Unloaded Weapon Part ???: The Curious Case Of The Endless Non-Bailout Bailout

Tyler Durden's picture

On a sunny weekend in September 2008, a bunch of CDS traders were summoned at noon with the advance knowledge that Lehman was filing that midnight and to trade out of Lehman counterparties positions asap. On a sunny weekend in April 2010, a bunch of fat European bureaucrats were summoned to a videoconference to bail out Greece (for the 4th time) and achieved absolutely nothing new (for the 5th time). The latest episode in the Greek tragicomedy adds exactly no information to what was expected to be a firm bailout package: hold on a second but we knew the last weekend of March that should Greece demand help it would be bailed out by the ECB - so just what is new here? Ahh, anything to create the illusion of forward progress. In continuing to munch the non-austerity cake and have it too, the package is not really operational until Greece demands it. Which they won't until creditors put them in involuntary bankruptcy after coupon non-payment. Presumably the final rate agreed upon is 5% for a three year loan: how some bureaucratic soothing words can hope to push the entire Greek curve down by over 200 bps will be very fun to watch. Then again, as the curve will likely continue to be inverted, we dont expect much normalization for the 10 Year, as the country will most certainly be bankrupt by 2020. Lastly, to show just how serious the ECB is this time, any coordination with the IMF will not begin until tomorrow. We sure feel bad for all those traders who are now told by their superiors to buy the Greek €1.2 billion in 6 and 12 month bills on Tuesday, as any hope of return of capital now rests with whatever new insanity Brussels can cook up next. Paulson's gun is now firmly in control of the Greek/ECB, and is now thoroughly empty after repeated own-foot shootings. And while we are on the topic of IMF-assisted suicide, the next full day of Greek strikes is now set for April 22, when Greek civil servants will walk of the job for 24 hours according to an ADEDY union official.

From Reuters:

BRUSSELS/ATHENS, April 11 (Reuters) - Euro zone finance ministers unanimously approved a detailed 30 billion euro emergency aid mechanism for debt-plagued Greece on Sunday but stressed it had not requested that the plan be activated now.

In a rare weekend telephone conference, ministers from the 16 nations that share the single European currency backed [or is that baked] a plan for Athens to borrow from euro zone governments and the IMF at well below current market rates if market funding dries up.

Greece would receive 30 billion euros in the first year from all euro zone countries in bilateral loans coordinated by the European Commission and paid via the European Central Bank, the head of the Eurogroup of finance ministers said.

"If the mechanism had to be activated, it would not be a violation of the no-bailout clause (in the European Union treaty) since the loans are repayable and contain no element of subsidy," Eurogroup chairman Jean-Claude Juncker told a news conference in Brussels after the meeting.

European Economic and Monetary Affairs Commissioner Olli Rehn said the euro zone loans would carry an interest rate of about 5 percent -- well below current market rates of over 7 percent.

The size of the International Monetary Fund's contribution to any package was not disclosed but it would come on top of the euro zone amount. Euro zone countries would pay proportionately to their share in the ECB's capital. Talks on coordination with the IMF will begin on Monday, Rehn said.

The agreement was urgently awaited because Athens is due to auction short-term debt on Tuesday after investors last week sent Greek borrowing costs spiralling due to fears of a possible default and doubts over the EU safety net.

Greek Prime Minister George Papandreou made clear in a newspaper interview that detailing the rescue plan was a last ditch effort to deter speculation against his country.

"The question remains whether this mechanism will convince markets just like a gun on the table. If it does not convince them, it is a mechanism that it is there to be used," he told the Sunday edition of To Vima.

It was the most explicit mention a Greek leader has made of the possibility of requesting aid. Previously, Papandreou and Finance Minister George Papaconstantinou have insisted Greece is not asking and will not ask for assistance.
"The country's aim is to continue to borrow smoothly from the markets under better terms than the current ones," the finance minister told Sunday's Realnews newspaper.


Scepticism over Greece's ability to manage its 300 billion euro ($401.2 billion) debt pile, more than its 240 billion euro annual economic output, grew last week when investors dumped Greek stocks and bonds and ratings agency Fitch downgraded Athens by two notches.

Fitch dropped Greece's credit rating to BBB-, the lowest investment grade just above junk, saying a deepening recession and rising debt service costs would make it even harder for Athens to meet its budget deficit reduction target.

