downgrade of a Moody’s rating to the Moody’s Second Trigger, the hedge counterparty is required to post the “Moody’s Second Trigger Collateral Amount” (described below).31 Also, within 30 business days of a downgrade to the Moody’s Second Trigger, the hedge counterparty is required to use commercially reasonable efforts to either (i) obtain a guaranty from a guarantor rated above the Moody’s Second Trigger, or (ii) transfer the hedge transaction at issue to a replacement hedge counterparty rated above the Moody’s Second Trigger. If the hedge counterparty fails to obtain such a guaranty or effect such a transfer within the thirty business day period, the Moody’s Criteria requires that it continue to use commercially reasonable efforts to either obtain an eligible guaranty or identify an eligible replacement hedge counterparty for so long as it remains rated below the Moody’s Second Trigger.

And the piece de resistance:

The Moody’s Criteria requires that the SPV have the right to terminate the hedge transaction under either of the following circumstances: (i) the hedge counterparty is downgraded to the Moody’s First Trigger and fails to take appropriate remedial action within the applicable grace period, or (ii) the hedge counterparty is downgraded to the Moody’s Second Trigger and either (A) the hedge counterparty does not within the applicable grace period post the Moody’s Second Trigger Collateral Amount and/or does not use commercially reasonable efforts to obtain an eligible guaranty or to locate an eligible replacement hedge counterparty, or (B) the applicable grace period has expired, the downgraded hedge counterparty has not obtained an eligible guaranty or transferred the hedge transaction to an eligible institution and at least one eligible institution has submitted a “live bid” to replace the downgraded hedge counterparty. If, in the last of these situations, the SPV cannot terminate the hedge transaction because no live bid from an eligible institution is available, it will become entitled to declare an early termination and replace the downgraded hedge counterparty at such time (if any) as a live bid is provided and the downgraded hedge counterparty will remain obligated until that time to post the Moody’s Second Trigger Collateral Amount.

Our read of this data, and granted we are as far from conflicted Greek legal counsel or Moody's as possible, is that should the barrage of downgrades persist in the adverse scenario where European leaders continue posturing and making it seem that all the bailout talk from last week was merely semantics, that Titlos will have the option to unilaterally unwind the swap following a green light from Moody's. Ironically, it is precisely Moody's which is doing all it can to prevent an additional notching of either Greece and, by implication, Titlos, and certainly of the Greek National Bank, as it is well aware of the margin scramble that would result, culminating with a feedback loop that could kill the actual securitization agreement, and force massive, formerly Greece-beneficial cash payments to be repaid.

And while there could be some "soft" interpretation of the rating threshold of the SPV, where there is complete lack of doubt is the rating threshold of Hedge Provider itself: the National bank of Greece (at least initially).  To wit from the prospectus:

Hedge Provider

NBG will be the initial Hedge Provider under the terms of the Hedge Agreement.

Specific early termination "Put" clauses:

Hedge Transactions under the Hedge Agreement may be subject to early termination by the Issuer in certain circumstances, including but not limited to:

(i) the Hedge Provider being in default by reason of failure by such Hedge Provider to make payments;

(ii) the Hedge Provider being otherwise in breach of the relevant Hedge Agreement or having made certain misrepresentations;

(iii) the rating of a Hedge Provider being downgraded below the relevant rating(s) specified in the relevant Hedge Agreement and the requisite remedial steps not being taken by the Hedge Provider as described in more detail in —Rating Downgrade or Withdrawal of the Hedge Provider" below;

(iv) certain insolvency-related or corporate reorganisation events affecting the Hedge Provider;

(v) any action being taken by a taxing authority or there being a change of relevant law or a merger of the Hedge Provider which results or will result in the Issuer receiving a payment from which an amount is required to be deducted or withheld for or on account of tax; or

(vi) a change in law resulting in the illegality of the obligations to be performed by it under the Hedge Transaction.

And more troubling:

Rating Downgrade or Withdrawal of the Hedge Provider [i.e., Greek National Bank]

In the event that the rating of the Hedge Provider is downgraded below the relevant rating(s) specified in the relevant Hedge Agreement, then the Issuer has the right, subject to certain conditions, to terminate the Hedge Agreement unless the Hedge Provider, within the time period specified in the Hedge Agreement and at its own cost, takes certain remedial steps which may include:

(i) providing collateral for its obligations in accordance with the terms of the Hedge Agreement; or

(ii) obtaining a guarantee of, or a co-obligor for its obligations under the Hedge Transactions from a third party whose ratings are equal to or higher than the ratings specified in the Hedge Agreement, where the terms of the Hedge Agreement so provide; or

(iii) novating all of its rights and obligations under the Hedge Transactions to a third party provided that such third party's ratings are equal to or higher than the ratings specified in the Hedge Agreement; or

(iv) obtaining a confirmation from Moody's that the then current rating applicable to the Notes will not be downgraded, suspended or withdrawn as a result of the downgrading of the Hedge Provider's debt obligations.

Lastly, from the prospectus' Risk Factors section:

Credit Risk on the Hellenic Republic

The ability of the Issuer to make payments in respect of interest, principal and any other amounts due under the Notes depends ultimately upon the due performance by the Hellenic Republic of its obligations under the Hellenic Receivable. Any failure on the part of the Hellenic Republic to pay amounts under the Hellenic Receivable as and when such payments become due could result in a default by the Issuer in payment of interest, principal or other amounts under the Notes.

In the event that the rating of the Hellenic Republic is downgraded by any rating agency, there is no requirement for the Hellenic Republic to post collateral or obtain a guarantee or co-obligor in respect of its obligations in respect of the Hellenic Receivable or to novate its rights and obligations under the Hellenic Receivable to a third party. As a result, any downgrading of the Hellenic Republic may also result in a downgrading of the rating of the Notes notwithstanding that there may not have been any default by the Hellenic Republic under the terms of the Hellenic Receivable.

As well as this:

The Rating Agency may downgrade, suspend or withdraw its rating with respect to the Hedge Provider. The Issuer expects under the terms of the Hedge Agreement that in such circumstances the Hedge Provider will be obliged to use reasonable efforts to novate the Hedge Transactions to a replacement Hedge Provider or post collateral to the Issuer or enter into other suitable arrangements. However, there can be no assurance that the Hedge Provider will be able to find a replacement counterparty to enable it to novate the Hedge Transactions or that the Hedge Provider will be able to post collateral to the Issuer and/or enter into other suitable arrangements in this event or that the ratings of the Notes will not be downgraded, suspended or withdrawn in this event. If any rating assigned to the Notes is downgraded, suspended or  withdrawn, then the market value of the Notes may be reduced.

Indeed, all the inherent risks are there, laid out by Goldman's legal crack team, black on white.

Where does the National Bank of Greece stand in the downgrade cascade? On December 23, Moody's downgraded the NBG from Aaa3 to A1. As pointed out previously, the threshold eligibility criteria is A2. Should Moody's downgrade Greece to the first Trigger Rating of A3 or lower, let alone its threat to cut Greece to a whopping Baa1, and all Special Purpose Vehicle bets are off.

Financial analysts are all too aware of the liquidity bottleneck which Greece faces in April and May when roughly €8 billion in near-term bond maturities are due.

