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Greece Should Take Control and File Chapter 11

MacroAndCheese's picture




 

macroandcheese.org

Greece is surrounded by the banker Barbarians at the Gate.  Not the apostate free market investment bankers, mind you, that ship sailed years ago.  No, these are the “independent” central bankers and their backers, the various heads of state who are trying to protect the Euro and their own national treasures.  Greece should file Chapter 11 and send them packing.  Every single airline on the planet can’t be wrong.

It’s plain to see that Greece is in the grips of a hostile takeover.  The creditors are gathered around the table, often without Greece’s participation, deciding how to best protect their own interests, and what Greece should do to make them all whole.  They’ve gone so far as to insist on a seat on Greece’s board, installing a czar who would monitor Greece’s compliance and notify the gendarmes of any violations.  They’ve promised to pump more money into the country (though virtually all of it goes to Greece’s bondholders), but only if Greece cedes control.

The creditors are merely putting money in so they can take it out.  Greece’s Eurozone patrons want to keep Greece afloat long enough for the citizens of the country to pay them back over the next generation or three.  Their latest scheme is to attach warrants to the newly restructured Greek bonds they’re working on, so that if Greek GDP recovers, bondholders receive a bigger payout.  This would be the first sovereign convertible bond in the history of civilization.

The whole situation is absurd:  When Greece upped to join the Eurozone a dozen years ago, it opened its doors to investors.  Banks were fighting over themselves to invest in Greek sovereign paper at libor plus a few bp, because Greece is sovereign and not subject to capital provisioning under BIS.  But those investments have gone sour, and rather than accepting their losses, the Too Big to Fail banks went to their governments and insisted on a bailout.  Those governments are in turn protecting their interests by invoicing the citizens of Greece.

This has all of the makings of a Greek tragedy.  A country in distress has three tools at its disposal to right itself:  monetary easing, fiscal stimulus, and currency devaluation.  Rates are already effectively zero and cannot be cut further.  The Eurozone is preventing use of the two remaining levers by imposing fiscal austerity and insisting that Greece keep its membership and retain the Euro as its currency.

The inevitable outcome is a dramatic deterioration in the Greek standard of living, one we’re already starting to see.  Only by a drastic reduction in after-tax wages can an economic equilibrium be restored, since this is the only means to reduce the deficit while improving the competitive position of Greece’s exports through lower unit labor costs.  As long as Greece stays in the Eurozone, it is doomed to economic depression.

But Greece has an option, one that is much better than the status quo conditions that are being hammered out.  Greece can do what every major airline has done:  Default on its bonds, and file Chapter 11.  It can return to the Drachma, and with a cheaper currency at hand, boost exports, grow the economy, and wipe the slate clean for the millions of Greeks who had nothing to do with the mess.  If the other members of the Eurozone want to bail out their banks, by all means, have at it.  It’s time to move on.

 

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Mon, 02/06/2012 - 18:06 | 2132073 EemieMeanieMinieMoe
EemieMeanieMinieMoe's picture

Are there any parallels here to Argentina? As I understand it, years ago they told the IMF & the banksters to 'pound sand' & I do not believe the Argentines have fallen from the face of the planet. The Greeks have tough medicine to take, no doubt, but is selling their souls warranted? They are going to take the medicine no matter, so why not retain some dignity & tell the banksters to 'pound sand'? This is merely a sureptitious, incidious, & clandestine invasion. It will be our turn (the U.S. of A.) soon enough.

Mon, 02/06/2012 - 17:48 | 2132003 asteroids
asteroids's picture

Greece should have some "balls" and declare any CDS underwritten by Greek banks to be null and void.

Mon, 02/06/2012 - 16:59 | 2131782 williambanzai7
williambanzai7's picture

There is no Chapter 11 Proceeding or super judicial insolvency legal framework for a country.

This is wide open territory we are approaching.

Mon, 02/06/2012 - 17:33 | 2131942 Fubared
Fubared's picture

Probably true, but it does not mean the end of the world, does it? It is up to the persons in power positions. If they WANT TO solve this in a positive manner they can probably do so. If not, well, keep track of your sons, because they will likely be drafted.

My point is, it is not an automatic process, since this is new territory and thereby possible to influence. If we get a war in Europe again, it is not already there, but only because the current powers is driving in that direction.

In my humble opinion.

/R

 

Mon, 02/06/2012 - 17:12 | 2131860 MacroAndCheese
MacroAndCheese's picture

I was thinking about that.  Messy.

Mon, 02/06/2012 - 16:50 | 2131753 gckings19
gckings19's picture

McRibs Bitchez!!!!!!!!!

Mon, 02/06/2012 - 16:43 | 2131701 Zero Govt
Zero Govt's picture

"This has all of the makings of a Greek tragedy."

Gold/fraud-man Sachs being the original widow maker

Anyone cuffed and jailed at the NY bwankers yet regards the financial fraud of cooking Greeces books (a WS speciality), fleecing taxpayers and coning creditors regards false financial statements?

