There is noise and fluff and soap bubbles floating in the wind but don’t be distracted. Like so many things connected to the European Union it is just hype. In the first place do you think that any nation in Europe is actually going to put up money for the firewall no matter what size that they claim it will be? Let me give you the answer; it is “NO.” The firewall is just one more contingent liability that is not counted for any country’s financials, one more public statement of guarantee that everyone on the Continent hopes and prays will never be taken too seriously and certainly never used. Any rational person knows that some promise to pay in the future will not solve anything and it certainly won’t create some kind of magic ring fence around any nation. Think it through; what will it do to stop Spain or Italy from knocking at the door of the Continental Bank if they get in trouble and the answer is clearly nothing, not one thing. The firewall is just a distraction to lull all of you back to sleep and all of the headlines and discussion about it makes zero difference to any outcome and so is nothing more than a ruse. “Look this way please, do not look that way, pay no attention to the man behind the curtain, put up your money to buy our sovereign debt like a good boy and everything will be just fine.”
The concept of government power is a strange and complex cipher. The existence of governments has always been predicated on assumptions of necessity, but few societies have ever truly considered what those necessities might be. What is government actually good for? What do they do that is so important? And, what happens when a government fails in the roles and duties that a culture deems vital? We tend to view government as an inevitability of life, but the fact is, government is NOT a force of nature, it is a creation of man, and it can be dismantled by men just as easily as it can be established. In America, many people see government as an extension of the Republic, or even the source, and an animal that feeds at the behest of the common citizen. An often heard argument against the idea of drastic change or even rebellion within the establishment system is the assertion that the government “is us”. That it is made of Americans, by Americans, and for Americans. That there is no separation between the public, and the base of power. This is, of course, a childish and fantastical delusion drawn from a complete lack of understanding as to how our system really operates today. How many people out there who make this argument really believe at their very core that they have any legitimate influence over the actions of the state? I wager not many… At bottom, to cling to the lie that the government as it stands is a construct of the people is an act of pure denial designed to help the lost masses cope with underlying feelings of utter powerlessness.
The next country that could follow Greece out of Valhalla and down to meet Poseidon at Hades gates is Portugal. They trod the path once before but look likely to be headed out on a second journey. The country’s private and household debt are approximately 300% of the total GDP of Portugal and their economy is contracting; around 4.00% by some estimates. While the European Commission estimates a debt to GDP ratio of 111% for this year; the actual data tells another story. Further aggravating a future restructuring are the CDS contracts with a net position of $5.2 billion and a gross amount of $67.30 billion which is about twice the amount of the net exposure for Greece.
...We find, in the case of Belgium, a 40% Debt/GDP miss from what is bandied about by the Europeans. Then it should be noted that in the case of Dexia, Fortis et al that the guarantee of contingent liabilities may not be the amount of money that is required and so the situation could still worsen from here. Belgium, in fact, is not much better off than Greece and, as their economy sinks into recession, the numbers and ratios are bound to get worse. Not only do I expect further downgrades for this country by the ratings agencies but I also expect a further rise in yields as the more sophisticated investors grasp the reality of Belgium’s issues and respond accordingly.
Now in the curious world we live in today; this only came out in public as the answer to a question raised in the German Parliament. Some reflection on the nature of these guarantees, that the European Union had decided not to tell us about, causes me to think of them as “Ponzi Bonds.” These are the seeds of a great scheme that has been foisted upon us. Bonds of a feather that have flocked together and arrived with the black swans one quiet Wednesday afternoon. The quoted and much ballyhooed sovereign debt numbers are now known to be no longer accurate and hence the lack of credibility of the debt to GDP data for the European nations. Stated more simply; none of the data that we are given about sovereign debt in the European Union is the truth, none of it. According to Eurostat, as an example, the consolidated Spanish debt raises their debt to GDP by 12.3% as Eurostat also states, and I quote, that guaranteed debt in Europe “DO NOT FORM PART OF GOVERNMENT DEBT, BUT ARE A CONTINGENT LIABILITY.” In other words; not counted and so, my friends, none of the data pushed out by Europe about their sovereign debt or their GDP ratios has one whit of truth resident in the data.
