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Greek Writedowns - Let's Do ONE Thing Correctly

Tyler Durden's picture


Via Peter Tchir of TF Market Advisors

It is painfully clear now, that in spite of months of talk, headlines, and propaganda, very few people in the EU worked on any details.  I thought, at the very least, they were working with traders, lawyers, and structurers and somehow were just getting the wrong answers.  But now, it looks like asides from the IMF, no one else was figuring out anything, they were just saying what they thought the market wanted them to say.

IMF States that Greek Bonds Need to be Written down by at least 50%

The TROIKA report, released on Friday was horrific.  The situation in Greece was worse than anyone realized, again.  The base case no longer puts Greece on a path to self-sufficiency, and the more dire cases, show it is beyond hopeless.  The conclusion, which the ECB is still trying to fight, is that Greece requires write-downs of at least 50% of its existing private sector debt to have a chance.  Even that level of write-downs doesn’t put Greece on a path to prosperity, but at least gives it a chance.   Germany, and other countries seem to agree with this assessment.  So, if they  want a 50% write-down of Greek debt, let’s do it right.

The IIF should not be part of the write-down, they are glorified lobbyists who have lied from the start

Many argue that the lobbyists already have too much influence on public policy, but at least we still go through the motions of having the governments write the policy.  The “Global Association of Financial Institutions” has the interests of their members at heart.  They want to do as little as possible and receive the most benefit from doing so.  They are not doing this for the “public” good, or what is best for sovereigns, they are doing this for what is best for “banks, globally active securities firms, and insurance companies.”  All anyone has to do, is look at their July “21% haircut” proposal for a few minutes, and you can see that it is contrived to actually benefit the banks while sounding like it helps Greece.

The “21% Haircut” Proposal was a gift to banks, not from banks

The IIF plan had 4 options, but 2 were essentially the same, and show most clearly the games the IIF was playing.  Banks could exchange existing Greek bonds for new Structured AAA Greek Bonds (“SAG”).  The old Greek bonds would be exchange for an identical par amount of SAG bonds. The SAG bonds would have their principal protected by an EFSF zero coupon bond (the time of the proposal, the EFSF was only going to issue €440 billion and was certainly going to be AAA, as opposed to the Aa3/AA- we now see it receiving). An aggressive bank could do this switch without taking a write-down.  The bank would argue that the principal amount hasn’t changed and the new note actually has the principal amount protected by a much higher rated entity, so they could do a par/par exchange and not have any accounting impact.  It may seem bizarre, but most of the bank accounting rules focus on risk of principal and not risk of interest being received.  The SAG and the entire IIF proposal was designed so that banks could try and swap out of old Greek debt for new Structured bonds without an accounting impact.  Good for individual banks, but bad for the financial system as a whole.

The banks would be taking bonds worth about 40% of par, but marked at 100% of par, and would exchange them for new bonds, which they would also mark at par.  No accounting write-down for the banks, but maybe there is a real economic write-down?

There is no Greek bond with over 9 months to maturity trading about 45% of par.  Only a third of Greek debt has a coupon above 4.75% (and the 3 bonds with the highest coupons were issued in 1998, 1999, and 2000 where somehow 6.5% coupons were fine).

So, the IIF was going to “force” banks to exchange bonds where all of the exposure was to Greece and are trading at less than 45% of par, and make them take bonds where on day 1 they received a zero coupon AAA bond worth 35% of par, and received (in most cases) higher coupons than on their existing holdings?  Yes, they did have to extend the maturity, but the SAG bonds put them in a much better risk position than the old normal Greek bonds.  The value of the AAA zero is critical.  If banks sold their Greek bonds in the market, they could barely afford to buy the zero, let alone have money left over to get a stream of income from Greece.  In the exchange, they were basically getting the Greek flows for “free.”   In fact, under any stressed scenario where Greece defaults, the banks that did the exchange were better off.  Under any scenario where Greece survives and makes payments, most banks also do better as the coupon from SAG is higher than what they were earning directly.  Scenarios where Greece would have made it to the maturity date of your holding and then defaulted are worse, but that is an exceptional case.  The reality is that the banks dramatically increased their downside protection, and in most cases actually got some upside from the exchange.

So where did the 21% haircut everyone writes about come from?

