As Promised, Greece Guts Naive Investors Once Again...

Reggie Middleton's picture

Last week I warned if readers were tired of hearing me say "I told you so", they should ignore the topic of Greece, and a month ago I warned "As The Year Comes An End The Ability Of Greece To Kick The Can Mirrors The Chances Of A Man With No Feet". Eleven months ago, I publicly displayed the relatively simple mechanics behind a SERIAL Greek default (that's right, multiple bacl to back defaults), both on CNBC and on my blog... This situation will simply get worse, considerably worse, before it get better. I demonstrated in the post The Ugly Truth About The Greek Situation That's Too Difficult Broadcast Through Mainstream Media that anyone who purchased the last set of bailout bonds from Greece will simply lose their money as well (that's right, just like those who purchased the previous set) since Greece is still running deep in structural problems and can't afford the interest nor the principal on its borrowing. It's really that simple. The aforementioned link has an embeeded spreadsheet that walks you throught the scenario as well as my opinion on CNBC.

February 11, 2012, S&P at 1358, (roughly where it is right now on Dec. 3rd)

Yes, it's that easy to see coming - yet..... Here we are after a bond swap and a default, and a stern warning from BoomBustBlog that any who bought the new bonds in the bond swap would be facing redefault in less than three years and we have the following from Bloomberg: Greece Makes $13 Billion Buyback Offer as Merkel Floats Writeoffs

Greece offered 10 billion euros ($13 billion) to buy back bonds issued earlier this year as the bailed-out nation attempts to cut a debt load that may threaten future international aid.

Greek bonds rallied after the so-called modified Dutch auction was announced today by the Athens-based Public Debt Management Agency. PDMA offered an average maximum purchase price for the bonds maturing from 2023 to 2042 of 34.1 percent, based on information in the statement. The offer runs until 5 p.m. London time on Dec. 7.

Success of the buyback is crucial to releasing aid that’s been frozen since June. The offer was part of a package of measures approved by euro-area finance ministers last week to cut the nation’s debt to 124 percent of gross domestic product in 2020 from a projected 190 percent in 2014.

... The bid to ease Greece’s debt curden underscores a move away from austerity-first measures European leaders have embraced since the financial crisis began in 2009.

Because, even the most dense Eurocrat is now realizing that now matter how much you subtract something from zero, you will still get a negative number... Duhh!!!

German Chancellor Angela Merkel yesterday opened the possibility that Germany may ultimately accept a write-off of Greek debt, previously a taboo in the biggest contributor to euro bailouts.

Because the Germans have no choice but to come to grips with the fact that they are holding a bunch of zero paper (that's zero value, not zero coupon), and sooner or later they'll have to pay the piper.

Greek bonds rose for a third day, pushing the 10-year yield below 15 percent for the first time since the nation’s debt was restructured in March. The yield on the 2 percent securities maturing in February 2023 fell 151 basis points, or 1.51 percentage points, to 14.63 percent at 9:45 a.m. London time, leaving the price at 39.31 percent of face value. 

... Investors who join the buyback will receive payment in six- month bills from the European Financial Stability Facility, the Greek debt agency said.

Oh, they will get paid in that new funny munny paper that was just downgraded itself - EFSF, European Stability Mechanism Ratings Cut by Moody's, after it was downgraded before that - S&P downgrades European bailout fund - of course knowing that they will never, ever, ever be downgraded again. Right???!!!. Keep in mind that these downgrades are from entities that are playing with kid gloves because, contrary to popular belief, they fear the EU states retribution - reference EU Allowing Rating Agencies To Be Sued For Errors Should Backfire Spectacularly - Cause Massive Downgrades Across The Continent!

The International Monetary Fund set the 2020 debt-cut target as a condition for continuing to fund a third of Greece’s bailout program. IMF Managing Director Christine Lagarde said after the euro-area finance ministers’ meeting that the fund will examine the results of the buyback before deciding whether to approve disbursement of additional aid.

The buyback accounts for 11 percentage points, or more than half of the 20 percentage points of the planned drop.

Yeah, right!!! Like the IMF has any idea what the hell its doing. Once again, as a reminder to the not-so-distant financially historically challenged, I bring you Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!:

Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.


Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. image018.pngimage018.pngimage018.pngimage018.png

Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...


The EU/EC has proven to be no better, and if anything is arguably worse!


 While Greece has gotten pledges for 240 billion euros of aid, the funds have been blocked since June as the government tries to get its bailout program back on track after it was disrupted by two elections and a deepening recession.

 Check this out - "the government tries to get its bailout program back on track after it was disrupted by two elections". That damn democracy bullshit. Get's in the way of debt slavery a bit too much more my taste, eh??? 

