Two Hedge Funds One Bank? Is There A Concerted Effort To "Destroy" Greece?

Tyler Durden's picture

In the pre-math of the Greek collapse, conspiracy theories are swirling about who keeps blowing Greek CDS spreads wider. The answer, so far completely unconfirmed, is that a large US investment bank (we "wonder" just which US investment bank dominates the sovereign CDS market), and two major hedge funds are behind the CDS "attacks" on Greece, Portugal and Spain. According to Jean Quatremer, and his Coulisses de Bruxelles, UE blog, the plan involves blowing spreads to record levels, and is prompted by the hedge funds' anger at not having been allocated substantial amount of the recent €8 billion GGB issue, in order to lock in profits from their CDS long exposure. Being thus unhedged with a short bias, their alternative is to continue buying protection else risking to mark losses on their extensive CDS short risk exposure.

We quote from the Quatremer blog, both in original and in a hastily Google translated version:

Selon des informations fiables que j’ai obtenu vendredi, émanant à la fois d’autorités de marché et de banques, une grande banque d’investissement américaine (qui a bénéficié du plan de sauvetage des banques US) et deux très importants hedge funds seraient derrière les attaques contre la Grèce, le Portugal et l’Espagne. Leur but ? Gagner un maximum d’argent en créant une panique qui leur permet d’exiger de la Grèce des taux d’intérêt de plus en plus élevés tout en spéculant sur le marché des CDS, un marché non régulé et totalement opaque, afin là aussi de les vendre plus cher qu’ils ne les ont achetés. Pourquoi ne pas citer les noms ? Tout simplement parce qu’il s’agit d’un faisceau de présomptions qu’un tribunal risque de juger insuffisant en cas de procès. Et comme le dit un opérateur de marché : « on ne joue pas avec ces gens là ».

Here is the English:

According
to reliable information that I received Friday from both authorities
and market banks, a large U.S. investment bank (which has benefited
from the bailout of U.S. banks) and two very large hedge funds would
behind the attacks against Greece, Portugal and Spain. Their goal? Earn
much money by creating a panic that allows them to demand of Greece
interest rates ever higher while speculating on the CDS market, a
market completely unregulated and opaque, so there also
sell more than they have purchased. Why not mention the names? Simply because he is a bundle of presumptions that a court may not be sufficient in a court case. And in the words of one market operator: "we do not play with these people."

What is the basis for this "destructive" behavior? Simple- the inability to create a synthetic basis by being allocated far too little in the most recent bond issuance to hedge existing shorts. Think of it as a PIPE investor who shorts stock of a company he/she knows will give out stock at a discount to market, a practice since banned by the SEC but being done rampantly to this very day.

According
to my information, the two hedge funds that hold most of the Greek
market of CDS were furious at having received only 2% of the last Greek
loan
(launched January 25, for a period of 5 years, it has
collected 25 billion request for 8 billion last survey). As
they gained a lot of CDS, they needed to secure their gains (in cases
of falling rates of those CDS), put in front of the paper, that is to
say government bonds (so -
loses a CDS, and we won on the loan and vice versa). Because they have a big problem for now, they can not sell the CDS if they would themselves fall classes. To
show their strike force, and further push up CDS, they attack on Greece
in creating panic, "the CDS, is a bottomless pit with 200 million
dollars, you play as if you had a
billion dollars, "said one market analyst. Same
game for the U.S. investment bank, which hopes eventually to lend money
directly to Greece became unable to borrow on the markets.
Once the country to its knees, it will see the government to offer him a loan at a rate obviously prohibitive ...

And thanks to near-infinite leverage courtesy of nominal margin requirements on CDS holdings, the spillover has started to impact the FX market as well. Certiainly, if this is indeed a premediated attack, this could have been coupled with the "two funds" pushing for a lower euro, in an attempt to start the dollar carry unwind, further depressing euro levels, and creating further panic on Greek (and other PIIGS) CDS.