The exchange gives the banks the ability to avoid recognizing an accounting loss, gives them higher recoveries in event of future default, and increases the current income for most banks, so clearly I’m missing something as EVERYONE KNOWS that the IIF plan was a 21% haircut?

The 21% number comes from the IIF discounting the EFSF zero at a certain rate, and the Greek coupon flows at another rate and showing that the combined NPV of the SAG bond is 79%.  It is as simple as that.  They run a calculation that determines the SAG bond is worth 79% and voila – the banks are taking a 21% haircut.  But couldn’t you have run the NPV calculation using other yields and got a different answer?  Yes.  Doesn’t it seem that exchanging an asset with a market value of 40% into something with an NPV of 79% is considered a haircut?  Yes.

What about residual bonds that don’t get exchanged?  This is a real Problem

This is the real problem with a voluntary exchange.  What bonds are covered?  Are the bonds held by the Greek pension system covered?  If not, then you can see why banks would be reluctant to do anything that changes their status when one of the biggest holders isn’t affected.  What about bonds held by hedge funds?  And yes, believe it or not, hedge funds do own Greek bonds at these prices.  Those bonds would not be affected by any voluntary exchange.  Even IIF members were only asked to do 90% of their bonds.  In the end, there will be SAG bonds and residual Greek bonds.  These residual Greek bonds create a lot of potential problems and conflicts of interest that not only are not being discussed, I now firmly believe, haven’t even been thought about.

Once the “voluntary exchange is done” what will happen to these residual bonds as they mature?  Will Greece pay them back at par?  If Greece is willing to pay them back at par, they will be rewarding those institutions outside of the IIF control (hedge funds in particular).  It will also encourage the IIF members to exchange as few bonds as possible and to hold on to the shortest dated bonds in hopes that Greece will pay them in full.  The deeper the “haircut” is (and the more real it is), the more IIF members have an incentive to find loopholes and keep as many residual bonds as possible.  It is a weird system, where bonds that don’t “participate” are treated in a better fashion than those that do.  In a typical corporate “pre-packaged” bankruptcy filing, there is an incentive to participate.  Those bond holders who don’t participate, typically get less by waiting and fighting in the courts.  This Greek exchange plan creates the opposite incentive, you are encouraged to avoid participating, as you will likely receive a higher payout later.

Couldn’t Greece default later to punish those who didn’t participate?  Yes, they could, but so far the EU and everyone else has shown such an aversion to triggering a CDS Credit Event that they seem unlikely to default in the future.  Their (irrational) fear of triggering a CDS Credit Event makes the problem of what to do with residual bonds, that much greater.  Creating two classes of bonds is not a good solution, particularly when the methodology for creating the two classes is so subjective.

The wonderful world of CDS

Have the “authorities” asked the banks for all of their CDS trades. The regulators or EU by now must know who has net exposure to CDS and where the counterparty risk lies?  It would seem to be a no brainer to have collected the data and know with certainty, who has what position, at least for regulated entities.  Although it is a no brainer to me, I wonder if they have done this?

I have written about CDS and the benefits of triggering it before, so I will only mention them briefly.  Banks that hold Greek debt and are being forced to take “voluntary write-downs” who bought CDS to hedge themselves are being punished.  They are being taught a lesson that hedges, at least in regards to sovereign debt, are a bad idea.  This is a big problem going forward that the EU is creating as it shows banks that managing risk through hedges is extremely risky when they can change the rules at any time.  It is also ironic that the “basis trade” of owning bonds and being short CDS would work for hedge funds since they don’t have to agree to anything on their bonds if it is “voluntary” and run through the IIF.  Even more perverse, it encourages the “dumb” banks, that selling protection (getting long credit via CDS) is better than buying bonds.  A bank that bought €100 million of bonds, will be worse off than a bank that wrote $100 million of credit default swap protection?  An ironic and frankly stupid outcome of this fear of CDS.  The EU should be encouraging bond purchases, not leveraged CDS risk taking.

All DTCC evidence (which covers everything except some legacy trades and structured trades) shows that the Net exposure on Greek CDS is less than 1% of the bonds outstanding, and that across all sovereigns the Dealers (big banks) are net short credit via CDS.  In fact across all sovereigns the DTCC data shows that dealers have bought $21 billion of credit protection, so are in fact net short.  This fits the line that many bank CEO’s state they have minimal net exposure as they have bought hedges.

