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Credit Suisse The Sequel: "Probability Of The Largest Disorderly Default Loss In History On March 20 Has Increased"
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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A report on TV stated that there have been no Defence cuts in Greece and the military has not been cut back. This must be the only EU country where that is so. Then again Greece is as much a Medierranean/Middle East country as European with large numbers of foreigners from Iraq and other areas beginning their entry into the EU. I do not think the Troika will have any role if Greece defaults and leaves the EU because politics will turn virulently nationalist and even Albanian. Nationalism is the force the EU has worked Marxist-like to suppress but they have ended up making Mussolini or Hitler look like guardians of order and national cohesion, even though they were both politicians with all the negatives that embodies
The rules of the game have changed. Now its just take what you can while you can.
While Credit suisse is trying to scare everybody they are massively bying stocks in Europe. Look at trade statitiscs. There will not be any crash. This rally is just in the starting blocks.
This is a serious contradiction of their statement so do you have any links or info to back up your claim?
These are the actions of a Prime Dealer to support the ponzi
The Morning Adviser 17 February 2012 - From UBS
"The euro held above 1.31 overnight, after a strong rally in yesterday’s US session. It received a strong boost from unconfirmed reports that the ECB is planning to swap its current holdings of Greek bonds for newly-issued bonds. Reports suggest that the new bonds will have the same features as the old ones, but we think this is very unlikely. Instead, we would not be surprised if it later emerges that the new bonds are to be governed by English law rather than Greek law. This would protect the ECB from the possibility of having to take forced losses if Greek law is changed to retrospectively fit collective action clauses into existing bond contracts. We note that this is a sign of progress towards an eventual Greek debt restructuring and so the euro’s initial reaction to the news was understandable. However, there are at least two euro-negative dimensions which will likely lead to euro weakness ahead once the full consequences are appreciated. First, if indeed this manoeuvre is intended to protect the ECB from forced losses, then the risk of a voluntary restructuring morphing into a coercive one has arguably increased significantly. If a coercive default does indeed eventually take place then a CDS event seems very likely with all the negative consequences for risk appetite that may bring. Secondly, as our rates strategists point out, if this ECB plan goes ahead it may appear that the ECB is receiving preferential treatment, raising questions about whether the ECB is senior to private sector bondholders ? not only in the case of Greek debt, but also regarding the debt of other Eurozone nations that the ECB may be purchasing under the SMP. A private sector bond holder that has been suddenly and unexpectedly subordinated may have a reduced incentive to continue to hold on to that debt."
Targets: EURUSD 1m 1.30, 3m 1.25, 12m 1.15
*Several newswires and Die Welt reported that the ECB would swap its current bond holdings for new ones. Initially this was interpreted as good news, but the headlines were conflicting as to just was on offer. Finally, it was clarified that the ECB would only be exchanging existing holdings (in the SMP) for newly issued Greek bonds. Reports suggest that the new bonds will have the same features as the old ones, but we think this is very unlikely. Instead, we would not be surprised if it later emerges that the new bonds are to be governed by English law rather than Greek law. This would protect the ECB from the possibility of having to take forced losses if Greek law is changed to retrospectively fit collective action clauses into existing bond contracts. The swap for the ECB is reportedly scheduled to take place over the weekend.
* This also raises many questions about the seniority of the ECB. Our fixed income analysts note that it could constrain the SMP up ahead, as the more the SMP purchases, the more subordinate private-sector bond holders could become.
There is a separate issue to the plan to distribute ECB profits to national central banks. The EUR rallied sharply beyond 1.31 nonetheless but clearly more details are needed."
* EU President Van Rompuy has called a special Euro summit for March 2 to ‘discuss the Eurozone firewall’. His office said ‘there will be a Eurozone summit over lunch dedicated to the ESM’.
* According to the German Parliament, lawmakers were briefed by the Finance Ministry and Germany was targeting bailout approval for Greece by February 20. The debt swap itself would occur between February 22 and March 9. Meanwhile Dow Jones cited a Dutch Finance ministry report that Greece may only get the second bailout after elections in Greece have passed. It is clear that negotiations remain tense and there are many issues to resolve before the funds are finally released, even provisionally."
Worth noting is that through all of this Credit Suisse has been one of the largest buyers of European indices the last 6 months. On some markets around 10% of
daily net turnover, excluding the robotics.
could the rating agencies be bought off by those staged to gain from a greater difficulty in securing loans?
secondly, i can't help but think of the prospect of compulsery healthcare being the next mbs.
how else are private insurance companies going to make a profit,?
can i intrest you in a revenue stream based on policy holders that haven't made a claim in 2 years? may i preface no pre-existing condition contagion here, sure revenue stream. and btw the cost of compulsory health care is going up every year. so more money on a sure thing. besides, we have unregulated otc deritaves backed by a sovereign to swap in the radical impossibility these very healthy people should cease to be as lively, but our principle interst is that by virtue of this they are better off, never will there be a swap. technology has the promise of infinite growth and concomittantly infinite life, win win
March 20, 2012 is a big date for the world.
Two enormous and somewhat very related events will occur:
1) The Greece / EU / US thermonuclear implosion credit event
2) The trading date start of the new non-petro dollar Iranian Oil Bourse
Someone has a fantastic sense of irony.
I am certain the Texan Oil / Eastern Banking / CIA nexus is not laughing.
Now the question is where is the 3rd event? There is always a 3rd event. Is that the start of WWIII?
We have a problem Houston.
when crisis times hotten up the devil's disciples appear like the jack-in -the-box Messiahs. Can you believe a corporate banking shill to tell the truth when he's lied for years and years? The same guys who rehypothecated their junk chattel like prize slave girls on the market of Rome's outsourced and over-leveraged Coliseum, now sing we're in for a melt down to Hades.
Thank you very, very fu**king much you cattle rustler bankstas. I'd rather see you swing with your offals all hanging out than buy your eleventh hour Messiah shouts. Let it be a rout, if we've learnt one thing never turn your back on the banksta crowd. THey are the creepy crawlies of this earth, just squash them when their fiat burns with what's left of man's just vengeance.
We need a prediction from Ori; the equinox sage of oriental rage should be on this page!
If its going to be Troika's "amputate and cauterize" in Ides of MArch play then the peripherals are condemned and the systemic risk probably firewalled from reaching core by Draghi's (and maybe FED's QE3) LTRO splurge and Eurozone's concomitant Merkozy dictat of ESM'd golden rule austerity. Why this CS/UBS lobby shill now sings meltdown as surprising contrarian clown, is to make the sheeple panic and cream what remains of Eurozone money into Swiss/off shore havens; banksta nirvanas. Look at Spain banking risk...that's awesome as the junk asset ratio now increases, but it won't explode in Ides of MArch fryout, the GS won't have that as it kills WS election year mega play bail out.
PLEASE READ THIS
http://www.scribd.com/doc/81863320/Greek-Default-Exclusive-16-Febr-2012-PP
AND ITS SEQUEL
http://www.scribd.com/doc/81925476/Greek-Default-Plan-JPM-Also-Possesses-It-16-Febr-2012-PP
pp
If Greece defaults will the US cancel the sale of the 400 M1 Abrams tanks planned in October 2011 ? With Greece having the highest Defence Spending as %GDP in Europe will the USA, France and Germany miss the opportunity to pay kickbacks to Greek politicians buying their hardware ? After all that is the reason arms are bought in the Mediterranean/Middle East region - for kickbacks rather than use
Those 400 tanks might be useful... for someone looking to stabalise the region after a few months of rebellion.