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Credit Suisse The Sequel: "Probability Of The Largest Disorderly Default Loss In History On March 20 Has Increased"

Tyler Durden's picture


A week ago we presented an excerpt from Credit Suisse's most excellent piece "The Flaw" - merely the latest in one of the best overviews of the neverending Greek soap opera by William Porter. Yet every soap opera eventually ends. Although when it comes to Nielsen ratings, the denouement is usually a whimper. In the case of Greece, it will be anything but. Yet listening to the daily cacafony of din from Europe's leaders, who are likely more clueless than the average reader as to what is really going on, one may be left with the impression that there is a simple solution to the problem, and Greece may be "saved... in hours." It can't. In fact, as of today, Porter's s conclusion is: "we are left with a sense that the probability of delivering the largest default loss in history in a disorderly way on or before 20 March has increased relative to doing so in an orderly way."

As a reminder, Credit Suisse was the one smart enough bank which chose to completely ignore day to day newsflow out of Greece as it is literally noise with absolutely no signal. Wish we could say the same for FX traders. As such, CS' "view remains that, in any case, the chance of a disorderly outcome after 20 March is high, so to that extent the immediate events are not really central to our view, but of course are fascinating." Quite fascinating indeed, because they show to what extent an unravelling financial system will go to pretend that the number one unfixable problem in Europe - the lack of money good assets, available to either be sold, repoed, pledged, equitized, or otherwise monetized. As we have observed previously, at this point it doesn't matter for Greece- even if the country gets the second bailout, which will be used almost exclusively to recycle cash into the banking system, Europe will have a first lien on nearly 150% of its GDP. At that point the country is both a de facto and de jure colony of the Troika. The longer the bang, or whimper, is delayed, the fewer assets will remain in Greek possession, and the poorer the population will be for the inevitable fresh start, with or without the Euro.

So meandering regurgitations aside, because all this has been said one hundred times already, here is Credit Suisse's latest attempt at a fresh take on events.

We are cautious about reports of the exchange “running out of time”: the 20 March binding constraint is a GGB maturity. Greece is sovereign and has run out of money; it can choose the timetable. The case might be different if the maturity were an English law bond (but perhaps not much.)


The real issue remains the ECB’s exposure to the BoG, in our view. Protecting that (i.e., ensuring that Greece does not systematically default via introducing a new currency) becomes the bottom line, as the latest Flash explored.


Since our objection to ‘leaving EMU’ is that its corollary is systematic default, bank nationalization and the like, once the latter problems are a given, a situation towards which we seem to be heading rapidly in Greece, then the cost of the incremental step of introducing a new currency become less. Our view remains that the economy would subsequently euro-ize but potentially at a different cost level. The effect of the delay would have been to transfer the cost from Greek citizens (who have now moved substantial sums out of the country, providing in fact a source of subsequent BoP financing that makes the equation even more attractive) to the ECB. The core has a very serious problem and again should swerve, but the probability of a ‘crash’ is rising.


We remain very cautious about the long-term sustainability of the debt after restructuring, and it is just possible (not our core case) that the troika takes the rational decision that it is cheaper to let Greece default and reimburse the ECB for its approx. €30bn of GGB  losses than to pay the rising but nominally €130bn. Yet it was only on 14 February (two days before writing) that the ECB was confidently talking of distributing its GGB profits, so we are cautious about second-guessing the analytical framework being used.


Overall, we are left with a sense that the probability of delivering the largest default loss in history in a disorderly way on or before 20 March has increased relative to doing so in an orderly way. (Our view remains that, in any case, the chance of a disorderly outcome  after 20 March is high, so to that extent the immediate events are not really central to our view, but of course are fascinating).

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Thu, 02/16/2012 - 22:11 | 2168069 booboo
booboo's picture


Thu, 02/16/2012 - 22:31 | 2168133 jeff montanye
jeff montanye's picture

indeed.  and why do they so strenuously avoid the orderly default?  oh that's right.  for the same reason oedipus fucked up.  hubris.

Thu, 02/16/2012 - 22:32 | 2168135 phungus_mungus
phungus_mungus's picture

For the love of GOD let's get this over with already.... 

Thu, 02/16/2012 - 22:37 | 2168148 Dr. Engali
Dr. Engali's picture

Get what over with ? Is there something going on? Did I miss something ?

Thu, 02/16/2012 - 22:42 | 2168162 IndicaTive
IndicaTive's picture

Nigel Farage latest. Someone alert the media. for the threadjack


Thu, 02/16/2012 - 23:01 | 2168183 Dr. Engali
Dr. Engali's picture

I have a man crush on Nigel.

