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The Coercive Greek Restructuring Is Now Imminent: UBS Explains What It Means For Europe (Hint: Nothing Good)
Over the weekend, and before it became a popular topic in the mainstream media and an issue of political debate, UBS first among the "non-fringers" discussed the topic of not only a coercive Greek restructuring (i.e., one in which there is no "agreement" of the bondholders) but that it is, in fact, imminent. Since then, the din over this issue has escalate with reports over the past two days, that Greece may enforce collective action contracts as well as force bondholders into a deal, since various hedge fund hold-outs have been holding Europe hostage, a development foreseen here in mid-2011. Unfortunately for Europe, which apparently has no idea what is going on, and whoever is advising it financially is certifiably an idiot, the coercive path is precisely what the end outcome may end up being. Naturally, while this is preciseley what should have happened long ago (and saved taxpayers everywhere hundreds of billions in Greek bailout funds), the fact is that it goes contrary to everything the imploding status quo and collapsing ponzi house of cards is doing to prevent an all out catastrophe, as a coercive transaction actually will have unpredictable and adverse spill over effects in virtually every aspect of European financial markets, which in turn will migrate to the US. The good news is that CDS, despite the constant attempts of the crony and corrupt ISDA otherwise, will once again become an instrument of hedging, which ironically in the long run will be stabilizing. But not before some serious short-term fireworks. UBS explains.
- Today Dow Jones reported an unnamed troika official as saying that the Greek government will be “…retroactively introducing collective-action clauses, but not necessarily using them” via the legislative steps needed in order to “facilitate the negotiations with the private sector”. While there has been no confirmation or denial of this statement either from the Greek government or from the troika (of the EU, IMF and ECB), we expect that official and market discussion of CACs and further steps towards coercive restructuring will increase and intensify from this point onwards, leading to a coercive restructuring of some kind around the time of the 20 March bond redemptions.
- If we are correct in this view, the timing of the polemic over Greece turning increasingly towards coercive restructuring makes sense. On Monday of next week troika inspectors return to Athens to begin their next quarterly review and begin discussions over the details of Greece’s second aid package. Early-January was also the date by which the Greek government had expressed a desire to have completed negotiations with the private sector over the voluntary PSI as laid out in the 26 October EU summit statement.
- However, at the time of writing, it does not seem that a deal is close with the private sector, so the statements credited to the troika (which in a similar form also surfaced in the autumn) would appear to indicate the next – logical – steps on the part of Greek government. As we have stated in published research for some time, we believe that a voluntary PSI will likely not take place, owing to the difficulty of achieving sufficient investor participation, and that the negotiations will be abandoned in favour of a coercive move¹.
- With about 94% of its bonds governed by domestic law, the Greek state is in a position whereby it could change the terms its debt relatively easily in order to avoid a technical default within the rules of the bonds themselves. It could pass a law in its parliament which inserted collective-action clauses retroactively into the bond contracts, allowing the proposals of the Greek government to be imposed on all bond holders via the agreement of a certain proportion of bond-holders. In theory, there is no reason why this “deciding” proportion of bondholders would need to represent more than 50% of holders.
- The introduction of CACs in this way would not likely trigger a credit event in CDS contracts - at least in itself, as at that point the bondholder’s cash flows would still be theoretically unaffected. Instead, the CDS trigger would probably be the use of them in any subsequent restructuring
- The framework for negotiation for the Greek government is provided to it by the 26 October EU leaders summit, in which a target of 120% debt/GDP by the end of 2020 was stated with a 50% haircut in the PSI the means to achieve that. However, with Greece missing on both growth and deficit targets, the need for deeper restructuring is continuous. As a result, we expect that the authority will be given to the Greek state for both a coercive restructuring, and – probably – a more extensive one from a decision to do so at another EU summit.
That is the plot. And here is what will likely happen:
- In a coercive restructuring, the consequences of the treatment of euro area central banks could be negative either way. If, on the one hand, the bonds purchased in the Securities Markets Programme (SMP) suffer the same fate as those held by private sector investors, the political consequences of that would effectively be fiscal transfers of tens of billions of euros (whether there is a formal recapitalisation of central banks or not) might be problematic. If, on the other hand, euro area central banks are made whole (for example, by swapping the bonds in advance for cash or for new bonds), then the precedent of Eurosystem seniority may cause significant problems of contagion in the Spanish and Italian bond markets. Indeed, the more bonds bought in those markets for the SMP, the more investors might see themselves subordinated.
