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Forget The "Bazookas": Here Come The "Tomahawks" And "Howitzers" - An R-Rated Walk Thru The Greek Endgame
We have already provided much cold, hard, clinical facts on the hypothetical Greek EMU exit on countless occasions before. Yet Jefferies' David Zervos has done it with such peculiar aplomb which we have not encountered before, that we felt compelled to share with it readers. Zervos' Paulsonesque 'apocalyptic' flair shines particularly when analyzing what happens at T-0, i.e., June 16, i.e., the day before Greek election day, i.e., the last Greek free call option on physical euros if all hell breaks loose: "On June 16th why wouldn't every Greek go to the bank with a sack and ask for the cash. Why hold Euros into the 17th? By that logic why not get them out earlier in case they shut the ELA pre-election. From the north's perspective, one could argue that Merkel should shut the ELA right now. Allowing the Greek people to access all their Euros physically, while still holding the option to default on June 17th, is insane. She and the ECB would NOT be acting in the best interest of the Eurozone if they let this happen - there would be 300b in Target2 losses to split up between 16 member NCBs if the Greeks choose to leave after taking out all the Euros." So where does the chaos from a Greek bank run and exit lead us, as Zervos puts it. "The end is of course ECB printing, Eurobonds and every developed market central bank dumping massive liquidity into the global financial markets as systemic risks rise - QE, LTROs, Currency swaps, and every funding facility under the sun come into play. The path to this end game will be bumpy, but make no mistake, the developed market central banks will dump so much fiat on the system to cover the losses, that risk free real rates will plummet to levels so negative that anyone left holding cash or cash equivalents will see massive destruction of real wealth. We may have to push risk assets a bit lower from here, but the global central banks will be firing howitzers and tomahawks very shortly, not bazookas! And you best be owning some risk when those bad boys are launched!!"
Of course, owning fiat-based assets in a system that is about to be drowned in what effectively amounts to infinitely more fiat, makes one wonder: what will be the point owning risk if the "currency" in which risk is denominated becomes meaningless virtually overnight?
Which is why we are happy to paraphrase Zervos: "And you best be owning some hard, real assets when those bad boys are launched."
Extracted from Jefferies' David Zervos: No ELA, No Euros! The End!
So lets "run" through the mechanics of a Greek bank run. As the Greek people begin to smell a Greek exit and a conversion of their hard earned Euro deposits back to Drachmas, they will withdraw Euros from Greek banks. So the Greek banks will head to the BoG with some dubious collateral to beg for Euros to pay depositors. The BoG takes the collateral, gives it a minuscule haircut, and draws Euros via the ELA. This of course creates an increase in BoG Target2 liabilities. The BoG then sends the Euros to the Greek bank and the Greek bank then gives the Euros to the hard working Greek depositor standing in line waiting to empty the account.
Importantly, Greek banks ONLY run out of Euros if the ECB can justify a shut down in funding to the BoG ELA facility or the Greek banks directly. Now, as we heard last week, the ECB has already stopped OMOs with 4 Greek banks (which one could safely assume are the big ones). So the ONLY thing standing between a Greek depositor and his/her Euros is the ELA. No ELA, no Euros!! And, as mentioned above, the ECB has once before threatened to turn off NCB access to Euros via the ELA in the case of Ireland. So there is a precedent for this to happen again!
Now we have to look at the conditions under which the ELA could be turned off by the ECB. Looking back to the Irish case, it was the potential for a default on senior bank debt that triggered the ECB threats to the central bank of Ireland. As the rules stand, ELA lending can only be done to "sound" institutions. So the ECB in theory can shut down all lending, including ELA, if the NCB is failing to abide by the rules. And clearly, Irish banks that default on senior debt are easily proven NOT sound!
In the case of Greece, in the middle of a bank run, will it be hard to prove that banks are not sound? Hardly! But more importantly, the soundness of the Greek banks is 100 percent dependent on the 65b Euro capital injection coming as a part of the previous government's agreement to the MoU (Memorandum of Understanding, or what Tsipras calls the Memorandum of Barbarity).
That 65b is the ONLY reason why Greek banks have a chance of being deemed sound. Without the 65b, there is no way anyone could claim the BoG is lending to sound institutions and there is no way the ECB could continue to authorize the BoG to lend under ELA.
