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Greece - Round III, In Which We Learn That Greek Debt Actually INCREASED Post-Default
From Mark Grant, author of "Out of The Box and onto Wall Street"
Greece---Round III
We are finally getting some answers and that is the good news, maybe the only good new really. The Greek debt tender has ended and 85.8% of the bond holders have tendered. This is the number for the Greek law bonds but please note that the participation for the English law bonds was only 70% so that I would guess that not only will the English law bondholders sue for Estoppel but they will sue for acceleration, immediate payment, as an illegal CAC was implemented. This was my lead projection for the outcome and in-line with consensus thinking. This is just the beginning, however, of a number of incidents that are about to transpire. Next there will be suits in the Swiss courts, the British courts and in the American courts concerning the retroactive “Collective Action Clause” which may not be legal in other jurisdictions besides Greece and the European Union. Never, ever forget that the EU implicitly has gone along with a retroactive clause and that if it can be done in Greece that it then can be done for any other nation in Europe and if it can be done to force bond holder participation that it can be done for any other clause in any sovereign indenture in Europe. Further the ECB and the EIB have exempted themselves for the CAC which is the new template for how things will be handled in Europe. The European Union may well have a moment to cheer but the reactions of bondholders will be punishing in my estimation as the LTRO money runs out and as nations on the Continent come to the markets for additional financing.
So now we wait on the ISDA ruling which will be coming shortly to determine if the CAC triggered the CDS contracts. If they did then we will await to see how $75Bn in the CDS contracts are to be settled and if there is any institution that becomes impaired by having to settle up. Further out we will see the results of all of this on many balance sheets in Europe and the impact to the financials of many banks and insurance companies.
The Fun Keeps Coming
Since the ratings agencies have to post 12 hours in advance for any rating change it will not be until tonight or perhaps tomorrow until we see their opinions. Given what S&P and Fitch have previously said however I think the safe assumption is that the country will be placed in “Default” which will trigger all kinds of other clauses in a variety of contractual obligations. For the sovereign there are $90Bn in derivative contracts outside of the CDS contracts that may have trigger language depending upon the ratings agencies. We will also see what happens with Municipal contracts and then as the Greek banks will most probably follow and be placed in “Default” we will see what securitizations get triggered, what collateral agreements get unwound, what inter-banking lending agreements mis-fire and what securitizations at the ECB get returned to the banks of origin.
The Debt of Greece
The somewhat amusing part of this entire transaction is that the debt of Greece has been INCREASED. Greece and the EU handed private holders $138Bn in write-offs but with the addition of the new loan, $171Bn, the gross debt for Greece increased by $33Bn and this is if all of the legal challenges favor Greece. The total debt of Greece (sovereign, municipal, corporate and bank) has just increased from $1.20 Trillion to $1.233 Trillion and all accomplished by this brilliant plan that did nothing except to tag investors and ramp up the debt load for the country. Take this and add in the austerity measures and perhaps demands for more coming later today as the EU has its summit and an economy that is quickly sinking into the sea and unemployment that is surging and then you can visualize that the absurd has become the impossible and quickly conclude that more Greek loans will have to be forthcoming; or not with some form of Greek exit. The much bandied about notion that all of this will reduce the Greek debt to GDP is little more than a joke. For the past two years there has not been one, one, accurate projection for Greece concocted by the IMF/EU/ECB and I see no end to this now. Some quick math on my part indicates, in 2020, a debt to GDP ratio exceeding 170% and that is being kind and using optimistic assumptions. Just this morning the new numbers released for Greece showed a 7.50% deficit increase as opposed to the projected -5.50% number. This is one more case of quite inaccurate projections and a worsening economy for the country.
The IMF Contribution to Greece
The IMF has tentatively offered $17Bn for the next round of Greek funding while the EU expected $56Bn keeping the IMF ratio the same as in the first round of the Greek bailout. The IMF has said that it will not increase its position without a larger firewall and this is something that Germany has refused to do to date. I ask then where is the $39Bn going to come from then as no government in Europe has approved funds to make up for the deficit. Then as this morning the EU has indicated that any new funds may only be released in tranches we may find that the EU releases money to pay off their banks and other financial institutions but with only a paltry sum released to be used in Greece. The IMF/EU contribution may become quite fragmented and we may hear screams emanating from Athens soon.
