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Art Cashin On The Oldest Sovereign Bankruptcy And The UK's Bitter Experience With Perpetual Bonds

Tyler Durden's picture




 

Greece just defaulted. Again. No surprise - the country has been in default half the time since 1820. Curiously, Greece is also the first recorded sovereign defaulted as Art Cashin notes in his piece today. He also reminds us that the UK's plans to return the 100 Year bond are nothing new. In fact, the Consol, or the UK perpetual, was around in the 1700's. Things did not work out very well back then...

From UBS Financial Services

How Do You Get To Default? Practice! Practice! Practice! - As you may have guessed, I appreciate putting a historical perspective on world events. So, I was intrigued to pick up the latest report from John O’Meara and Michael Keating over at Inner Harbor Advisors. Here’s how they opened the report:

There's More than One Way to Repay a Debt

 

The Greek government invoked a retroactive collective action clause last week forcing private bondholders to accept a compulsory restructuring, thus triggering credit default swaps on Greek sovereign debt. In other words, Greece has defaulted. Again. Greece has been in default approximately 50% of the time since 1820. Greece is also the home of the oldest recorded sovereign default in history, dating back to the 4th century B.C. when 10 of 13 Greek city-states stopped payments on their loans from the Temple of Apollo at Delos. Eventually those loans experienced an 80% writedown, not much different from where current Greek bonds are trading. In fairness, the Greeks were probably not the first nation to default. Knowing human nature and the nature of states themselves, we expect the first ever default occurred pretty soon after the first ever sovereign debt was issued. The Greeks at Delos happened to be more diligent about recording these things. Also, since the rise of fiat currencies, nations have tended to follow the model of another of the ancient Greeks, Dionysius I of Syracuse, when it comes to handling fiscal crises. Finding himself deeply in debt to his own citizens, Dionysius demanded his creditors bring in coinage equal to what they were currently owed. At which point he promptly took the coins, stamped the number "2" on them and returned the coins to their owners. All debts thus satisfactorily paid. Satisfactory to Dionysius anyway.

Talk about a bad FICO background. A hat tip is also due to John Mauldin and Grant Williams who also touched on the Temple of Apollo incident.

I Think They Should Check With Captain Bligh - Hoping to seize on the opportunity of historically low rates, the British Government is considering the issuance of a perpetual bond (no fixed maturity). The last time they did that was in the early 1700’s. (The South Sea Bubble. Mutiny on the Bounty. Breadfruit trees and such.)

It did not go well.

The South Sea Bubble bankrupted half the nation, including Isaac Newton, the greatest mind of his time - or maybe anytime. They wound up putting the Chancellor of the Exchequer into the Tower of London in chains. Maybe a 100 year bond would be long enough.

 

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Wed, 03/14/2012 - 09:30 | 2253667 fonzannoon
fonzannoon's picture

This is awesome. I hope Tyler reads this. Should be Friday humor. This is a quote from an analyst that believes Greece should drop the Euro and adopt the USD.

"But if the country were to switch to the dollar instead, and redenominate all its euro contracts in the U.S. currency at a rate of one to one against the euro, it would have the advantage of devaluing by around 30 percent "at a stroke" while at the same time still having a hard currency,"

Wed, 03/14/2012 - 09:43 | 2253714 SheepDog-One
SheepDog-One's picture

WTF utter insanity.

Wed, 03/14/2012 - 11:03 | 2254208 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Moving to a less stinky piece of crap does not stop it from being a piece of crap. Greece, just default!

Wed, 03/14/2012 - 09:32 | 2253676 jus_lite_reading
jus_lite_reading's picture

Oh, yes. Perpetual bonds. The ultimate indicator that a nation's finances are coming to an end... just another tool of the global ponzi. When you see this, run!!!

Wed, 03/14/2012 - 10:05 | 2253847 GMadScientist
GMadScientist's picture

Can you buy enough of them to create a closed loop and cancel the taxes for all your descendants?

 

 

 

Wed, 03/14/2012 - 15:08 | 2255356 Diogenes
Diogenes's picture

Coming to an end? British Consols were first issued in 1751 @ 3 1/2% interest and are still around, now paying 2 3/4%. If you call that coming to an end.

Wed, 03/14/2012 - 09:37 | 2253690 battle axe
battle axe's picture

 It is the inmates running the asylum.  

Wed, 03/14/2012 - 10:01 | 2253818 Urban Roman
Urban Roman's picture

Nowadays, it's the criminals running the prison.

Wed, 03/14/2012 - 10:06 | 2253852 GMadScientist
GMadScientist's picture

Which is not to say that they aren't also batshit insane.

