Bondholder Betrayal Leaps Anew

Tyler Durden's picture


From Mark Grant, author of Out Of The Box

Betrayal Leaps Anew

America is not virginal; I will start out with this statement as exemplified by what was done with General Motors and the ending of the dividends for the owners of the Freddie Mac and FNMA preferred shares. Fortunately Mr. Paulson is no longer in a position of power as his decision making process was seriously flawed in my opinion. However, having owned up to previous mistakes, the Rule of Law still generally functions in the United States and bankruptcy proceedings follow well documented procedures so that while America cannot claim perfection it can claim a record that is significantly better than Europe. I begin today’s discussion from this point as life is often a matter of degree and very few things are just black or white and the shades of grey is the vast area where most things make a difference. Then, having admitted the mistakes, I find what is transpiring in Europe to be of particular concern to bond holders.

“He that has eyes to see and ears to hear may convince himself that no mortal can keep a secret. If his lips are silent, he chatters with his fingertips; betrayal oozes out of him at every pore.”


                          -Sigmund Freud

You may recall that the PSI (Private Sector Involvement) was a one-off event as heralded again and again in the Press by every political leader in the European Union. This proclamation was thundered from the rafters, held up like a banner by the ECB and trumpeted by every Parliament in Europe. The message was clear and rolled out like a red carpet for bond owners, “This will never happen again.” Amazingly, or perhaps not so, is the length of time that “never happen again” took to dissipate. The European Union and the European Central Bank are now signaling a change of position as tax payers always trump the owners of bonds and I fear one more example of this is about to be shoved down our throats. Mr. Draghi’s recent statements are all but a fait accompli in my opinion and you may expect some definitive announcements very soon. The situation is even more grave than this however as the question of “seniority,” already a distressing issue, is also going to be re-addressed and I think recalculated in some very non-conventional ways so that an owner of senior debt in European sovereigns and European banks will find himself behind an eight ball with absolutely no control and in serious jeopardy.

Draghi, in his talks with the Irish Finance Minister, “noted that the question of burden sharing with senior bond holders is evolving at the European level, through ongoing discussions on an EU Resolution Directive.” The ECB said in a statement released yesterday said that Draghi “expects that these developments will be reflected in the Irish adjustment program.” Irish government officials said last night they were anxious to “explore avenues not open to explore” at the time of Ireland’s bailout.

We already know, in the case of Greece, that the ECB, the EIB, the IMF and the European Union have senior positions and were not forced to take losses along with private bond holders. This was done by fiat and very little legally was needed to accomplish this task. During this fiasco we learned the lesson of “local law bonds” and I am afraid that this lesson is about to be foisted upon us once again. As negotiations proceed in Ireland and as a lot of Irish debt has been shifted from various European banks to the ECB we may soon see that the senior debt of both the sovereign and of the Irish banks may become the next Waterloo for bond holders as another PSI is rolled out and as various European institutions claim precedence. This could also be on the table for Portugal and her banks, for Spain and the banks domiciled there and even for Italy. The scent of danger is certainly in the air and various comments made by the political leaders in Europe seem to be indicating a change of plan that will shift the burden from taxpayers to the holders of debt and it may be imposed in some very unconventional ways given what the EU has done to date. The reason is simple enough; lessen the debt of a country and her banks and have the bond holders pick up the tab as it is no longer politically feasible to have the other nations of Europe foot the bill. The monkey is about to jump from the citizens’ backs and onto ours and I suggest a well measured retreat now before the antics of the monkey begins.

“I am not retreating, I am advancing in a different direction.”


                   -General Douglas MacArthur

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Wed, 07/18/2012 - 08:21 | 2627495 bigwavedave
bigwavedave's picture

Tyler. Can you put "Guest Post" in the headings and identify the author. This way I dont have to read anything by Mark Grant. Thanks

Wed, 07/18/2012 - 08:44 | 2627528 Thomas
Thomas's picture

I like Mark Grant's writings and have told him so. (Greetings from Cornell.) Aristotle suggested that an educated person can entertain an idea without necessarily endorsing it. Guys like Krugman push me to my limits, but the idea is indeed general.

Wed, 07/18/2012 - 09:31 | 2627709 idea_hamster
idea_hamster's picture

... "as tax payers always trump the owners of bonds"

LOL -- right, because the tax payers all got a prospectus with risk factors when they were born, but bond owners shouldn't have to suffer losses of capital?

Sorry, somehow, that one doesn't ring true.

Wed, 07/18/2012 - 08:52 | 2627555 battle axe
battle axe's picture

Also, Tyler, the quote is wrong, it was made by Chesty Puller during the Korean War. 

Wed, 07/18/2012 - 09:48 | 2627758 Urban Roman
Urban Roman's picture



Quotes you find on the WWW are always fact checked and fully verifiable.

-- Abraham Lincoln

Wed, 07/18/2012 - 16:40 | 2629808 bank guy in Brussels
bank guy in Brussels's picture

Especially on the CIA's Wikipedia, or on Israel-Mossad's Answers-com with its HQ in Jerusalem.