As it stands, absent a European "bail out", in the form of guarantees or German banks directly purchasing Greek bonds, this maturity would be unfundable, precipitating the Greek default. Should Titlos add another forced "put" option of over €5.4 billion, and it is surely game over for Greec, starting the on, and, as this story has shown, much more importantly off, balance sheet contagion.

In conclusion, the real story from this weekend is not that Goldman arranged the Greek swap: this information has been public for almost a year, and making waves out of it merely demonstrates European hypocrisy in doing (or at least saying) one thing last week, and now promptly seeking to undo it (and as to whether or not the Greek National Bank pulled the prospectus on purpose or this was merely a clerical error is not up to us to decide). What is the real story, however, is that far from mere observable, on-balance sheet funding needs, Greek has suddenly found itself at the mercy of a Moody's, whose just one additional notch down, would increase the funding needs by almost 40% in addition to near term maturity requirements. Score yet one more for the off-balance sheet securitization puzzle, so prevalent in our day and age, courtesy of Wall Street's "innovation" masters - Goldman Sachs.

Later today: Just Who is Titlos Anyhow?


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Mon, 02/15/2010 - 15:42 | 231669 Going Down
Going Down's picture


Better Late Than Never


EU leaders: only 8 years behind the curve on currency swaps

Mon, 02/15/2010 - 16:12 | 231720 merehuman
merehuman's picture

So Moodys works for GS? Haha. Seems that way.Euro down, dollar up, yea we are keeping the show going. Another act to follow. Surely, if all the worlds is a stage we , the people are the shrubbery!

Mon, 02/15/2010 - 17:22 | 231826 Careless Whisper
Careless Whisper's picture

Why does it seem like whenever there's financial deception, there's a GoldmanSachs vampire lurking in the bushes?

Tue, 02/16/2010 - 03:26 | 232254 Anonymous
Anonymous's picture

Word going around last week the squid betting greece default, surprise surprise! really AIG all over again!

Wed, 07/20/2011 - 05:38 | 1473074 shanelee
shanelee's picture

The Titlos SPV itself may be null and void should the rating of the National Bank of Greece, as the Hedge Provider, drop below a "relevant rating" as defined in the hedge agreement.

araç takip sistemleri

Mon, 02/15/2010 - 16:58 | 231792 Anonymous
Anonymous's picture

Sun Tzu would be proud. Encourage debt on easy terms while a global bubble makes ignorant and short-sighted politicians easily gulled. Then use collusive internationalist financial assassins to make binding contracts with necessary put and trigger clauses actuated by the other "seemingly independent" rating agency. In span of time make similar arrangements throughout all the states or global municipalities and THEN pull global liquidity via the Reserve currency, reserve bank. In the bust add increasing pressure to hobbled economies forcing ignorant leaders again in desperation to pay greater and greater fees for less and less time to stave off default. Make sure that the LARGEST unionized global sector aka Europe has monetary union but NO ACCESS TO A PRINTING PRESS.

Selectively begin precipitating default while holding CDS insurance contracts to further collect on the assassination. Currency in a NO PRINT sector can be manipulated by the printer to unsustainable strenght KILLING exports, crashing productive sector, forcing capitulation.

Viola! Global economic warfare where one destoys the productive and warmaking apparati of the enemy while simulataneously stripping the nations of capital, cash flow, competetiveness while enriching the oligarchic banking interests of syndicate sponsoring nation.

Mon, 02/15/2010 - 19:32 | 231953 Careless Whisper
Careless Whisper's picture

so what you're saying is it's goldman's version of a controlled demolition.



Mon, 02/15/2010 - 20:43 | 232031 Anonymous
Anonymous's picture

Gs and others on the street got demoed by
a firm in Tx which is where they probably got the
idea. A company had 79 million bond coming due. Clearly
the co. could not pay and the covenants said default
and the co. is history. This Tx boutique wrote
500 million on the 79mm bonds in CDS to big firms that the company would default on the bond. They booked the
premium paid by the "street" on the CDS and turned
around and lent the company the 79mm to make the
bond coming due- no default. Result GS is suing the
little Tx boutique. I guess they are sore losers..

Mon, 02/15/2010 - 23:01 | 232169 Careless Whisper
Careless Whisper's picture

You mean they're suing for NOT defaulting? Hehe. Do you have any links to court filings?


Tue, 02/16/2010 - 09:41 | 232309 Anonymous
Anonymous's picture

I believe this was in the Wall St Journal. I believe
the firm was Amhurst Securities. Bottom line
GS business profile; if they lose on a trade
they sue. If they win they walk away counting their
shekels all the way back to Broad Street from
Maiden Lane. Making a pit stop along the way to
their local deli for corned beef sandwiches on rye, side
of sour pickles and cream soda. Then scurrying
back to hunt for their next victim in the name
of modern finance.

Tue, 02/16/2010 - 14:23 | 232660 Anonymous
Anonymous's picture

And I might add true to form they found one-Greece.
It didn't take long as they set this one up in 2008.
Just waiting for the ticking time bomb to go
boom and it did....

Mon, 02/15/2010 - 23:33 | 232191 Molon Labe
Molon Labe's picture

Heartwarming story if true.  I guess GS doesn't like losing at its own game.

Tue, 02/16/2010 - 01:40 | 232219 mberry8870
mberry8870's picture

It is true. It is kinda like knowing the they guy is selling you a lemon, betting that you can't pay and you figure out a way for the lender to have to bail you out. They are just pissed  because they got beat by a few good old boys from Texas.

Tue, 02/16/2010 - 09:45 | 232311 Anonymous
Anonymous's picture

100% true and point of the WSJ article. Doesn't it just warm the cockels of your heart?

Mon, 02/15/2010 - 15:46 | 231675 crosey
crosey's picture

Extraordinary piece, Tyler and Marla.  Thanks loads.

Mon, 02/15/2010 - 15:48 | 231680 john_connor
john_connor's picture

What a clusterphuck. 

Mon, 02/15/2010 - 15:51 | 231683 credittrader
credittrader's picture

Awesome piece! Once again it seems the fear priced into credit markets is correctly identifying real fundamental (and in this case short-term liquidity vs long-term solvency) problems.


Just as an FYI - with all the chatter about CDS being responsible for all the Greek uncertainty, I thought your readers might like to note that 1) CDS volumes remain minimal relative to govvie bond volumes (even with leverage), 2) Greek bond spreads are WIDER than Greek CDS (all relative to Germany), and 3) today saw bonds once again underperforming CDS.


It seems to us that it is real money deleveraging and reducing duration in European sovereigns that is driving this crisis (just look at the concessions and basis in the recent new issuance over there) as opposed to CDS traders pushing spreads wider ceteris paribus...


So, is CDS simply a barometer of the risk in sovereign debt or is it the evil incarnate market that everyone think it is? You're only allowed to answer if you know anything about the CDS market (sorry them's the rules)!


BTW, is anyone buying Puts on Greek stocks? (you mean-spirited investors you) or buying vol? (how could you?) - remember risk is risk and CDS are not on their own in the circle of trust that is the capital structure of an entity (corporate or sovereign)...[rant over].

