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Is A Greek Uncontrollable Default Inevitable?
It seems our discussions on sovereign litigation 'arbitrage' and blocking stakes among foreign-law Greek bondholders is gathering some consensus among the smarter sell-side research shops. In a note today, recognizing the differences between Greek international-law bonds, Credit Suisse applies their rigorous game theory perspective to the EUR18bn of foreign-law bond holders and the implications on the PSI negotiations. As we have pointed out, and has been successfully traded in the last few weeks, they expect foreign-law bonds to trade at a premium to Greek-law government bonds (just as we also noted we see increasingly in Portuguese bond dispersion) not just for blocking stake possibilities but also as better hedge-protected CDS positions. CS points out that if CACs were introduced into Greek law bonds, this blocking stake in foreign-law bonds will create a much higher chance of a hard default credit event and while UK law bonds won't be protected from a hard default they will at least have CDS trigger protection. Finally, the hope of creating a true Prisoner's Dilemma (where standing alone/holding-out singularly is a sub-optimal strategy) fails dismally as each participant is aware that others (blocking stake foreign-law bond holders) will for sure not participate. Adding to this threat is the current low stress environment, set up by the ECB and its LTRO, which could encourage more 'aggressive' behavior by any player in the game creating higher chances of a hard default by Greece as Troika-deal confidence increases the bargaining power for heavier haircuts and thus - fewer willing participants. What a mess!
Credit Suisse: Greek International-Law Bonds
Based on our analysis, we expect Greek international law bonds to trade at a premium to Greek law government bonds. We think there is a higher chance that, at the single bond level, some of the holders of the former would not participate in a restructuring that could be enforced by the retroactive introduction of CACs into the latter since minority blocking stakes by the private sector might already be in place.
Furthermore, due to their higher CAC threshold it is probably easier for a private investor to build a blocking stake in one of the newer vintage type bonds, which we thus find more attractive.
In addition, if CACs were introduced retroactively for Greek law bonds, we believe there is a good chance that the threshold would need to be set at 66% (or lower) rather than 75%, since the banks have probably sold a large share of their holdings to either the public sector or to investors who do not need to participate in a voluntary PSI. The international law bonds with the 75% threshold should thus benefit on a relative basis.
However, if CACs were introduced into Greek law bonds and minority blocking stakes in international law bonds prevented a full participation by all holders, we would expect that the higher the proportion of private sector hold-outs, the higher the chance of a hard credit event would become.
Furthermore, if the Greek authorities decided to take the route of a hard default, for example, a failure to pay, we believe there is a good chance that the international law bonds would be subject to that as well. We suspect that English law may in the end not prove much recourse given Greece’s financial condition. A minority blocking stake is hence no hedge against a hard credit event, in our view – it merely minimizes the risk of taking a loss in a bond without the CDS triggering.
We do not know if the ECB holding of circa EUR45bn of GGBs includes international law bonds. Given the ECB’s unwillingness to participate in the PSI, we would expect it to sell its stake to participating (private or public) parties if there were a chance of preventing a minority blocking stake.
There is an interesting additional conclusion with regards to the tactic that we highlighted in our latest Flash, which could be designed to ensure a nearly universal take-up in a bond exchange as described by Mitu Gulati and Jeromin Zettelmeyer. In our opinion, this tactic only works if it turns out to be a true prisoners’ dilemma, in the sense that the parties that can decide to participate or not know that they will lose if the other parties choose to participate and one stands more or less alone as a single hold-out. However, the potential existence of blocking stakes and, importantly, the fact that the respective players might be aware of them, reduces the likelihood of anyone choosing to participate out of pure fear that the other players might do so. As a consequence, we believe a voluntary take up can only work if the result from participating becomes more lucrative – in other words, if what the private sector could receive in exchange for its bonds was somehow enhanced in value. Among other things, that could include seniority, legal and jurisdictional considerations. We also think that, as the private sector involvement becomes increasingly punitive, the risk of a non-cooperative strategy decreases, reducing the chance of a voluntary outcome.
