Creditors

Setting a precedent of official sector losses would raise huge questions over whether Portugal and Ireland will request similar treatment. However there are now no easy options. The current course of a second Greek bailout could just as easily have knock-on effects in the form of a second round of taxpayer-backed rescues. We have always argued strongly against taxpayers taking losses but, unfortunately, this is one of the few plausible options we’re now left with.

While hardly new to anyone who actually has been reading between the lines, and/or Zero Hedge, in the past few months, the Greek endspiel is here, and as a note by Goldman's Themistoklis Fiotakis overnight, the Greek timeline, or what little is left of it, "allows little room for error." Furthermore, "Due to the low NPV of the restructuring offer it is likely that part of this investor segment may be tempted to hold out (particularly owners of front-end bonds). How the holdouts are treated will be key. Paying them out in full would probably send a bullish signal to markets, yet it would be contradictory to prior policy statements about the desirability of high participation both in practical terms as well as in terms of signalling. On the other hand, forcing holdouts into the Greek PSI in an involuntary way would likely cause broad market volatility in the near term, but could be digested in the long run as long as it happens in a non-disruptive way (as we have written in the past, avoiding triggering CDS or giving the ECB’s holdings preferential treatment following an involuntary credit event could cause much deeper and longer-lived market damage)." Once again - nothing new, and merely proof that despite headlines from the IIF, the true news will come in 2-3 weeks when the exchange offer is formally closed, only for the world to find that 20-40% of bondholders have declined the deal and killed the transaction! But of course, by then the idiot market, which apparently has never opened a Restructuring 101 textbook will take the EURUSD to 1.5000, only for it to plunge to sub-parity after. More importantly, with Greek bonds set to define a 15 cent real cash recovery, one can see why absent the ECB's buying, Portugese bonds would be trading in their 30s: "Portugal will be crucial in determining the market’s view on the probability of default outside Greece... Given the significance of such a decision, markets will likely reflect concerns about the relevant risks ahead of time." Don't for a second assume Europe is fixed. The fun is only just beginning...

Forget farce. Forget tragicomedy. Frankly, we are out of words to describe what is happening in Greece, Europe, and, actually - the world. Luckily, Kathimerini has just the headline, and associated story, to help us through this moment of verbal crisis. In one year this headline will be appearing in all insolvent countries (pretty much all of them), who will have pledged all of their sovereign assets as cash collateral, promptly used up by creditors to pay their interest payments using "escrow accounts" which make the debtor nation merely a fund flow intermediary with a seasonally unadjusted beggar-to-population ratio of 100%.

If the people in this country had any balls (or actual leaders and not just the Corporate puppets we're allowed to vote for), we'd have a mortgage strike.

Back in July of 2011, when we first predicted the demise of the second Greek bailout package, even before the details were fully known in "The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP" we asked, "what happens tomorrow when every German (in a population of 82 very efficient million) wakes up to newspaper headlines screaming that their country is now on the hook to 32% of its GDP in order to keep insolvent Greece, with its 50-some year old retirement age, not to mention Ireland, Portugal, and soon Italy and Spain, as part of the Eurozone? What happens when these same 82 million realize that they are on the hook to sacrificing hundreds of years of welfare state entitlements (recall that Otto von Bismark was the original welfare state progentior) just so a few peripheral national can continue to lie about their deficits (the 6 month Greek deficit already is missing Its full year benchmark target by about 20%) and enjoy generous socialist benefits up to an including guaranteed pensions? What happens when an already mortally wounded in the polls Angela Merkel finds herself in the next general election and experiences an epic electoral loss? We will find out very, very shortly." Alas, it has not been all that very "shortly", as once again we underestimated people's stupidity and willingness to pay the piper of a crumbling economic and monetary system. But our prediction is finally starting to come true. Spiegel has just released an article, which encapsulates what well over 50% of Germans think, who say that the time to let Greece loose, has come.

The other other John Taylor (not the FX trader, nor the guitar player, but the "Taylor Rule" discoverer, which is at the base of all Fed monetary decisions), spoke on Bloomberg TV, and his message was certainly a far less optimistic one than that conveyed by the man charged with putting his rule into practice. "We could get into a situation like Greece, quite frankly. People have to realize it is a precarious situation. The debt is going to explode if we don't make some changes." What changes does Taylor recommend? Why the same that Bill Gross warned about yesterday - that ZIRP4EVA means a liquidity trap pure and simple, and the Fed needs to start rising rates: "the Fed has bought so much of the debt that people don't know how they're going to undo that. They pledged to have interest rates at zero until 2014, but people are saying how can they possibly do that when the economy picks up. This uncertainty had lead people to sit on all this cash. I think if the Fed gets back to the policy that worked pretty well in the '80s and '90s, we would be in much better shape." Ah yes, but the one thing, and only one thing that matters, and that is not mentioned at all, is what happens to the stock market when the Fed officially sets off on a tightening path. Actually make that question even simpler - will the drop in the S&P will be 30%, 40%, or any other greater mulitple of 10% thereof, considering that as we noted previously, the Fed and the other two central banks alone have injected over $2 trillion in just over a year. And about $10 trillion in the past 5. Calculate what the removal of this liquifity would do to stocks...