Wed, 03/14/2012 - 09:37 | 2253691 Jo
Jo's picture

Nice back door policy reinforcement by Osborne & the Conservatives: you're not allowed to a member of the Eurozone if you have perpetual sovs in issue.

Wed, 03/14/2012 - 09:41 | 2253707 Wakanda
Wakanda's picture

The Greeks know this shtick.  Default, rinse, repeat...

Wed, 03/14/2012 - 09:42 | 2253712 Atomizer
Atomizer's picture

And for my next trick, Millenium Bonds.

Wed, 03/14/2012 - 09:47 | 2253729 SheepDog-One
SheepDog-One's picture

My question is 'What now, global 'elites'? OK so youve bankrupted all the people and taken over total control of the financial workings to the point now no sane person would put their money within reach of it, so thats it? Doesnt make sense, killing the goose that laid the golden egg is all thats gone on here.

Wed, 03/14/2012 - 10:03 | 2253835 Vince Clortho
Vince Clortho's picture

Next up is the "Flaunt your dominance and grind your heels into the ignorant ungrateful debt slaves" phase.

Wed, 03/14/2012 - 09:50 | 2253745 non_anon
non_anon's picture

Let's see, when the UK had it's first national bank in the mid 1600's

Wed, 03/14/2012 - 09:53 | 2253766 savagegoose
savagegoose's picture

that dyonisis was one cool dood. this explains  how he died, torn apart by drunken wenches.

Wed, 03/14/2012 - 11:22 | 2254324 BigJim
BigJim's picture

That's Orpheus, dude.

Dionysus was the one who got sewed into Zeus' leg. And then drank to forget.

Wed, 03/14/2012 - 09:55 | 2253778 Dr. Engali
Dr. Engali's picture

So is Apple going to be our first trillion dollar company? That pig never goes down

Wed, 03/14/2012 - 09:58 | 2253800 EmileLargo
EmileLargo's picture

There are enough fuckwits in the world who would buy this 100 year bond on the basis that it is a good "investment". It sounds totally insane to us but that's not the way the world is today. Forget your average Joe Schmoe, even the supposedly very sophisticated bond investors are living in la-la land. Well, as one famous speculator once said, "the market was created to separate the fools from their money". Quite.

Wed, 03/14/2012 - 10:06 | 2253855 Dr. Engali
Dr. Engali's picture

Yeah wait until they see the volatility in that pig.

Wed, 03/14/2012 - 10:06 | 2253859 Acet
Acet's picture

Given that nobody has an investement horizon of 100 years and that the Bank of England has already aquired 25% of public debt using printed money, I think the true purpose of the 100 year gilt is as a vehicle for the Bank of England to effectivelly pay the state debt with printed money. With such a long maturity, principal will not need to be repaid in our lifetimes so this acts as a repayment while being shown "in the books" as debt, so the BoE can claim they sterilized it.

This is scary stuff: this kind of la-la land accounting and "financial innovation" were also done in the Weimar Republic.

Wed, 03/14/2012 - 11:11 | 2254260 tabasco71
tabasco71's picture

I agree its scary - that crap about looking to take advantage of historically low interest rates is 3 years too late.

Wed, 03/14/2012 - 10:08 | 2253860 Peter Pan
Peter Pan's picture

It is about as crazy as that New York pension fund that will lend money to cities so that they can make employer contributionso the fund.

Everyone who doesn't grasp the reality of the situation is in effect playing a dangerous game of pass the parcel.

I was talking to a senior commodities trader who told me that most brokers believe the system will go into meltdown but that in the meantime they are milking the system for all they can get.

Wed, 03/14/2012 - 10:06 | 2253861 GMadScientist
GMadScientist's picture

This time is diff...oh...I stand corrected.

Wed, 03/14/2012 - 10:19 | 2253904 virgilcaine
virgilcaine's picture

Euro crashing? @ 129  Look at AG declining with all this "excess liquidity" , something bad is brewing.  

 

 

Wed, 03/14/2012 - 10:30 | 2254003 Nothing To See Here
Nothing To See Here's picture

Greece defaulted?!? I wasnt aware of it. I mean, I know they failed to meet their financial obligations and had to restructure their debt but who cares? All is fine and going bullish no? And who calls that really a default nowadays? It's more of a 'technical situation' in Ivy League language.

Wed, 03/14/2012 - 10:49 | 2254122 azzhatter
azzhatter's picture

If my ass wasn't so sore, it would be almost comical watching these fuckers trying to save the Titanic

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