To
increase the panic, these hedge funds and U.S. investment bank began to
sell arms to turn the euro, followed by investors stunned.
If the euro lower, does not mean that the eurozone will burst? What
justifies the required interest rates still highest in Greece, Portugal
and Spain ... Yesterday, the euro has almost reached $ 1.36 in less
than two weeks, he lost
dime, fifteen cents for two months. A
slide that corresponds to nothing, but that side effect, provides air
to the EU economy: over the euro lower, more products made in eurozone
become attractive.
"A very good news in this mess," quipped one analyst.

Who really wins from all this? Germany, who rumors have as saying that they are close to letting Greece go. As Zero Hedge has long speculated, a Greek failure, and a collapse in the EMU, while a significant near-term negative, will be, paradoxically, the event that saves Germany, France, Benelux, and the core of the soon to be former European Union. And yet, it is the alternative that seems to be on the frontburner for now:

It is also necessary that the Union expresses its total solidarity with the countries attacked. This is no time to recall the Maastricht Treaty, which prohibits it comes to the aid of a State member of the eurozone. If investors have the absolute guarantee that Greece will not sink, the dust settles. Germany,
until very reluctant to say that solidarity begins to understand that
the euro is now in danger: Thursday, Angela Merkel, German chancellor,
said in Paris that he had put up "a
Government economic Twenty-seven. " Berlin and Paris will therefore joint proposals at the summit on February 11. Finally,
we must go further in regulating Michel Barnier, the future European
Commissioner for Internal Market, confirmed to me yesterday that he
intended to propose a directive on the derivatives markets (including
CDS)
which 80% is out of control while they represent more than 600 000 billion dollars worldwide. We must reverse this proportion.

When in doubt, blame the CDS traders.

h/t MG

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Anonymous's picture

Lets get something straight. If there is any conspiracy, which there is; it spans mutiply international banks, much like the "club of Rome" theory by that dude thats in prison.

An easy short list is : JP, Goldman, Morgan Stanley; and that's just in the US. These 3, because they all, came out twice as strong,(capital, clients, funding more debt).

Next, Barclays, General Society, Deutch Bank obvioulsy are all members too, but the focus in the media is always on US institutions,(ironically many not even US based) Throught the process of "deduction" you conclude that Barclays, The German bank , Deuctch,(sp) General Soc. are "in" the club of rome, because they were the next biggest recipients of the AIG payouts after Goldman. Barcalys because got a penny on the dollar, take over of Bear Stearns, with the FEDS blessing, when the Fed wouldn't touch AIG with a long pole.

So for now my short list is JP, Goldman, Morgan Stanley, Deucht Bank, Soc. General, Barclays, possibly Merril,/Thain.

Any one have some other obvious banks that are "in" on it please email them to the WallStonion@gmail.com

Good Day

Anonymous's picture

It is like the giant squid has given birth to baby squid who are now trying to kill the mommy squid, because it' singrained in there nature to suck blood/money. And the giant squid is even been seen sucking on itself self. Not very life perserving?

It's a free for all in the "squid" market.

Time for a "one world currency"

I can see it know, Bernake TIMES man of the year when he coins the phrase next year. "One World Currency"

Shit maybe he will even get a "noble peace Prize" for it.

Good Day

WaterWings's picture

These godly workers will not get a noble piece of the treasure stored up in heaven.

Anonymous's picture

Somehow, I've come of the impression that their collective future, or lack thereor, lies elsewhere.

Sheesh, you'd think the pay-off would be a bit better if one is doing "God's work."

Anonymous's picture

At the end of the day, US needs to attack EuroZone so that people turn to treasury where there's 1.8T sale waiting to be filled, or else.

jbcorwin's picture

+1 for Irony!

Irony (from the Ancient Greek ε?ρωνε?α eir?neía, meaning hypocrisy, deception, or feigned ignorance)

Problem Is's picture

"It's all Greek to me."

Hilarious...

Leo Kolivakis's picture

Quelle surprise! Not! The big hedgies and the investment bank you mention have been behind this overexaggeration from the get-go. It's all fucking bullshit, and not just Greece. I work with a senior consultant of Spanish origin who is amazed at the bullshit being spread on Spain. Their top banks and top companies are among the best in the world, and reading and listening to the morons who are short Spain makes his blood pressure go up!