And that takes us squarely to Mr Tsipras, SYRIZA, the MoU/MoB and the Greek election. It will be very easy for Merkel and company up north to lay out a case for an ELA shut down for the BoG if the MoU is discarded by the Greek voters via a win for Tsipras! In a sense, Merkel's phone call on Friday to the Greek president was just that. It was actually the same call that was made to the Irish president a while back - and of course the Irish balked, caving to the German demands. At that time however there wasn't an Irish presidential vote. This time, with Greece, Merkel's message is really to the Greek people. And what is that message exactly? Vote for Tsipras and I turn off the Euros. Or, in other words, choosing Tsipras means choosing to leave the Eurozone. Of course, Greece could vote for Tsipras, discard the MoU, repudiate the dni8ceebt (including Target2 debts), still use the Euro and stay in the EU - but they would become Montenegro! The chances of that however are zero. The Greeks will want to print and control their destiny if they get cut off. No ELA will almost surely bring back the Drachma. And doing so would, in Merkel's view, be the choice of the Greek people. At least that's how it will be sold to the rest of Europe.
The problem for Merkel is that the Greeks will understand this and run the banks BEFORE June 17th - it is happening right now. On June 16th why wouldn't every Greek go to the bank with a sack and ask for the cash. Why hold Euros into the 17th? By that logic why not get them out earlier in case they shut the ELA pre-election. From the north's perspective, one could argue that Merkel should shut the ELA right now. Allowing the Greek people to access all their Euros physically, while still holding the option to default on June 17th, is insane. She and the ECB would NOT be acting in the best interest of the Eurozone if they let this happen - there would be 300b in Target2 losses to split up between 16 member NCBs if the Greeks choose to leave after taking out all the Euros. If she gives the directive to shut off the ELA early she will at least keep the Target2 losses to 150b. And she will be telling the Greek people that if they vote for Tsipras, their Euros in the bank will not be available. This is a dangerous game for sure! But this way she can also blame the Greek voters for an exit, and hide behind ECB rules that imply access to funding can only be done to sound institutions. With this strategy she can have the Greeks decide on the 17th to keep the MoU, get the 65b and have access to their 150b Euros OR abandon the MoU, watch their Euros turn to Drachmas and leave the Eurozone. She didn't kick them out, they chose to leave!! Of course the few weeks leading up to the election with ELA turned off and a multi week Greek bank holiday would make for some crazy headlines.
As I said in Friday's piece, deciding what to do with the ELA for the BoG as we head into the Greek election "is the most important decision in the history of EMU". By turning it off, Merkel might scare the Greek people into complying, as she did with the Irish. By leaving it on, she makes it much easier for the Greeks to vote Tsipras and leave the rest of the zone to pay. She also makes it much more likely she will have to cave to Tsipras' demands.
The stakes are high, and while the decision is crucial for Greece, and their creditors, there are even bigger second order issues in play. A Greek run will certainly cause the Spanish and Italian folks to question the access of their respective NCBs to ECB funding and the ELA. It will be VERY hard to argue that Italian banks are sound if 100s of billions in deposits flow to Germany! And why wouldn't every Eurozone resident put their hard earned money in the safest bank possible if we start to see Greek depositors threatened? As soon as retail sniffs that there is a chance of a loss, a full scale Eurozone bank run ensues. If the Germans can turn off the Greeks or the Irish, could they turn off the Italians?
The Germans have tried to play hard ball for 3 years. Every time it backfires and the Fed and ECB have to ride to the rescue with bazookas. My money is on the Germans going to battle with Tsipras. And in the end we create a Greek exit and a bank run throughout the periphery. The endgame looks like what I described in the commentary entitled "Angie ain't it time we said goodbye". In that analysis the Italians and the Spaniards, through the chaos of bank run and Greek default, force the Germans to wrap their debts via Eurobond or some sort of system wide European bank deposit scheme. In actuality, the Rajoys and Tremontis of the world may even try to incite a run in Greece - it gets them the German wrap they have always dreamed of! Using Greece as a pawn in the big Eurobond chess game is dangerous, but likely effective!