Finally, we would like to point out that our Game Theory would suggest that the environment we currently observe, namely a low stress environment, is exactly the type where one would expect “aggressive” behaviour by any player. Therefore, we would not be surprised if a hard default by Greece (i.e., a default where relations with the core break down, endangering the ECB’s considerable additional exposure) is being contemplated a lot more than it was just a few months ago.
Charts: Bloomberg
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As Tyler suggests, some think they have a Greek bankruptcy 'contained' ... like they thought they had Lehman contained.
To recall a Zero Hedge classic ...
The post-Lehman near meltdown of the US and global financial system about 84 hours after the Lehman bankruptcy, on 18 September 2008 ... from ZeroHedge, 'How The World Almost Came To An End At 2PM On September 18':
« On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.
If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.
We are no better off today ... »
http://www.zerohedge.com/article/how-world-almost-came-end-2pm-september-18
LMFAO!!
http://www.acting-man.com/blog/media/2012/02/Greek-dilemma.jpg
Who in their right mind would throw money down that rat hole? I love how they call it "bailout". A bailout that happens ONCE is a bailout. If it happens twice a year every year, it's insolvency. Let's call this shideshow what it really is.
If that chart doesn't drive home the point that all this "fixing" was simply to allow more theft, than nothing will.
Greece won't default.......they'll have a kinetic financial event.
To answer the title question: I sure hope so. Let's get on with the carnage.
As long as Wiley Coyote doesn't look down after he runs off the cliff, he doesn't fall. It works that way in the real world too, right?
textual WB7 material...precious.
http://www.hussmanfunds.com/wmc/wmc110711.htm
"It would have been the end of our economic system and our political system as we know it."
--------------------------------
Precisely, and regardless of the system that replaced it, at least compensation would be finding it's way back to people who's labor is actually worth a shit. Instead, we have an exponentially bigger mis-allocation of capital, people's time and energy. Totally fucking stupid. Nature and God can not even insure your survival, why in the hell people trust any government or man-made institution that is clearly fraudulent to do so, is beyond me. Damn it, fell off my wheel, better get back on.
Fat assed lazy people depend on the government; the elites rip off the government...yada yada yada. Government has always been about theft and force.
The only difference today is they own the schools and banks.
Banks own them.
Your vector is fucked up.
Quite correct.
The very top position of the world pyramid is held by central bankers.
The BIS rulez da world...THE Central Bank OF the Central Banks. The invent of Derivatives simply multipled the movement of money across the globe 10 fold...100 fold???
Bonds in times of War, Derivatives and Leverage in times of Peace...it's Win-Win for the BIS.
Nobody openly attacks the BIS, I reckon that's the tip of the pyramid.
Well...the banks got bailed out by the governments and/or their central banks.
And the (non-central) banks own the land, or every property not privately owned.
So who owns the land the banks are on ? or surrounding the banks...and surrounding all the other real estate that is 'privately owned'.
It won't be long for each privately owned property to be surrounded by government owned and maintained properties.
If you don't like it then the services (water, gas, power, street maintenance, sewer) can be easily re-routed, re-distributed, re-scheduled, deleted, vaporized or forgotton...oops.
All private properties will need to survive "off grid" by definition, even in city centers.
This is SPASTIC !
It's all scalar, in the end. Tyranny is tyranny.
"What's your Vector, Victor?"
"Cleared for takeoff, Clarence"
"Roger, Roger"
Actually, it's the people who own the banks that own the government. Just to be clear.
BGIB,
I will see your ZH classic and raise you this one...THE ONE. You made good contributions in the comments section.
Subordination 101: A Walk Thru For Sovereign Bond Markets In A Post-Greek Default Worldhttp://www.zerohedge.com/news/subordination-101-walkthru-sovereign-bond-markets-post-greek-default-world
Default will occur. CDS will trigger. Technical contagion will ensue. But this time, banks will make alot of money from it all. The surviving banks have all been through the class of 08/09. Even Greece will make money from it.
