Greece

Finally someone speaks the truth. In an interview with Spiegel Magazine, former Bundesbank chief Karl Otto Pohl, says it how it is: "Without a "haircut," a partial debt waiver, [Greece] cannot and will not ever [repay its debt]. So why not immediately? That would have been one alternative. The European Union should have declared half a year ago -- or even earlier -- that Greek debt needed restructuring." As for the reason for the bailout, Pohl's observation will not be a surprise to our readers "It was about protecting German banks, but especially the French banks, from debt write offs." Is there any hope for Europe now? It appears no, as the right decision was to let Greece go bankrupt: "Investors would quickly have seen that Greece could get a handle on its debt problems. And for that reason, trust would quickly have been restored. But that moment has passed. Now we have this mess." Amusingly, when asked if banks used "speculators" as a straw man to break all EU Rules and especially the Lisbon treaty:"Of course that's possible. In fact, it's even plausible." We can't wait until the German population realizes just how massively it has been scammed. Last week's Nordrhein-Westphalia Merkel loss will seem like a walk in the park once the mobilized German society decides to fix things on its own. Oh, and look for the EU and the euro to be a thing of the past.

The only benefit of hitting rock bottom is you can't really fall further. Which is precisely what has happened with Greece. The little country that started off the chain reaction that has already led to a currency and liquidity crisis, and made the solvency crisis in Europe all too tangible, by belonging to a monetary union it had no place in (a union which no reason to exist in the first place), is once again reminding the world of its existence, this time by G-Pap opening his mouth and inserted two whole legs in it. In an interview with CNN's Fareed Zakaria to be aired today, G-Pap has threatened he may sue US banks for "contributing" to his country's debt crisis. For those of you lacking in analogy skills, Greece is in the same shoes as a bankrupt debtor who wants to sue his creditors for daring to hike up his interest rate when the only means he has to roll his debt is by using another credit card (this one issued by US and European Taxpayers), even as bankruptcy is literally hours away. The Greek summation: that of a petulant 5 year old who has just broken dad's favorite gadget: “We have made our mistakes,” Papandreou said. “We are living up to this responsibility. But at the same time, give us a chance. We’ll show you.” Now that would be amusing - after Greece destroyed its economy the first go round, we can't wait to see what the country does for an encore. The only reason Greece is not bankrupt now is because even as its past mistakes have caught up with it and climaxed in a solvency and liquidity crisis unseen since the Lehman days, the country's end would bring down all of Europe. If Greece would not have impaired French, German and UK banks, the country would have long been allowed to default. Yet diversion is always a good tactic: let's bring the "speculators" into this yet again. After all it is unheard of in these turbulent Keynesian times for anyone, especially our own Fed Chairman, to own up to their endless mistakes. It is always, without exception, someone else's fault.

Why the euro-bailout won't work, what will happen when it fails, and what they should do about it.

Today's 1,000,000% RDA of Vitamin H₂ (Hypocrisy, not to be confused with H₁ for Hopium) comes from soon to be criminally investigated according to market rumors Deutsche Bank CEO Josef Ackerman. From Reuters: "Ackermann, one of Europe's top bankers who has has helped to put together a private-sector bailout package for Greece, questioned the country's ability to turn itself around according to a transcript of the Maybrit Illner talkshow, which is set to be broadcast on German television ZDF on Thursday evening. "Whether Greece over this time period is really in a position, to bring up the strength, I have my doubts." Compare this with Ackerman's scrambling on May 3 to not only put together a rescue package which would prevent his bank from failing prematurely, but considering ways to (wink wink) convince the market of the destruction that would follow should Deutsche Bank, pardon, the euro not be saved:" IIF president and Deutsche Bank chief Josef Ackerman said the rescue package would "significantly enhance economic and financial prospects for Greece and should help to dispel uncertainties that have roiled global financial markets in recent months." Odd, maybe Josef could have brought up his concerns about the Greek debt repayment chances before he blew up the market... pardon, before he lobbied tooth and nail to get Europe bailed out post haste and throw away $1 trillion in European and US taxpayer money.

The Nomura strategist shares his latest insights into Greece and the European contagion. As widely reported, the Western media blames the subprime crisis on “the bankers” for lending to American home buyers who lied on their loan applications and who clearly could not afford their interest payments. It is somewhat ironic that the same popular outrage (at least in core Europe) is now directed entirely at Greece for taking on debts it could not repay, while the bankers who lent the money remain without blame. Perhaps the media thinks the Greek government should have known better, while the average subprime borrower was too simple-minded to be culpable? Koo is happy to lay the blame with the bankers, in both instances, for not doing adequate due diligence. In the case of Greece, the economy’s structural problems were well-known, and he points out that both the subprime and Greek crises were the result of banks/investors chasing high yields and ignoring the inherent high risks. Koo thinks the Maastricht Treaty’s 3% ceiling on fiscal deficits is extremely problematic, as it does not allow for necessary fiscal stimulus when nations find themselves in a balance sheet recession. It is also unenforceable (as we have just seen); plus levying fines on Greece for its violations makes little sense at this point given that it has no money.

Banks protesters storm Irish parliament

Protesters have stormed parliament during a march against government plans to inject billions of euros into the country's banks.

Dozens of people broke away from the march and ran at the gates of the parliament's main building, Leinster House.

They wrestled with police, who tried to force them back and secure the gate.

At least one man suffered a head injury during the scuffles with organisers appealing for calm.