The government has imposed tough austerity measures to meet a pledge to cut the public deficit by four percentage points of gross domestic product to 8.7 percent this year.

Juncker said data provided by Greece showed the fiscal consolidation programme were encouraging and showed Athens was on track to reach this year's target.

A euro zone finance ministry official said Sunday's teleconference was not about deciding to give Greece aid, but about technical preparations in case a rescue was needed.

"The fire brigade is filling up its water tanks, and is ready to act, but it won't be driving out of the station until there is a call for help. That call for help hasn't come yet," the official said.

Strong public opposition to any bailout for Greece in Germany, Europe's biggest economy and main paymaster, has fuelled market doubts about the availability of any resue, especially since the plan leaves Berlin a veto.

Germany, the Netherlands and Austria had argued that any emergency bilateral loans to Greece should be at current market rates, which rose above 7 percent last week, to avoid moral hazard by rewarding profligate countries.

However, euro zone officials worked out a formula on Friday that would provide 3-year loans for about 5 percent, based on the IMF's pricing formula with some adjustments, Rehn said.

The euro, which has been dragged down by concerns over Greece and possible contagion with other weak Mediterranean euro zone economies, rebounded slightly on news of Friday's technical agreement among deputy finance ministers and central bankers.

The risk premium that investors charge to hold Greek debt rather than benchmark 10-year German bonds narrowed to just over 400 basis points after hitting a record 454 on Thursday.

However, any durable reduction in the spread will depend on the credibility of the EU rescue plan and markets' assessment of how likely it is to be invoked.

Greece needs to borrow about 11 billion euros by the end of May to refinance maturing debt and interest charges. Its overall 2010 borrowing requirement is 53 billion euros.

And from Bloomberg:

‘Loaded Gun’

A “loaded gun” to ward off speculators is now “on the table,” Greek Prime Minister George Papandreou told To Vima newspaper today.

What would trigger the unprecedented European lending was left unanswered in today’s teleconference of euro-region officials, which included European Central Bank President Jean- Claude Trichet. Also left open was how much the Washington-based IMF would chip in for 2010, and how much Greece might need in 2011.

“We cannot speak on behalf of the IMF, but we know that they are ready to cooperate and contribute with a substantial amount,” European Union Economic and Monetary Commissioner Olli Rehn said. “It is really up to the IMF to speak for itself. We have to respect their independence.”

Rehn said that the IMF would likely put up about a third of any aid plan, indicating another 15 billion euros in possible IMF funding.

European pledges in February and March to provide aid in an emergency failed to prevent Greek 10-year bond yields from soaring to 7.51 percent on April 8, according to Bloomberg generic prices, amid concern that Papandreou’s government will be swamped by its bills.

The jump in Greek yields to the highest since December 1998 helped overcome resistance to a loan package in Germany, which as Europe’s biggest economy would contribute almost a third of the loans, the largest single share.

In the meantime, the futures market will, as if by magic, drift with no downticks to 1,200 by midnight.

The only question we have is, if all those people who participated in the Madoff ponzi were fully aware it was a ponzi (just like RenTec... uh, realized, not that RenTec is a ponzi, that would be presposterous), would they still run hand over fist to throw away their money and buy, buy, buy?

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Augustus's picture

Being forced to only spend 8.7% more than we earn is going to be almost impossible.  The People will Demand that we have more.  The ECB and IMF will come to their senses when they recognize how much the Greek people deserve to spend someone else's earnings.

taraxias's picture

"If the mechanism had to be activated, it would not be a violation of the no-bailout clause (in the European Union treaty) since the loans are repayable and contain no element of subsidy," Eurogroup chairman Jean-Claude Juncker told a news conference in Brussels after the meeting.

The loans are repayable????? The loans are repayable!!!!!!! The loans are repayable!?!?!? Do these guys actually believe this shit, or are we at a point that they feel ANYTHING can be sold to the dumbed down public?

SofaPapa's picture

Yep.  Just like our entitlements in the US are payable.  Have you tried the new shit-flavored Kool-Aid?  Tastes great!