PIIGS is just Dubai on steroids. All fluff, no substance, just more noise so some fucking hedge funds and investment bank can capitalize on fear and make a killing.

deadhead's picture

Thank you for your insight Andy.

Sancho Ponzi's picture

Perhaps you should ask John Major ;)

Cursive's picture

No doubt games are being played here, but do not for a minute expect anyone to believe that Greece or any other European country aren't in serious financial trouble.  That includes the Anglosphere as well.  There is too much debt and most of the debt calculations don't even include the unfunded liabilities of public pensions.  So, it's all going to blow up anyway.

Reggie Middleton's picture


Their top banks and top companies are among the best in the world, and reading and listening to the morons who are short Spain makes his blood pressure go up!

PIIGS is just Dubai on steroids. All fluff, no substance, just more noise so some fucking hedge funds and investment bank can capitalize on fear and make a killing.

The numbers don't agree with this Leo.  I wouldn't put my money behind rumors, but a few of the big Spanish banks have big problems, and quite a few of the sovereigns in Europe are swimming in multi-faceted financial issues.

Leo Kolivakis's picture

Reggie, please, Banco Satander is one of the best banks in the world. The regional banks in Spain got hit with their housing bubble, but they will all get bought out. Spain has structural problems (high youth unemployment), but they're an economic powerhouse. Their infrastructure companies are among the best in the world too. Americans think that Europeans are lazy bums that get six weeks off a year, but they do not realize that of the world's top 100 companies, almost 50% are based in Europe. Let's be a little more careful in our reporting of the facts!

Cursive's picture

one of the best banks in the world.

Please refer to definition of oxymoron.

Spain has structural problems (high youth unemployment), but they're an economic powerhouse.

This post is schizophrenic and, no, I'm not calling the OP schizophrenic.  I'm saying that it can't be both.  Spain is no economic powerhouse.  There are no economic powerhouses anymore.  There are only mirages built on too much debt and very little capital.  That includes China.

Leo Kolivakis's picture

Right, only solution is a revolution, bring down capitalism and bring back communism. Ease up on the bran in your diet. World is not ending, the sun will shine tomorrow but we got a shitload of messes to deal with.

SmalleyD's picture

Yes, the sun will rise, but banks still fail. And no one is talking about a collectavist revolution. We just want sound money and less government intervention.

Anonymous's picture

it's too late to worry about the collectivist
revolution as it happened here decades ago...it
intensified with the obushma administration
just as it did with the hoovervelt administration...

Missing_Link's picture

Right, only solution is a revolution, bring down capitalism and bring back communism.

Seriously, Leo.  Several people tried to debate you on the facts here, and instead of debating those facts you throw out hysterical nonsense like this.  It's the Eric Cartman "Screw you guys, I'm going home" defense.

You might as well wave a white flag at this point.  If this is the best you can do, it indicates to me that you don't really have a leg to stand on.

Anonymous's picture

Bring down Wall St.

Bring Bank samll business.

Maybe a new currency (local) backed by medical marijuana.?

Ignore the fed er al gov, and relect the local reps.

Then possibly we come out alive.

Leo Kolivakis's picture

Missing_Link,

I can't take people who never visited Greece, Spain, Portugal or Europe seriously. The majority of Americans are so parochial, so inward looking that they haven't the faintest idea of what is going on out there. I don't blame them, even when I watch CNN, I am appalled with the low coverage of world events. It's beyond laughable, it's actually pathetic and ensures mediocrity rules the day.

WaterWings's picture

Dewd! +1,000 French babes, anti-gravity dogs, lasers, fanny packs, and roving gangs of disadvantaged minority teenage street thugs beating people with asps:

http://www.youtube.com/watch?v=uHF3X8tQYPU

http://www.youtube.com/watch?v=TLJwab_keTk

http://www.youtube.com/watch?v=JqYhuwu614Y

http://www.youtube.com/watch?v=nfjCyXmMZek

All in only one country. Think of the possibilies. Way better in real life.

WaterWings's picture

Awesome. American boys are not graduating from college anymore. And everyone likes American women...well, not all of them:

http://verydemotivational.com/wp-content/uploads/2010/01/129087539863604...