It is time for a real default

The IMF and other countries finally realize real losses need to be taken and recognized on Greek debt.  For once, they can step back, break away from their existing thinking – the IIF’s PSI proposal – and do something that will actually work.

Greece needs to say it is not paying back debt and stop paying back debt.  It should offer to exchange old bonds for a series of maturity staggered new bonds, with an exchange rate of 40% of par.  After the exchange period, Greece should not pay any of the residual bonds and fight tooth and nail to give the lowest possible recovery – zero.

This will ensure that all bonds are covered.  You do not want two classes of bonds, and you do not want the option in the hands of the bondholders, it has to be controlled by the issuer.  The likelihood of getting a higher recovery in the future by not accepting the initial exchange, has to be low (and it should be since the reality is sovereign debt holders have very few rights in the event of default).

The CDS will trigger and in the end payments will be made and there will be no calamity directly from the CDS market.  If there is any calamity, it will come from those who hold bonds and were not prepared.  If the market can handle a CDS Credit Event on Greece, and I think it will, that would be a big positive for the market.  It also means that banks don’t have to sell other PIIGS debt because they know their hedges are good.  Avoiding a CDS Credit Event leaves question marks, and hopefully after 18 months of this, the EU and IMF are finally realizing that closure can be better than kicking the can.

A real default is the only good and fair way to ensure the write-downs occur and the system can move beyond Greece.  Realizing that the problems in Ireland and Portugal and Italy and Spain are similar to but not correlated with Greece, may also help.


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Sun, 10/23/2011 - 10:11 | 1801616 Manthong
Manthong's picture

write down Greece 50%??

OK.. but how can you do that without triggering real, card carrying  technical default?

(ha ha.. only by lying)

Sun, 10/23/2011 - 10:34 | 1801661 DormRoom
DormRoom's picture

'Song for the Unification of Europe'


composed by Zbigniew Preisner and sung in Greek

Sun, 10/23/2011 - 12:07 | 1801930 traderjoe
traderjoe's picture

Why do sovereign countries borrow at all? Default on the private cartel currency and simply create new interest free debt free script. See the united states note.

Sun, 10/23/2011 - 13:25 | 1802146 ratso
ratso's picture

Greece has done the same thing only with other Europeans money - and, now those Europeans don't like it.

The easiest solution that could have been acted on in the beginning for all the Greek debt was to have the ECB, EFSF and EU buy it ALL from the banks.  That will look like it would have been a bargain in the next few months now that they didn't have the courage and foresight to have have done it.  There would have never been additional payments to Greece and the Greeks would have been free to fend for themselves without oversight and without an ability to borrow.

Sun, 10/23/2011 - 10:59 | 1801709 topcallingtroll
topcallingtroll's picture


When short term debt comes due or matures, the creditors "volunteer" to roll over the money into new long term debt with a NPV of fifty percent of what the original short term debt would have been worth at maturity.

So you dont get your money back when your two year greek bond matures. You get a thirty year bond instead, and its current value is only fifty percent of what you should have received in cash when you redeemed your original two year bond. That is a fifty percent haircut, but you volunteered to give away half your money, so no credit event.

Just jigger the interest rate and maturity and you can turn a voluntary rollover into any size hair cut you want, in terms of net present value.

Sun, 10/23/2011 - 11:02 | 1801731 taraxias
taraxias's picture

What you described is defined as a "credit event" (default). Funny thing is it appears you don't even know it.

Easy my ass.

Sun, 10/23/2011 - 11:08 | 1801750 topcallingtroll
topcallingtroll's picture

Read more carefully.

It is not a credit event if all the european banks "voluntarily" roll over their short term debt into long term debt.

"Voluntary" rollovers are not credit events.

Sun, 10/23/2011 - 13:20 | 1802139 Everybodys All ...
Everybodys All American's picture

What this points out is that the whole CDS as insurance against default(s) is complete and utter BS. Because we all know how voluntary this is likely to be and no one can or will pay on the default, fake default, voluntary default or whatever you want to call it.

Sun, 10/23/2011 - 10:08 | 1801617 Oh regional Indian
Oh regional Indian's picture

Long Barbers.

Short Haircuts.


Pictoral Ode to grief

Sun, 10/23/2011 - 10:08 | 1801618 Everyman
Everyman's picture

Scissors, Bitchez!