Mon, 02/15/2010 - 23:32 | 232189 Anonymous
Anonymous's picture

Pound salt. Possibly Greece will walk away from their
GS derivatives trade much like China did. While CDS
is good for the sport if you will. You don't enter into
a contract with a sovereign nation EU member as an advisor and turn around and make it self fulfilling. BTW are you
buying puts on Greek stocks? Buying vol? Put your
money where your mouth is. Last time I checked
no one wins when they take on a sovereign nation
particularly when they are bigger than you and
in the grand scheme of things they are bigger than
you. Get a life you Soros wanna be and stick to
putting companies out of business. You may have
better luck. Ever think of this? Everyone involved
can simply change the rules and get rid of bond gnats
like you in a heartbeat. And that includes GS. DC has
clearly telegraphed to GS due to their behavior post
financial 9/11 no bailout a second time. GS will be liquidated. They have had it with this deliberately destructive behavior for the benefit of pure greed. And
if it goes against them Good old Uncle Sam will bail
them out. Not this time. And if folks act in unison
collectively they are bigger than anyone out there.
Get a grip.

Mon, 02/15/2010 - 15:51 | 231685 illyia
illyia's picture

Jeez Tyler... you are getting scary good...


Mon, 02/15/2010 - 15:54 | 231687 illyia
illyia's picture

Ooops! Marla - you are very scary too...

Fantastic job.

Mon, 02/15/2010 - 15:55 | 231691 bugs_
bugs_'s picture

Incredible presentation!

So they were just buying time really.  And who
better to sell them time than GS?  Now that
they have used up this time will they finally
face the music or will they try to find another
entity to sell them some more time?

Digging ever deeper "What were the Greek Powers
That Be doing with the time they had purchased
using this Enronesque strategerie?"

Mon, 02/15/2010 - 15:59 | 231694 hedgeless_horseman
hedgeless_horseman's picture

"What is the real story, however, is that far from mere observable, on-balance sheet funding needs, Greek has suddenly found itself at the mercy of a Moody's, whose just one additional notch down, would increase the funding needs by almost 40% in addition to near term maturity requirements. Score yet one more for the off-balance sheet securitization puzzle, so prevalent in our day and age, courtesy of Wall Street's "innovation" masters - Goldman Sachs."

Now, flash forward some years/months to this scenario:

"What is the real story, however, is that far from mere observable, on-balance sheet funding needs, America has suddenly found itself at the mercy of a Moody's, whose just one additional notch down, would increase the funding needs by almost 40% in addition to near term maturity requirements. Score yet one more for the off-balance sheet securitization puzzle, so prevalent in our day and age, courtesy of Princeton's "innovation" master - B.S. Bernanke."

In my understanding, Titlos (as opposed to Assloss?) is not a hedge.  It is merely "kick-the-can and pray" financing.

Mon, 02/15/2010 - 16:00 | 231696 DavosSherman
DavosSherman's picture

Doing God's work. Un-f*cking believable. Try doing Satin's work AH.

Mon, 02/15/2010 - 18:14 | 231892 jomama
jomama's picture

maybe they truly believe this mantra?  just like the US military let the haitian people die from lack of relief and support.  perhaps they are trying to chip away the unsustainable growth in human population on this planet by pulling the rug out from under them?  truly a noble cause.

Mon, 02/15/2010 - 16:02 | 231698 djb1953
djb1953's picture

Who oh who is going to cut the tentacles of this squid who seems to be devouring not just individual or communities but now whole countries.

Sounds like those aliens in Independence day who like locusts devour everything then  move on.

Mon, 02/15/2010 - 16:41 | 231776 merehuman
merehuman's picture

AhH  its the animal spirits!

Everybody wanted change! Hey its coming!

One meal a day, shelter from the cold, hard nite (sleeping bag will do) and a little human contact is all many of us need every day.

All else is luxury. But because we are greedy we become thieves and others are merely marks. I think we all lose when we reach for more and more and lose ourselves. I find myself laughing, happy and make my gal laugh. This predicament we are in is and will be life changing for all of us.

Its time to reconsider our goals and values because as the world changes, so must we.

If the populace with its spoiled nature of having, comes to NOT have they will rebel before learning to aquiesce.

Translated into high crime rates and riots, which leads to martial law.

The public is being fed the lie of recovery whilst the ship sinks further day by day.

9/11 was covered up very well also.

But now more of us realize the towers were indeed blown up, all up and down the building just like hundreds of other buildings that have been demolished over the years.

I found some evidence that finally convinced me , I cried like something had died. What died was my remaining faith and trust in our government. At this point i want it all to fail because its the only way we can take the crooks out. 

We cant rebuild on dishonesty, most of us are better than this. Or are we?

Sorry i rambled, had to get it off my chest.

Mon, 02/15/2010 - 17:09 | 231809 duo
duo's picture

so far in history 3 steel-framed buildings have collapsed due to "fire", and all 3 happened on 9/11.  Move along.

Mon, 02/15/2010 - 17:47 | 231854 merehuman
merehuman's picture

in the world there is a record of other high rises that had fires, yet the steel frames remained.

Mon, 02/15/2010 - 18:30 | 231904 Anonymous
Anonymous's picture don't know the physics and don't have the discipline needed to find out.

Mon, 02/15/2010 - 21:31 | 232088 Quantum Nucleonics
Quantum Nucleonics's picture

Yea, but none of those were started by an exploding 767 flying 600 knots nor were they fueled by 20,000 gallons of aviation fuel.

The fuel air explosion from the impact disrupted the foam insulation.  Had the builder used a different kind of insulation the buildings might have stayed up longer.



Mon, 02/15/2010 - 22:19 | 232132 Anonymous
Anonymous's picture

Had the builder used a different form of insulation...

True that. That pesky new-fangled Thermite insulation is a real pain in the ass when ignited.


Mon, 02/15/2010 - 18:38 | 231909 Marla Singer
Marla Singer's picture

Agree, disagree, take the Truther stuff to another site. Thanks.

Mon, 02/15/2010 - 18:52 | 231926 MsCreant
MsCreant's picture

Ombudswoman has spoken!

Mon, 02/15/2010 - 18:55 | 231928 Marla Singer
Marla Singer's picture

Except I'm not the Ombuds(wo)man.

Mon, 02/15/2010 - 18:59 | 231932 MsCreant
MsCreant's picture

I assumed she would be presenting under the Marla avatar, also. Apologies.

Tue, 02/16/2010 - 00:47 | 232211 Altan311
Altan311's picture

Thats a bullshit flakeout considering the amount of crap that was covered up by the blowing out of SEC enforcement office, probably enough funny paper to write 1000000000 billion in SPV prospectus. weak sauce.

Mon, 02/15/2010 - 20:33 | 232021 WaterWings
WaterWings's picture

Since it is somewhat of a lightining rod for employees of Janet Napolitano I will comply. Pierre? Lou? Andrei? You hear that? No more hijacking the blog with your unoriginal ad hominems.

Wed, 07/27/2011 - 07:21 | 1497097 shanelee
shanelee's picture

Thank you for posting the great content…I was looking for something like this…I found it quiet interesting, hopefully you will keep posting such blogs….Keep sharing

Bulgaria Villas
Mon, 02/15/2010 - 16:03 | 231699 Daedal
Daedal's picture

Well, I guess we can all breathe a sigh of relief since Barack increased our debt ceiling.

