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Why The Taxpaying Populace Of Greece Better Stock Up On Their Grease!

Reggie Middleton's picture




 

Earlier this morning I stated Structural Problems Cannot Be Solved Though Bailouts! As A Matter Of Fact, Bailouts Make The Situation Worse
in reference to the situation surrounding Portugal's downgrade to junk
status and its inevitable default (in some form or fashion, most likely
draped in the political nomenclature of something considerably more
palatable to the sheeple). Well, the same goes for Greece, although to a
much more drastic extent.

Bloomberg reports: Portugal Rating Cut on Possible Greek Follow

Europe
is now inching toward a goal of getting banks to roll over 30 billion
euros of Greek bonds, instead of opening a hole for the official lenders
to fill. French banks, with the biggest holdings in Greece, worked out a
rollover formula that is serving as an example elsewhere, with two
options for bondholders to replace their maturing securities.

At the same time, Standard & Poor’s said this week the plan may temporarily place Greece in “selective default” if implemented.

Portugal this year joined Ireland and Greece in turning to the EU and the International Monetary Fund for emergency funding after their budget deficits ballooned. Moody’s yesterday said it also based its credit rating cut on risks that Portugal won’t be able to fully achieve its deficit-reduction target.

“It’s a reminder that the sovereign debt
crisis does not end with Greece and that risks remain with other nations
in addition to Greece,” said Gary Pollack, who helps oversee $12
billion as head of fixed-income trading at Deutsche Bank AG’s Private
Wealth Management unit in New York.

I'd like to make this perfectly clear and have absolutely no problem going on the record with it in full HD fidelity...

image002image002

There has been a large amount of capital lent to (and invested in)
Greece. The collateral behind (recipient of) said capital has devalued
along with popping of the asset securitization crisis bubble
to such an extet that it is a mere fraction of what it was valued at
when said capital was invested. What does this mean? Well, it means that
no matter what financial engineering scheme you attempt to wrap around
it (and I happen to be particularly skilled at financial engineering, so
I should know), no matter what socio-political finanacial nomenclature
you attempt to drape it in, and not matter how far you attempt to kick
said can down the road in a "delay and pray" tactic of pushing the
inevitable collapse past your particular tenure at the helm in an
attempt to make it someone else's problem... The only way out of this
for Greece, Portugal, Ireland and other profligate states is an old
fashioned reneging on its payback oblications. A plain vanilla default.
The explicit action that unequivocally informs you in no uncertain terms
- You ain't gettin' your money back!

The chart above is an obvious reason why Greece not only has an
inevitable default in its future, but why the faster they default the
better off Greece is as a whole. Reference the test case known as
Iceland whose banks defaulte on $85 billion, from Bloomberg:

Debt Raters Miss Iceland Rebound

The credit rating companies that were
too slow in predicting Iceland’s economic collapse in 2008 may be
underestimating the strength of its resurrection.

Fitch Ratings said in May it may take two years for the island to shed its junk status, while Moody’s Investors Service and Standard & Poor’s give
Iceland their lowest investment grades. That hasn’t deterred investors
from trying to buy twice the amount offered in last month’s $1 billion
bond sale as the island returned to global capital markets less than
three years after its banks defaulted on $85 billion in debt.

“When you look at how successful that
auction was, it’s clear that investors are now crunching the numbers
themselves and that the credit grades from the rating agencies are less
relevant,” Valdimar Armann, an economist at Reykjavik-based asset
manager Gamma, said in a July 4 interview.

Iceland’s
experience shows the rating companies may be overcompensating after
failing to identify some of the risks that led to the global financial
crisis, said Armann. While Moody’s kept a Aaa rating on Iceland until
five months before its banks collapsed, reluctance to raise the island’s
credit grade now is blocking the country’s access to a broader investor
base. Debt derivatives show the low ratings may be unwarranted as
credit default swaps on Iceland indicate it’s less likely to default
than euro member Spain.

You see, the only true workable solution is to expunge
the debt and have the original debt investors take realize their
significant and material capital losses. As it stands now, for political
reasons and to maintain the status quo of the existing banking
oligarhcy, more debt is being piled onto these nations for the tax
paying populace to attempt (and fail) to service! Thus, severe and
aggressive austerity plans are being implemented to payback banks and
other lenders (at what can be considered usurious terms, enter the IMF),
thuse forcing recessionary pressures upon the working populace. This is
a thick and heavy shaft, one that is onerous enough to quite possibly
require grease for the citizens and denizens of Greece to consider
palatable. On the other hand, they can do the Iceland, who is already
lapping Greece in both economic growth and demand for its debt!

The situation between the 1st and 2nd Greek (and soon to be Portuguese) bailouts have essentially remained unchanged!

image018image018

As excerpted from It Should Be Obvious To Many That The Risk Of Defaulting Sovereign Bonds Can Spark A European Banking Crisis



If you think those charts look painful, imagine if the Maastricht
treaty was actually respected. Our models haven’t pushed passed 80% debt
to GDP, but if you were to put the treaty’s debt ceiling in you would
see the very definition of contagion. The following chart represents the
first order consequences of a 62% haircut on Greek debt…

Despite the fact that the only way out of this is a true
default and destruction of the debt capital proffered during profligate
times, TPTB will try their best to find a workaround, because what's
best for the people of Greece, Portugal, Ireland and as we have already
seen - Iceland, is absolute anathema to the bankers that binged on this
stuff at 40x leverage ans sitting on 50% devaluations as we speak. You
simply do the math: 40 x (-50%) = what kind of returns? Insolvency,
first and foremost!