Well the CDS decision is controlled by the ISDA board who are staffed by the banks that would be vaporized. So probably not. But a not CDS decsion could be just as tumultuous to the financial markets as Tyler has pointed out.
Remember that the crazy days for CDS ended in 2007 and most deals were of 5 years or less, so the residual amounts outstanding are not so great.
Specifically, the dumb money - Landesbanks, German and Italian insurance cos that were writing this stuff hand over fist (under the assumption no Eurozone country would be allowed to default) largely closed shop end of 07. I suspect much of the action of the Germans has been designed to delay an event until their books had become a lot tidier.
You could be right. We might get a situation where the banks are going to eat each other.
I can't decide if this GEM from RANSQUAWK is a typo or related to this topic:
On the Post Lehman, money market "run." That was the official story. As I've said elsewhere, I have never bought it. If you were in a panic, the announcement of a $250K guarantee in the afternoon, would hardly stem a panic. And the money was draining far too fast (if the story is to be believed) for it to have been a "panic" of ordinary folks. It would have been an institutional panic, with amounts at risk far in excess of the guaranteed account. A couple of us ran the math on the fund transactions requried to drain the money out of those funds via withdrawals and it turns out that even with evveryone at their computers and on the phones demanding withdrawals it is physically impossible to drain the money that fast ("their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S." Not possible.) - moreover, the sheer volume of withdrawals would have meant everyone stopped working and called their money market rep. Couldn't have happened the way it was described, so friends, meet yet another Big Lie. Not even reported on the evening news, in fact there are almost no references to it (try researching it on Google).
I have always wish this story could be actually investigated by some incorruptible types who could report the facts. It makes no sense to me, the amounts are too large and too fast, with hardly a peep afterwards, and yet it is stated as the event that almost brought the whole show to a stop.
Something doesn't smell right in the story.
NZ: Kudos bonus points!
What about the algo's programmed to sell?
are they holders of money market accounts? Seems unlikely.
Very interesting. +1
http://www.renewamerica.com/columns/williams/090216
http://zerohedge.blogspot.com/2009/02/how-world-almost-came-to-end-at-2p...
Did that $550 billion draw down happen or not? If it happened, who withdrew the money? That is the real question.
I view this as a financial Roswell - no one knows anything, yet, it was part of the story that was the Panic of 2008, but it makes no sense, doesn't add up, and I'd love to know the real story. I've told a couple of journalists to go look into it but in a sense the story is dead cold. But it was billed as a near death experience for Life As We Know It here in the USA. If we had a national investigation, like the Pecora Commission, maybe we would have found out what really went on, but as I get older and look at what goes on, I think they answer is we'll never know, if the folks in charge of the Empire have anything to say about it.
If anything, I think the truth is that the story is a complete CIA style disinformation/lie - that there was no run of any such dimensions, and that there was no danger of a run, but that it was stated as so to cause Congress to capitulate and vote through Hank "The Traitor" Paulson's 2 page $700 billion toxic asset bill.
http://dailyreckoning.com/september-18-2008-edge-of-collapse/
http://www.federalreserve.gov/newsevents/press/monetary/20080918a.htm
http://money.cnn.com/2008/09/18/news/economy/rtc_speculation/
Unreal. Like a former President shot 6 different ways by one bullet. Roswell, alright.
But the markets did tank and there was a flush of some sort. Which party cashed in at the top? The same that speculated oil contracts all the way up to $147 and then shorted it back all the way down to $30?
Money wasn't "lost". It didn't evaporate into thin air. Money found its way from one balance sheet to another and possibly even the balance sheets from one and the same group / entity.
You're right. It was never investigated properly just as the 9/11 commission was smoke and mirrors.
How do you live in a country that is nothing but a Big Lie?
It actually becomes possible when you consider that in our modern ponzi economy, where bank reserve ratios approach 1/infinity, is anybody really sure exactly how many dollars have been created since 1994? Theoretically couldn't the number be infinite?
What if there are, say, $30 quadrillion dollars out there? $5.5 trillion doesn't seem like so much anymore, does it?