Mon, 02/15/2010 - 16:04 | 231704 MarketTruth
MarketTruth's picture

As always, GREAT WORK Tyler and Marla!!!

So... ummm.... can you both find a way to audit the United States company Federal Reserve? It makes one wonder what is on their balance sheet and on/off the books.

Mon, 02/15/2010 - 16:05 | 231705 Hephasteus
Hephasteus's picture

Goldman Sachs. Helping people break rules and then fucking them over for a profit. The helping hands of our modern financial system.

Mon, 02/15/2010 - 16:06 | 231706 Internet Tough Guy
Internet Tough Guy's picture

It's like a greek tragedy. (Someone had to say it).

Mon, 02/15/2010 - 18:07 | 231878 seventree
seventree's picture

The Goldman Fleece?

Mon, 02/15/2010 - 16:07 | 231707 Anonymous
Anonymous's picture

jeez the f'n place is just loaded with trip wires.. sshhh, easy does it.

Mon, 02/15/2010 - 16:07 | 231710 Bill DeBurgh
Bill DeBurgh's picture

"Titlos PLC"? Really? TIT LOSS?

Anyone remember Chewco Investments LP, Kenobe Inc and Obi-1 Holdings LLC. Chewco?

Mon, 02/15/2010 - 16:08 | 231711 Internet Tough Guy
Internet Tough Guy's picture

Greece is going Titlos up.

Mon, 02/15/2010 - 16:23 | 231744 bugs_
bugs_'s picture

Whats the symbol for the 3X Tit Loss ETF?

Mon, 02/15/2010 - 16:11 | 231718 Jesse
Jesse's picture

"Alas, this is nothing but more scapegoating while Europe tries to find its bearings and, if possible, back out of the bail out while finding more pretexts to throw Greece out of the euro zone entirely. If it takes a Goldman smear campaign, so be it."

Goldman smear campaign.  LOL.

That's what they get for just trying to do God's work.

The purpose of the swaps agreement was to hide debt and to subvert the banking rules.  Nothing you said in your apologia negates that.

You seem to feel that because someone might have discovered the deception by reading into this prospectus would be more credible if that had been done BEFORE the fact. 

Standard Wall Street smoke and mirrors really.  We didn't do anything wrong, we just did business as usual.  Its Europe, bunch of crybabies. We're just doing God's work.

It might have been more effective if you had shown exactly where in the prospectus it was obviously that this was a sham transaction designed to perpetrate a fraud.

Very disappointing.



Mon, 02/15/2010 - 16:17 | 231730 dnarby
dnarby's picture

Note the "arranger" on pp 1,2, 54 & 92.

Mon, 02/15/2010 - 16:18 | 231731 Tyler Durden
Tyler Durden's picture

As I am sure you are well aware, the last thing ZH cares about is providing apologia for Goldman. Yet while the mainstream media is indeed isolating Goldman as the culprit here, we are instead focusing on the consequences of their (and Greece's) actions. We will let others judge Goldman for once. What is much more relevant is what happens next, now that this scheme has been exposed.

Mon, 02/15/2010 - 17:20 | 231825 Anonymous
Anonymous's picture

Fall of Man, Flood of Noah, Destruction of S&G, Destruction of Jerusalem temple and Diaspora, Black Death, conquest and depopulation of the New World, World Wars and Holocausts.

Story often retold of a cycle of virtue/iniquity where "civilized" man finally becomes completely debased in corruption and events come to pass which cleanse the earth of him. But not before men turn upon each other, cannibalizing, and causing horrors of hell. Lebanon, Srebrenica, Rwanda. Great waves, Bandeh Aceh-Thailand-Bangladesh. Profound earthquakes. China, Haiti...of late. Terrifying winds. Tribulation and buffeting. Weeping, wailing, gnashing of teeth.

A certain man had a fig tree planted in his vineyard; and he came and sought fruit thereon, and found none. 7 Then said he unto the dresser of his vineyard, Behold, these three years I come seeking fruit on this fig tree, and find none: cut it down; why cumbereth it the ground? 8 And he answering said unto him, Lord, let it alone this year also, till I shall dig about it, and dung it: 9 And if it bear fruit, well: and if not, then after that thou shalt cut it down.

The axe is laid at the root of every tree and that which bring forth not good works shall be hewn down and cast into the fire.

Ripe, riper, rotten...

Mon, 02/15/2010 - 18:15 | 231894 seventree
seventree's picture

Whole global avalanche should hit bottom about 2012 ... thanks for the heads up, Aztecs

Tue, 02/16/2010 - 08:20 | 232285 Anonymous
Anonymous's picture

Ummm, it was the Mayans.

Tue, 02/16/2010 - 12:21 | 232481 seventree
seventree's picture

Oops. Is my face red under that bag.

Mon, 02/15/2010 - 19:11 | 231946 Joe Sixpack
Joe Sixpack's picture

Most bubbles and scams are in the open. Everyone knew someone making $15,000 year who had or was offered a $700,000 mortgage. Everyone knew that Earthlink was not worth however many $hundreds of millions it priced at for a short time. No one wanted to see it while it was going up.

Mon, 02/15/2010 - 19:34 | 231970 Anonymous
Anonymous's picture

Excellent observation Jesse.
(excellent as always.)


Mon, 02/15/2010 - 19:40 | 231975 Anonymous
Anonymous's picture

I think the point is the "ISSURE"

They believe they are YOUR GOD.

They issue, you accept.

If you have a God that does not "Issue" what is the worth of your God?

Tue, 02/16/2010 - 01:46 | 232221 mberry8870
mberry8870's picture

You are just plane wrong. GS did not do anything wrong here. This is a very typical transaction. The issue lies with the government of Greece not using the proceeds as transitional funds while it was supposed to be cutting its budget and not disclosing the nature of the transactions on its books. As Durden properly points out all the information was there. I am sure everyone is shocked that a government would take funds and use them to pacify the masses instead of doing what there suppose to do.

Mon, 02/15/2010 - 16:13 | 231723 Anonymous
Anonymous's picture

Hellenic Hot Air Swaps...

Mon, 02/15/2010 - 16:18 | 231733 AnonymousMonetarist
AnonymousMonetarist's picture




Prepare to be freaked out ...


'This posting does not attempt to prove what the fundamental unit of time is, but rather to offer, in conclusion, a rather startling similarity between theories offered by today's time pundits, namely the venerable John Needham and the incarcerated Martin Armstrong.' 


Mon, 02/15/2010 - 16:19 | 231736 Zippyin Annapolis
Zippyin Annapolis's picture

If you turn the chart sideways in looks like Enron: upside it looks like Maiden Lane I, II and III.

Mon, 02/15/2010 - 16:19 | 231737 Fritz
Fritz's picture

It is poetic that Moody's is the pivot man in this circle jerk.

You can bet that a central bank somewhere will inject enough juice to clear the moody's threshhold and prevent a downgrade.


Mon, 02/15/2010 - 16:24 | 231747 bugs_
bugs_'s picture

And the obligitory "Deep Shah" mention in any Moody's related piece.

Mon, 02/15/2010 - 16:21 | 231740 buzzsaw99
buzzsaw99's picture

This was the theme in '08 as well. As long as Moody's doesn't do xyz everything will work out fine. What a joke the world eCONoME has become.