Missing_Link's picture

Yes, but so what?  You don't need to go to Greece to see what's going on.  Taking a tour of Athens isn't going to give you any insights about Greece's sovereign debt.  You can go to a Greek bank and stare at its walls for as long as you like but you won't learn anything about its debt-to-equity ratio.

Do you really think your amazing global attunement gives you so many insights on the fiscal situation of these countries?

I haven't been to Greece, but I have been to Italy, and my take-away was that nearly every part of the country was screaming "this is all going to end in chaos, riots, and looting" at the top of its lungs.  Much of Italy is a third-world country that spends like a first-world one.

Again, why can you not argue with FACTS?

All you're doing is trying to throw the conversation off course again and again with random tangents, and I can only conclude this is because you've run out of actual ammunition.

First it was basically "Yeah wtf ever let's throw away capitalism lol" and now you're giving us "Yeah but I've been there and you haven't so stfu."

[...  Which is, of course, based on an erroneous assumption that none of us have been to Europe, which you apparently pulled out of your ass.  I'm sure many of us HAVE been to Europe.  I've been to 6 European countries myself.]

Several commenters above posted lucid and highly rational arguments with regards to the Greece situation.

I can't take you seriously if all you can do is try to derail the argument rather than responding to those.

Leo Kolivakis's picture

Well if you've been to Italy, then you would know that tax evasion is a national sport over there, just like in Greece. In other words, there is more money than meets the eye. A lot more money. If you really think Italy, Greece or Spain or going to implode, go ahead and short their markets. Don't cry to me afterwards when nothing happens. Stick with all those "lucid analyses" here (gag me with a spoon!)

dark pools of soros's picture

so their government is going to steal from all the rich hidden cash stashes to pay its debt??

 

are u stoned?

Anonymous's picture

I can't take anyone who doesn't know Communism was financed by the bankers, seriously. Seriously.

Pure staticism and pure dynamism always end in destruction.

You're only capable of whining about the present moment. Couch warming seems like a more appropriate sport for you illiterates.

Anonymous's picture

if we ease up on the alleged bran in our
diets will you stop riding skittle shitting
unicorns at midnight?

those shitloads of messes include the implosion
of the pigs and whoever else may be on the brink....
and doesn't happen, contrary to your hero bernanke,
because people are feeling onery or irrationally
fearful...it is because, as you said, there are
a shitload of messes, including greece, spain, and
portugal whose solvencies are slipping fast...

spanish banks have as much solvency problems as
usa banks in part because their real estate crisis
is as severe as the usa - if not more so and
becuase its economy has weakened greater than the
ability to carry its public and private debt loads...

sorry, the problems are real even if the sun
comes up tomorrow...

H.W. Plainview's picture

Dang Leo - puff puff give my man.  You need to put down the pipe and Wake TF up to reality.

Any poor soul still counting on a pension to fund their golden years better wake TF up as well, and realize that morons like you are running these things.

Gold bitches! (and silver)

"I am an oil man"

Leo Kolivakis's picture

Spoken like a two-bit crack whore trader. Maybe we should let traders manage pension funds. Oops, too late.

Hephasteus's picture

Wake the hell up Leo. We don't have a real security based money system. We have a bullshit scam. Cities and states and governments don't discuss what the citizens they serve want to see happen or see built, collect the money and build it. NO they issue bonds. Do whatever the hell they want and think it's a great system until the people who actually run the system decide to screw everybody over. Countries will go broke, states will bounce checks, cities will cancel projects and bulldoze them over. People will be kicked out of their houses. Why? Because our money system allows freedom for a few and slavery for all when it should allow freedom for all. It doesn't even freaking add up. There's no way to run the stupid scam without it tearing itself limb from limb. They know the scam is over. They know why it's a scam. They will simply hurt and abuse people because that's all they want to do anyway. These are the first pimps that bitched slapped a ho and made her completely dependant on them. They've been doing this for centuries. They turn anybody they can turn into a chicken and then they just keep fucking them as long as they can.