Thu, 02/16/2012 - 23:25 | 2168288 JW n FL
JW n FL's picture




Nigel is a HOTTY!

I agree!

Man Crush!

we should kidnap him and bring him to America or Fight Club at the least!

Thu, 02/16/2012 - 23:59 | 2168363 flacon
flacon's picture

Why default when paper is FREE?! If we had a gold standard then I could understand a default, but why risk a banking crisis when it could all be taken care of with more cotton rags - I mean more pretty holographic crisp bank notes from the ECB?

Fri, 02/17/2012 - 01:29 | 2168596 dogbreath
dogbreath's picture

I have watched many video's on youtube of Farange and am dissapointed that a mere 4000 or 3000 have watched the clip.  he's probably like Ron Paul where the msm won't give hime coverage

Fri, 02/17/2012 - 10:13 | 2169185 chubbar
chubbar's picture

I just watched the video and YOUTUBE is reporting only 303 views. Let's fact it, YOUTUBE, GOOGLE and the rest of these mega entities have been co-opted into being yet one more arm of the gov't propaganda machine. There is no friggin way only 303 people viewed this video.

Fri, 02/17/2012 - 00:47 | 2168514 Muddy1
Muddy1's picture

Nigel is a stud.  If we had someone like him running for President, he'd win by a landslide.  What cahones!

Fri, 02/17/2012 - 06:16 | 2168812 NorthPole
NorthPole's picture

Wake up. How are you going to win elections with all MSM ignoring you?

Thu, 02/16/2012 - 23:23 | 2168285 JW n FL
JW n FL's picture




Nigel Farage latest. Someone alert the media. for the threadjack



Great grab! Thanks for Sharing IndicaTive ! YOU! ROCK!!


Bring Nigel to America! PLEASE!! Pretty Please! wiff sugga on top! we will make his half toasted? toast and tea! whatever it takes! just get him here! Trade Obama or whoever the English want!

Fri, 02/17/2012 - 06:38 | 2168835 ConfederateH
ConfederateH's picture

You guys already have Ron Paul, stop being so greedy.

Fri, 02/17/2012 - 08:41 | 2168923 StormShadow
StormShadow's picture

Yeah, I mean it's not like the citizenship requirement is a hangup anymore. Now that we have the Adobe amendment to the Constitution the whole world is eligible.

Thu, 02/16/2012 - 23:54 | 2168348 vh070
vh070's picture

Wonder why the Amadeus Amadeus tune starts up in my head every time I hear Puppet Papademos...

Fri, 02/17/2012 - 07:50 | 2168864 Ghordius
Ghordius's picture

you really love this darling of the City of London?

I find it strange indeed

Thu, 02/16/2012 - 22:44 | 2168169 He_Who Carried ...
He_Who Carried The Sun's picture


Merkel said in 2011 that it will be in 2013
and she's had her way so far and so she will in the future...

They will let this bail-out pass and at the same time
the EU prepares the ground for the exit of Greece in 2013.

Thu, 02/16/2012 - 22:52 | 2168196 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

she's had her way so far and so she will in the future

That is a logical fallacy.

Thu, 02/16/2012 - 23:07 | 2168239 slewie the pi-rat
slewie the pi-rat's picture

or an axiomatic assertion, depending which nipple i'm dealing with...

Thu, 02/16/2012 - 23:30 | 2168295 jeff montanye
jeff montanye's picture

speaking of which, who is that individual below his name (which escapes me now)?  

our ace in the hole?  they really, truly, for sure and without a doubt, are insolvent.

and they are not just the greeks.  or the european banks.  or their insurers.  counterparties.  derivative customers.  ouch.  

the fed isn't able to be insolvent, or so it says.  what would you guess its net equity is now, now that they've sold off the good stuff?

Fri, 02/17/2012 - 00:39 | 2168488 HurricaneSeason
HurricaneSeason's picture

The Fed had good stuff? What was it, Afghanistan heroin? They weren't suppose to lose that until next year.

Fri, 02/17/2012 - 08:15 | 2168883 The Reich
The Reich's picture

For the sake of truth, is this an official denial?

Thu, 02/16/2012 - 23:16 | 2168263 Schmuck Raker
Schmuck Raker's picture

@Dr. Engali

For GOD SAKES man, Whitney Houston is STILL dead!

Thu, 02/16/2012 - 23:40 | 2168317 Dr. Engali
Dr. Engali's picture

Shit that too?! Well get this. I was on another thread and apparently Greece is about to default ........ Any year now.

Fri, 02/17/2012 - 00:01 | 2168371 Schmuck Raker
Schmuck Raker's picture

LOL, good one. I get it.

Like anyone would be stupid enough to lend money to Greece.