Mon, 02/15/2010 - 16:47 | 231746 Leo Kolivakis
Leo Kolivakis's picture

Excellent analysis and makes you wonder whether Goldman was telling their hedge fund clients to short the euro/ Greek sovereign debt knowing full well the intricacies of these swaps and what another downgrade implies.

As for the contagion effect, even if the EU kicks Greece out, their troubles are not going to go away magically. They are just going to buy time, delaying the inevitable. How many other European countries entered into these swap agreements? It's a real derivatives hell hole! It's time to fry this giant squid once and for all!

Mon, 02/15/2010 - 16:52 | 231788 Landrew
Landrew's picture

I thought you were supposed to be the ultimate Goldman apologist?

Mon, 02/15/2010 - 18:40 | 231912 jomama
jomama's picture

Cut Leo some slack.  He's an optimist.  I have no idea why, but I assume he's merely hoping for the best.  As much as it will be interesting to watch the world as we know it come crashing down around us, I don't look forward to the day where I am defending my self and my family at gunpoint.

Mon, 02/15/2010 - 16:24 | 231748 Anonymous
Anonymous's picture

Tiler, you cannot deny the fact that Goldman has no ethics or morals. They just go for the money and dont care about what they do. The money changes of the temple?
Why dont you at least condemn this behaviour?

Mon, 02/15/2010 - 16:50 | 231784 merehuman
merehuman's picture

I think its enuf Tyler exposes. We are the ones who need to stand up, be counted condemn away at will. Bring the firing squad!

If you really want to help condemn, then donate to zerohedge. Cause it seems they are the only chance we got. Msnbc is free, and you get what you pay for.

BTW Tyler Durden, i aint got much, but you can stay over and eat at my house anytime. W. coast . And Thank You

Mon, 02/15/2010 - 17:53 | 231790 Leo Kolivakis
Leo Kolivakis's picture


I worked at two of the largest Canadian pension funds and allocated money to the world's top hedgies. Don't you think for a second that the big swinging dicks (BSDs) at Goldman are any different from other investment banking BSDs. In their myopic and reckless pursuit of the almighty dollar, these guys will eventually end up canabilizing each other. Like in every profession, there are good investment bankers and bad ones, just like there are good pension fund managers, and bad ones. Only problem in finance is there is an unusually high prevalence of the Peter principle, where you see lots of pricks rising to the level of their incompetence. I should know, I had to deal with my fair share of arrogant and unscrupulous jerks, some of whom still hold positions of power (for now).



Mon, 02/15/2010 - 18:09 | 231882 Daedal
Daedal's picture

Only problem in finance is there is an unusually high prevalence of the Peter principle, where you see lots of pricks rising to the level of their incompetence.


Mon, 02/15/2010 - 18:24 | 231899 seventree
seventree's picture

Is it really incompetence? Or are they maybe the best at what they do, which is destruction for profit?

From its viewpoint, the Bubonic Plague was remarkably successful. Hard luck humans, but that's business.

Mon, 02/15/2010 - 19:36 | 231971 SteveNYC
SteveNYC's picture

Spectacularly said Leo. Concur 100%.



Mon, 02/15/2010 - 22:19 | 232131 carbonmutant
carbonmutant's picture

Good one Leo.

Mon, 02/15/2010 - 18:30 | 231903 Anonymous
Anonymous's picture

Seems Greece is at least 50% of the problem here. No one had a gun to their head to put them in the position they are in.

Making money connected to someone elses pain / loss / foregone profit -- isn't that what most on this site are attempting to do?

Mon, 02/15/2010 - 16:32 | 231759 RobotTrader
RobotTrader's picture

I suppose we can all expect another selloff in "risk assets" and everyone flees to the U.S. Dollar and gilt-edged Treasuries next week.

No doubt, Goldman will be profiteering from such a bear raid and will be shorting everything as margined speculators are once again cleaned out.



Mon, 02/15/2010 - 19:12 | 231948 Joe Sixpack
Joe Sixpack's picture

Now that everyone has experienced the currency yo-yo, maybe gold will benefit.

Mon, 02/15/2010 - 20:41 | 232028 WaterWings
WaterWings's picture

This is what your average yuppie and joe six-pack look like when you ask them if they understand how the Federal Reserve system operates. If they nod their head then you ask them: why they support fiat currencies that lose value through inflationary measures designed to spur savers to seek higher rates of interest that only slightly overcome the intentional, erosional policies of the Federal Open Market Committee that encourage zero hedgers to seek safety in precious metals such as high-velocity lead and brass.

That's the verbal secret handshake. Or just ask them if they know any of the Tylers - be sure to state it in the plural form.

Tue, 02/16/2010 - 02:33 | 232231 Problem Is
Problem Is's picture

And the Jeopardy Daily Double Answer is:

"These three financial geniuses managed the US economy through the 2009, 2010 phase of the US financial crises."

"From left to right Alex, WHO are Bernanke, Summers and Geithner?"

"Correct for $1000. Well done!"

Mon, 02/15/2010 - 16:33 | 231760 Anonymous
Anonymous's picture

If the SQUID can find a loophole to slither it's slimy tentacles through, it will.

Criminals with Harvard degrees know no bounds.

Financial Terrorism at it's finest!

The only question left--Where are the handcuffs?!

Mon, 02/15/2010 - 17:06 | 231805 Anonymous
Anonymous's picture

Where are the firing squads and necktie committees?

Mon, 02/15/2010 - 17:16 | 231819 lizzy36
lizzy36's picture

Isn't that a tad myopic. 

In this instance it assumes that Greece was innocent, when in reality, the squid merely created the mechanics whereby Greece got to borrow 1b euros without adding to its public debt figure.

It appears that Italy and perhaps the UK have done the same thing. 

Loopholes are created by governments, therefore one can assume that they know how to drive through them.   

I am not a Goldman apologist but they are not the only offender  in this or any other scenario that has played out in the clusterfuck known as the last ten years. 

Mon, 02/15/2010 - 17:45 | 231848 Miles Kendig
Miles Kendig's picture

For sure.

Mon, 02/15/2010 - 19:40 | 231976 SteveNYC
SteveNYC's picture

Yes, it seems they merely acted as "crack dealer" this time around.

However, how do we know they didn't take out an "insurance policy" on their "junkie/customer" after dealing just a little too much crack this time around?

The possibilities are endless.

Mon, 02/15/2010 - 19:48 | 231980 seventree
seventree's picture

Drug pushers would not thrive without addicts to feed on. But they are still scum.

[Dammit Steve, you stepped on my metaphor by 2 minutes]

Mon, 02/15/2010 - 22:31 | 232144 lizzy36
lizzy36's picture

I think this is an erroneous analogy.  Dealer to addict is a much less symmetrical relationship than Goldman/Greece. 

I think the correct analogy is drug lord and dealer, in which case both parties are culpable. Each facilitates the other, for financial gain. 

Goldman supplied the means which allowed Greece to borrow 1b euros without adding to its public debt figure. 

In this scenario, one assumes that the whole point of these swaps was for Greece to hide their true indebtedness, how does that not make them at least as culpable (if not more so) than Goldman.

