We just may have a deal:
- EU OFFICIAL SAYS DEAL REACHED ON GREEK DEBT-CUTTING PLAN: AP
- 'PRIVATE CREDITORS TO TAKE 50% CUT ON GREEK BONDS, AP SAYS
- EU official, who wished to remain anonymous, tells Bloomberg that euro-area leaders are set to approve accord for 50% writedown on Greek bonds
If true, this means that Portugal, Ireland, Spain and Italy will promptly commence sabotaging their economies (just like Greece) simply to get the same debt Blue Light special as Greece. It also means that, at least according to Barclays, we have a CDS credit event, although we are certain that Europe would never announce this deal unless ISDA (complete determinations committee list here) was onboard, and corrupt as always. In addition, Greece was unable to generate a 90% acceptance for a 21% haircut tender offer. And we are somehow supposed to believe they can do it with 50%? Lastly, as a reminder, on September 14, Moody's put SocGen, BNP and Credit Agricole on downgrade review. This will be the trigger
Here is the draft document with our thoughts inserted directly into the document. As more actual details or termsheets become available we will attempt to analyze them as well.
As the sheer mathematical certainty of the event horizon that is Europe these days is slammed at light speed into the foreheads of the European cognoscenti, we finally see some actual frustration, foot-stomping, and 'throw-your-teddy-bear-out-of-the-pram'-ness. The Telegraph reports on some choice turns-of-phrase among the leading players, our favorite being:
"It was grim. The worst mood I have ever seen, a complete mess," said one eurozone finance minister.
But it only got better from there, with several of the major movers feeling the need to express their frustration (and what is German for Schadenfreude?).
Bank of America Lynch[ing this] CountryWide's Equity Is Likely Worthess and It Will Rape FDIC Insured Accounts Going BustSubmitted by Reggie Middleton on 10/22/2011 07:50 -0400
Warning! Highly controversial post. Long. Thick (with information) & HARD [hitting]! Thus if you are easily offended by pretty women, intellectually aggressive brothers in cognitive war garb, government regulators selling you out to the highest European bidder, or cold hard facts borne from world class research not seen in the sell side or the mainstream media, I strongly suggest you stop reading here and move on. There is nothing further for you to see.
Following two poor bond auctions in the overnight session from Spain and France, things once again looked set to fall apart in both the stock futures and the FX (EURUSD) markets until the latest deus ex appeared after the latest report by international creditors on Greece’s finances recommended paying the next installment of aid to Greece as soon as possible. Naturally: after all such a payment is merely passthru funding which Greece hardly sees one sent of, and the bulk of the capital is immediately recycled to creditors in the form of interest expense and debt maturities. Bloomberg quotes “The Commission services recommend the sixth disbursement to Greece to take place as soon as possible: as soon as the agreed prior actions on fiscal consolidation, privatisation and labour market reform, which were announced by the government, have been legislated,” the report by the so-called troika of officials from the European Central Bank, EU Commission and IMF said. Of course, were the Troika to allow full disbursement without any "stern" warnings over the deterioration in the Greek economy, in which nobody works any more, the Finance Ministry is occupied and a general strike is the "new normal", it would have been beyond farcical. Which is why the Troika noted that the Greek debt ratio, which exceeded 140% of GDP at the end of 2010, will remain “at very high levels for many years,” according to a draft report by the Troika. “If fiscal consolidation and privatization targets are respected, and growth responds to structural reforms, the debt ratio may start declining from 2013 onwards...When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated’." And it will continue deteriorating because Greece now knows too well it can demand anything and everything from Europe and it will get it, since nobody at the Troika can ever refuse to fund the insolvent country's monthly pre-alimony payment.
Federal Reserve and Bank of America Initiate a Coup to Dump Billions of Dollars of Losses on the American TaxpayerSubmitted by George Washington on 10/18/2011 20:06 -0400
Just another coup, which will scalp us of many billions of dollars ...
There Is No Bailout Spoon: The Math Behind The €2 Trillion EFSF Reveals A "Pea Shooter" Not A "Bazooka"Submitted by Tyler Durden on 10/18/2011 13:53 -0400
The latest and greatest plan to bail out Europe revolves around using the recently expanded and ratified €440 billion EFSF, and converting it into a "first loss" insurance policy (proposed by Pimco parent Allianz which itself may be in some serious need of shorting - the full analysis via Credit Sights shortly) in which the CDO would use its unfunded portion (net of already subscribed commitments) which amount to roughly €310 billion, and use this capital as a 20% "first-loss" off-balance sheet, contingent liability guarantee to co-invest alongside new capital in new Italian and Spanish bond issuance (where the problem is supposedly one of "liquidity" not "solvency"). In the process, the ECB remains as an arm-length entity which satisfies the Germans, as it purportedly means that the possibilty of rampant runaway inflation is eliminated as no actual bad debt would encumber the asset side of the ECB. A 20% first loss piece implies the total notional of the €310 billion in free capital can be leveraged to a total of €1.55 trillion. So far so good: after all, as noted Euro-supporter Willem Buiter points out in a just released piece titled "Can Sovereign Debt Insurance by the EFSF be the "Big Bazooka" that Saves the Euro?" there is only €900 billion in financing needs for the two countries until Q2 2013. As such the EFSF would take care of Europe's issues for at least 2 years, or so the thinking goes. There are two major problems with this math however, and Buiter makes them all too clear....Buiter's unpleasant, for Allianz, Merkel and Sarkozy conclusion is that "that would likely not fund the Spanish and Italian sovereigns until the end of 2012. It would not be a big bazooka but a small pea shooter."