Anonymous's picture

i'm sorry - but how does europe having nearly
50 of the top 100 global companies mean that
greece, portugal, and spain have serious financial
problems?

how does banco satander's health help the entire
nation of spain....and why would structural
problems be a buttress to spain being an economic
"powerhouse"?

how's the debt ratios and gdp growth in spain
these days?

Reggie Middleton's picture

You know you don't need to go to a country or a company to recognize a problem. That being said, I have been to the Sun Coast and have witnessed the froth. What is the off balance sheet exposure and leverage for "one of the best banks in the world"?

To its credit, Banco Satander is one of the best Spanish Banks, but their are plenty that have signficant issues with Texas rations over 50% and that's with likely fibbing on their NPAs. In addition, the structural issues in Spain are more signficant than you are making it out to seem. I will be posting on Europe in detail throughout this week. I think you may find it interesting. Remember, I called the Spanish issues and BBVA well in advance, see

The Spanish Inquisition is About to Begin...

Check out the following for your bank Satander, and this is one of the better banks:

 


(q-o-q change)   % increase in chare offs 19.9% 40.2% 13.0% 9.9% % increase in NPA's 3.9% 15.1% 33.5% 22.0%
Problem Is's picture

This is why I like Reggie the Sledge Hammer. He pounds away with facts.

A novice question... could you compare the above Banco Satander numbers to say JPM or BofA for a relative comparison?... Or would that not be useful?

Anonymous's picture

I think your solar theme has fried your brain.

10044's picture

2 hedgefunds one bank?? Hmm, I doubt it. How bout ONE VAMPIRE SQUID

Missing_Link's picture

That would be the "bank," if you read between the lines.  I'm not sure who the hedge funds are.

Stuart's picture

John Perkins, hoodwinked.   Somehow similar thoughts come to mind here.

Anonymous's picture

Clearly, the only problems here are those caused by e-vil speculators.

credittrader's picture

If CDS traders are to blame for all this malarkey then someone explain why the HUGE and liquid GGB market still trades 50bps wider to Bunds than Greek CDS to Germany...

If the argument is that CDS 'fears' have spurred selling in GGBs then a simple retort is that those 'stodgy old' bond holders were not exactly confident in the first place...

The demand for the last Greek auction was clearly about rerisking to either: a) lock in some profits on CDS shorts, or b) lock in the basis vs CDS, or c) reach for yield in a typically dumb perspective.

Sorry but the sheer volume differentials we are discussing here between GGBs and Greek CDS make it preposterous (even with 5x leverage) to blame CDS for greek widening. There may have been some arguments during the LEH stuff that CDS were being used to exaggerate the stress and that fundamentals were not clearly weak (although to many of us they were).

FYI - when you buy/sell CDS, the dealer you execute with will demand an upfront (initial) margin, and ongoing variation margins will be paid (as in Mark-to-market) - so while you can buy $10mm protection by lodging say $2-5mm in collateral - you are certainly facing a levered position with all its implicit risks and anyone who was derisking in Sovereigns for the last 10 months knows what a massively painful squeeze on the testicles that has been...

Also - No-one is out there arguing (except Almunia) that Greece fundamentals are solid...LOL!!!!

Today's market action shows that investors are clearly repricing risk in the credit markets up and down the credit quality spectrum whereas the sheeple in the equity market are just following what works - arb EURJPY...

OK - rant over...

 

A Man without Qualities's picture

Why would you need to lodge $2 - $5mm of collateral when buying $10mm of protection?  Assuming the CDS spread is 400 bps, then for a 5 yr trade, the pv of those spreads is about 14% (4% * risky duration, say 3.5 yrs).  There is no need to pay anything more than this...

Abu Morpheus's picture

I think they already made a movie about this, but in that movie somebody blew up parliament in Britain.  This time CDS are being used as the explosives.

Meanwhile, as their country burns, Greece's largest union is about to go on strike:  http://business.timesonline.co.uk/tol/business/markets/europe/article7019126.ece

These people deserve, nay, desire to suffer, and I hope they get their wish.  Either way, bailout or no bailout, it should make for some entertaining theatre.