Tue, 02/16/2010 - 07:09 | 232278 bokapita
bokapita's picture

It appears that Italy and perhaps the UK have done the same thing

In the UK's case they cut out the middleman. Just off balance sheeted loads of new schools, bridges, hospitals, railways, prisons etc by getting private firms to build them and then guaranteeing a stream of payments for the next XX years. Costs a great deal more than the government doing it directly as the funding cost is MUCH higher; BUT the borrowing is off balance sheet so "doesn't count" towards the 'official' borrowing figure.

[For the record, in private businesses annual financial statements, this method of hiding borrowing has been outlawed for some time. Of course if the hiding is done much more cleverly, accountants and GAAP still OK it...]

I actually agree that this is 100% the politicians' fault. Pity they will not be the ones to suffer.

Mon, 02/15/2010 - 17:18 | 231823 MsCreant
MsCreant's picture

Tentacles seem to have an annoying way of slipping out of handcuffs. You gotta get creative to catch a squid. Seems you need lures or you net them.

Mon, 02/15/2010 - 19:40 | 231974 Careless Whisper
Careless Whisper's picture

or maybe just give them enough rope... they're really not as smart as they pretend; just sneaky little weasels that put on a good show.

Mon, 02/15/2010 - 20:43 | 232030 WaterWings
WaterWings's picture

Haven't you read any Jules Verne? There's only one way to be sure: no prisoners. 

Mon, 02/15/2010 - 16:34 | 231763 Anonymous
Anonymous's picture

The ECB and the BIS have a secret weapon. They don't want to have to use it because they don't want to be seen as the instigators of the dollar's collapse. They would prefer the market to take care of it for them. But don't doubt for a second that they won't use it before sitting back and watching permanent damage come to the euro system.

Just imagine how Greece could deal with its problems if its gold were valued at $55,000 usd per ounce. In terms of current exchange rates that would raise Greece's liquid assets to 50% of its public debt. In other words, instead of being a "sub-prime" borrower, Greece would instantly become a PRIME borrower.

Let's say you owe $200,000 on your home which has fallen in value to $200,000. You aren't exactly underwater yet but your loan to value is 100% now, a precarious situation for someone with income and asset problems. Now let's say you also have $100,000 worth of gold. You could still walk away from your home if you chose to, but you are certainly not a foreclosure candidate anymore. And your future needs would be backed by your new asset base. Of course this would also give you a newfound incentive to get your fiscal house in order, lest you have to part with your gold!

COMEX being in the US and the LBMA being in London leaves the ECB and the BIS with "the nuclear option" if things ever get desperate enough to use it. This nuclear option is A) for the BIS to begin operation of a public "physical only" market for gold to be used by the really giant participants, primarily sovereign entities and billionaires, and B) for the ECB to use the price discovered by the BIS in its quarterly reserve asset "marked to market" adjustments.

Such a move would put Greece, and all the PIIGS for that matter, in a much better position almost overnight. Of course it would have devastating effects on the value of the dollar and the rest of the paper gold market. You see, in order for the BIS to supply actual physical gold to each and every giant that was ready to buy, the price would have to rise high enough that someone else with an equally huge amount of gold was willing to become a seller. And right now, at today's prices, we know that the central banks of the world have become net buyers! So the question is, just how high would the price have to rise in order to balance out the demand of the world with the supply, in a physical-only official price discovery market?

Chances are that what would be revealed by such a market would have an eye-opening and breathtaking effect on the rest of the world and demand would skyrocket. What passes today for enough demand to almost break the paper markets would quickly shift all players from paper to physical and add new savers that hadn't even considered gold before. Literally, the entire world would shift its view to gold.

And because this would be a physical-only market in the presence of a credit money contraction it would have no way to bubble in price beyond actual demand. Instead it will finally plateau once the Thoughts of all the giants and savers of the world reach their Nash equilibrium. And the price will be high enough that it becomes a coin toss as to whether you'd rather be in cash or gold. What it will come down to is your own time preference and your appetite for investing back into an economy that must be rebuilt.

The euro architects knew the difference between the monetary functions. They knew that the infinite growth, store of value function was the dollar's Achilles' heel. So they designed the euro to be a stable transactional and accounting currency even if the world chose non-euro physical assets as a store of value. The dollar does not have this design.

This is not to say that the euro will not devalue against gold right along with the dollar. All infinite, symbolic, transactional currencies will, which is to say all currencies will. And to a lesser extent, all currencies will have to devalue against the rest of the finite real world as well. But they will not all hyperinflate to infinity in the aftermath as the dollar will be forced to. Some will. Others will not. The euro probably will not.

This is freegold. It is coming whether or not the euro uses its secret weapon. Like I said, they would prefer not to be seen destroying the paper gold market proactively. They would rather just wait until it destroy itself (which, by the way, it is doing pretty well).

But the unfortunate effect of this transition will be the panic that will ensue within the dollar camp. What has already started through QE, bailouts, stimulus and liquidity operations (base money creators all) will have no option but to accelerate to infinity. When I say no option, I mean that there will be absolutely no political will to do anything else.

So as we can see, we have math, political will and self preservation all coming together in a perfect storm as our entire system of infinite debt accumulation teeters on a knife-edge of instability. What could possibly go wrong?

Well, there's Greece I suppose. It usually only takes one little shock to bring down a house of cards. And this is why I say you cannot be prepared too early. There is no such thing when the stakes are so high. Preparation must happen early and completely. Because once this thing starts to unravel it will be too late to prepare and to even prosper from the foresight of an inevitable event. Once it all starts unraveling you will be completely preoccupied just trying to limit your losses.

Mon, 02/15/2010 - 17:00 | 231798 merehuman
merehuman's picture

Very interesting post. Its a solution that could work

Mon, 02/15/2010 - 17:06 | 231806 Internet Tough Guy
Internet Tough Guy's picture

You stole that from here:

Mon, 02/15/2010 - 17:16 | 231820 A Man without Q...
A Man without Qualities's picture

The Germans have the slight problem that their gold reserves are held in the US...

Mon, 02/15/2010 - 17:25 | 231830 Anonymous
Anonymous's picture

the US has an even bigger problem since they dont have any of their gold

Tue, 02/16/2010 - 10:08 | 232323 Anonymous
Anonymous's picture

They have enough gold to coat some titanium can really stretch your gold when you do that.

Whatever happened to that gold coated gold story? Whatever happened to the story about the guys smuggling billions in US Treasuries from Italy to Switzerland?

Tue, 02/16/2010 - 02:47 | 232247 nuinut
nuinut's picture

Which may be why there have been so many requests for repatriation of gold holdings recently.

Mon, 02/15/2010 - 17:23 | 231829 THE DORK OF CORK
THE DORK OF CORK's picture

A interesting post -  at the recent Russian Conference Faber mentioned that if there was a gold standard TOMORROW then Gold would be 1 million dollars a ounce , very strange as the consensus would be that it would reach 4 to 10 thousand dollars a ounce - was he showboating or trying to tell us something

Mon, 02/15/2010 - 20:16 | 232002 Anonymous
Anonymous's picture

fyi -- the post above is not an advocation of the return of the gold standard.