I've always wanted to know:
-who carried out that run on the banks?
- why did it happen at that exact moment and why was it so intense from the first minute?
- was it orchestrated?
- if so, who orchestrated it?
those were prehistoric days when we didn't realise that Oligarchy had taken over the world. Big time.
I remember zerohedge pointing that out from the CSPAN of that one congressman being told by Paulson about this whole thing. They always say that we are protected, we aren't.
Doesn't this whole the EU and euro failure look like a set up to bankrupt a few european banking nations and houses particularly certain german, british and french by JPM and perhaps UBS
Revolt Greek Losers!
It's so long overdue. Humanity looks like a bunch of wimps, cowering in fear of the Great and Powerful Wizard of Oz!
Revolt American Losers
Revolt Global Ponzi Scam Victims.
You don't want to see an American Revolt with 500,000,000 guns lying around. Besides, most Americans are living large. Greek losers, not so much...
DEFAULT ALREADY, FOR THE LOVE OF GOD....
-Sarkozy
lol
I understood this was done at 6 am this morning.
Still trying to figure out why anyone still has money in stocks.
Warren B says dump all your gold, silver & Bonds and buy stocks "Long Term"
as you said earlier, lots of fools will buy.
Time for a wooden stake and a mallet.
I heard with Zombies you have to blow their heads off. Did I get that wrong?
Wait - is it silver bullets for zombies and heads off for lycants or vice versa?
THIS IS....SPASTIC !! (when fall down ? Coyote look down...there...or at the Magic-8 Ball)
We want blood! We want blood!
anyone can see that the dis-orderly default has already begun. the political class has no choice but to continue to try to trick people into believing that everything is going to be okay. i guess so the bankers can steal their money
?
'Finally, we would like to point out that our Game Theory would suggest that the environment we currently observe, namely a low stress environment, is exactly the type where one would expect “aggressive” behaviour by any player. Therefore, we would not be surprised if a hard default by Greece (i.e., a default where relations with the core break down, endangering the ECB’s considerable additional exposure) is being contemplated a lot more than it was just a few months ago.'
Why obscure the obvious with such nonsense?
In obscurity the deceiver profits.
Complexity and obfuscation, FTW.
Obfuscation and confiscation, FTW.
Would a hard default be legal!
Given all the effort the Troika have went to, maybe if the Greek defaulted then is it possible the rules would be chnaged so CDS won't pay out because lets face it they have had every chance of a deal, havent they!
Now where have we seen rules being rewritten recently or just purely ignored.
In a hard default, he who defaults makes the rules.
"they will at least have CDS trigger protection" ?
Hahahaha.
Bla bla bla...Hedgie gaga. They are below the magic limit. Thats how simple it is. They are Losers!
“we expect Greek international law bonds to trade at a premium to Greek law government bonds.”
This is f**king chaos.
Greece is already history in my books. Tyler should move on to Portugal and Spain.
I agree, plenty of trading left to do in these arenas.
My fear for Portugal, Ireland and Spain is the risk to the quality of the golf courses should they default. Greece having no noticeable golfing infrastructure should have been allowed to default last year. Now the others we must bail them out, at least until my summer hols are over this year. It's the only fucking places I get to skim a few quid off those holidaying bankers.
Nuh-nuh.
http://www.irishtimes.com/newspaper/weekend/2011/0416/1224294785873.html
"To the casual observer it would appear that the golf resort is in a state of rude health. But it isn’t. It’s broke.
Just like the country’s many bankrupt hotels, golf courses around the country are being kept open at the behest of receivers. Clubs such as the Heritage in Portlaoise, Moyvalley in Co Kildare and the Citywest in Co Dublin are being kept open to bring in any revenue they can to satisfy their creditors. ..."
Until the Greece template is clear, the other ones don't have a playbook to work off of.
I have watched three sisters harangue their parents to broke exhaustion as each threw up what the parents did for the others as proof that they are entitled to the same. Sometimes they'd even ask for stupid shit they didn't want, just to make sure they did not get less than the others.