As such, the constant fear of what may be announced tomorrow explains the endless drip in the EURUSD, which ironically may strengthen once the overhangs in Europe - the S&P two notch downgrade of France, and the forced bankruptcy of Greece, finanly occur. Then again, in a globalized world in which nobody has any clue what the cause-effect linkages really are, maybe it will simply precipitate the rest.
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When? When O Lord? When will this fucking ponzi collapse on itself?
Dear European Union:
We are writing to inform you of our core opinion that those acquiring Greek sovereign debt (mainly now those who acquired it from the moment word of the literal insolvency of PIIGS+France+UK [PIIGSFUK] became known) should be compensated 120% upon the euro, and they'll hopefully wring out 600% to 6300% returns on their CDS, too, since if the CDS payments aren't made, such non-payment to creditors would ensure that the systemic risk now present would turn into a "tanks in the street & martial law" scenario, ala potential non-involuntary backstopping of AIG in the U.S. by Amerikan Taxpayers, circa 2008 through present.
Sincerely,
Ben S. Bernanke
Timothy Franz Geithner
Henry Paulson
Greeks use their CACs to back door bond holders..
Sounds about right.
Stratfor reports natural gas was just found off Cyprus. The smart play:
The Greeks settle with the Turks, greek debt gets collateral,
and Europe gets a needed energy hedge from Russian gas.
Only irreplacable persons are Smith&Wesson, as Dirty Harry duly noted.
So, this IS (isn't) the credit event we were looking for? Watch what they actually do, ignore the MSM.
Don't worry, the hedge-funds-that-are-so-irreplaceble-for-the-proper-allocation-of-risk-in-this-world are buying Greek Bonds - are they perhaps scared that their CDS have to be matched with real underlying in a future ruling?
So if the angels-that-work-as-hedge-fund-managers darlings-of-the-financial-world are buying Greek Debt, it must be good...
You did not understand the article.
The reason the Hedgies own the bonds is so they can refuse to allow default to be voluntary. Their insistence on a credit event triggers the swaps they own and earns them a profit.
They have no reason to own only as many swaps as they own bonds. If they plan to force default, they would naturally own MORE swaps than bonds.
Precisely, hedgies must survive in a paper world. If the faith and confidence in those contracts and paper is lost, these guys are done. They want the banks and the government to have to defend theirs actions in the full light of day. These guys might want to avoid public places for a while.
I'm not sure I get the logic of your statements - they bought the CDS long ago, cheap. From Idiot Banks that have to be bailed out from our money, eventually...
They are buying the bonds, against which they bought insurance, now, cheap.
They have to buy the underlying (shit) to ensure their insurance. Rich, eh?
It's like me buying fire insurance against your house (or the whole block) and then, while your house burns, I buy the house, at Crassus-style-firesale-price, in order to collect the insurance. Since it would really look bad, otherwise...
They do it with an incredible amount of leverage - meaning with our money, too, in my book. And they are ZH's heroes.
If they learned Crassus' style well, well look up yourself, you can learn lots from his life...
abc reporting montana farmers file lawsuit against the great CORINSKI of mf global fame. anyone think this ass clown thief will be left with anything when all the lawsuits are done?
Hmmm.... Finally some reality to mix in with the pixie dust. As for UBS being early (whether "non-fringe" or not) they were still at least a year and change too late. I've been calling for this since very early 2010 and even outlined specific Greek default scenarios before 2011 even commenced. Here we are now in 2012, and the sell side is just jumping on the bandwagon???
The send of the early warnings - Monday, 08 February 2010 04:00
- The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not alocalized one.
What Country is Next in the Coming Pan-European Sovereign Debt Crisis? – illustrates the potential for the domino effect
The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. –
attempts to illustrate the highly interdependent weaknesses in Europe’s
sovereign nations can effect even the perceived “stronger” nations.
The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
The Beginning of the Endgame is Coming???
I Think It’s Confirmed, Greece Will Be the First Domino to Fall
Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!
Germany Finally Comes Out and Says, “We’re Not Touching Greece” – Well, Sort of…
The Greece and the Greek Banks Get the Word “First” Etched on the Side of Their Domino
How Greece Killed Its Own Banks!
Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight!
The Greek Bank Tear Sheet is Now Available to the Public
What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates
The ECB and the Potential Failure of Quantitative Easing, Euro Edition – In the Spotlight!
Introducing the Not So Stylish Portuguese Haircut Analysis
Finale Wednesday, 26 May 2010 08:42
- A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina
Reg,
So does UBS mouthing the unthinkable tell you this is the real deal about to finally happen?
I am moving up Bob Janjuah's date to get short two days: from Friday to today. The market is looking mighty unstable up here at 1290.