Tue, 02/16/2010 - 07:44 | 232133 THE DORK OF CORK
THE DORK OF CORK's picture

Parhaps you are right but it is pretty close - but is more like a all out war or race between countries and non state entities with the BIS being the supranational umpire. It seems like the most dramatic reset button for the global debt system imaginable , the geopolitical consequences would be dramatic and unpredictable as tensions would be intense between factions until the system reached a balance

I would prefer to see  the destruction of large sections of the private debt system while preserving sovereign debt which could keep relations between states on a more stable footing.

I get a horseman of the apocalypse feeling from the idea that all dollar holdings vanishing into a hyperinflationary wormhole.

Tue, 02/16/2010 - 02:46 | 232245 nuinut
nuinut's picture



Mon, 02/15/2010 - 16:35 | 231767 Anonymous
Anonymous's picture

Tyler Durden for PRESIDENT-


Mon, 02/15/2010 - 20:45 | 232032 WaterWings
WaterWings's picture

And all of his cabinet, too. I'd be thrilled to have an executive branch run by Project Mayhem.

Mon, 02/15/2010 - 21:03 | 232049 MsCreant
MsCreant's picture

It may already be, just not Tyler's kind of Mayhem.

Tue, 02/16/2010 - 12:24 | 232486 WaterWings
WaterWings's picture

Ordo Ab Chao

Mon, 02/15/2010 - 16:47 | 231781 Anonymous
Anonymous's picture

Liquidation has as many techniques as a dentist has instruments on a tray. Just look at this as one. There's also:

1. monetization
2. supply chain collapse
3. cartelization
4. currency race to the bottom....

How many ways can the powerful get government out of the society (by which is NOT meant that government becomes either smaller or less intrusive--you, reader, simply starve, that's all that happens)?

Tyler for President or Dumbo for President. It doesn't matter as long as Andrew Mellon is still Secretary of the Treasury, which he is.

Mon, 02/15/2010 - 16:51 | 231785 Anonymous
Anonymous's picture

I don't think we are going to pass much over this week-end as do you think that Greece was the only one doing this??

I remember Italy and France doing the same kind of things.

FED is currently doing the same thing...

I don't even imaging where Japan stands on all this

Not to talk about the UK...

The odds that a new world order take place next Monday are more than 50% now...

This is like grounding the entire world...

Mon, 02/15/2010 - 16:54 | 231789 jbc77
jbc77's picture

Honestly, don't know what I would do without the ZeroHedge website. They are re-defining financial journalism.

Mon, 02/15/2010 - 17:25 | 231824 truont
truont's picture

CNBC could never report on something like this, not even with all their millions in ad bucks and their thousands of staffers, and their endless rotation of guest bobble-head pundits.  It is mind-boggling that some 10 anonymous staffers at ZH can, based on banner ad bucks. 

Gawdam incredible.

Mon, 02/15/2010 - 17:48 | 231855 Miles Kendig
Miles Kendig's picture

Please do not forget that there is a small donation space for those who wish to support ZH beyond visiting the sponsors.

Mon, 02/15/2010 - 22:52 | 232161 carbonmutant
carbonmutant's picture

Good Point, Miles.

It don't hurt to slip the boys in the backroom a $20 now and then...

Tue, 02/16/2010 - 05:11 | 232267 Miles Kendig
Miles Kendig's picture

Or to do the same for the folks out front who always smooth manage their flow to the back office...

Tue, 02/16/2010 - 05:22 | 232269 jeff montanye
jeff montanye's picture

more t-shirts.

Mon, 02/15/2010 - 18:10 | 231883 Anonymous
Anonymous's picture

Couldn't said it better myself

Mon, 02/15/2010 - 17:00 | 231799 Anonymous
Anonymous's picture

Downgrade Greece to BAH BAH black sheep (we ran out of swan)

Greece and Dubai are like support structures in the WTC giving way. There where 42 in each building.

Only 40 more to go!

What exactly are the towers 1 and 2 metaphors of you ask?

Why The United Kingdom and The United States of course!

A procession of defaults will lead to the UK default (a devastating thing to be sure) but horror of horrors
a short while later comes down the entire United States of America?



Mon, 02/15/2010 - 17:09 | 231810 Mr. Anonymous
Mr. Anonymous's picture

All Hail the ZEROHEDGE!

Mon, 02/15/2010 - 17:36 | 231841 THE DORK OF CORK
THE DORK OF CORK's picture

Tyler must be self propagating at a exponential rate.

Mon, 02/15/2010 - 22:53 | 232162 carbonmutant
carbonmutant's picture

 There may be some cloning involved...

Mon, 02/15/2010 - 17:09 | 231811 Anonymous
Anonymous's picture

Word is Lloyd has dibs on the Parthenon. He's going to use it to open Greece's first GS retail location.

Mon, 02/15/2010 - 17:13 | 231817 Anonymous
Anonymous's picture

On innumerable occasions I have written here that the New York banks were deliberately destabilizing europe. The examples provided were the Swiss banks and then the issue of central european banking. And now we finally have overt, clear evidence that the New York banks are actively involved with the Greek facilities which have destabilized the EU. But this jives with history. The New York bank financed stalin bloody dictatorship. So, nothing new. Just read your history and evrything will be consistent.

Mon, 02/15/2010 - 17:34 | 231839 Anonymous
Anonymous's picture

So, let me see if my world-view today is accurate:

The view is that the problem-children will be kicked out of the club.

In the very short run - and that is what politics is about, really - this will be euro-positive, but very, very bad for the aforementioned problem-children.

However, by suddenly exposing these swaps, the EU is trying to lay the legal groundwork for the problem-children to sue the squid?

Mon, 02/15/2010 - 17:38 | 231843 Anonymous
Anonymous's picture

If I remember correctly, doesnt a downgrade by Moody of Greek debt also makes the debt ineligible for collateral at the ECB?

Mon, 02/15/2010 - 17:56 | 231862 Anonymous
Anonymous's picture

This is nothing less than real God's Work.

Mon, 02/15/2010 - 21:27 | 232081 Anonymous
Anonymous's picture

If your god seeks degredation, bondage, black theft.

Greece are caught in a cunning snare, but were naive willing passengers in red-coated GSes carriage.

Where does it take them? And Europe by corollary?

Mon, 02/15/2010 - 18:07 | 231879 dan22
dan22's picture
So what do we have? It is politically impossible for the strong economies of Europe to pass a bailout, it is politically impossible for Greece policy makers to pass sufficient budget cuts, if budget cuts are implemented then it will just push Greece further into debt deflation, a default by Greece will cause a run on the European banking system, the ECB has no legal authority to purchase Greece’s bonds, if Greece gets bailed out the EU will need to confront similar problems with Spain, Italy, Ireland, and Portugal which have a combined GDP larger than Germany, and if they all get bailed out Germany itself will be bankrupt. Did we say the markets hate uncertainty? Source:
Mon, 02/15/2010 - 18:21 | 231898 Anonymous
Anonymous's picture

It is almost hypnotic to contemplate, thank to Tyler and Marla's perspicacity, the tentacular Goldman's financial engineering deployed in the core of financialy structured entities.

I feel as i was looking at the plans of the Empire's Dark Star. But we steel do not know (Lot of laugh) who is the emperor and when the final laser shoot will occure.

And then, what next? What will happen when the nations will be completely bloodeless?