• Please - we beg you, help us - IMF Urges Beijing to Prepare Stimulus (WSJ)
• Stalemate in talks on Greek austerity measures (Telegraph)
• U.S. Sets Money-Market Plan (WSJ)
• Forty States Sign On to Foreclosure ‘Robo’ Settlement (Diana Olick)
• Greece bail-out funds could be split (FT)
• Japan Adopts Stealth Intervention as Yen Gains Hurts Growth (Bloomberg)
• Papademos to Meet Greek Party Chiefs as ‘Great Sacrifices’ Loom (Bloomberg)
• Glencore-Xstrata deal meets shareholder opposition (Reuters)
• Romney campaign takes aim at rival Santorum (Reuters)

If you think the EU Crisis is over, think again. True we’ve got until March 20^th for the Greek deal to be reached, but things have already gotten to the point that Germany has essentially issued its ultimatum. Either Greece hands over fiscal sovereignty, or it defaults in a BIG way.

macroandcheese.org

Weekend talks between Greek government officials failed to reach a definitive conclusion and as such market sentiment has been risk averse across the asset classes. The equity market has been chiefly weighed upon by the banking sector and as such underpinned the rise in fixed income futures. However, recent trade has seen a slight pullback led by tightening of the French spreads on reports of good domestic buying noted in the belly of the French curve. Today marks the deadline for Greece to provide feedback as to the proposed bailout terms put forth by the Troika, but with continued disagreement on the fine print in the additional austerity proposals, market participants remain disappointed in the lack of progress. Of note a PASOK spokesman has said that Greece should not hold a general election after clinching an agreement on a second bailout package, suggesting instead an extension of Lucas Papademos' tenure. However, the two main unions of Greece have called for a 24hr strike on Tuesday. Looking ahead there is little in the way of major US economic data today so Greece will likely remain the dominant theme for the rest of the session.

It is not shaping up to be a pleasant weekend for Greek finance minister Evangelos Venizelos, who as a reminder until June 17, 2011 was the Greek defense minister and likely the man responsible for buying up all that European military equipment (with whose money nobody knows), or his boss, G-Pap successor and former ECB VP Lucas Papademos. The reason is that Greece is scrambling to reach a deal with the Troika that permits the €130 billion second bailout to be disbursed (unclear how the €15 billion add on would be theater), yet a key precondition of Troika demands is labor reform (a cut of the €750/month minimum wage, and various headcut reductions across the nation), which however as reported yesterday has seen all three coalition cabinet member throw up on. In other words, Greece has about 24 hours to do the impossible, unless of course it simply delays and does nothing once again. Alas, the real issue is that unlike before, there is a hard deadline of a bond maturity cash outflow on March 20, and absent resolution, which especially on the PSI issue should come far in advance as an exchange offer takes at least 6 weeks to finalize, there will be no deal. So while this weekend may come and go, without anything being resolved, the days can kicking, as Zero Hedge said back in January, are ending.

Watch out for the Rhino. 

Daily news.

Yesterday, Greek finmin Venizelos did his best to exude confidence when he, of all people, decided to give the ECB, and thus Germany, a virtual ultimatum demanding that public sector creditors are also impaired (supposedly only some, while excluding Greek pension companies). Kathimerini has more on this in "Never mind PSI, OSI is all the rage." And the only reason why Veni needs this critical step is because the hedge fund holdouts among the PSI creditors demand it. Alas, Germany does not deal well with ultimatums, especially from fiscal vassals. As OpenEurope notes, Die Welt reports that Greek Finance Minister Evangelos Venizelos has called for Greece’s official creditors, such as the ECB and national central banks, to take part in the restructuring of Greek debt, something German Economy Minister Philip Rösler insisted was “not currently on the agenda”. It gets better. According to Goldman, German Finance Minister Wolfgang Schäuble said that "no additional contributions from the public sector are necessary.”  German finance minister against public sector participation in Greek debt restructuring. Speaking to news channel n-tv finance minister Schäuble said that "Greece needs a reduction in private sector claims of 50% … It does not need an additional contribution from the public sector because we're shouldering everything anyway". When asked whether he thinks that the composition of the Euro area would be the same at the end of the year as today, Schäuble replied: "I hope so". So there you have it: Greece needs further concessions, which Germany will give, if and only if Greece concedes to previous German demands of abdicating fiscal independence. The only question is how badly Greece needs German help. Everything else is smoke and mirrors.

Was the Chapter 11 Petition of MF Global Holdings filed fraudulently?