"When? When O Lord? When will this fucking ponzi collapse on itself?"
exactly!!!! i mean the every day citizen everywhere is fucking broke and the only participants n the markets r the bankers who r playing fucking hot potatoe with dog shit...so how has it lasted this long and when is the end...i cant fucking take it anymore...
i just keep looking at my metals and saying it wont be much longer...it wont be much longer.............
I don't understand how this doesn't trigger a credit event
Same. If this is perfectly legal how can one hedge the risk?
with bonds? there is a little thing called yield
"I don't understand how this doesn't trigger a credit event."
It does.....unless you don't want it to. Then it doesn't.
Denial isn't just a river in Egypt. It is also a Greek CDS that is never triggered.
This all reminds me of when my son was a cranky toddler who would sneak under the kitchen table to mess his diaper. As far as he was concerned, since he couldn't see us, we couldn't see him......thus he wasn't dumping in his diaper.
Some privacy please for crying out loud. Serious business is being conducted here, so just cover your eyes and breathe deep.
'The good news is that CDS, despite the constant attempts of the crony and corrupt ISDA otherwise, will once again become an instrument of hedging, which ironically in the long run will be stabilizing. But not before some serious short-term fireworks. UBS explains.'
Durden, explain yourself? Are you saying CDS will used as a hedging tool again, despite the full knowledge of those hedging, that they will never pay out just because they provide a 'stabalizing' long term effect?
Tylers won't answer to this, I'm sure, because they are holding two irreconciliable positions: that free market and free contracts are holy, and that the ponzi scheme is going on. Add a hero-worship for a number of hedge-fund managers, and the thing is perfect.
The knot is there: since certain banks are not allowed to fail, they should not be allowed to bet the house with derivatives, period. But this would spell the end for hedge-funds because they live from the mispricing of derivatives.
I absolutely hated greening your comment.
I absolutely hated making this specific comment - but hey, nobody is perfect.
Gene,
This is really becoming a bit too embarrassing, you following me around Zero Hedge all day and night. If you want a kiss, just ask.......OK? :)
You're always in the thick of it. I get jealous.
It's bad form to ask for a kiss. Just do it and take the consequences.
Can anyone shed some light on which jurisdiction the CDS is written in? I think that's becoming equally as important as the jurisdiction covering the bonds.
UK
Ponzi or fraud? O yeah, fraud = Fed. How's about fraudzi? Head is spinning....
Greece is scewed.
I'm screwed, too.
But the girls there are sooo sexy.
If I had the money, I'd buy and island.
I'd also buy the bones of Socarates and Plato's penis.
awesome bush. sweet!
There are no bones in the penis, sorry.
OT...Stratfor is back up
Former friends will now become enemies.
Hey, when are they going to start selling "Moral Default Swaps"?
Oh wait...
"The good news is that CDS, despite the constant attempts of the crony and corrupt ISDA otherwise, will once again become an instrument of hedging, which ironically in the long run will be stabilizing."
Of course, hedge funds are stabilizers (in the other ZH article there was a very small mention of "holding Europe hostage") and their use of derivatives/CDS is a great boon to the world, eh? Disgusting.
Being in a hostage situation is for your own safety. Freedom is dangerous. We don't want you to hurt yourselves out there.
yeah, you are right, where is the padded cell? ;-)
perhaps my Stockholm Syndrome has not kicked in properly? is there a pill for it?
I don't know whether to shit or go blind.
Right after work I'll be on the toilet drinking a liter of 151-proof rum.
The rule is . . .
Shit first, and then after you can find the toilet paper
THEN, go blind.
Steve over a Blackstone is going to be SOOOOOOOOOOOOOOOOOOO! Mad! when he hears of this!
Time for a new Hitler youtube Video! http://www.youtube.com/watch?v=hdIhNQKgMdg
perhaps Greece should be advised by some really smart guys? Like Goldman Sachs?
Perhaps fucks like you should stfu, bashing Greece all the time?
http://www.spiegel.de/international/europe/0,1518,808248,00.html
bashing Greece? I'm not sure where I was bashing Greece, here I'm talking about the Holy Vampire Squid, that wonderfully advised the Greek Government about how to cook their books so that they could join the eurozone
further up, I'm talking about how the hedgies are taking the default "in hostage" with derivatives (which should be banned)
Forget that pickle-kisser. He's only mad because his very own homeland can't prosecute the real perps of this global looting spree. Impotent rage is now the default setting for most Americans as they've recently figured out that they have not only allowed but perpetuated this rape and pillage. Naturally, being emotionally retarded, you get impotent rage.
All that aside, you were right about Farage, he's certainly not speaking from an independant set of principals but is actually covering an angle like most of these ponces. Good call...