Sun, 10/23/2011 - 10:09 | 1801619 Atomizer
Atomizer's picture

Cui bono

Sun, 10/23/2011 - 10:11 | 1801620 SWRichmond
SWRichmond's picture

Yes, now that the US banks have moved their swaps onto their depositors' books, by all means let's start the fun!


Long PMs, bitches.

Sun, 10/23/2011 - 10:25 | 1801648 oogs66
oogs66's picture

yeah, they can't put them on an exchange, because that would be far too complicated, but move them to a safer entity for their counterparties, that can be done in a day :(

Sun, 10/23/2011 - 10:35 | 1801674 Tucson Tom
Tucson Tom's picture

OK,I get this,but if you are sitting on mostly cash,Where do you go with it? I moved out of B of A,six months ago.What if you have 6 figures in cash in Schwab? Where does Schwab keep their cash? Gets sticky unless you keep it under the mattress.Ideas please!

Sun, 10/23/2011 - 10:53 | 1801711 Hulk
Hulk's picture

Gold, the physical stuff...

Sun, 10/23/2011 - 11:03 | 1801733 topcallingtroll
topcallingtroll's picture

Long term money dollar cost average into EWZ.

for your short term stash a combination of money markets in various currencies and some gold ought to keep you fairly stable.

Sun, 10/23/2011 - 12:00 | 1801912 Tucson Tom
Tucson Tom's picture

Thank you both.

Sun, 10/23/2011 - 10:11 | 1801622 buzzsaw99
buzzsaw99's picture

They could force a haircut on some bond holders way greater than 50% by just buying Greek debt on the open market. They are so inept it is hilarious.

Sun, 10/23/2011 - 10:15 | 1801630 oogs66
oogs66's picture

wrong, the worst banks won't sell, so all the open market purchases do is let the dealers make some bid/offer...the dumb banks will hold this til par or death

Sun, 10/23/2011 - 10:28 | 1801653 ArkansasAngie
ArkansasAngie's picture

Repeat after me ... this is a solvency issue and not a liquidity.

Hold'em to maturity ... if you can

And to think people are furious with governmant.

Maybe it's because the government is listening to the whispers in their ears and not the roar outside the gates.


Sun, 10/23/2011 - 10:58 | 1801720 The4thStooge
The4thStooge's picture

This remineds me of a saying I once heard regarding large women and musical performances...

Sun, 10/23/2011 - 11:53 | 1801891 buzzsaw99
buzzsaw99's picture

to so arrogantly say that I am flat wrong is to say that **ZERO** Greek bonds are available at market prices. I say that you are full of crap and should thus STFU about it.

Sun, 10/23/2011 - 16:18 | 1802514 ZeroPower
ZeroPower's picture

Wrong. While some GGBs might be trading on any given day, it merely facilitates dealers in catching their b/o for the day, i.e. HF calls in wanting some exposure to Greece as a lottery ticket. Or to show some sign of activity in an updated px available on the market - even though you might see an offer of 45 flash on your screen, you'd be very hard pressed to find any size in either buying or selling amount.

The big funds (read: long only) who are otherwise not allowed to hedge their long bond exposure (by way of short credit) are sitting tight no matter if the bonds trade to either 10 or 90 tomorrow. 

Sun, 10/23/2011 - 10:11 | 1801623 High Plains Drifter
High Plains Drifter's picture

All DTCC evidence (which covers everything except some legacy trades and structured trades) shows that the Net exposure on Greek CDS is less than 1% of the bonds outstanding, and that across all sovereigns the Dealers (big banks) are net short credit via CDS. In fact across all sovereigns the DTCC data shows that dealers have bought $21 billion of credit protection, so are in fact net short. This fits the line that many bank CEO’s state they have minimal net exposure as they have bought hedges.<<<<<<<

somehow i just don't believe this.

Sun, 10/23/2011 - 10:15 | 1801629 Mike2756
Mike2756's picture

Who would they have bought protection from?

Sun, 10/23/2011 - 10:24 | 1801644 oogs66
oogs66's picture

hedge funds?  dumb banks that should go under?  who knows, but in any case it is amazing that something as important as this, that occupies so much time for regulators and politicians ISN'T EXCHANGE TRADED!!!   How can this product not be properly controlled yet??????