I hold up my hand, “One moment please” as I introduce you to the 800 pound Greek Gorilla that is about to enter the room. Allow me to now present to you the “OTHER” Greek debt that is outstanding and will have to be accounted for as the country defaults. Detailed below are some of the “OTHER” sovereign obligations of the Greek government which have now been submitted to the ISDA and I list some of them below. You will note that there are bank bonds, Hellenic Railway bonds, Urban Transportation bonds et al that are guaranteed by Greece. You will also note that there are bonds tied to Inflation, Floating Rate Notes, Asset-Backed securities and a whole mélange of other structured products with a Greek sovereign guarantee. What we all thought was fact is now clearly fiction and default will now bring “Acceleration” one could reasonably bet in all kinds of these securitizations and in all kinds of currencies. This could come from the ratings agencies placing Greece in “Default” or it could come from the CDS contracts being triggered depending upon each indenture and you will also note that a great many of these off balance sheet securitizations are governed by English Law and not Greek Law. You may also wish to consider the fallout to the banking system as the lead managers of all of these deals could find themselves behind the eight ball as various clauses trigger and as the holders of these securitizations line up at the judicial bench [ZH note: there is a reason why Allen & Overy is getting paid $1500 an hour to indemnify ISDA with a plethora of exculpation clauses - they know what is coming] The ISDN numbers are on all of these securities and the lead managers may be found on Bloomberg or other sources as well as the holders of the debt. The curtain just lifted and the show is about to get way too interesting!
The somewhat amusing part of this entire transaction is that the debt of Greece has been INCREASED. Greece and the EU handed private holders $138Bn in write-offs but with the addition of the new loan, $171Bn, the gross debt for Greece increased by $33Bn and this is if all of the legal challenges favor Greece. The total debt of Greece (sovereign, municipal, corporate and bank) has just increased from $1.20 Trillion to $1.233 Trillion and all accomplished by this brilliant plan that did nothing except to tag investors and ramp up the debt load for the country. Take this and add in the austerity measures and perhaps demands for more coming later today as the EU has its summit and an economy that is quickly sinking into the sea and unemployment that is surging and then you can visualize that the absurd has become the impossible and quickly conclude that more Greek loans will have to be forthcoming; or not with some form of Greek exit. The much bandied about notion that all of this will reduce the Greek debt to GDP is little more than a joke. For the past two years there has not been one, one, accurate projection for Greece concocted by the IMF/EU/ECB and I see no end to this now. Some quick math on my part indicates, in 2020, a debt to GDP ratio exceeding 170% and that is being kind and using optimistic assumptions. Just this morning the new numbers released for Greece showed a 7.50% deficit increase as opposed to the projected -5.50% number. This is one more case of quite inaccurate projections and a worsening economy for the country.
Here's concrete proof of a mass European bank run. If you missed it, don't worry - there'll be plenty more from where these came from...
The day dawns with a deal for Greece that is full of smoke and mirrors; lies and deceptions. It is a deal pretty much as expected and, as I have said before, now the realities are going to be confronted. Europe has spun the agreement and the Euro has rallied some and the S&P futures are up but the next few weeks, I am afraid, will hold some serious disappointments. The page turns today because now we are about to confront not what is told to us but the actuality of what has been presented to us and just what will happen as a result.
Now everybody's bank bashing, of course the reason to bash the banks is 4 years old, despite Bove-like analysis to the contrary. I will discuss this on CNBC for a FULL HOUR tomorrow from 12 pm to 1pm.
As I Said Was Guaranteed To Happen Two Years Ago: Greece = Kaboom! But Now Many Misunderstand The ConsequencesSubmitted by Reggie Middleton on 02/15/2012 13:45 -0400
The complacency of the markets is amazing given the risks at hand. I don't think I'm that smart, so is it that so many others are that stupid? It can't be, can it?
It's getting to the point where the rating agencies are so far behind the reality curve that they are putting the system at risk again, and again, and again...
A lot of stuff in here this morning.
You're about to hear a big boom come from across the Atlantic, but I've yet to hear a peep from the rating agencies. And many of you guys think they were delinquent during the other credit bubble!!!????