That clip has endless possibilities, effing hilarious.
"(Hint: Nothing Good)"
Nothing bad either. It will be printed over. Not sure why this is still a suprise considering that this is the era we have been in now for quite some time
Meanwhile, it is totally mind boggling how the VIX can be sitting near 20 in fucking la la land.
Jzus ... pop corn is stale as ...
Default is in the air. It's coming one way or the other (outright or through inflation). It's going to become too tempting for a battered perpipheral not to go rogue: Spain with 20+% unemployment and 7% drop in industrial output reported today must be dreaming about a return to Peseta at 90% discount to Euro (and $). My guess is the "inspiration" will come from Argentina or possibly some distressed East Euro nation on the verge of economic and political collapse.
All too true CE, but it will be a global devaluation I think. The SDR will be tied to gold, and all currencies will be tied to the SDR. Then they will ramp the price of gold, and everybody will print like crazy. The EU members are going to have to print domestic currencies to devalue vis a vis the Euro, but there's precedent for dual currencies like we had under gold and silver.
Devaluation, it's on the menu.
Isn't retrospective legislation against EU law?
Must be good for GS over 100 now....they must be doing God's work again
I fucking love the smell of fresh ponzi in the morning.
If Greek CDS exposure is triggered the counter parties are screwed. Exposed counter-parties fail causing an avalanche of losses and additional CDs exposure.
If Greek CDS is not triggered and losses are enforced then the Hedge Funds and Banks that are exposed take losses and potentially fail triggering CDS exposure elsewhere to explode
This is tricky, and the reasons the Greek debt issue has taken so long to resolve. It doesn't matter if they cut the red wire or the blue wire the bomb goes off, and lastly leaving it alone the bomb goes off.
My advice...get ready for the bomb to go off. The powers that be will paper over the explosion. Prepare accordingly.
how about just getting rid of the bomb?
I thought the comfy couch burning would be enough, but we sure need tons of dynamite in the living room, covering the phone, in front of the closet where the firehose is, in front of the doors, the windows, strapped around our waists...
Merkel on the news: "Can't we all just get along?.?.. Rodney King style..
Question isn't "good or bad", rather "bullish or bearish", pardon, "bullish or bullish".
Yield on a 1 year Greek bond is 385%
Was stuck at the 370 - 380 area for a long time.
Inching north again.
Baltic dry index free-falling south; http://www.bloomberg.com/quote/BDIY:IND
Spanish banks are building more housing.
The game of Monopoly was never this interesting.
This site needs a header with the dates of European bank holidays ... sort of like a TV guide, so we can plan our viewing, buy popcorn and Jack, etc.
Bullwinkle, swear your post wasn't there when I started typing.
What do they say? Great minds think alike.
+1. Been watching the H&S pattern on BDIY for awhile now.
Buy gold and silver, pop a bag of corn, get a large coke, and relax while you watch the show.
if madoff could have printed money to meet redemptions would the ponzi ever have collapsed???
The more I study the numbers involved, I can't help but come to one conclusion. Their fucked. P.S. --(So are we.)
The gods of Unintended Consequences never laugh so hard as when they overhear us discussing our economic plans.
But but but, Auntie Angela, Midget and the unelected Italian who was called into the little club to a playdate were soooo upbeat today. Angie and Midget praised Italy's "austerity efforts", ie they thought the 19 new Maserati's ordered by Italian Ministry of Defence were excellent choises. I'm sure that because zEurope has Angie as dictator and Midget as a little helper and now even the unelected Italian is included into the club in the name of democracy, nothing bad will happen with Greece.
Dick, you are sporting this (Anglophone?) habit of calling certain politicians dictators - though the world has real dictators.
Don't. Not because I want you to, because if you do and they do turn to dictators, you have no words left for them.
Angie is the legal Chancellor of the Federal Republic of Germany, elected by the Bundestag, which is elected by the German People.
Though I'm no friend of Monti, he has been legally appointed by the President of the Italian Republic and the Italian Parliament could kick him anytime, so calling him "unelected" is technically correct but totally misleading, you don't want that, do you?
The Midget. Well. Yes. The French elected him. But I start to think you are just jealous Carla chose him instead of you. Eh?
Were all staring down the barrell of a loaded and cocked shotgun with 20 different fingers on the trigger. Who knows who actually pulled it. It doesn't really matter. The end result is the same. Blood and brains.
One of my first jobs was working for a finance company. When one of our customers became seriously deliquent we would have him/her come in and we would loan them enough money to bring their account up to date plus put 50 or 100 bucks in their pocket. That's all that will happen in Europe. It's a very old game.