What kind of purpose is hidden in those demonic brained vampire zombies, who do the fucking "God's Job"?

Is it only Greed? All that mess by cupidity?



(Sorry for my approximative french fashionned english)

Mon, 02/15/2010 - 18:39 | 231911 Bruce Krasting
Bruce Krasting's picture

Terrific reporting. This really stinks. How much is involved? $8b. These days that is not such a big hole.

Goldman is in this deep, and they already have a big image problem. Watch that they fix this part of the problem.Ex:

They put up $2b and borrower the other 6. Greece will pay7%+ for this money. The equity (leveraged) returns will be in the low 20%. Think of this as writing Greece CDS at triple the current market.

Six months from now there is going to be something else on the front page other than Greece. There are issues popping up all over. So Greek spreads come in and there is an unwind of shorts and GS just sits on the bid and laughs to the bank......


Mon, 02/15/2010 - 19:07 | 231940 MsCreant
MsCreant's picture

So no one is ever trying to "help" anyone. All anyone involved is doing is looking for the "money making angle." That is what all these debates are about, not how to keep Greece alive, but how will money be made because, otherwise, why do it?

Boy I keep losing sight of this and guessing wrong as a result, consistently.

Otherwise, Bruce, you have a criminal mind and belong with GS.

Mon, 02/15/2010 - 19:47 | 231983 Careless Whisper
Careless Whisper's picture

I get the impression that Greece had enough of Goldman's crap. Gary Cohen made a "pitch" to them in November for more of Goldman's "solutions" and they sent him packing.

They simply have too much debt.

The solution is that the bondholders take a haircut. If the bankstas were stupid enough to buy Greek bonds, then they should suck it up and make the best deal they can. NO MORE BAILOUTS FOR BANKS.


Mon, 02/15/2010 - 21:27 | 232079 MsCreant
MsCreant's picture

Careless sez:

If the bankstas were stupid enough to buy Greek bonds, then they should suck it up and make the best deal they can. NO MORE BAILOUTS FOR BANKS.


Me like, me like!

PS. I don't know you, but Olympic Ice skating is pretty cool. It seems to me you would dig it. They did short programs last night.

Mon, 02/15/2010 - 23:16 | 232179 Careless Whisper
Careless Whisper's picture

thanks Ms. i'll check it out. sounds like it could be inspiring.

Mon, 02/15/2010 - 21:02 | 232048 Miles Kendig
Miles Kendig's picture

It appears as though the only real pursuit for some is hunting and slaughtering wales, or absent that, beaching them for the vultures.  As someone who spent a great deal of his professional life hunting baby seals I will always appreciate that for some the only real thrill of life is in the kill and except for that there is no such thing as propriety.  I for one desire that you never lose sight of your sense of propriety MsCreant, but please remember without fail how some others will always approach this.  Peace

Mon, 02/15/2010 - 21:22 | 232071 MsCreant
MsCreant's picture

Hi Miles,

Shiva, the destroyer has her place. But so does the Brahma (creator) and Vishnu (preserver). To focus on one aspect is to be out of balance.

Lots of posts being made today that feature stuff from "planets aligning" to other cyclical theories. Could be it is just destruction time. On one hand we are all nature. On the other hand, my Darwinian sensibilities are offended at who is getting to write the story of our gene-pool and the story that will be told there if these people "make it" and others do not.

I hope you are well.

I have not worked on the project, except to think on it. I never clear the chunk of time needed for it.  It seems overwhelming and I can't afford to have my head leave what it is doing for very long. But that is how I work, obsessed freight train, neglect all else till it is done.

Peace back at you!

Mon, 02/15/2010 - 22:12 | 232122 Miles Kendig
Miles Kendig's picture

There is a difference between traveling between the levels so to speak and getting a good "feel" for their states... I believe.  Take care of what you feel committed to, side thoughts are just that and can, if worthy, survive for others to carry forward.  It's all good with me as I realize that I have responsibilities to others and myself to attend at present.  Hope you got my note and all my best to you and yours as you fight the good fight.  My daily remembrance has included your challenges for some time.  Here is to success in whatever form it takes be it a fourth wave or a second dozen.  Peace. 

Mon, 02/15/2010 - 19:02 | 231935 Anonymous
Anonymous's picture

Tremnendous information.

The French think tank LEAP-GEAB just published its quartely report today, hinting that GS has already done another deal of this type with another European country on its sovereign debt.
GSI being located in London, one wonders...

Mon, 02/15/2010 - 19:02 | 231936 THE DORK OF CORK
THE DORK OF CORK's picture

The large "investment" banks and hedge funds have to be taken out to protect the integrity of the sovereign bond market  - this will dramatically decrease the worlds debt load and restore some order to the international financial system.

The question is who will step up to the mark......

Mon, 02/15/2010 - 19:26 | 231937 mynhair
mynhair's picture

Greece, schmeece.

Buy USDHUF.  Best canned bacon and brass-base lightbulbs out there.

Global warming is dead, except for the morons.


Where's Algore?

Mon, 02/15/2010 - 19:42 | 231979 Zippyin Annapolis
Zippyin Annapolis's picture

Uncle Stupid to the rescue--- watch this play (it worked for Mexico)


Mon, 02/15/2010 - 20:10 | 231995 seventree
seventree's picture

Yankee financial innovation will transform the world. Just wait and see.

Mon, 02/15/2010 - 21:13 | 232058 RobotTrader
RobotTrader's picture


Tue, 02/16/2010 - 03:01 | 232250 Burnbright
Burnbright's picture

skanky hoes

Mon, 02/15/2010 - 21:16 | 232063 mynhair
mynhair's picture

Paris for Prez!

Can it be any worse?


Oopps, guess it is.

Tue, 02/16/2010 - 11:25 | 232237 Problem Is
Problem Is's picture

Blow Jobs would be back IN at the White House...

Paris beats Palin McMILF any day...

Mon, 02/15/2010 - 21:44 | 232102 Anonymous
Anonymous's picture


Boiler tech support person receives a call from a crying female customer whose new (still under warranty) boiler won't operate and she and her children are freezing. After listening to her sobs the techie's heart strings are touched and he takes the matter to his manager in the hopes of providing a new boiler to the customer.

Upon hearing the story the manager says to the techie "You got heat at your house"? Techie replies "Yes". Manager responds "Then F*** her".

I like Krasting's post. It may well be a crime but its more fun to commit crime in the open when no one can stop you. It's a sex/power thing.

So who's gonna stop 'em? Nancy Pelosi? Barack Obama? The 'wimps" in the EU?

Sorry to be so negative but as Chuck Colson used to say when he was working for Tricky Dick in the White House:

"When you got them by the balls, they'll follow you anywhere".

And all I can say is "They'll keep shooting until they run out of bullets or someone takes the gun away from them.

Mon, 02/15/2010 - 22:07 | 232121 mynhair
mynhair's picture

As have been in the gas bizz, can luv this.


Done it many times as a UNION MEMBER.  In AK.

Mon, 02/15/2010 - 22:17 | 232129 JimboJammer
JimboJammer's picture

Goldman  Sachs  building  in  New York  City  better  beef  up  security..

They  might  get  a  big  surprize  from  20 +  angry  Greeks  with   law 

rockets   and  C-4

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