Jimmy Wales, the fraudster and hoaxer posing as the 'founder' of Wikipedia - after his stint as a pornography seller in the 1990s, where apparently his willingness to harm children showed the CIA he had the 'right stuff' -no crime or lie too disgusting for Jimmy Wales -

Jimbo Wales is so appreciated for his role as a Zionist extremist helping slander and murder people for Israel, that he attends private birthday parties with the Israeli President, while Wales' staff send their messages using CIA contractor e-mail addresses.

Thus the sources of 'Free internet information' ... thousands of NSA and CIA and Mossad agents 'editing' Wikipedia etc



Wed, 07/18/2012 - 09:04 | 2627608 Hmm...
Hmm...'s picture

tax payers always trump the owners of bonds

Full stop.  What retard wrote this?  Trillions of dollars of taxpayer (or printed) bailout money was given to big financial players to save the bondholders.  Without it, the bondholders would have lost everything.

Wed, 07/18/2012 - 09:32 | 2627713 idea_hamster
idea_hamster's picture

[+1 -- beat me to it^^]

Wed, 07/18/2012 - 08:23 | 2627498 pauhana
pauhana's picture

This as Richard Perry, famed hedge fund manager of Perry Capital, is on CNBS right now flogging the wisdom of investing in EU debt  Good luck with that, Richard.

Wed, 07/18/2012 - 08:32 | 2627510 GMadScientist
GMadScientist's picture

Can't say as I have great sympathy for senior Zooro bondholders at this point.

The word 'chump' comes to mind.

Wed, 07/18/2012 - 08:44 | 2627527 battle axe
battle axe's picture

Yup, all this does is scare away private money, and those already in are about to be royally screwed. Good going ECB, this will not bite you in the ass too much. 

Wed, 07/18/2012 - 08:35 | 2627513 Freegolder
Freegolder's picture

Yes, good to see bondholders eating losses.

Good policy by the Ecb, saves the savers too, as Euro not debased.

Wed, 07/18/2012 - 08:37 | 2627516 DeadFred
DeadFred's picture

Senority= Do I like you and have you contributed to my campaign?

Wed, 07/18/2012 - 08:37 | 2627519 Dr. Engali
Dr. Engali's picture

Uhmmmmm.. Bond holders need to take their losses. Maybe next time they won't be so quick to fund such incompetence. The idea that people think there should be risk free "investing" is ludicrous.

Wed, 07/18/2012 - 09:08 | 2627619 reload
reload's picture

There are lots of `bondholders` in Euro banks who think they have deposited funds in a savings account. Many will be suprised when they read the small print, just as my dear Mother in Lawn was. Lots of these `savings account` type schemes are in fact an `investment` in bank issued debt & have been pushed hard by banks to their elderly customers who are hard hit by negligable interest rates as it is. Destruction of Capital at any age is dreadful, but for the elderly there is no chance to recover, ever.

Wed, 07/18/2012 - 08:38 | 2627521 Mugatu
Mugatu's picture

Just another Hindenburg coming this way - I am sure another Euro conferenece will solve this.

Wed, 07/18/2012 - 08:42 | 2627525 monad
monad's picture

Dear Wikileaks: Leak the Bank Records NOW

Wed, 07/18/2012 - 08:51 | 2627538 sablya
sablya's picture

At first the head always commits to the priority of the limbs.  This may seem magnanimous but it is really only so it can move around and affect the world.  A small amount of impairment is worth it.  But when gangrene sets in, the head will always assume a position of seniority over the gangrenous limb.  It is better, reasons the head, to be a brain in a vat, than to be completely destroyed by the gangrene.

Wed, 07/18/2012 - 08:49 | 2627542 gorillaonyourback
gorillaonyourback's picture

Who gives a shit about senority of bond holders,,,,,,,,,,, oh rich people

Wed, 07/18/2012 - 08:51 | 2627548 battle axe
battle axe's picture

Or your 401k/pension.

Wed, 07/18/2012 - 09:31 | 2627711 GMadScientist
GMadScientist's picture


Your 401k/pension, Kimo-sabe.

Wed, 07/18/2012 - 08:51 | 2627549 Budd Fox
Budd Fox's picture

Bondholder...cry me a river!

Eat s**t and die motherf*****s! Will teach you what risk metrics and risk evaluation is.

Insisting in financing giant Ponzi schemes thinking someone else will backstop you and allow you to walk unscathed must earn you the appropriate retribution!

Wed, 07/18/2012 - 08:53 | 2627556 Doubleguns
Doubleguns's picture

However, having owned up to previous mistakes, the Rule of Law still generally functions in the United States and bankruptcy proceedings follow well documented procedures so that while America cannot claim perfection it can claim a record that is significantly better than Europe.


I really hope you are not betting much money on that statement. When our turn comes, and it will, things will look very much like EU. There will be no measurable difference except maybe in the amount of disbelief.