I know of a woman who made her own career, made her own way, and was doing quite fine. One day she says to her father that he gave all the other siblings stuff, but not her. He gave her an income generating strip mall. I'm still laughing about that one.
This situation will be no different.
King Lear, my FAVORITE Shakespeare!
but its purple prose! and all in the name of "let me not be mad, not mad, sweat heaven;"... like the Bernanke on the Heath!
....My father compounded with my mother under the dragon's tail; and my nativity was under Ursa Major; so that it follows, I am rough and lecherous. Tut, I should have been that I am, had the maidenliest star in the firmament twinkled on my bastardizing.
King Lear, 1. 2
Jeez! Purple rain!
When you do it it's purple prose. This is the 21st cebtury, not the 17th.
Nah, it's all good - I'm just yankin' yer chain. +1
oh bard, thy words be timeless. Like tomorrow and tomorrow and tomorrow; all the world's a stage.
Now in 21st centuryese : "Oh bud, ya got five secs to coff up or ya'r ded!"
How time flies and our living jives become vaporized in pop ups. There is a new poetry of the age but I'm missing it. It escapes me.
Whence purple. It makes me humble to thus stumble on 21st-ese.
The answer: yes. When is the bgi question.
I think the most annoying part is that the market's already screaming that they've defaulted. We all know they're going to default. It is a question of when, but it's more a question of when will they let it. Funny thing about the illusion of control, you have it until you don't.
I'm personally tired of reading about Greece. I definitely think the shit will hit the fan this year though. I honestly doubt it will be in March and if it's going to be in March, I don't see why we don't just throw a few wars to get everyones mind off of it -- let Greece make the bullets so their economy will be right on track and they can return to "growth" in 2013. Everybody wins.
Except for the people who... receive the bullets... after they've been fired... yeahhh... not so good for them...
We don't have to worry about undeclared wars though. The Peace Prize will show us the way and he wouldn't dare go to war without the approval of Congress... sorry, I just had an MDB moment.
What is war good for? Getting your mind off how much better the bankers are doing than everyone else, thats what. Plus it culls the population and makes for a virtuous economic cycle. The little problem is lots of people die, lots of stuff gets broken, and the people that started don't suffer at all.
Considering the sheer lunatic statements from all sides in this scenario, I don't think they're politically capable to contain anything.
They are trying but they are failing. This is not by design in my opinion. The diplomatic and political acrobacy show me that they don't have any agreements and they have no plans. They're trying to save face, they're trying to avoid complete mayhem.
But in the end, they have no control over the situation or little control they once had has been lost.
What this means should be clear to everyone.
Go back to your cabins. Do not enter the lifeboats. There aren't enough.
Don't pay any attention to the VIX.
Greece will default when our leaders say so. Facts don't matter. The Marios and other former and current Goldman people (our leaders) will never admit that Greece defaulted.
Regardless, nothing regarding Greece is positive for gold (I am not sayint it makes sense). Gold is going down against the US$ and the euro because today you can print as much gold (contracts) as you want
The "wise guy" hedge funds who are playing a blocking game may have outsmarted themselves if there is a hard default.
Not if they are hedged with CDS.
Isn't that what it is coming to? We're already headged with CDS, we are ready to get this game on because we hold CDS on the others too. So either pay us 100% for what we paid a quarter for, or let the CDS pay us off. We'll make money either way. This is what I call arbitrage...bitchez...
There is no guaranty that they will be able to collect after the chaos that will ensue
That will never happen. To many Big US banks on the other side of the CDS. They will never pay-out on Greece. Never ever. Ever.
Just fucking default already.
I had to look up some acronyms (yet again), here is what CAC stands for:
http://www.avalanche.ca/cac
And on a serious note, this page has some good info on why CACs can be handy for sovereign debt restructuring:
http://www.frbsf.org/publications/economics/letter/2004/el2004-06.html
A bear in the woods comes to mind.....
