Europe's Ponzi Takes A Twist For The Wacky: Greek Bank Equity To Be Used As Loan Collateral

Tyler Durden's picture

That the European ponzi is leaps and bounds ahead of the US is well known: we have frequently succumbed to vertigo trying to chart just how interconnected Europe's financial system is at the current point where €1 in incremental capital is supposed to prop up a multi-trillion pyramid scheme. But the just released news from the Handeslblatt demonstrates that just when we thought we had seen it all, Europe once again manages to surprise us. As is by now well-known, Finland has proven to be quite a stick in the spokes of the joint-European can kicking exercise by, prudently, demanding collateral, or threatening to walk out of the second Greek bailout (that 1 year Greek bonds are trading at 60%+ yields is irrelevant). Well, here's the solution - give them collateral... in the form of insolvent Greek bank shares, which however will be "partially nationalized" as if that will suddenly push their value higher. Supposedly the Finns never clarified that the collateral has to have some liquidation "value."  Oh well, better luck next time.

Dow Jones provides a brief summary of idiocy so profound we are terrified we have lost our minds and fail to see brilliance when it stares us in the face:

According to the report, European Financial Stability Facility head Klaus Regling has proposed the idea to European finance ministers, who will discuss the matter early next week. Regling's office didn't have an immediate comment on the report Tuesday.


Of the EUR109 billion expected to make up the euro zone's second rescue package for Greece, at least EUR20 billion is earmarked for Greek banks, according to Handelsblatt.


In return for getting the aid, Greek banks will be partially nationalized, the article quotes unnamed sources in Brussels as saying.

And straight from the horse's mouth:

The euro zone remains committed to the project to secure the new loan assistance for Greece with a mortgage. According to the Handelsblatt information is now thought to get Finland and other donor countries Greek bank shares as security deposit. It was Klaus Regling, head of euro bailout EFSF, the group suggested the euro finance ministers, said EU diplomats. Senior officials from the ministries of finance-€ would talk about it early next week.


The second aid package for Greece in the euro area comprises a total of 109 billion euros. Of these, at least 20 billion euros for the Greek banks determined. In return for the assistance of the Greek banks were partially nationalized, it said in Brussels. The state share packages should be left to the government in Athens the Euro-donor countries as a security deposit, according to the plan.


The Government of the Euro-zone was at the urging of Finland at its extraordinary meeting on 21 July, the security deposit resolved. Greece agreed then Finland, € 925 million in securities with high credit ratings to a Finnish account as collateral to apply. The euro-zone would then approve this agreement, however. This is not to the security deposit but from the table, it said in Brussels.


Finland continues to insist, so now another solution must be found. Otherwise, there is a danger that Finland is on the new loan package for Greece no longer participate. The government in Helsinki is under considerable pressure of the opposition party "The True Finns" who refuses all aid to Greece.

So let's see if we can make sense out of this:

Greek banks exist only due to the National Bank of Greece funding their operations by providing cash in exchange for Greek bonds as collateral; Greek bonds are trading at or around 50 cents on the dollar, which however results in nearly par cash; the NBG goes and pledges the same Treasuries to the ECB, in another collateralization operation. However, even that has failed to satisfy the full Greek bank system capital shortfall (remember that whole bank run and collapse in bank deposits?), and a €20 billion gap has opened up, which is where Bailout #2 is happening. The issue is that Greek banks can not offset selling interest and the SMP is forced to buy up eligible collateral which means there is a liquidity crisis. The only thing that could help this would be a greater deficit, which would be funded with more issuance, yet the IMF is forcing Greece to slash its budget deficit, thus substantially reducing future bond issuance, and repoability by local banks with the ECB, as final NBG-intermediated, counterparty. So instead the country's banks need direct foreign capital. However, this capital needs hard collateral pledged. Collateral which would have value in a worst case scenario, i.e., liquidation. Instead, what the EFSF has offered as "collateral" is the equity of the very same firms which will be immediately insolvent once this house of cards collapses, sending the bank equity collateral worthless, and buried under billions of debt liabilities, and in turn impairing the ECB which suddenly finds itself with hundreds of billions in worthless Greek paper, making additional funding for Finland, once it finds itself in a liquidity crisis, next to impossible.

That pretty much sums it up?

We have just one question: why will Finland agree to this again?

All joking aside, we are confident that this being the first bid in a compromise negotiation, Finland will likely end up with Greek bonds as collateral... which however are collateralized with even more worthless assets, and trade at 30-40 cents on the dollar, and as a result of this claim dilution, trade even lower, which in turn will force Finland to demand an 80% collateral haircut on Greek bonds, which kills the whole process as it makes a mockery of the ECB holding Greek debt at par. But fear not: Trichet said the ECB is not a bad bank and holds highly valuable assets.

