"if you don't ask the most fortunate Americans to bear a slightly larger burden of the privilege of being American, then the only way to achieve fiscal sustainabilty is through unacceptably deep cuts"
Yes, Greece had a smaller, shakier economy and doesn't have a central bank to print its own currency at will like Japan or the US. But even those countries with a printing press learn that, after a certain point, expanding the money supply only complicates the problem of too much debt by inflating key economic input costs and dangerously weakening the currency. The cold hard fact Greece is facing is that it's now at the point where extraordinary losses need to be taken. The problem is, no one wants to take them. And all the sturm und drang being exhibited by Brussels, the ECB, sovereign debt holders, and other world leaders is nothing more than a frantic game of hot potato. The one thing we can be confident of is that at some point, these losses will be taken. The market will eventually force it. And the second thing we can predict is: we don't know what will happen when they are. There is so much complexity in the counterparty exposure to Greece debt - as well as the much larger derivative exposure tied to this debt - that anything between "not much" and "worldwide financial conflagration" could be possible. And that's just Greece. As other larger countries begin to sink under the weight of their sovereign debts, the risks to the global financial system increasingly escalates. Which is why Ben Davies has a hard time finding a good home for investment capital other than gold.
You hear a lot about Kafkaesque stifling bureaucracy in Greece and other struggling European nations, but America's Status Quo is trying its best to destroy small enterprise with taxes and crushing bureaucracy. I am self-employed, and have been for most of my life. When I did take a paid position, it was in other small enterprises or local non-profit organizations. I mention this because there is an unbridgeable divide in any discussion of small business between those who have no experience in entrepreneural enterprise (i.e. they've worked for the government, NGOs/non-profits or Corporate America their entire careers) and those who have. There are all sorts of similar chasms that cannot be crossed and which quickly reveal a surreal disconnect from actual lived reality: for example, the difference between actually playing football--yes, with pads, a muddy field and guys trying to slam you to the ground--and being an armchair quarterback who's never been hit even once, never caught a pass or ever struggled to bring down a faster, bigger player. (And yes, I did play football in high school as a poor dumb skinny kid who mostly warmed the bench for good reason, but I lettered.) At the extreme of this disconnect, we have armchair generals screaming for war who have no experience of combat or war as it is actually experienced. You get the point: it's very easy for well-paid pundits who have never started a single real enterprise or met a single payroll to pontificate about "opportunity" and small business as the engine of growth, blah blah blah. It's also easy for those with no actual experience to reach all sorts of absurd conclusions about how easy it is to turn a small business into great wealth. (No, Bain Capital or other Wall Street outposts of financialization are not "small business.")
My advice is to put all of the headlines aside because they are not accurate. No deal has actually been struck and there is just the possibility of one at present. The PSI is also nowhere near certain. There has certainly been a proposal made with innumerable and probably impossible conditions to be met by Greece including a demand for a Constitutional change, which under the current Constitution, cannot even be voted on until 2013. I often wonder if Europe really wants to bail Greece out or if Germany is not forcing so many conditions that they are trying to have them exit the Euro on their own so the Germans are not seen as the Lord High Executioner; to quote Mr. Gilbert & Sullivan.
There are those who remember that back in February 2010, before the world realized just how broke Greece was, the public's deplorably short attention span was briefly focused on none other than Goldman Sachs, which as so often happens, was at the heart of the scheme enabling Greece to skirt by Maastricht regulations and mask the fact that its debt and deficits were both far worse than represented publicly. There are also some who remember that back in February 2010, it was none other than the Federal Reserve that tasked itself with uncovering whether Goldman did anything "illegal" by engaging in currency swaps to make the Greek economy appear rosier than it was: "We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece," Bernanke said in testimony before the Senate Banking Committee.... Greece in 2001 borrowed billions, with the aid of Goldman Sachs in a deal hidden from public view because it was treated as a currency trade rather than a loan....Goldman Sachs spokesman Michael DuVally declined to comment on the Fed's probe. "As a matter of policy we don't comment on legal or regulatory matters," DuVally said. Goldman Sachs had defended the transactions in a statement posted on its Website Sunday. The firm said they had a "minimal effect" on Greece's overall fiscal situation." Maybe, just maybe it is time, two years later, for the world to hear something, anything, from the Fed as to what its seemingly quite extensive investigation into Goldman's has yielded.
Since the European colonial state of southern Bavaria Sachs (formerly known as the insolvent Hellenic Republic) no longer even pretends to be anything less than a pass-thru funding colony of its creditors, said creditors (European banks and various insurance companies) are about to send out the first group of colonial scouts in the form of German tax collectors. Also, since as reported previously, Greece will literally have to collect taxes to fund the Second "bailout package", which is merely a front for on ongoing Greek bailout of European banks (recall that it is Greece who is partially funding the bailout Escrow Account), said tax collectors will assist their Greek counterparts (who will rather likely miss their quote of becoming 200% more efficient in 2012) in collecting money from Greek citizens to pay off German banks. If in the process a few (or all) bars of gold end up missing, so be it.