The same game has been played in Argentina for years. Greece has become the European version of Argentina. There will never be a credit event that requires any CDS to pay out. There will only be a paper swap...new bonds for old, new interest rate instead of old. Can kicking at it's finest!
gotta love the un-named troika source
this really cleared up everything for slewie:
In a coercive restructuring, the consequences of the treatment of euro area central banks could be negative either way. If, on the one hand, the bonds purchased in the Securities Markets Programme (SMP) suffer the same fate as those held by private sector investors, the political consequences of that would effectively be fiscal transfers of tens of billions of euros (whether there is a formal recapitalisation of central banks or not) might be problematic. If, on the other hand, euro area central banks are made whole (for example, by swapping the bonds in advance for cash or for new bonds), then the precedent of Eurosystem seniority may cause significant problems of contagion in the Spanish and Italian bond markets. Indeed, the more bonds bought in those markets for the SMP, the more investors might see themselves subordinated.
these banksters are holding discussions about who gets "subordinated" over greek debt; "investors" who find themselves on the wrong end of that leash are in for a royal screwing, doncha think?
and, unfortunately for Mo_Joe, the fat lady is nowhere to be seen; thus, we shall all require higher levels of self-medication due to the upcoming EU "summit"
~libya is a happening place, too!~
If Libya failed to respond to the ICC's request for information the court could refer Libya to the UN Security Council.
The ICC has accepted that Seif al-Islam. 39, will be tried in Libya but wants assurances that the country's justice system can produce a fair trial.]
If no CDS is triggered under the rules of pure fraudzi, which seems rather likely, that means no european cds are good. I can't wait to find out what happens to the global banks net exposure to europe which they were so adamant was negligible two or three months ago.
'the Greek government will be “…retroactively introducing collective-action clauses, but not necessarily using them” via the legislative steps needed in order to “facilitate the negotiations with the private sector'
Whats this really means is: while everyone is bickering, Big Tony (Mr Greece) puts a gun on the table........'and while we're at it, lets talk about my future cash flow'
http://www.hark.com/clips/dqjktvgkws-business-bad-fuck-you-pay-me
Everyone assumes that the CDS will be paid by the parties that owe,,,,I don´t..I think we will have 20 AIG´s on our hands as entities don´t have the monies to pay off their bets.....and then the Italian Mafia really becomes the banker of the world....got Baseball bats...and gold
Agree - there's more than meets the eye here.
Is this what gives us a new layer of debt in the form of a global currency? What will it be called? "Shits" "NWO"?
Just do it already. Nothing will happen. We will most likely rally. Today's action says it all.
The way these idiotic policymakers are willing to throw taxpayer money at a situation that should have been handled with a restructuring from the get go as common sense and 1st grade math will tell you that the current debt levels are unsustainable and an eventual destruction of debt is necessary is the part that really should piss any citizen off.
How the heads of these central planners aren't rolling as a result of this cluster fuck of maligned policies is beyond me. At the very least their assets should be handed over and then be thrown in jail.
"The way these idiotic policymakers are willing to throw taxpayer money at a situation that should have been handled with a restructuring from the get go as common sense and 1st grade math will tell you that the current debt levels are unsustainable and an eventual destruction of debt is necessary is the part that really should piss any citizen off."
Look, here's my take - I don't think they are as stupid as is made out. I think the truth is there will be serious consequences if CDS triggers, which is why they don't want it to trigger. Alternatively, they don't want to set a precedent for the future.
Politics and optics are important here. How bad will it look if they have to pay out the hedge funds at 100%?
But seriously, I don't get how a trigger event can be voluntary if it's coerced.
Doublespeak: evasive, ambiguous, high-flown language intended to deceive or confuse; a deliberate calculated misuse of language; misleads; distorts reality; pretends to communicate; makes the bad seem good; avoids or shifts responsibility; makes the negative appear positive; creates a false verbal map of the world; limits conceals corrupts and prevents real thought; makes the unpleasant attractive or seem tolerable; creates incongruity between reality and what is said, or is omitted. Analogous to doublethink within newspeak, in George Orwell's1984, where a person can hold two simultaneously opposing ideas while believing both to be true. Newspeak was the official language used to structure doublethink and express doublespeak.
Read this doc i uploaded.
http://www.scribd.com/doc/77108200/
Greek PSI - Credit Suisse analysis
PP
It doesn't work.
Sorry! This document is not publicly available.
The owner has set this document to private.
You will not be able to read it unless the owner changes it to public on their "My Documents" page, or sends you a direct link.
just changed it to public
PP
Great piece Tyler.
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