Whoever said watching massive ponzi scheme unwind is not entertaining obviously had no idea what they are talking about.

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hedgeless_horseman's picture

Desperation, bitchezzz!!!

PaperBugsBurn's picture



The Tyler on duty is a real censorship beeeeyotch!


Erase this comment too, bitch.

Pool Shark's picture



"Collateral. You keep using that word. I do not think it means what you think it means."

As for poor Finland:

Construct's picture

External Debt:

UK of 386% GDP.

France 208%.

Germany 163%.

Italy 132%.

Spain 170%.

-- Game Over --

hedgeless_horseman's picture

The enemy counterparty of my enemy debtor is my friend lender.

Construct's picture


Some additional information that just say it all. External debt to gdp:

Ireland 1106% of GDP

Protugal 240% of GDP

EU and any Euro project is hopelessy doomed.

Now look at the 'third world':

China 5% of gdp

India 21% of gdp

as a note. USA is not as good as the 'third world' but is in 'okey' condition:

USA 99% of GDP

Source: CIA, Eurostat, World Bank, US Treasury.

myne's picture

These national debts are missing one key component: creditors!

Why do I get the feeling that it's all owed in one massive hazy debt circlejerk with no actual net creditors?

Seriously. We know China has ~3tn in foreign cash equivalents, yet they owe 5% of their GDP.

Is this all just a giant scam? If all consumers are in debt, and all governments are in debt, and most banks are undercapitalised, WHO's it all owed to?!

Construct's picture


Bingo. It is all a gigantic circle jerk. Where central banks purchase all the bonds and then 'sterilize' it which is a nice word for hauling all the garbage onto banks balance sheets which in turn after a while go broke.
Azannoth's picture

It's elementary my dear Watson, the Central Bank Cabal but not through direct money, money as you or I see it but through debt slavery

It's not about the principal it's all about the interest, Central Banks lend to each other the obligations of their citizens, effectively selling taxpayers into slavery of other central banks

It's an extortion mechanism, since the average person and even the governments have no control over what central banks do, they have a card blache

How to rule the world in 5 easy steps

1 - create a debt based monetary system

2 - make sure all central banks are 'independent' as in independent of the people they are supposed to steal from

3 - start lending money to 'other' central banks thus indebting the people without their consent and to be able to charge interest

4 - have the people accept inflation (even at 2%) as good and necessary, as inflation is a liability to the people but an asset to the banks

5 - squash any public or political dissent through black-mail, bribes, entitlements, and if all else fails war


MarketTruth's picture

And you forgot:

6. Assonate any President or country leader that wants to remove a central bank or their currency/debt scheme.

tekhneek's picture

Your comment's cool and all until you get to this part:


Source: CIA, Eurostat, World Bank, US Treasury.


Construct's picture

You mean to tell me that you believe CIA Eurostat WB UST would not tell the truth and nothing but the truth?
Anyway it is the only thing I can provide at the moment I am trying to find 'other' sources.

Leopold B. Scotch's picture

There ain't a dollar in circulation today that has not been loaned into existence. 


Don't worry. Those dollars are backed by people paying their interest... in more dollars.

??'s picture

nice numbers


Construct's picture

Source: CIA, Eurostat, World Bank, US Treasury.


External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the IMF and World Bank.

youngman's picture

I knew there was some reason for the they call it a brand new bank..all is good...take our they will...that is what is sad....

Ancona's picture

Ponzi squared. I like it.

NetDamage's picture

Collateral gummi bears, bitchauuuz!

snowball777's picture

Ironically similar to having convertible bonds in the first fucking place.

plocequ1's picture

In Philadelphia, Its worth fifty bucks

hedgeless_horseman's picture




Bill: You hocked a Hattori Hanzo Sword?
Budd: Yep.
Bill: It was priceless.
Budd: Well, not in El Paso, it ain't. In El Paso I got me $250 for it.

mp2437's picture

wow, funny to see that. I just watched the dvd the night of 'Irene' to pass some time...great movie!

Derpin USA's picture

Well, logically speaking, if you're going to give them bailout money, you're assuming it's going to work. If that's the case, why wouldn't Greek bank collateral be sufficient? Refusal to take that acknowledges a belief that the bailout will fail.

A demand for gold is as good as saying it's not worth doing in thefirst place (which it's not).