Greece is not the issue here. The issue is that Europe as a whole is broke, facing massive unfunded liabilities, and running out of viable creditors to band-aid its banking crisis. We are literally talking about a banking system collapse over there.
We are still waiting to see the final form of the "Grand Plan" and what novel ways the EFSF guarantees will be applied to save the day. At the risk of sounding incredibly stupid, I have this feeling that Europe didn't actually work on any details until this past week, and Germany is suddenly realizing how bad the details are for them. Is it possible that some politicians got so caught in the moment of "saving Europe" and "fighting the speculators" that they kept promising more and more, without thinking whether they could or should deliver? You would like to think they didn't, but since none of the politicians are detail oriented, most of their contacts at investment banks are high level, former bankers, rather than traders, it is quite possible they didn't realize what they had agreed to. If some new EFSF is created, all of the future bargaining power in Europe will be shifted from France and Germany to PIIS. (it is a shame Ireland wasn't named Shamrock, it would make the acronym so much better).
French Banks Can Set Off Contagion That Will Make Central Bankers Long For The Good 'Ole Lehman Collapse Days!Submitted by Reggie Middleton on 10/17/2011 13:46 -0400
Due to the rampant misinformation and disinformation (please recognize and appreciate the distinct difference) being bandied about, I've decided to run the #s 1 more time and put it right here in this post.
Appetite for risk was observed during the Asian and European sessions on enhanced prospects that the eight-day deadline given by the G-20 leaders to resolve an ongoing Eurozone debt crisis would bring some positive outcome before the EU leaders' summit on October 23rd. Nikkei (+1.41%) closed higher and European equities also received a boost, with financials as one of the better performing sectors, which was further helped by comments from Moody's that accelerating talks to recapitalise European banks are credit positive for the banks. News that China has offered to spend tens of billions buying European infrastructure projects and government debts strengthened the appetite for risk. However, later in the European session, comments from the German finance minister and a German government spokesman that a concrete solution for the Eurozone crisis couldn't be found by the EU summit dented risk-appetite. In the forex market, after trading lower during early European trade, the USD-Index ventured in positive territory, which in turn weighed upon EUR/USD, GBP/USD and commodity-linked currencies, however GBP did receive support following a sharp jump in the Rightmove House Prices from the UK overnight. In other news, CHF received a boost across the board following market talk that SNB's president Hildebrand may resign, whereas CAD received support on news that the Canadian finance minister and the Bank of Canada governor may go beyond inflation-beating monetary policy measures. Moving into the North American open, markets will look ahead to key economic data from the US in the form of Empire manufacturing, industrial production and capacity utilisation.
We are confident the spinmasters will spin the first major domino in the muni crisis as bullish: after all it "removes uncertainty." Bloomberg reports that "The city of Harrisburg, Pennsylvania, facing a state takeover of its finances, filed for bankruptcy protection following a vote by the City Council, according to a lawyer for the council.Mark D. Schwartz, a Bryn Mawr, Pennsylvania-based lawyer and a former public finance banker for Prudential Financial Inc., said he filed the documents by fax to a federal bankruptcy court last night. The filing couldn’t be confirmed with the U.S. Bankruptcy Court in Harrisburg.The state capital of 49,500 faces a debt burden five times its general-fund budget because of an overhaul and expansion of a trash-to-energy incinerator that doesn’t generate enough revenue. “This was a last resort,’’ Schwartz said in an interview after the council voted 4-3 to seek bankruptcy protection. “They’re at their wits’ end.’’While bankruptcy would mean the loss of state aid under a law passed in June, it would be preferable to a proposed recovery plan, said Councilwoman Susan Brown-Wilson." Well, at least Jefferson County will not have the dubious legacy of being the first muni to push everyone else over. And now that the precedent has been set (yes, Virginia, it can be done) watch as tens if not hundreds of other cash-strapped towns, cities, localities and other entities follow suit promptly to quite promptly.
No and Yes ...
With the zEURQ.BB surging, it appears nothing can possibly rain on Europe's parade today. Nothing, perhaps, except for the poorest country in the Eurozone, Slovakia, which as we detailed over the weekend appears poised to destroy the Eurozone, the Euro, and force a fresh restart, one that actually works. As Reuters reports, "Slovakian coalition leaders meet on Monday in a last-ditch bid to reach agreement on widening the mandate of the euro zone's bailout fund, under increasing pressure from turmoil in euro zone banks and a shift in public opinion at home. The small liberal Freedom and Solidarity (SaS) party argues that, as the zone's second poorest member, Slovakia should not have to bail out other euro zone countries, but it says it is still open to talks. The coalition parties called a meeting for 4 p.m. (1400 GMT) ahead of a vote on the EFSF in parliament on Tuesday, a spokesman for the SaS said. The party has so far said it will vote against the EFSF expansion." Alas, that was 4 hours ago. We just got an update from Bloomberg: Slovak SAS Party Says Won’t Change Position on EFSF. It may be time to book those EURUSD profits and sit it out for the rest of the day as it can get quite messy.
Thank god for Dexia's implosion this morning, or else the world would be forced to pay attention to the fact that Greece is still as insolvent as ever and still without a formal Troika approval for disbursement of the critical 6th tranche that Greece needs or else. Also, were it not for Dexia someone might notice that two other banks bit the nationalization bullet in the past 24 hours as the contagion, not from Dexia, but from the fact that there is simply not enough money around: as a result Danish Max Bank and Greek Proton Bank just handed the keys to their HQs to their primary regulators, with the management teams quietly riding off into the sunset. They are the lucky ones: in a few months it won't be nearly as easy to find "nationalization" funding and keep your depositors away from the "tar and feathers" toolshed.