Then there's "as the government tries to get its bailout program back on track after it was disrupted by... a deepening recession." Well, my friends, the recession would not be deepening so as much if the ???? ??? ??? ?????????????? ?? ????? ??? ??????????? ??? ??? ????????? ??? ????? ??? ?????????! You can guess what that says if you don't read Greek!

Keep in mind that this is after the Greeks said they didn't have any problems (Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!), after I Explicitly Forewarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic!, after an actual default and after a full restructuring. Said restructuing was actually guaranteed to produce another default, as clearly articulated and illustrated in  Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth! - to wit:

By the 2nd quarter of 2010 I clearly and articulately detailed exactly how Greece would default with specific structures in play- What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates. Due to a few institutions who were skeptical, I attempted to make it a bit more real - A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina.

Well, Greece defaulted according to plan, despite all of the "people in the know" saying otherwise -  - from government officials to the EC and IMF - Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! Even after the default, I made clear that this wasn't over for Greece, for the default actually left Greece worse off fundamentally, not better. Go wonder... I know I did, reference the warning from 5 months ago:

This will be exacerbated by a re-default of the Greek debt that was designed to bail out the defaulted Greek debt. Why will this happen? Greece has severe, rigid structural problems that simply cannot (and will not) be solved by throwing indebted liquidity at it. As a matter of fact, the additional debt simply exacerbates the problem - significantly! This was detailed in the post Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

... Subscribers can download my full thoughts on Greece's sustainability post bailout here - debt restructuring_maturity extension blog - March 2012. Professional and institutional subscribers should feel free to email me in order to receive a copy of the Greek restructuring model used to create these charts and come to these conclusions.

    • Even with the elimination of interest payments Greece will spiral downward.
    • Even with the near total absolution of its debt, as in a 90% haircut of the most recent bonds issued (which were swapped for bonds of which investors took an effective 74% haircut), Greece will spiral downward.
    • That is the likely reason why these newest bonds back by EU/IMF bailout economic capital are already trading 70 points below par and rated CCC.
    • These bonds are almost definitely slated for a 90%+ haircut by 2016

Ponder the excerpts from the news clips above as you keep these two charts in mind, the same charts that I've posted at least twice in the last 45 days. A picture is worth a thousand drachma...


The primary balance looks at the structural issues a country may have.

Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default!


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Vendetta's picture

Papandreou's mom is doing fine with her balances in Switzerland no doubt converted into a different form (precious) and/or currency ... so what's the problem?

Jack Sheet's picture

What are the units on the vertical axes of the last 2 graphs? (Charles Huge Smith's specialty is leaving off the numbers as well)

shovelhead's picture


About those people who are tired of you saying "I told you so" ?

They hate you for your mathy stuff.

Vegetius's picture

On the Money, Greece is doomed within the Euro so are the rest of the PIIGS and France of course. The Twilight of the Gods or in this case pigmies. Irish budget tomorrow with its attempt to keep the Public servants and Government pay untouched at twice the European rate and their leader on as high a rate of pay and pension as Barack Obama. The French going all 1950s and taking over shipyards and car plants and the economy tanks.

“In the end, more than freedom, they wanted security. They wanted a comfortable life, and they lost it all – security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility, then Athens ceased to be free and was never free again.”

- Edward Gibbon

The.Oracle's picture

Lol that's so funny. The IMF projected their growth was going to bounce off of 0%. Nice call, bro (sarc)

Peter Pan's picture

Judging by the number of shops closing, the number of unemployed and the state of the finance ministry, the actual shrinkage of the economy is far far worse than those GDP numbers would have us believe.

overmedicatedundersexed's picture

all the bad greek paper will get accepted at the discount window..ben is a kind man to elite bankers very kind

NEOSERF's picture

Turn the graph upside down and you have fixed the situation...its all perspective and how you look at things so says the EU...

SmittyinLA's picture

The Muslims should hold out for some sovereign islands, starting with rest of Cyprus, the Greeks should float that for grifter iterations 5,6,7, all the debt holders should hold out for sovereign islands too, (your land without your PIG govt). because owing RE in a broke Socialist country is worthless. 



michael_engineer's picture

A lot of this seems to be the rolling over of bad paper while trying to reassign the stuckee.

mrktwtch2's picture

thx for the info..keep up the good work..

Peter Pan's picture

Reggie this piece was a pleasure to read because as always you are spot on and this time very well written.

Social cohesion in Greece will still remain quite strong but what I fear is a rising tide of violence against illegal immigrants.

boogerbently's picture

How long, and how many Billion$/Trillion$ will be wastwed before they do what they should have done from the begining, cut them loose!

Now there is a long line of countries waiting to get THEIR "easy money".

There are countries tht need money, themselves, that agreed to pay Greece a certain amount (as their being part opf the EU).

They had to borrow that $$$ @ 6% interest, to loan it to Greece, who agreed to pay it back @ 3% interest.