Mon, 02/06/2012 - 16:23 | 2131641 delivered
delivered's picture

You always want to go BK with a plan and as much hard currency as possible as the general rule of thumb is that all creditors will place you on COD so the need to have liquidity to manage through the first six to twelve months of pain will be critical. This window came and went a while back so if Greece does go BK now, they should structure a deal to bring in some hard currency to work with and then BK soon after. Translation, yes we will agree to whatever BS deal you are cramming down on us and then via playing our soverign card, will go tell you to stick it and just get on with the BK.

As for the actual BK, I agree with most posts as a.) this is nothing more than a beta or pilot program for the rest of the indebted western economies, b.) the first six to twelve months will be the most painful for the Greeks (but most opportunistic for investors with resources), and c.) the standard of living in Greece will adjust in a very painful and quick manner once their new currency is introduced and immediately devalues.

The critical element of any BK is to manage it so the DIP (i.e., debtor in possession) financing sources can't structure a deal that grab all of the best assets to secure their loans. This is the real play by the financing sources as if Greece can't pay (which everyone knows that eventually, they will default), then the financing sources will want security in real assets (e.g., prime ocean front real estate, etc.). Greece needs to step-up and take all of their medicine at once to protect what's left of their soverign state and assets. If Greece continues on the current track, then just go ahead and change the name to a Southern Germany state and move on with life. Armies are no longer needed to gain control of countries, just financial tools of destruction.

Mon, 02/06/2012 - 15:49 | 2131502 Azannoth
Azannoth's picture

"Greece’s Eurozone patrons want to keep Greece afloat long enough for the citizens of the country to pay them back over the next generation or three" - Wrong! They want to keep the party going long enough so that they can make Germans pay for Greek(and other PIIGS) debt.

This has never been about Greece, it's all about how to pick-pocket the Germans  through a back door, Greek Trojan Horse any1?!?!?

Mon, 02/06/2012 - 17:31 | 2131937 11b40
11b40's picture

Actually, it is same as it ever was the world over.  Everyone wnats to glam onto someone else.

The PIIGS wanted to have fun and enjoy a higher standard of living than their environment and work ethic provided.  The Germans wanted drink beer and work, but needed a place to ship their superior industrial production.  They both made deals without doing proper due dilligance.

Sounds a lot like the liar loans that got us into the housing mess here in the good old USofA.

However, Greece is in deep doo-doo, any way they slice it.  They were poor when they entered the EU.  It was fun while the credit cards worked, but the fun days are rapidly coming to an end.  Even if they do default, the economy is wrecked and the future is awful.

Mon, 02/06/2012 - 15:46 | 2131493 LawsofPhysics
LawsofPhysics's picture

Greece is (once again) the test case for the rest of the western world.

Mon, 02/06/2012 - 15:19 | 2131373 riphowardkatz
riphowardkatz's picture

Who says they can default? What if they are being threatened with sanctions if they do? 

Mon, 02/06/2012 - 16:15 | 2131613 sunnyside
sunnyside's picture

Then they (and their progeny) are truly slaves to the bankers.

 

Mon, 02/06/2012 - 15:25 | 2131405 Fubared
Fubared's picture

Sanctions on what? No oil, no big export industry, and what do they have to loose? Actually nothing, they have more to loose if they stay in the game. So, the choice seems to be to be slaves under banks/IMF for the next 50 years, OR, to give a finger and restart.

Just from pure pride and self worth, the choice seems easy.

 

I'm not greek btw.

 

/R

Mon, 02/06/2012 - 16:03 | 2131565 marchare
marchare's picture

We are all Greeks now.

Mon, 02/06/2012 - 17:49 | 2132012 paint it red ca...
paint it red call it hell's picture

we are all nixon now, fucked by our own misplaced arrogance.

Mon, 02/06/2012 - 15:46 | 2131491 riphowardkatz
riphowardkatz's picture

Sanctions probably was not the correct term. I meant tariffs. 

"If you default you will no longer have access to any Euro goods at less than a 100% markup"

It would devistate them and would be a small chink in the armour of Euro companies. 

Mon, 02/06/2012 - 17:12 | 2131854 Fubared
Fubared's picture

I see your point. But I dont think this is about logic. Rather it is about creating some kind of social cohesion within Greece for the next 20 years or so. If I were Greek, or a Greek politician, at the end of the day, what are the options? Painful start, regain self control after a while, or bowing to whoever happens to be running the show..? But it is probably foolish to try to predict the outcome, it is simply too complex.

Of course there is the risk of military interventions from the countries that loose out on a default, but given the bigger picture with Iran/Syria, there is is probably no wish for a second/third fire to manage (all the doomsday wishers here seems to think a big mess won't affect them. How come?)