The Next Continental Plays
Keep your eyes on Portugal. Very poor economics that are worsening and I think they may be back to the till quite soon. Then watch Spain as they are the first country to publically tell the EU to “Shove It” as they are sticking to their 5.8% deficit and refuse to adhere to the EU mandated 4.40% number as the maximum debt allowed. They have also refused additional taxes and additional austerity measures as several other European nations have cried "foul" and threatened to demand penalties and fines for the country. Then turn to the north and watch France as with elections looming on April 22, run-off on May 6, that Sarkozy appears to be the loser and the most likely winner, Hollande, supports economic and financial policies that are in direct opposition to the policies laid out by the German Chancellor.
More Data
As more information is released today and over the weekend I will try to provide some commentary as we all look to the meaning of things and not to the manipulated headlines. The situation is complicated, convoluted and the appreciation of the consequences of the decisions and of the unintended consequences of the decisions will loom large in making correct investment choices. As far as I am concerned the Great Game remains in play.
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Phuck! I thought everything was fixed. ;)
RON PAUL ON FACE THE NATION
http://djia.tv/ron-paul/ron-paul-on-cbs-face-the-nation-3412/
You are not paying attention if you do not understand why Tim Geithner gives thanks everyday that:
1. Greece is still in the EMU
2. The Euro is more than 50% of the USD index.
http://www.babypips.com/school/what-is-the-dollar-index.html
Nah don't sweat it. I should think that about 4 maybe 5 euros of that will be repaid, eventually...
If the markets have bounced on this write off, just think what they'll do on a tril.
Thanks for that reference - I was a bit hazy on that. (Actually, a lot hazy.)
For God's sake - someone give the Greeks a calculator.
The whole Grrek nation is getting completely shafted because the banks who should never have lent them money beacuse S&P, Moody's and Fitch said they were credible now want their debt made good.
Default and live like the Icelandics and Argentinians or keep paying the leeches and exist in debt penury like Japan has for the past 22 years.
They are, I think using, the riots to create the appearance of support for the bailouts. They need to stop rioting - the best form of protest would be to just stay home until the whole thing collapses.
They same is done and will be done in the US - they use public anger to say that people want more bailouts, but what they want is responsible government (I propose).
EXACTLY
The best thing the Greeks could do to stop what is happening to them, is to just not participate.
Stay home, play cards, watch TV. The Govt knows full well how to respond to a riot, but if no one participates in the economy??
you're off topic with your political post. But let me join in. Ron Paul in 2012.
This was awesome!!!!
you've been watching too much CNBC
Anyone have a link to a good article explaining what role GS played in this Greek tragedy?
Greece and the EU handed private holders $138Bn in write-offs
But $138 billion was discharged right?
This only ends with Greece leaving the EZ. Making the price stability fool and Super Mario look as dumb as the Bernak does. Europe ie Germany will have to cover these huge losses even though they never wanted to buy a single cent of greece debt.
Dude, this is the end of the Euro Zone. Even Germany is going to exceed debt limits they will not continue to fight for unity. There is a raging depression setting up in Europe.
They ARE going to leave the EZ, but not with their gold. That is the point of the whole exercise.
maybe
those gold-backed debt rumors from a few weeks ago from "goldCore" still haven't been substantiated, tho
or did you agree that were on another site?
tyler also "pushed" the rumor in a headiline or three as i recall, offhand...
but maybe you're right, too, chubby
how long before you figure we'll all know as certainly as you do?
Thanks, Slewie. I was sitting here moping about shit and got a laugh out of that. Have a good un.
It is phixed...just read the MSM headlines..don't look at the actual numbers...evrything is phine!
As with so much that goes on in the world today, to properly understand it you have to check 'intuition' and 'reason' and 'common sense' at the door, and just trust the masters of the universe when they tell you that, despite what you see in front of you, everything's going according to plan, things are under control, and there's no risk that this entire structure will collapse under it's own weight. Best to ignore misleading numbers and charts and reasoned thought, as that will mislead you into concluding that we're all completely fucked - just take your queues from what CNBC, Bloomberg, Fox, MSNBC, or CNN tells you.
From the UK Telegraph.
"Some were still optimistic that 95pc of bondholders would accept the deal, pushing it through without a hitch. “Bondholders would be mad not to accept the offer,” said one. “The alternative is getting nothing.”"