Lux Fiat's picture

A below market interest rate would never be construed as a subsidy or bailout.

credittrader's picture

Can't wait for the wall of lawyerly calls this fternoon to discuss whether this is enough to trigger any CDS clauses...for the record, I am pretty sure it doesn't (yet).

Fish Gone Bad's picture

Things are just not fucked up enough in Greece.  Alas the worse is over.  Next week will be the worst, followed by the worsest yet.  The only way the greece gun will go off is if Papandreou plays with it too much.

dumpster's picture

every thing will be bailed out in a fiat economy


1) greek will gets its gifts

2) california, new york yadda will recieve the tit of largess

3) pensions ditto

4) another round of banks .

5) get gold

orange juice's picture

Well admittedly US stocks should go up, would you want to put your money in China at the top of their bubble? Or in the soon to explode Eurozone?  It's about confidence, predictability and stability.

I like how the money is there if Greece should request it.  They should request it as long as they are required by the markets to pay more than 5% on their bonds, however pride being what it is, the Greeks will continue to sell their bonds at higher rates until it destabilizes the Eurozone anyway at which point I'm confident a new agreement will need to be hammered out because spreads for other countries will rise too. Unless the Greeks accept the terms ASAP it will go to show how insanely incompetent they really are.

dumpster's picture

and the american stock market is not in bubble territory.

get gold silver


A Man without Qualities's picture

China at the top of their bubble?  I think there's a long way to go yet...

The Greeks will continue to issue in the markets, not for the sake of pride, but to continue to line the pockets of the banking community, who will take the higher yield and then deposit with the ECB and leverage up further, believing the EZ and IMF will come to the rescue if anything goes wrong.  At a later date, the Greeks will ask for the loans, but probably claim they need it to be even lower, as their situation is even worse so they can't pay more.  As I see it, they will continue to double down as they think they are better bluffers than the other EZ members.

In my view, the Greek financiers have shown themselves to be kleptocrats and pretty smart - they are playing the game to maximize their return, but they don't really give a shit what happens to Greece, they think the wider economy is a lost cause.


But I expect that by midday tomorrow either the Bundesbank or the German opposition will claim the terms of the loans are unconstitutional...

sangell's picture

"Oh what a tangled web we weave, when first we practice to deceive."

LeBalance's picture

Out beyond ideas of wrongdoing
and rightdoing there is a field.
I'll meet you there.
When the soul lies down in that grass
the world is too full to talk about.


The place that you are right now God circled on a map for you


Lux Fiat's picture

I suspect that Pap doesn't want to pull the trigger on his new-found gun because it is pointed at his head.  The terms of the aid probably are pretty onerous, given that Germany needed some sort of cover to back this, and Greece's behaviour to date.  I wonder how much of a Swedish banking crisis approach they are taking - i.e. wait until losses are evident and force creditors to take them, and then step in with aid.  Perhaps I'm just overly optimistic that moral hazard and common sense will actually make an appearance at some point.

Gordon Freeman's picture

"I suspect that Pap doesn't want to pull the trigger on his new-found gun because it is pointed at his head."

Well said!

Hansel's picture

The "solution" to Greece having too much debt is to loan them more money.  F'ing brilliant.  Central banks have a one-track mind.

Ungaro's picture

Sure. When you are a hammer, every problem looks like a nail. When you are bank, every problem is a lending opportunity.

Is there any doubt who is running the world when every answer is to lend money?

ZackAttack's picture

If I were Spain and Portugal, I think I'd break ground on some enormous public-works projects next week.


Wonder how German citizens feel about this?

Madcow's picture

Gold USD $10K - OR - MAD MAX

Either they can more than quadruple the money supply or all the bonds and rents come crashing down. THERE IS NOT ENOUGH MONEY IN THE WORLD - LITERALLY - TO FUND ALL THIS UPCOMING SOVEREIGN DEBT.