 

/R

Mon, 02/06/2012 - 16:50 | 2131756 roadlust
roadlust's picture

Agreed.  If people think the Euro folks will make it easy on Greece once they've bailed on their "responsibilities" (paying back the money loaned to them) I think they haven't thought it through.  Greece will be made an example.  "Do not even THINK of following Greece or you will be ruined."  And governments won't have to, the Banksters will.  (And they will only get worse when the charade ends on March 20, and it's officially default).  Greece is history either way.  The Euro will be history too (at least  if they make it easy for members to drop out, and one or more subsequently does, because that will take an untold number of Eurozone banks down. 

Time will tell.  Greece will be bad after March 20, but if it's ressurected the dracma, it will be rejoining agrarian societies.

 

Mon, 02/06/2012 - 16:47 | 2131737 gckings19
gckings19's picture

YOU DONT THINK THERE IS A WAY AROUND THAT...THEY WILL JUST BE CREATING A VERY PROFITABLE BLACK MARKET.....HUMAN BEINGS HAVE AN UNCANNY ABILITY TO MAKE A PROFIT IF THE OPPORTUNITY PRESENTS ITSELF. 

Mon, 02/06/2012 - 17:29 | 2131927 riphowardkatz
riphowardkatz's picture

Black markets have their own tariffs. Ask any drug lord.

Mon, 02/06/2012 - 15:58 | 2131548 Stroke
Stroke's picture

Tariffs?...Tariffs?.....We don need no stinkin' tarfifs

Mon, 02/06/2012 - 15:05 | 2131315 Fubared
Fubared's picture

Thank you for a good post. I only hope that Greece takes back some selfdetermination in the process to come.

 

/R

Mon, 02/06/2012 - 14:40 | 2131219 Peter Pan
Peter Pan's picture

I just had a vision of the new drachma replacing the Euro right across Europe and eventually becoming the new reseve currency of the world. Backed by olives and feta cheese which is much better than the backing of US dollars.

Mon, 02/06/2012 - 16:00 | 2131552 11b40
11b40's picture

...and when I saw your name, I had a vision of a hospital utensil ;-)

Now, on to other news.  The countdown is on.  One down, (?) to go.

Romania's government collapses after protests

BUCHAREST, Romania (AP) - Romania's government collapsed Monday following weeks of protests against austerity measures, the latest debt-stricken government in Europe to fall in the face of raising public anger over biting cuts.

Emil Boc, who has been prime minister since 2008, said he was resigning "to defuse political and social tension" and make way for a new government after thousands of Romanians took to the streets in January to protest salary cuts, higher taxes and widespread perception that the government was not interested in the problems of ordinary people in this nation of 22 million.

Opposition parties late Monday called for President Traian Basescu to resign and for early parliamentary elections to be held during a meeting with the president and all the political parties at the Cotroceni presidential palace.

Mon, 02/06/2012 - 14:38 | 2131212 MacroAndCheese
MacroAndCheese's picture

HA sorry guys, I am tech-challenged, don't know how to do the standard ZH font.  Don't worry, the pain will go away.

Mon, 02/06/2012 - 14:45 | 2131234 HD
HD's picture

Not a problem mate. Thanks for the great post.

Mon, 02/06/2012 - 14:30 | 2131174 ebworthen
ebworthen's picture

Chapter 11 and Drachmas!

(overdue, really)

Mon, 02/06/2012 - 14:44 | 2131217 HD
HD's picture

[EDIT]  Accidental double post

Mon, 02/06/2012 - 14:40 | 2131216 HD
HD's picture

Agreed. The first six months would be hell, but then tourists and money would flow in to take full advantage of the cheap goods and services.

Mon, 02/06/2012 - 14:28 | 2131167 11b40
11b40's picture

....actually, it's past time to move on.  Should have been done a year ago.  They only need look at Iceland for the model.

Mon, 02/06/2012 - 15:16 | 2131359 Fubared
Fubared's picture

True, big difference though on being part of the Euro with very little influence(none) on currency policy. Iceland could do their own thing with zero considerations towards other nation states. Quite different context.

 

 

/R

Mon, 02/06/2012 - 14:26 | 2131163 HD
HD's picture

Your large bold font hurts my eyes. My eyes!

Mon, 02/06/2012 - 14:32 | 2131179 ebworthen
ebworthen's picture

(eh?  Looks like 12 point Times New Roman regular to me?  Not used to the "old" standard?)

Mon, 02/06/2012 - 15:18 | 2131368 SAT 800
SAT 800's picture

Thank you for the technical info. just changed my mozilla firefox to use Times New Roman 12 pt. much more legible.

Mon, 02/06/2012 - 14:37 | 2131210 HD
HD's picture

I fear change..even to my fonts. I demand conformity to my whims.

Also, I demand the return of the McDLT. Hot side hot and the cool side cool.

Mon, 02/06/2012 - 15:21 | 2131389 MacroAndCheese
MacroAndCheese's picture

Time to move on man.  McRibs.  If you can find them.

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