And here, I thought that is what CDS was for??
Note the meme here: "Play along, or you get NOTHING!"
DUH! The only way out of debt is more debt.
I just checked and it turns out the solution to the more debt as a way out of debt plan is not more debt.
It's a lot more debt.
More extend and up-end than extend and pretend!
The only way out of debt is death. Or destruction of the scheme. Either way it's bloody.
It's getting more and more like the middle ages. The religion is property and the holy spirit is fiat. The banks are the high piests, only ones who have direct and unlimited access to the holly spirit. They judge by it's power, they torture andexecute the sinners, they confiscate whatever they like - we people, we are lucky if and for as long we survive.
That was expected, should continue with some volatility:
http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&start=1540#p36724
And here:
http://www.tfmetalsreport.com/comment/78039#comment-78039
I'll trade you three conferderate dollars, five billion Zimbabwean dollars, sixteen hundreds shares in Maddoff, twelve hundred Enron shares, and three CountryWide mortgage options for five hundred Greek bonds.
I would hang onto the Confederate Dollars, they have collector value.
The rest, not so much, except a local coin dealer has a ten trillion Zimbabwe note by the silver bullion in the case.
In place of the Confederate Dollars and even the Zimbabwe notes, you might sweeten the pot with 10,000 shares of Pets.com.
After you do the trade, I can sell you some CDS on those Greek bonds if you like.
Throw in five million rentenmark, and you got a deal!
ISDA doesn't rule this as a credit event after swap then pretty much everything is fixed(gambling fixed) in the credit markets. So why buy bonds anymore.
Boom!
I think you'd be crazy to buy no matter how they rule.
Once people start using debt as currency the whole problem will fix itself. Everyone knows the best cure for debt is more debt
Phar out!
hahahahahaha. This would be funny if it weren't so tragic.
I don't think you could right a more absurd comedy.
an absurd comedy is a farce ..we've arrived at Govts end-game
Right = write.
Right on!
Greece debt restructuring: is it the worst of all time? INFOGRAPHIC | News | guardian.co.uk http://bit.ly/zaP3sF
I don't understand how the PS could have taken a 75% haircut and Greece end up owing more. Is this the new math coming home to roost? The article doesn't really explain or give any supporting documentation. How is this possible?
"The total debt of Greece.. has just increased from $1.20 Trillion to $1.233 Trillion"
Well at least we know that if you want to dig a hole, or a mineshaft, you'd be smart to hire a Greek because boy do they dig deep, deep, deep
I wouldn't call it blackmail but the English law bondholders do have a great deal of leverage...
The good news is that post bailout3/PSI2, the private sector will only have 45b to 50b out of 360b to400b of Greek debt. And when the inevitable hard default comes, and it must, the end of the great Western European socialist welfare experiment will finally meet the trash heap of history:)
Just like it's eastern cousin in 1989:)
don't worry, probably just targeting ameriacan bond holders...debt forgiveness, of course, will be a mater of national security
How much will it cost the greek taxpayer to bail out pension funds and ins cos that cannot fulfill obligations because of the haircut to their capital?
greek taxpayer...
hahahahahahahahahahahahaha
"For the past two years there has not been one, one, accurate projection for Greece concocted by the IMF/EU/ECB"
This is what happens when you pull numbers from places where the sun don't shine...
When are the results of ISDA meeting?
It is a little suspicious that it is taking so long.
To me, there is no default until new securities arrive in the custody accounts of at least one existing holder who did not sign up to the swap.
(Or, if earlier, a holder doesn't get his payment on time).
Watson
maybe they are waiting for the markets close
UK Telegraph has a live blog going on, ISDA meeting has been for hours.
Latest is:
« ... reporting that ISDA has said its decision can only be made once CACs are formally activated by Greece. »
It seems they mean something different than the Greek cabinet decision today to use the CACs, maybe actually doing it.
Makes sense.
Politicians say all sorts of things, but securities cancelled/replaced in a custody account is an objective fact.
First they are forcing Investors into PSI & now they wont trigger the CDS!!!
If they dont trigger, then who the fuck would trust ISDA!!
Well, cant they just print some more free money and bail it out or QE it? That seems to fix everything, right?
They are getting to that but they have to grab the gold first...