Subscription Document Archive:

File IconGreece Public Finances Projections

icon Sovereign Contagion Model - Retail (961.43 kB 2010-05-04 12:32:46)

File Icon Sovereign Contagion Model - Pro & Institutional

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Thu, 07/07/2011 - 20:20 | 1434584 Zero Govt
Zero Govt's picture

Reggie, fab stuff again :)

Ok so Greece is going bankrupt, the $160bn question is when?

Given whenever Greece gets money it pisses it away faster than its official spending plan, and its book always leak faster than the official balance sheet, can you give us a back of the envelope (ok use a calculator) estimate of how long it'll take Papaparasite to suck this lastest bucket of bailout Eurohopium dry please???

Thu, 07/07/2011 - 15:59 | 1433814 Juice Box
Juice Box's picture

Default is the way to go Bitchez!!!

What ever happened to lender liability?  All lenders in corporate finance must be able to show a court that they presumed the borrower could reasonably pay off any debt.  In the 80's, there were scores of lender liabilty lawsuits.  Why can't countries apply the same logic?

Thu, 07/07/2011 - 16:20 | 1433892 edotabin
edotabin's picture

Default: It all depends who is being asked. 

The politicians created this mess in Greece by subverting society with complete dependence on the state. So, now they are facilitating this "deal"

The people are lost, scared and lack any type of compass (moral or otherwise) The only thing they can do is protest and break stuff.

Thu, 07/07/2011 - 15:52 | 1433776 disabledvet
disabledvet's picture

I'm still looking for a plan of action tough guy.  I said buy Wisconsin Energy when it was at 30 (double), buy DirecTV after all of the CNBC variant of the street said sell this past December (up 30 percent) and take a position in what are called "convertible preferred" in El Paso Energy Partners after New Years.  El Paso energy has had an extraordinary run up ever since.  Of course i'm not really interested in all that stuff--here's my view

http://www.youtube.com/watch?v=HLLscEU93Vw&feature=player_detailpage

Thu, 07/07/2011 - 15:05 | 1433560 allenaki
allenaki's picture

Chef of the left party says that: a part of the capital is being destroyed in order to be replaced by another one.

Thu, 07/07/2011 - 13:31 | 1433172 Printfaster
Printfaster's picture

The Icelanders are returning to productive activities like fishing and agriculture.

Another interesting proposal waiting possible construction is a DC line to Scotland.  Perhaps they can export geothermal electricity to Europe.  There is gold in them volcanos.

Thu, 07/07/2011 - 16:08 | 1433850 Whatta
Whatta's picture

I hear Iceland is increasing their export of volcanic dust to Europe.

Thu, 07/07/2011 - 13:29 | 1433155 JailBank
JailBank's picture

Watch your back Iceland. Can JPMorg take out an entire nation? Well we know they'll try.

Thu, 07/07/2011 - 15:38 | 1433707 disabledvet
disabledvet's picture

They can.  Having said that i fail to see how it's not..."counter-productive."  i would think a more reasonable approach is simply to advise the European variant of masters of the universe given our own experience in 2008 and "keep the line open" if they wish to call.  indeed the same advice could be given by our policy makers in DC as well. 

Thu, 07/07/2011 - 13:25 | 1433142 NERVEAGENTVX
NERVEAGENTVX's picture

Plain vanilla default?...Selective default?...Geez, I never thought so much grey area existed between being able to pay your bills and being insolvent. What a wonderful world we live in to be able to have so many options.

Thu, 07/07/2011 - 17:07 | 1434124 Zero Govt
Zero Govt's picture

yes amazing how many words politicians come up with to hide inherent incompetence (and the rest) ...my fav' is "austerity" which makes you think of the streets in 1929's Great Depression with hungry skinny people but what we're really talking about is an obese 29 stone pig still downing 12 Big Macs and 8 Doghnuts a day having his finger dips taken away

British "austerity" involves trimming a pissy little £6bn off a £126bn deficit (still adding £120bn to the national debt per year) ..it's beyond pathetic 

Thu, 07/07/2011 - 13:11 | 1433111 equity_momo
equity_momo's picture

Reggie , the tax paying populace of Greece that have never fudged their tax returns doesnt exist.  This austerity is like grabbing sand. More and more will avoid taxes and more and more will lose jobs thus pay zero taxes. Greece is on bailout lifesupport until the European project goes Supernova.

Thu, 07/07/2011 - 12:51 | 1433032 Bicycle Repairman
Bicycle Repairman's picture

As long as Greeks are given the job of collecting taxes and enforcing order on their fellow Greeks, there's going to be less revenue and order than expected.

Thu, 07/07/2011 - 15:28 | 1433660 BorisSDT
BorisSDT's picture

Understatement of the century.  Have you read Michael Lewis article?  Here is my profanity laden summary of it: http://www.singledudetravel.com/2011/07/greece-greed-graft-and-the-grim-...

Thu, 07/07/2011 - 13:24 | 1433140 Jonas Parker
Jonas Parker's picture

Yeah! Where are the Nazis when the banksters really need 'em? [/SARC]

Thu, 07/07/2011 - 13:35 | 1433189 Bicycle Repairman
Bicycle Repairman's picture

That's what it'll take.  Not gonna happen. Not unless general mayhem breaks out.

Thu, 07/07/2011 - 15:32 | 1433677 disabledvet
disabledvet's picture

There's a guy by the name of General Mayhem?  Whose he?

Thu, 07/07/2011 - 13:57 | 1433266 Pladizow
Pladizow's picture

The Greeks and many others (Washington) have kicked the can into a cul-de-sac, they have no more road and now the idiots are going around in circles!

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