So where does the chaos from a Greek bank run and exit lead us. The end is of course ECB printing, Eurobonds and every developed market central bank dumping massive liquidity into the global financial markets as systemic risks rise - QE, LTROs, Currency swaps, and every funding facility under the sun come into play. The path to this end game will be bumpy, but make no mistake, the developed market central banks will dump so much fiat on the system to cover the losses, that risk free real rates will plummet to levels so negative that anyone left holding cash or cash equivalents will see massive destruction of real wealth. We may have to push risk assets a bit lower from here, but the global central banks will be firing howitzers and tomahawks very shortly, not bazookas! And you best be owning some risk when those bad boys are launched!!
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We keep coming to this precipice and nothing happens. Over and over.
Try this one: Euro goes up a pop as Greek bankrun begins in earnest. Dollars go up too, secondarily. PMs go down. On the surface, the deck chairs on the Titanic get rearranged again. Below deck, the damage gets even worse as more printing and swaps happen to stabilize the minute to minute action.
I don't know crap, but there is much weirdness ahead.
Damage in steerage is no reason to alter a plan. As long as there are enough life rafts for full-fare passangers, let the band play on.
Dinner on the RMS Carpathia is served at seven, as per usual.
sarc/, but like the rescue of 2008, these plans are never intended to make everyone whole.
If only they had, actually, paid a full fare. This band of cast-a-ways stole from all the other passengers and declared themselves somehow superior and deserving of those life boats because they have more than everyone else.
But yeah, I hear ya!
http://betterbadnews.com/
give us a break Tyler !
our money is insured by the ECB so you can all say anything you want, but they are obliged to guarantee our deposits up to 100K
we were paying isurance premium all these years
ECB and Budesbank can go sodomize each other oK?
or all there will be a bankocalypse everywhere in the world if u choose to punish greece!!!!
on behalf of greece
It's up to 250k now.
Who is "us"?
You paid premiums for those years in the past and. The ECB delivered. So that has no bearing on this year.
I have no doubts that today the bankers would show you the finger if the push came to shove. I bet their "guarantee" means they have to make sure your CB gets paid by other CB's, but what happens after that is anyone's guess. For example your CD pays your deposit, but in drachmas. Since it is Greece that owes money to other banks, if Greece gets kicked out of ELA, there'd be money to be paid out but in local currency.
Carnage, gore, cool, viewer discretion -- more, Tyler :)
Can we get an imbedded video for The Doors' "The End?"
Ireland has a refferendum on the 27th. That may get a bit sticky as there is a good chance they may just say fuck ya to the EU.
Last I looked it was likely the pro-FU side was poised to win, so I don't see what's there to be excited about.
(And it would appear that their vote is irrelevant anyway. They can vote but they'll have to join if most member states ratify the FU. )
The other option is for Greece to introduce a Drachma based internal currency while still leaving the Euro as is.
This will enable the GCB to start inflating the Greek money supply while not taking Greece out of the EMU.
That may be a solution L4E. How about gold as a dual currency. The populace would probably readily accept it. How though can metal be coined and authenticated in small amounts to pass as a day to day currency? By gosh, if the central bankers are holding down the price of gold the Greeks would be increadibly wealthy in short time.
How though can metal be coined and authenticated in small amounts to pass as a day to day currency?
What about silver and copper? Or am I misunderstanding something?
Yes, you are misunderstanding a lot about the situation in Greece
Did you actually read TFA?
They can't leave the euro as is if the ECB kicks them out, OK?
They can leave the euro as legal tender but they themselves wouldn't be able to issue any.
To understand what is most likely to happen in the next month you only need a simple thought experiment. You've lent your parasitic brother in law on fake SS disability $10K and he's supposed to be paying it back with some nominal interest-but he's never given you a dime back. Now he demands you lend him another 10K$ or he'll just walk away from the original loan. What do you do? You tell him to shove it where the sun don't shine because you actually work and are productive so you can easily recover that $10K. Him, not so much as he is a lazy loser and he knows it. Guess who is most likely to cave?
This is simple universal human pyschology-and it never changes. So, its bye-bye Greece-back to what passes for self sufficiency. Work, be productive, or die (actually die in any case). Iceland learned that lesson the hard way and is recovering nicely. The solution to debt is not more debt-its producivity and work.