LeBalance's picture

A quote from the Narrator of Mad Max (the Feral Kid):

"Narrator: My life fades. The vision dims. All that remains are memories. I remember a time of chaos. Ruined dreams. This wasted land. But most of all, I remember The Road Warrior. The man we called "Max". To understand who he was, you have to go back to another time. When the world was powered by the black fuel. And the desert sprouted great cities of pipe and steel. Gone now, swept away. For reasons long forgotten, two mighty warrior tribes went to war and touched off a blaze which engulfed them all. Without fuel, they were nothing. They built a house of straw. The thundering machines sputtered and stopped. Their leaders talked and talked and talked. But nothing could stem the avalanche. Their world crumbled. The cities exploded. A whirlwind of looting, a firestorm of fear. Men began to feed on men. On the roads it was a white line nightmare. Only those mobile enough to scavenge, brutal enough to pillage would survive. The gangs took over the highways, ready to wage war for a tank of juice. And in this maelstrom of decay, ordinary men were battered and smashed. Men like Max. The warrior Max. In the roar of an engine, he lost everything. And became a shell of a man, a burnt out, desolate man, a man haunted by the demons of his past, a man who wandered out into the wasteland. And it was here, in this blighted place, that he learned to live again..."

john_connor's picture

Sorry EW'ers, but I think we may get to a new high on the Dow within 12 months or so.  What follows will be something so ugly that your "primary 3" will not even do justice.  So, a super hyperliquidity burst to some "number", where maybe only two computers shake hands, and then a fall to near zero within months.

Should be entertaining.

hettygreen's picture

As a bear who is entirely fed up with the beating I have endured for the last two months I will be happy with even a modest pull back to exit the short side of this nonsensical market. I do not understand it any more and am sick and tired of what has amounted to an unsuccessful gamble on poor fundamentals translating into poor prices. Money (choose whichever form you prefer) in the mattress or can and the means to defend it. To hell with everything else.

Amish Hacker's picture

"A modest pullback to exit the short side" is exactly what too many players are waiting for. This market will go down, but not until the last short has thrown in the towel.

hettygreen's picture

Thanks for the great news. I really didn't think there were that many of us left and you know the permabears will never capitulate. The bulls who bought in January 2009 got their asses handed to them unless they hung on into July when an all clear of sorts was sounded with the move off 869. It has been pretty much smooth sailing for the bulls ever since.  I think the bears will have to wait until at least June/July (2Q) for any shred of hope and the fall for any redemption by which time most will be a decimated lot anyway.

The irony for me lies in not seeing the bear market rally in the context of the magnitude of the bull market which preceded it. A lot of people (and I will include myself here regretably) saw an almost perfect repeat of 1930 in the making. Little did we know that our time frames would be off by a year at best and completely wrong at worst!

john_connor's picture

I agree, it will be important to get everything you have "electronic" out of the system.  The upcoming moves will likely be violent in both directions and will eat everything in its path, including the "expert" traders/gamblers out there.  Even those who can see everyone else's hole cards will lose everything.

Oil may be a mitigating factor in this final burst, but it appears they are managing that thru supply manipulation, both in actual physical release from offshore tankers and skewed data.


LeBalance's picture

Speaking from a historic perspective, this inflationary move (creation of Euro 30B from nothing) is what has always taken place after a reasonable amount of hand-wringing concerning the consequences and its political unpalatability.

It is a recipe.

In fact the outcome is so blindingly obvious many here (including myself) are curious that folks are still participating.

The magnitude of the theft will require a distraction beyond the magnitude of recent distractions in order to capture the mass attention.  This distraction may not be required for 18 - 36 months at which point the situation will be "interesting" enough that it will happen.

War, martial law, fervent 25-Sigma nationalism, pestilence, famine, cruelty, etc will follow.

This is the celebration of the end of the Great Year [an Era or Age is the travel of the Sun through one of the 12 Houses of the Zodiac (2150 years)] and the return of the Sun (of God) to the galactic ecliptic on 12/21/2012 (Winter Solstice)[the Great Year is the completion of travel though *all* 12 Houses; a happening occuring once every 26000 years].

dumpster's picture

yes the time 25,750 years ago was something for the record books

dumpster's picture

usa now with 800 quadzillion in unfunded debt .

more coming .  and the very black pot  calling others dirty pans lol

dumpster's picture

what will the youngsters say about us in 25,000 years

Hulk's picture

"Two more years and we will have all that debt paid off"

Gordon Freeman's picture

Latest wire says it's now up to 41B.  Do I hear more? C'mon--don't be shy, sir.  I have 61B, from the back of the room--yes, the bald, bearded gentleman from America.  Thank you, sir...