NetDamage's picture

Not demanding collateral seems to be the most optimistic case...but politically perhaps the Fins can be convinced by this scheme.

gwar5's picture

The German have gotta be thinking they'd get the same treatment as the Finns if they backstopped Europe and all the PIIGS. This little ditty is their future. Run away! Run away!


totem's picture

Things would be so much easier for the EU if they booted Finland...

buzzsaw99's picture

Rename Iceland Niceland

Rename Finland Not Niceland Bitchez.

SeverinSlade's picture

I try to explain these macro-economic events to people and they still fail to comprehend how disasterous this will wind up being.  So long as they can still get a their 99 cent hamburger everything is just fine and dandy.

All of these bailout packages in Europe are using toxic assets as collateral while the interest rates on the loans makes it mathematically impossible to pay back.  Then toss in the derivatives market which is a black hole of debt.  The coming collapse will be magnificent to watch.  Way better than the final scene of Fight Club.

...And hopefully without a spliced image of a penis.

V in PA's picture

I'm sorry could you repeat that. I was reading a tweet about Lady GaGa dressing like a boy. Can you imagine?

Sudden Debt's picture

Greek banks will be partially nationalized

There goes todays bank rally for the Greeks :)

I wonder why they don't let Lehman finish the deal....


Nothing To See Here's picture

Who would want physical gold as collateral when you can have insolvent greek bank shares??? HELLOOOOO?  /sarc

At least Europe will be true to its socialist dreams. Bank nationalizations are just a logical step for this fucked up continent.

MFL8240's picture

And the US banks are.......... Not nationalized???  Come on! Public liability private profits, the US banks are the most nationalized fraudulent banks on the planet.

NotApplicable's picture

Well, except for all of the rest.

Nothing To See Here's picture

That's an half-truth. Most US banks were not nationalized before the 2008 bailouts. But I understand your point.

Vincent Vega's picture

For those who held on to their shares; rumor is they will also allow Lincoln S&L stock to be put up as collateral.  <sarc>

Mediocritas's picture

I find this pretty funny. Offer shares of insolvent banks as collateral, grab the bailout money from all the suckers, then watch the banks fail anyway, and hand over ownership of the lumps of shit to the same suckers who bailed you out so the big black hole becomes THEIR problem. ROFL!

Beware of Greeks bearing gifts!!

I have a better idea.

Offer Fins free accommodation (and maybe flights) to take holidays to Greece during the winter as collateral. That's something Fins actually WANT because Helsinki truly sucks in the winter, plus it gives Greece a chance to earn some euros as Fins spend on food, sight-seeing, etc. I wish I was joking but let's face it, such a stupid idea is infinitely better than what's actually being considered right now.

snowball777's picture

Add one greek slave to take home with them and you've got a deal.

dwdollar's picture

Modern day Trojan Horse?  Only one thing...  is anyone stupid enough to accept it?

Mediocritas's picture

Trojan Horse, exactly. And knowing the Greeks, they've probably bought a whole stack of CDS on those banks so they'll get to have their cake and eat it too. Haha, I admire their gall.

Dick Darlington's picture

Never underestimate the stupidity of politicans.

tekhneek's picture

I know, I can see it now: "Well... this time they provided us with collateral.... so... yeah. Let's do this."

LMAO's picture

And even better:

Of the EUR109 billion expected to make up the euro zone's second rescue package for Greece, at least EUR20 billion is earmarked for Greek banks, according to Handelsblatt.

With € 20 billion earmarked for Greek banks, about 20% of collateral offered  is in fact  the 20 billion coming from the of rescue package itself.

Happy donkaments everybody, let's go all-in with 2-7 os preflop

CompassionateFascist's picture

There are no tango palaces in Greece. Finns won't go there.

Missiondweller's picture

My favorite thing about this website is Tyler's acid sarcasm. Brilliant!

Dick Darlington's picture

Let's see what happens in Finland if the eurofanatics agree to accept the equity of the insolvent banks as collateral. The anti-euro True Finns, who made it big in the recent elections, have been getting even more support after they refused to be a part of the "eurofanatic government". According to every single poll AFTER the decision NOT to join the government because of the irresponsible european politics practised by the National Coalition, True Finns have been the biggest party in Finland. The leader of the party, Timo Soini, is calling Finland to stop the bail out madness and just say no to all bail outs and especially the Greek #2. If the government accepts this my bet is that they won't survive untill christmas.

luckylogger's picture

I sure wish I came up with a solution like that for the bill collectors that keep calling.................... wonder if it would work?