I liked most of what you had to say here but I don't see Greece the way you do. How about this parallel: father forces his loser son to take a loan he knows the kid will never pay back, in the hopes that somehow it will change things and his son will become productive and be a source of support in his old age? Thing is the son knew, the father knew, and all the relatives knew, the son was never going to use that money in a way that would get him to self sufficiency. Let's take it one step further. Let's say the father INSISTED as a condition of the loan that the sun buy certain things. Like, I don't know, German jets, lets say. The jets are not productive, they just keep dad (the jet maker) in business. "But dammit boy, you best pay back that loan!"
I can't label Greece the way you do.
Neither can I.
It takes corruption at the highest levels to be presenting 3rd parties with that kind of odious debt. This wasn't about Panos' mother's pension, this was financial rape and graft of "IMF in Africa/SEA" proportions. (1)
The kinds of scumbags who are part of that, would have no issue blaming the victim. She had it coming, wearing that skirt, the filthy whore.
(1) John Pilger - The New rulers of The World - 2001
http://video.google.com/videoplay?docid=-7932485454526581006
Now, help me remember - exactly what % of Germany's gold reserves are not in Germany but in New York, London and Paris? Safe and sound in those trustworthy Central Bank vaults, I'm sure. See, it says right here on this piece of paper - safe and sound. Rest easy Deutchland. Your friends have your back.
Yo, Master Pimp ! Greece needs no more pimps - they have a currency scam industry full of them over there already. ECB insurance is probably like FDIC insurance - maybe 3% in reserves to go towards insuring total elegible depositor funds. First 3 percent through the door, no problem. Last 97 percent through the door get the " Jawohl, your money ist gone. Hasta la vista, dickwads ! "
Really? Anyway I have already taken my money!
But that would be the first precedent of punishing depositors!
Are you German?
Is this the german birdie national emblem?
No, dude, I'm a multi national cicizen of the world. Do your fucking homework - the bird is Austrian, and has more to do with archaic auto clubs than nationalistic tripe. And, NO , you have not taken your money. All you have is a pile of fire starter unless you are smart enough to turn it into gold, silver, bullets, or food. Then, you will have some net worth. Right now, all you have is a combustable product not worth a pinch of coon shit. Look after yourself, because no one else will.
. First 3 percent through the door, no problem. Last 97 percent through the door get the " Jawohl, your money ist gone. Hasta la vista, dickwads ! "
***********
Yep- FRB in the Euro is the same as it is here-
Depositors hard earned EUR/USD or any world currency has been re-hypotheticated likely by your 97% figures-
That's what will stop a bank run-when they have to close the doors because the money that's been deposited does not exist-
It could be printed/hyper-inflated into existence but bailing out the serfs at the expense of banks has never been in the cards-
"And you best be owning some risk when those bad boys are launched!!"
Did ZeroHedge just recommend the purchase of stocks? Now I've seen everything.
Yes, this site is now just another Doomer/Survivalist blog, albeit one written by a slightly higher caliber of paranoid personality disorder sufferers.
And people are making immense fortunes trading the stock market while everyone here is shoveling their life savings into the ground, literally.
His comment fails to recognize that that statement was from a Zervis writing, and yours fails to comprehend his comment. Two fails, and it's hard to say which is worse.
Feel free to GTFO then, smart guy.
The EZ bank run has already begun.
http://blogs.r.ftdata.co.uk/gavyndavies/files/2012/05/ftblog258.gif
http://www.youtube.com/watch?v=nfJNFSYFmZs
Part of the agreement pledged the Greek gold holdings to the ECB.
It will be interesting to find out if the gold has been moved.
If it has, Greece has nothing to base a drachma on.
Really?
We have trillion dollar worth of uranium, oil & gas, gold reserves underground plus
the most beautiful land in the world
Gold is just a sissy bling bling metal
Sure is doing your country a lot of good isn't it?
We are still partying bitchezzzzzzz
plus we will become Qatar pretty soon and park the Russian armada in the Aegean with our orthodox comrades and President Tsipras as our Chief and noone will be able to touch us! ahahahahahah
The Russians will Gulag your sorry asses, and strip mine your country for anything of value. And, with that attitude, no democratic country will give a rat's ass what the Russians do to you. Especially after you pan handled several hundred billion dolllars, and then fucked every one who kicked in to float your sorry asses out of welfare, and corrupt government.