A Man without Qualities's picture

In light of Econophile's article on the cheerleading media, Bloomberg headline says "Greece Offered $61 Billion Standby Loans by Euro States at Rates Around 5%."

It is getting pretty desperate when they spin it so badly.


Comrade de Chaos's picture

" if all those people who participated in the Madoff ponzi were fully aware it was a ponzi (just like RenTec... uh, realized, not that RenTec is a ponzi, that would be presposterous), would they still run hand over fist to throw away their money and buy, buy, buy?"


Some people would & this bias is called ostridge effect.


When I googled April 22, one of the hits was Lenin b day, ah sweet irony of it. 

glenlloyd's picture

a rate of interest below that established by the market means there's a subsidy involved. To state that there's no subsidy is laughable really.

this won't be the end of it either...rising rates or wasted bailouts.

Prof Gulliver's picture

Ah, ZH, where never is heard a nondiscourgaing word. Despite the blather and doomsaying, Dow is heading to 12K and beyond. The govts have learned how to play the game, and will extend and pretend until we're all dead. Notice the wording: they want something done before the markets open Monday. As soon as there's a new worry, there'll be a new "solution." Those following an ass-clown like Cramer have done better than those listening to ass-clown dinasours like Rosie and Cashin. Whoda ever thought the bears would end up becoming the sheeple. 

citizen2084's picture

"If the mechanism had to be activated, it would not be a violation of the no-bailout clause (in the European Union treaty) since the loans are repayable and contain no element of subsidy," Eurogroup chairman Jean-Claude Juncker …


A loan 200+bps below market does not contain an element of subsidy, because it is boldface subsidy – freaking criminals all of ‘em

Mark Beck's picture

How do you gauge risk, for an outside party, in extending loans to a sovereign nation, which by way of its own action can default, leaving the investor with no legal recourse?

It is perhaps in the case of Greece, not one of the expectation to pay, but a mechanism to perpetuate a level of debt interest payments.


The investment is one of control, nothing more.

Mark Beck

Pure Evil's picture

"would they still run hand over fist to throw away their money and buy, buy, buy?"

The same could be said for the casinos in Las Vegas and Atlantic City. Just how do they keep their doors open and convince the rubes to come back again and again after losing their money at the slots and the tables for the upteenth time?

Everyone believes in the "get rich" scheme and somehow they will be the lucky ones. The sad fact is most people neither have the tenacity or the desire to put the hard work in that is required to obtain and hold on to real wealth, whether legally or criminally.

The vast majority are hoping to win the lottery or make it big on the sly. Anything else will cut into their 'stupid time'.

Managing money and wealth takes time, patience, and immense cunning and a little bit of luck.

Any time away from getting drunk, fornicating, watching TV, eating, doing drugs, riding your motorcycle, following celebrities, sleeping, or, enter your favorite pastime here, is time not well spent for your average joe.

fxrxexexdxoxmx's picture

enter your favorite pastime here


David449420's picture

For many, indeed most people "getting drunk, fornicating, watching TV, eating, doing drugs, riding your motorcycle, following celebrities, sleeping, or, enter your favorite pastime hereis time well spent."

Most of the population wants (and expects) the financial system to be a means to an end. It should be just one more tool in a well functioning society.  They don't want to have to deal with the FACT that our monetary systems have been compromised and gamed.  That the criminals have taken over

You see it, I see it.  But, most of the population doesn't want to have to deal with that.  This is an extremely unpleasant situation to have to face up to, and consequently until it DIRECTLY and ADVERSELY affects them, you will not see the majority of the population respond.   Most will eventually become aware of the facts.  But too, too, too late. 

Crime and Corruption pervades ALL aspects of our monetary systems and when the bulk of the population(s) wake up to this, and they will eventually, there is going to be MASSIVE civil unrest.

The next decade is NOT going to be boring.

And that is Not a Pipe Dream. (I wish it was)




knukles's picture

April 22, the Greek Civil Servants will go on a 24 hour job action? (Strikes are illegal, job actions, not, BTW)

You mean no one will be working? 
We're saved!

We are all Joe Stiglitz, now.  Ahhhhhhhhh.  Just like a good dump. 

Grand Supercycle's picture


The bear market rally wants to continue for a bit longer ... 

DOW/SP500 daily bull signals from Friday 9 April continue.