Leo Kolivakis's picture

I am not sympathetic to Greek unions or rich shipowners who show no loyalty whatsoever to their country first. Fuck both of them. They are a cancer on the flip-side of the same coin. The unions strike on a whim and the rich shipowners basically pay no taxes. Both are traitors in my book.

nonclaim's picture

What are the reasons for shipowners to pay tax and why should they be loyal?

Lexington Duffet's picture

Some believe cutting taxes on the wealthiest 1% of a country's individuals will increase their goverment's revenue.  Ergo, cutting the tax rate to zero should, if you believe the model, maximize government revenue.  Mayhaps the clever Greeks invented part of the Tea Party Platform. 

 

By cutting the tax rate on the wealthy ship owners, to zero or close to apparently, someone convinced the greek government this will increase income.  In short, they borrowed Reagonomics and its working in Greece the same way it worked in the US and in California.

You see, you may lose money every year but you are going to make it up on the long run volume. 

LMS that, to have a civilized society, one needs a goverment, which has expenses like police, courts, banks, emergency relief, etc.   More complicated structures are more expensive because they need more complicated rules and policing.   Anarchists disagree and I suggest they should move immediately to Somalia, which has a government largely lacking those expenses.  (Don't bring a pretty female).  Liberterians disagree on general principals, forgetting that a goverment governing 300 million will be a lot larger than the government governing say, 150 million.

Do not despair for the ship owners.  It is in their self interest to be "loyal." 

So, if you have a civilized goverment, in line with arguments advanced by other self interest groups, in the case of short falls or emergencies (like financial crisis for unions or the wealthiest 1% of individuals), then the government then should borrow money on public guarantee to bail out the wealthiest 1%.  So even the tax cut crowd believe the goverment needs money--to bail their ass out. 

In short, they are loyal to themselves.  

And if one disagrees with the policy and point out the errors in logic (such as that a 50% tax cut requires generally 100% income growth for a break even offset and 100% growth rarely exists in mature markets which is most of 'em), then they believe you are retarded unpatriotic idiot who "doesn't understand"  and advocate physical violence such as beating you up or blowing up "liberal biased" newspapers.   

 

nonclaim's picture

I made a simple question and this blahblah has not even touched it... and stop using % as a logic symbol.

Lexington Duffet's picture

Some believe cutting taxes on the wealthiest 1% of a country's individuals will increase their goverment's revenue.  Ergo, cutting the tax rate to zero should, if you believe the model, maximize government revenue.  Mayhaps the clever Greeks invented part of the Tea Party Platform. 

 

By cutting the tax rate on the wealthy ship owners, to zero or close to apparently, someone convinced the greek government this will increase income.  In short, they borrowed Reagonomics and its working in Greece the same way it worked in the US and in California.

You see, you may lose money every year but you are going to make it up on the long run volume. 

LMS that, to have a civilized society, one needs a goverment, which has expenses like police, courts, banks, emergency relief, etc.   More complicated structures are more expensive because they need more complicated rules and policing.   Anarchists disagree and I suggest they should move immediately to Somalia, which has a government largely lacking those expenses.  (Don't bring a pretty female).  Liberterians disagree on general principals, forgetting that a goverment governing 300 million will be a lot larger than the government governing say, 150 million.

Do not despair for the ship owners.  It is in their self interest to be "loyal." 

So, if you have a civilized goverment, in line with arguments advanced by other self interest groups, in the case of short falls or emergencies (like financial crisis for unions or the wealthiest 1% of individuals), then the government then should borrow money on public guarantee to bail out the wealthiest 1%.  So even the tax cut crowd believe the goverment needs money--to bail their ass out. 

In short, they are loyal to themselves.  

And if one disagrees with the policy and point out the errors in logic (such as that a 50% tax cut requires generally 100% income growth for a break even offset and 100% growth rarely exists in mature markets which is most of 'em), then they believe you are retarded unpatriotic idiot who "doesn't understand"  and advocate physical violence such as beating you up or blowing up "liberal biased" newspapers.   

 

Anonymous's picture

"These people deserve, nay, desire to suffer, and I hope they get their wish."

I don't think it's the same people striking as those looking for credit. Obviously the union sees the government as weak and have chosen the correct time to make demands. BTW you could also say that Americans "wanted to suffer" when they took on astronomical levels of debt...