Efharisto
A donation of $1 a day can provide a greek rebels with 2 molotov cocktails.
donate today by texting JPMuberalles to #666
If debt increases after a default it means you did not default good enough the first time. Go ahead and just default again. Nobody is watching.
The unintended consequences of the Greek theatre of the absurd is that who, in his right mind, would ever ever buy sovereign debt in the future?
Why US and European taxpayers of course (banks will take a cut, acting on our behalf) - oh and it sounds like the G20 wanted in on the action as well. The punishment will continue until morale improves.
Isn't that what always happens when you refi?
As with a typical individual sinking in debt, they now find they owe more, the terms are worse and any procedes from the cash-out are already spent. They don't need bankers - they need lawyers.
Well, next bailout should similarly lift the market.
Troika has become synonym for circle-jerk.
My head hurts.
So we're all waiting to see if any bank "becomes impaired" by having to pay CDS they sold? Who in their right mind believes any institution who might become impaired or insolvent by living up to the contracts it sells should be allowed to sell CDS in the first place?
Will we see, once again, bankers protect banks while they tell people who have been denied payment to go fuck themselves? And as for the rest of us, we're all pretty god damn sick and tired of dealing with the effects of money printing and saving these worthless piece of shit bankers.
NPR Planet Money: A song about sovereign debt, with apologies to Paul Simon
The problem is all inside your head, she said to me,
You can't pay back 200 percent of GDP,
You have to negotiate, if you want your country free,
There must be 50 ways to leave your lender.
You really don't want the IMF to intrude,
Furthermore, they'll force austerity for the interest that's accrued,
Imagine your middle class, subsisting on cat food,
There must be 50 ways to leave your lender.
Fifty ways to leave your lender.
You just stretch out the loan, Joan,
Cut the creditors' hair, Claire,
Or boost GDP, Lee,
Just listen to me.
Print more money, honey.
No need to pay back, Jack!
Structure a default, Walt.
And get yourself free.
Thank you for the great explaination. I just realized why the negotiators were always smiling!
"Further the ECB and the EIB have exempted themselves for the CAC which is the new template for how things will be handled in Europe.."
i don't understand why everyone is so glum, i'm having a great time! i mean, if it wasn't for this circus, i never would have discovered the wonderful world of ZH!! i love you guys...
cool, just what I was expecting. This week was a total pump and dump and this deal will be unraveled by Monday. Take this weekend to get your shit in order.
Next up un deck...Spain.
Naw - trial run Portugal - they are smaller...
Ponzi debt is designed to be paid back with devalued ponzi money.
The idea that you actually have to pay some of it back within your lifetime is a new and frightening paradigm.
The slave masters are tightening the screws. What next? paying back ponzi money with gold?
No surely they wouldn't go that far.....
Fuck Banksters.
I think the reality is that it's the other way around.
People are too hamstrung by their "domestic lifestyle construct" to rock the boat.
The boat's sinking, but don't rock it, for fucks sake.
These banksters are good. They don't even need to use guns and they are above the law.
Vive la pilference!
Let them eat fake!
In the long run these banksters may have just phucked themselves over. Roll out the guillotines.
Hohohohoho hahahahaha.
I feel like whats his name who decided he would just relax and find the best seat on the asteroid as it crashes into the earth.
Sitting in the U.S., one has to give props to the UK for staying out of the Euro. There must have been at least one genius who read history, understood economics and was able to put forth a coherent argument in the late 80s/early 90s that this would inevitably end in tears at some point down the road. It seems obvious now, but that was a great macro trade if there ever was one.
So if I default or excuse me rather just can't afford to repay my loans I can get a bigger loan. Am I missing something or has the world gone completely mad. This is way beyond FUBAR.
"Next there will be suits in the Swiss courts, the British courts and in the American courts concerning the retroactive “Collective Action Clause” which may not be legal in other jurisdictions besides Greece and the European Union."
Laws? How quaint. La loi c'est BANKER.
Ransquawk saying there is a Greek CDS trigger?
I just want to know when they are going to sell the Parthenon...I've always wanted a Parthenon...
you know, i thought that a greek default would be somehow more sensational
Uh... say I am $200 in debt. If $100 of that is forgiven, haircut or whatever, and I borrow another $200, then I am $300 in debt, more than before. BUT I ALSO HAVE $200 IN MY POCKET.
I call bullshit on the article's disingenuous accounting.
"unintended consequences".....
think lehmans....