If the fucking gold is in the ground, it doesn't belong to you. If you hold fiat currency, you got fuck all but a bonfire for about 5 minutes of warmth. You better get up close and personal with gold. It used to be what a drachma actually was composed from, then based upon. Obviously, your ancestors weren't as stupid as you are making yourself out to be.
ancient Greeks have genetically nothing to do with the greek-speaking armenoids mixed with miscellaneous mediterranean trash that are posing as Greeks.
Why not just point the HAARP machines at Santorini & crank it up to full...
That ought to freak a few fuckers out...
Does it matter? Every currency is fiat.
And even if they wanted to, would the Greeks do some sort of gold backed currency/gold standard, knowing that NATO or Turkey or some other US government hired army could be far up their ass with uranium enriched bombs in a proxy war?
They should quietly bring back their gold from New York and wherever else it's being held, move what's left from the Bank of Greece into it's National Treasury, and nationalize the gold mines in the north-- that are near production of 500,000 ounces yearly-- to get ready for the eventual reset.
Question for the more knowledgeable folks out there as I am just starting out in my real education in such matters (thanks in large part to zero hedge, one of the greatest websites in history I might add):
If they issue debt-free drachmas not from a privately owned central bank such as the Bank of Greece (which Kammenos is vociferously attacking and Tsipras might agree to nationalizing them to form a coalition government), and the government controls itself from trying to print all it's troubles away, wouldn't the drachma eventually gain trust, and value vis-a-vis a massively inflated Euro and Dollar?
the new Mrs. Watanabe will be Mrs. Smith.....
I'm stacking, keep stacking and we will all be happy in a few years.
Gold and Silver
Can anyone pin point the exact month in which ZH went from being an edgy Investment/Financial News blog to being yet another survivalist blog?
When it all became one and the same as far as your future existence can be considered. Get educated, or get flushed down the fiat toilet when the time comes. USD is worthless in buying power today compared to any time line you look at going back 5, 10 , 20, 50, 100 years, whatever. Same for any other debt based fiat currency worldwide. Gold was worth $35.00 an ounce when I was younger, and silver was worth whatever the face value of the coin it was minted in, up to a buck. Either you are an ant, or a grasshopper. Your choice, investment wise,and survivalwise, both.
I bought dinner tonight for ten U.S. dollars. I ate the food and my hunger was sated. Thus, the fiat U.S. dollar still seems to hold some value. In fact, the value of the U.S. dollar is at 16 month highs as we speak.
Your belief on the destruction of all fiat currencies may come true. Maybe. But not this year, and not next year. So my bid for survival will be made via liquidation of all physical assets, turning them into fiat dollars, and fleeing the fascist American police state while exit is still possible. After that, maybe I'll look into converting some paper into physical.
You call yourself a citizen of the world. But how mobile can you be lugging around your life savings in the form of physical precious metals? How secure can you be? You feel safer crossing foreign borders with your life savings in gold, exposing it to confiscation and theft, than keeping it in a bank? Really?
My strategy is to stay liquid and mobile, not dig a hole and live in it with my life savings in gold.
McDonalds is not dinner, or food. And, the dollar bought 4 gallons of gas not too many decades back. Now, it buys less than a quart of gas. I don't lug around PM's - I lost them all in a boating accident. You are gonna lose all your paper to fire or thef. By virtue of the boating accident, I am liquid. And, I guarantee you that my true wealth in knowledge, skills, and training make it a solid bet that I'll be good with whatever the future holds. You on the other hand, will get nailed at the border with a bunch of worthless paper that will get confiscated as you are arrested for money laundering or terrorism support. I hope you enjoy solitary confinment. Talk about digging a hole, you managed just fine. Ass hat.
I'll go ahead and make the call right here, right now:
In 5 years Greece will still be part of the the European Union.
The tyrants in charge of the E.U. will never let 11 million souls escape their grasp. Same thing I've been saying on this site for the past year (under various accounts).
Greeks not be using the Euro currency in 5 years, or 5 months, but that's not really important to the political elite. What fiat paper is used by the peasantry to live out their pathetic and unimportant daily lives means nothing to the ruling classes. So long as their power is maintained.
So, spill the beans on your "various accounts " you have been preaching from. Robot Trader one of them ? How about Million Dollar Bonus ?