No. No way. If we have to go through one more year of endlessly repetitive and utterly worthless European bullshit, rumors, headlines, and other subterfuge whose only point is to extend and pretend the fact that Europe is utterly broke, just so the effete Greek citizens can pretend they give a rat's ass about their independence, when in reality they will gladly pay 80% of their salary to keep European banks solvent simply to retain the illusion that their retirement funds are still worth more than diddly squat, we are done.
Silver and Gold remain the major outperformers year-to-date but the rest of commodities - most notably oil is catching up very fast having over taken stocks this week. It appears that the new-found flood of liquidity that we have been so passionately banging the table on for weeks, has found its way into the energy complex as European Sovereigns, European Financials, European Stocks, and US Stocks have all flattened or turned down as Crude and WTI surge. And as a hint to anyone who hasn't jumped on this tidal movement yet, one thing to note is that unlike stocks, commodities always have the risk of marginal or weak hands being shaken out via CME...margin hikes.
For our quote of the week, we go to the man who almost brutally cut the meal between breakfast and brunch (it was formerly supposed to be German demand #39 for Greece but was mysteriously cut in the final draft) in the name of fiscal austerity and setting a shining example of calorific sacrifice. We repeat almost. Quote Busineweek: "No one pays attention to the activation of the CDS." Venizelos told lawmakers in comments broadcast live on state-run Vouli TV........ :0
When even the bullshitters get tired of the bullshit! Financial contagion tale of Greece, the need for Grease & what happens to those without it, featuring the "Bad Ass" interview...
Greece Issues Exchange Offer Terms; Raises Minimum Acceptance Threshold To 75% From 66%; €10 Billion Buys PSI KillerSubmitted by Tyler Durden on 02/24/2012 13:39 -0400
Three days ago we recoiled in terror at the stupidity of Greek leaders, when we learned that the Greek exchange offer would be deemed satisfactory if only 66% of bondholders accept it as valid, as it would mean an immediate abrogation of UK-law bonds which have a 75% minimum covenant threshold as specified in the indenture. Apparently this was a "small oversight" on behalf of the gross amateurs in charge of this process as according to the just released full exchange offer doc, this threshold was mysteriously raised to the proper minimum acceptance threshold of 75%. Of course, it is needless to say that at least 25% of Greek bondholders will decline the offer, either in the current Greek law exchange, or the forthcoming UK-law one, which would throw the whole process into a tailspin. Because here is the kicker, from the release: "if less than 75% of the aggregate face amount of the bonds selected to participate in PSI are validly tendered for exchange, and the Republic does not receive consents that would enable it to complete the proposed exchange with respect to bonds selected to participate in PSI representing at least 75% of the aggregate face amount of all bonds selected to participate in PSI, the Republic will not proceed with any of the transactions described above." So here's the math: if one has 25% +1 of the €177 billion in Greek-law bonds, they can smash the entire process (and give Germany a way out, wink wink). At today's price of about 20 cents on the dollar, this means that one can hold Greece, and thus Europe (assuming Europe wants Greece in the Eurozone and Germany itself is not the biggest shadow hold out) hostage for less than €9 billion. Or better yet, since the total bonds subject to PSI are about €206 billion, this means UK law bonds of just €29 billion are part of the deal, and one can buy a blocking stake there, at roughly 30 cents on the euro, for a meager €2 billion in cash out today. Furthermore since many hedge funds already have built up blocking stakes, this almost certainly means that Greece will not get the requisite needed votes to pass the exchange. Wondering if these hold-outs are actively shorting the market knowing they can bring Europe to its knees with virtually no capital at risk? You should be.
Consider that when we include the rest of the PIIGS countries, Deutsche Bank’s “actual” exposure (as downplayed as it might be) is still 35 BILLION Euros, an amount equal to 60% of the banks’ total equity.
As the banks in Europe report out earnings; or the lack thereof in most cases, it becomes clear that the LTRO is helping with liquidity but not with solvency past some very short term point. This is always the case of course but it is beginning to hit home. The balance sheets for many European banks have now swelled on the liability side with more and more debt piling up courtesy of the ECB while their assets decrease due to the Basel III mandates so that the financials of these banks begin to deteriorate. It is not just the losses from their Greek debt holdings that are coming into play but also their potential future losses from sovereign debt write downs markedly for Portugal soon I think but also perhaps for Spain and Italy in the near term as the recession in Europe brings new problems to the fore which will further reduce the value of sovereign and bank credits in Europe.
We announced previously that as a result of the second "bailout" Greece would not see one penny, as it itself would be required to fund the creditor escrow package, in essence meaning that the flow of funds would from Greece to Europe. Yet somehow, a little money must have made its way to the Greek government. We now have a first look at just what it is that Greece is spending this newly panhandled cash on, courtesy of the WSJ...
The better tone in risk markets is largely being driven by encouraging economic data from the US and Europe, which as a result saw Bunds trade in negative territory. Of note, ECB’s Liikanen has said that inflation is not a particular concern in Europe, adding that the ECB has never said that there is an interest rate floor. On the other hand, Gilts are being supported by comments from BoE’s Fisher, as well as less than impressive GDP report. Nevertheless, EUR/USD took out touted barrier at the 1.3400 level earlier in the session, while USD/JPY is trading in close proximity to an intraday option expiry at 80.60.