Here's what happens when greece defaults (which is the reason these rat bastards are can-kicking like no tomorrow):
http://www.zerohedge.com/news/step-aside-bbc-trader-head-unicredit-secur...
http://www.oftwominds.com/blogfeb12/default-dominoes02-12.html
And for a visualization:
http://www.youtube.com/watch?v=5JCm5FY-dEY&feature=player_embedded
this, and all that, is why i've become a ZH fight-club member
thanks tyler
How much blood can there actually be in that Greek turnip?
My guess is that we're about to find out if the turnip can be squeezed more, or if everybody gets pelted with exploding turnip bits on thier faces.
Long live the turnips of the world ! Turnips of the world unite !
hasn't Greece already defaulted in every way? isn't it now just a matter of admitting the 10,000 pound dinosaur is, in fact, in the room?
for that matter, isn't the entire EU bankrupt and the US as well, and Japan, most of Asia, all of Africa, South America, Australia...
at this point it appears the only places left on the entire planet that have not been ravaged by the fiat paper virus are the north and south poles, of course they are halving there own problems, have you seen the images of the Earths magnetic field recently? not good...but that's a whole different discussion.
I suppose it's not a default until somebody in upper management admits it is, until the MSM plasters it all over the headlines, until we see the Greek military storm the streets in an attempt in maintain order in the midst of chaos. of course, by that point who gives a shit what you call it.
it's the same everywhere, the governments do there part to keep from admitting the truth, kicking the can, buying time, and the people, the populations just keep looking down the tunnel and asking...
"what is that bright light down there, and why is it approaching so quickly?"
Awesome.
Where do the Greeks move their move to?
How about an article on that flow of several Billions?
I mentioned Greek hospitals + pharma companies pulling out a few days ago; on Tuesday Glaxxo SK stated that it had been pulling funds out, now we have this:
Pharmaceuticals companies are owed €12bn (£10bn) for unpaid medicine bills in the eurozone – half of that in Spain – according to a senior executive, who said that the industry was counting on the help of the International Monetary Fund and the European Union to recover its debts.
Bruno Strigini, president of Europe/Canada at US drug maker Merck, said that of the €12bn owed to the pharma industry in Europe – debts that are more than 30 days old – €6bn is outstanding in Spain. A further €4bn is owed to medical device manufacturers, which have recently written an open letter to the new Spanish prime minister, Mariano Rajoy.
http://www.guardian.co.uk/business/2012/feb/09/eurozone-owe-pharmaceutic...
This issue on public health services in the distressed areas of Europe is going to drive people further into division L/R (if they're paying attention): generics exist for a reason. Then again, even the countries who did plot a path (through subsidies + spending) into research have seen a collapse (http://www.bbc.co.uk/news/business-12335801)...
Interesting times.
p.s. Also, it seems ZH is more widely read than anticipated, I am Jack's total lack of surprise.
here's me sheding a tear for the Big Pharma .../not
their mark-ups for drugs in the industrialized world where social prescription plans pay for the nonsense are insane.
let them go BK if they're stuck with bills from huge advertising campaigns and no income.
Where is Gilad? I bet he knows how to stretch a drachma!
Hahahaha! That fucker must have been gay because there is no way I could work out with a bunch of hotties like his and not catch wood!!!
well, i s'pose that just b/c it isn't death or taxes, it could still be inevitable
but...
TROIKA: "let them eat Feta".....no, wait, that's their only export.
Ahh TD, your post reminds me of one of my favourite parts of Team America.
http://www.youtube.com/watch?v=ZvxbZTP6-ak
ARRR ITS ENVIENTEBLE
So long as somebody is willing to give Greece money under the pretense it will be paid back and with the false promise that more austerity measures will be implemented and under the delusion that growth is possible in the foreseeable future, all so that Eurocamelot (I know it sounds a bit bizarre) can continue, Greece has no need to default. Same with Portugal. And Spain. And Italy.
Yes -- I agree.... EVeryone else is talking their book and trying to be sensationalist... it gets rather boring... it's like an end of the world cult
You lot have all been doomsaying for too long... everything will be fine, you idiots... there will be NO DEFAULT!