David Rosenberg is out with some very fitting analogies of the current sovereign crisis. If he is proven prescient, which we have no doubt he will, the Greek near-default will have massiverepercussions to the entire developed world when all is said and done."In my opinion, Greece is the same canary in the coal mine that Thailand was for emerging Asia in 1997, which ultimately led to the Russian debt default and demise of LTCM; the same canary in the coal mine that New Century Financial in early 2007 proved to be in terms of being a leading indicator for the likes of Bear Stearns and Lehman. So, the most dangerous thing to do now is to view Greece as a one-off crisis that will be contained." Furthermore, as he makes all too clear, if a $1 trillion bailout can only buy 400 points in teh Dow, Europe, aside from all the other fundamentals which confirm the same, is doomed, and even the ever-optimistic market now realizes it. Lastly, should Europe pursue the required austerity measures, the hit to European GDP will be massive, and is certainly not being priced in European stocks, but certainly not in US stocks, whose primary export market is about to disappear.

"We expect to conclude our review in the coming four weeks. The migration will most likely be substantial, probably within the Baa range; but an adjustment to below investment grade is also possible. This will depend on developments in the Greek economy once the fog of financial panic, support-mobilisation and street demonstrations dissipates. The country’s debt is large but not unbearable; however, the required adjustment is obviously very painful, and short-term economic prospects are clearly dismal – though not out of proportion with developments already seen in several European economies last year. Once we have concluded our review, we will publish a detailed explanation of our rationale for re-positioning the rating." Moody's

IMF CHIEF SAYS EUROPEAN LOAN SHOULD HAVE BEEN AT IMF RATE

Because, you know, it is so usurious and greedy of US taxpayers to demand a 5% rate for a 3 year loan to a bankrupt country. As we get more on this preamble into QE2, we will post it. Presumbly someone is transcribing the monologue by Mrs. Dominique Genghis-Khan, aka Shalom of the Old Country.

Ok, so Lazard has 1) confirmed it has been retained by Greece but 2) denied it would be facilitating a restructuring. One wonders what the firm, which exclusively specializes in advisory and M&A could be doing with the bankrupt company: distressed island M&A does come to mind. And ostensibly that activity does not fall under the "restructuring" assignment umbrella. Perhaps Lazard can disclose the terms of their engagement letter with G-Pap: we are confident that in keeping with Lazard's sincere denial, is there any mention of fee-generation associated with x% of outstanding debt restructured or new identification of new equity investors in Greece. Market News broke the news citing blog Zero Hedge. Thanks to Market News we are now painfully aware we are in dire need of a proof-reader.

Does anyone have a problem with the attached chart? Ignore for a second the sheer lunacy of anyone who thinks that the Greek government can grow GDP and decline the budget deficit in a straight line now that the country will see crippling strikes and rolling riots (not to mention blackouts) on a daily basis. But do note the black line, which shows the projected Debt/GDP ratio for the country as part of the bailout package. In essence Greece will go from having "only" a 133% Debt/GDP ratio to an insane 149% in 2013 before presumably dropping to 144% lower in 2014, still a good 11% higher than currently. Greece just got bailed out so it can get into even more debt! What psychopath of the Keynesian school thinks that this unbelievable trajectory is anything but a complete and utter waste of money? German, and US taxpayers, are merely giving Greece money so it can increase it debtor status with French and a few other European banks.To say that this is a viable solution is something that only those who bow at the altar of Alan Greenspan can do.

Since we feel there is little need to post on the Greek "update" as we don't believe anything new has happened or anything has been resovled, we will instead provide that from Goldman's Erik Nielsen: "With the May liquidity crisis now practically dealt with, here are the risks for the rest of 2010 and 2011 (and beyond) as I see them: (1) Implementation of the program in the face of a social unrest; (2) the likely need for further adjustments when/if GDP doesn’t respond as expected; and (3) European approval of the second phase of their part of the package (which will emerge in their fiscal bills for the next two years.)"

EuroWeek magazine reports that Greece has hired Lazard in an advisory capacity: it is not a stretch to assume that this is in connection with a potential, and some say inevitable, bankruptcy... unless the country is really serious about procuring a stalking horse distressed M&A bidder for Santorini. We also note that DebtWire has yet to report on this development: looks like the FT is really starting to slip. It would not be a stretch to see why Greece and Lazard are on good terms: after Greece basically put all banks on the kleptocrata non grata list, the pseudo-French company seems like a legitimated candidate (not to mention that France will fail first should Greece default). Additionally, in March 2009 the firm advised the Hellenic Government on the sale of various Olympic Airlines assets to Marfin. Lazard is also no stranger to sovereign reorg, having worked with Nicaragua, Ecuador and Cote d'Ivoire on various restructuring assignments. However, while those deals were a walk in the park, Jim Millstein and and new (and critical) addition Felix Rohatyn will find Greece, where 80% of the population does not want a bailout and in fact is rooting for a default, a much tougher nut to crack.

Moody's analyst Sarah Carlson, who by no means is a disgrace to her job, and is fully justified in keeping an A- rating on a country whose 2 Year debt was trading north of 20% until yesterday, when Europe decided to use US tapxayer money to bail out its own, finally finished the special olympics marathon (no pun intended), only a couple of years late. We wonder if any of the Moody's analyst corps will be offered as a (not so virgin) sacrifice to placate the angry gods of Berkshirehathawaya. We hear Buffett has a soft spot for the XX (chromosomes), even if it derives from companies in which he has already decided to liquidate his entire stock position (but slowly... slowly... don't forget uncle Warren is just the nicest guy in the world and would never take advantage of the market's stupidity).

And now for a Milken conference panel that isn't a waste of 99% of your time: Nouriel Roubini, James McCaughan and Bo Lundgren, moderated by TCW's very astute new Chief Global Strategist (presumably one with less of a fetish for dildos and marijuana than his predecessor) discuss the topic de chaque jour: the Eurozone, and specifically Greece. Roubini starts his presentation by saying that it ain't gonna work. Something tells us Roubini does not work for the IMF, the EU, the ECB, Germany, Greece or any other government organization (and thus CNBC).