Wed, 07/18/2012 - 16:50 | 2629829 bank guy in Brussels
bank guy in Brussels's picture

MF Global clients getting $ 1.6 billion stolen -

Hundreds of thousands of railroaded victims among 2.3 million people in the US for-profit prison gulag -

Millions of families destroyed by a mafia of American divorce lawyers robbing them blind with bribed judges, while they destroy the lives of children -

'Rule of Law' in America, ha! - Only in the Hollywood movies and TV shows.

Own the courts and own the media at the same time - that is the whole game right there.

Wed, 07/18/2012 - 08:54 | 2627565 eddiebe
eddiebe's picture

Hey G-man bond holders, I hear they have economy pack jars of vasoline on sale at your local drugstore. Get them while they last!

Wed, 07/18/2012 - 08:56 | 2627572 eckart
eckart's picture

capitalism being put back to work...can only be a good thing

Wed, 07/18/2012 - 09:01 | 2627597 Inthemix96
Inthemix96's picture

America is not virginal?

No shit sherlock?  Could be here in England, the worm infested, typhoid diseased, syphilis induced, AIDS recieving, dyptheria ingrained, fucking shithole of a wasted, washed up, down on her fucking knees EU ram rodded bastard paradise of the worst orgy known to man country.

Just incase you lot thought it was any better over here, it is fucking not, it is falling apart around us while we still import 250,000 fucking immigrants a year to this fucking tiny little rock in the north sea.  We are at breaking point and still the bastards in charge call us bigots or racist if we want the services we pay twice as much as you lucky bastards for!!

I cry for this country, it is gone as we know it.  (sorry for the rant, fucking pissed off)

Wed, 07/18/2012 - 09:06 | 2627614 sabra1
sabra1's picture

you didn't leave a space between in & case!

Wed, 07/18/2012 - 09:11 | 2627628 Inthemix96
Inthemix96's picture

Thats because I am English mate,

If you happen to be American, it is not my fault you bastardised my language.........

(wink wink)......  ;-)

Wed, 07/18/2012 - 09:33 | 2627719 GMadScientist
GMadScientist's picture

That's what you get for going on such long holidays, wankers. ;)

Wed, 07/18/2012 - 09:05 | 2627609 allocater
allocater's picture

If we the tax payer bail out bond holders (by preventing the country's bankruptcy) they better take a cut. No Bailout (without share/bond-holder cuts)!

Wed, 07/18/2012 - 09:18 | 2627650 localpacific
localpacific's picture

the bondholder betrayal can only last so long ... Financial Markets Today

Wed, 07/18/2012 - 09:45 | 2627747 Winston Churchill
Winston Churchill's picture

Well and truly GM'ed.

Safety in UST's.

Fell off my chair laughing.


Wed, 07/18/2012 - 09:53 | 2627772 GCT
GCT's picture

This was always the game.  If you did not get your money out of the market when the EU swapped the Greek bonds, honestly you deserve what you get.  Unless you hold the English law bonds.  The intent is to screw whoever the politicians can to keep their dead banks alive.

Let them all fail and be done with it.  Hard timescan be shorter or hard times will last as long as this show can run.  Get some popcorn and your favorite beverage and watch the show. 

Alot of people including alot of us stand to lose alot of money if you saved any that is.  Get some PM's, food and firearms, as the time is coming when they reset.  Reset is what all of this is about so we can again start over and not learn a dam thing from this horror show.  The only people hanging will be the common people.  Never in my lifetime would I ever thought I would be typing this. 

Wed, 07/18/2012 - 11:14 | 2628151 Amagnonx
Amagnonx's picture

The ONLY problem I have with wiping out (sovereign) bond holders entirely, is the idea of seniority - it is my opinion that sovereign bonds should be defaulted upon by each and every nation that issues them, and that this debt was never truly accrued by the population, but by the political class.  The benefits of accruing this debt were, in great part, not distributed to the population, but rather the benefits were distributed by the political class among themselves, and  favored special interests.


The national debts should be assigned to all those who directly voted for them, that is the members of the political apparatus applicable to the state in which this debt was accumulated.  These are the people who created the debt, and it is these people upon whom its crushing weight should be cast, to the entirety of their personal worth - so as to drive them penniless into the streets.  The balance then should be in default, as the population have no say in the accumulation of this debt, and in a great many cases are vociferous objectors to its accumulation.


Additionally, with the grand example of Greece in front of them, those who put their trust further into that system and considered it risk free should learn the lesson, there is no such thing as a free lunch - risk will always be understated by pushers of debt.

Wed, 07/18/2012 - 12:52 | 2628703 loveyajimbo
loveyajimbo's picture

I wonder why the "leaders" and their corrupt paymasters are not yet hanging from lamposts?

Wed, 07/18/2012 - 14:06 | 2629144 malek
malek's picture

 [...] the Rule of Law still generally functions in the United States and bankruptcy proceedings follow well documented procedures [...] that is significantly better than Europe.

Maybe just a single bad example from Europe, and a good one from the U.S., to support your claim?

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