Mathman, how's your mom? Did you get the basement recarpeted after you know me and your mom? Still digging silver out at $5/oz, good times, good times..
Oh, But none if this is possible.
We live in the age of obamma $ and lady gggga-ga.
No way are we getting fooled.
I do like her style BTW.
Interviewed yesterday:
--
Greece is almost finished: Economist Yanis Varoufakis
ABC Australia Radio - The World Today
by Eleanor Hall Monday, May 21, 2012 12:34:00
Transcript:
http://www.abc.net.au/worldtoday/content/2012/s3507248.htm
MP3 Audio:
http://mpegmedia.abc.net.au/news/audio/twt/201205/20120521-twt-fullprogr...
--
--
He's become even more blunt about the situation since he's freed himself from his local 'constraints' ... but is going to the USA as a solution ... or a pitstop?
What's the bet he ends up in Australian University European Studies Centre ... once he gets a better offer?
Thank you for posting the excerpt and links.
barliman
No probs, the bottom line is austerity needs to be reversed, but it can't be, so deficit cuts must be and will be politically suspended, and the currency(s) will fail a death of debasement, to a small fraction of nothingness.
A link to just the EXTENDED interview itself:
http://mpegmedia.abc.net.au/news/audio/twt/201205/20120521-twtextra-gree...
A Greek economist. Isn't that a contradiction in terms?
And now he is in the US. Great! As if we needed more professors to teach students how to run a country into the ground by borrowing and spending.
Off to Australia to the rest of the Greeks. Australia is now suffering CONTAGION. How many LAZY GREEKS IN AUSTRALIA ? YOU GUESSED IT, larger population than the Aborigones !!!!!
.
" She and the ECB would NOT be acting in the best interest of the Eurozone if they let this happen - there would be 300b in Target2 losses to split up between 16 member NCBs if the Greeks choose to leave after taking out all the Euros."
a bargain for the ezone.
run the math.
this simply works.
take the 300b 'loss'.
or not:
"The end is of course ECB printing, Eurobonds and every developed market central bank dumping massive liquidity into the global financial markets as systemic risks rise - QE, LTROs, Currency swaps, and every funding facility under the sun come into play. The path to this end game will be bumpy, but make no mistake, the developed market central banks will dump so much fiat on the system to cover the losses, that risk free real rates will plummet to levels so negative that anyone left holding cash or cash equivalents will see massive destruction of real wealth."
why are some things so obvious to me? oh, that's right. i've been reading zh over the last couple of months.
o/t yesterday, i said i am going long fb this a.m.
i am going longer. everybody says how to monitize????? i know how. simple business model. i'll give you an example after i get some more fb :)
AstroCycle predicting downturn into June and miners cycle looking weak.
http://changeintrend.wordpress.com/
The S&P is @ 1315 staring down a very, very bumpy road. Personally it still blows my mind that there are analysts still pumping the market, but I recall in 2008 David Bernstein was recommending "frontier funds" and emerging market bonds during a liquidity crisis.
My boob are gone... I am very depressed, yiou think fuking people out of there money is bad....... cencorship on 0 hedge is way worse...............I am bummed.........
Drinking by oneself can be a strange and wonderful thing. Party on.
One, two.
We will see how long this stays up.
Maybe.................
If the periphery run occurs, does that mean US 10's under 1% & 30 yr UST's hitting 168?
Good look somtin like this: 'Howitzers Wood Scene' - Sherlock Holmes: A Game of Shadows http://www.youtube.com/watch?v=u_HGOrX2WFE
Maybe they'll distribute a drug that makes you wake up yesterday. Hate to think of what would be required in the case of an overdose.
Secret Central Bank Aid Props Up Greek Banks
Not to worry. Everything is fixed.
Are concerns over a Greek Euro exit overdone ?
http://www.cnhedge.com/thread-4852-1-1.html
Is the Euro area Credibly on Target?
http://www.cnhedge.com/thread-4838-1-1.html
I've never been to Greece, once they go back to the Drachma it should be a super bargain, just wait til the street riots and nationwide strikes let up abit, maybe by the fall.
Best to show up with all the US $20s you can bring in, there's sure to be different pricing schemes based on Drachmas vs euros vs real money.Even euros should be tainted a little by then.