Fri, 02/17/2012 - 07:21 | 2168854 machineh
machineh's picture

Heh-heh, Tyler said 'cacafony'! Literal translation: shit-talkin'

Morning coffee's got my guts growling, off to BoG!

Fri, 02/17/2012 - 00:16 | 2168424 Isherwood
Isherwood's picture

Short OxyContin

Fri, 02/17/2012 - 00:16 | 2168425 Isherwood
Isherwood's picture

Short OxyContin

Fri, 02/17/2012 - 00:25 | 2168453 true brain
true brain's picture

For the love of Nothing let's get this over with already...

Fri, 02/17/2012 - 04:50 | 2168761 respect the cock
respect the cock's picture

If we have a deflationary collapse does that mean the price for hookers will go down?

Fri, 02/17/2012 - 07:57 | 2168868 masterinchancery
masterinchancery's picture

"For the love of God, Montressor!" "Yes, for the love of God." The Casque of Amontillado, 1846, Edgar Allen Poe.

Thu, 02/16/2012 - 23:01 | 2168225 SnobGobbler
SnobGobbler's picture

this default will take till our next war....and fuck your CDS unless you are a primary dealer, they get the gold first remember...

Thu, 02/16/2012 - 23:44 | 2168330 CrashisOptimistic
CrashisOptimistic's picture


Not hubris.


Thu, 02/16/2012 - 23:12 | 2168200 TruthInSunshine
TruthInSunshine's picture

It's all priced in, along with defaults of the rest of PIIGS+France+UK+US+Japan.



Thu, 02/16/2012 - 23:23 | 2168283 espirit
espirit's picture

What's plan "B"?

Fri, 02/17/2012 - 01:17 | 2168574 UP Forester
UP Forester's picture


Thu, 02/16/2012 - 23:13 | 2168257 The Man in Room Five
The Man in Room Five's picture

Why 3/23? I thought it was the 20th?

Fri, 02/17/2012 - 02:25 | 2168642 Rogue Trooper
Rogue Trooper's picture

Look, the historians after 3/23 (once we get back to having paper) will certainly question why this day and how the profit "Booboo the Wise" was albe to predict the "Great Reckoning & Subsequent Fall" with such clarity.

The people will listen to "The Sayer" tell the old fable, "Thee shall say arhhhhhh and thee shall pay homage to and worship the great "Booboo" and hope for his return for he will once more speak again, provide infinite wisdom and steadfast clarity for the 99.  The Vilage "Sayer" will then instruct the people to charnt!

"3.23 or thereabout, with QE3, it's roundabout"

"3.23 or thereabout! with QE4, it's roundabout"

"3.23 or thereabout! with QE5, it's roundabout"  etc... for a few hours

I'm so over this.... I hope we are not hearing the same shit this time next year.


Thu, 02/16/2012 - 23:22 | 2168282 LiquidityandLunacy
LiquidityandLunacy's picture

In all seriousness, should i buy food and take out cash from my credit union in advance of this? Maybe buy more ammo?



Just asking if this might be the d-day

Fri, 02/17/2012 - 00:07 | 2168386 Waffen
Waffen's picture

You should have done this long ago. The writing has been on the wall and to say well it hasn't happened yet so you made the right choice.

Hindsight is 20x20

Fri, 02/17/2012 - 00:43 | 2168501 HurricaneSeason
HurricaneSeason's picture

Stock up on gasoline, I have 1250 gallons in my garage so far.

Fri, 02/17/2012 - 02:12 | 2168633 LiquidityandLunacy
LiquidityandLunacy's picture

dude i live in an apartment. If the shtf, im getting in my car and going to naples. Gimme wide open spaces and nato rounds.

Fri, 02/17/2012 - 04:52 | 2168762 respect the cock
respect the cock's picture

Um, hopefully all your shit is in a flammable liquid cabinet?

Fri, 02/17/2012 - 21:03 | 2171993 mkkby
mkkby's picture

There is no threat to the ECB.  They print money, alright?  This is a big nothing burger.

Thu, 02/16/2012 - 22:15 | 2168076 Caggge
Caggge's picture

A disorderly default from a disorderly economy. Just what should happen!

Thu, 02/16/2012 - 22:43 | 2168166 brewing
brewing's picture

whose going to cover the cds... no one...

Thu, 02/16/2012 - 22:15 | 2168077 jm
jm's picture

What I wonder is if NBG will be nationalized or recapitalized.

Thu, 02/16/2012 - 22:16 | 2168082 Yen Cross
Yen Cross's picture

 This is Sean's call. Over at Forex Live. I'm calling it ) You know the #.s SEAN!   You Farm BoY!

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