Sun, 10/23/2011 - 10:43 | 1801691 High Plains Drifter
High Plains Drifter's picture

that i would like to know.  also would a greek default be like the first domino to fall.   obviously there are things going on, (of course) that we don't know about.  otherwise they would have allowed a default a long time ago but some of the big players don't want to get stuck with the bad paper and as reggie wrote about , they are wanting someone else( you know who) to pick up the tab for their failed usual.  it is time to fix bayonets and do some pig sticking.....

Sun, 10/23/2011 - 11:12 | 1801767 topcallingtroll
topcallingtroll's picture

Why who do the big players want to take money from? Who could possibly make up their losses so they can stay rich?

You are not thinking taxpayers are stupid enough to give rich people money when their investments go bad.

Surely not!

Sun, 10/23/2011 - 10:51 | 1801704 DeadFred
DeadFred's picture

"Their (irrational) fear of triggering a CDS Credit Event makes the problem of what to do with residual bonds, that much greater."

It may not be such an irrational fear. Maybe they understand the credit event will be the TNT charge that sets off the fission explosion that sets off the fusion bomb. Context is everything with these events.

Sun, 10/23/2011 - 11:34 | 1801826 oogs66
oogs66's picture

or maybe like everything else, they got that idea in their head and haven't once tried to see if it is correct?

Sun, 10/23/2011 - 10:15 | 1801627 Chief KnocAHoma
Chief KnocAHoma's picture

When you're ready to bug out of Europe:
Sun, 10/23/2011 - 10:16 | 1801633 bigwavedave
bigwavedave's picture

Yeah Fuck the banks. Greece needs to default AFTER getting as much bailout as they can squeeze. Will go there on holiday next year and spend some Drachma. Its how it should be.

Sun, 10/23/2011 - 11:17 | 1801783 topcallingtroll
topcallingtroll's picture

You should be able to buy some greek college girls cheap after the reset.

I bet they go for ten percent of a high end, low volume escort (the safest) compared to the USA.

A $1000 per night bombshell twenty something escort will go for the equivalent of 100 usa dollars when converted to drachmas.

Sun, 10/23/2011 - 10:21 | 1801636 ArkansasAngie
ArkansasAngie's picture

I'm sorry ... but all this accounting machinations is getting really, really old.

Can you people not think in terms of real numbers and delete all this imaginary crap.

The fact of the matter you guys placed your bets and lost.  Now pay up shatheads.

We need to be occupying the DOJ and the dad gum FBI.

GAAP has meaning to us peon.

You want instruments?  I'll show you instruments.  Try a pitchfork up your arse


Sun, 10/23/2011 - 10:44 | 1801693 High Plains Drifter
High Plains Drifter's picture

pitchforks are cool.  they make 4 small perforations in the stomachs of bankers when applied correctly...

Sun, 10/23/2011 - 10:56 | 1801716 DeadFred
DeadFred's picture

And like the Greek bond problems the wounds are not that impressive to look at, but completely lethal.

Sun, 10/23/2011 - 11:20 | 1801796 topcallingtroll
topcallingtroll's picture

Arkansasangie I am already in love with you.

I live in fort smith.

Petite beorgeoise lifestyle.
Dr. by trade.
Libertarian at heart.

That turns me on that you probably know what GAAP stands for.

Sun, 10/23/2011 - 13:40 | 1802192 ArkansasAngie
ArkansasAngie's picture

Are you good with going to an occassional Razorback game?


Sun, 10/23/2011 - 10:21 | 1801637 TheSilverJournal
TheSilverJournal's picture

All of the Euro leaders are depending on the bank lobbyists to figure out how to maintain the Euro. 

Sun, 10/23/2011 - 10:29 | 1801657 BandGap
BandGap's picture

Then they aren't really "leaders", are they?  Let the blame game begin.  Who left the henhouse gate open for the fox to get in?

Sun, 10/23/2011 - 10:21 | 1801638 Bithead1
Bithead1's picture

Greek Groupon?


Sun, 10/23/2011 - 10:51 | 1801706 maxw3st
maxw3st's picture

I think you hit on something there. And, it would certainly help with Groupon's flagging IPO.

Sun, 10/23/2011 - 10:22 | 1801640 Hansel
Hansel's picture

Any word on the proposed haircuts for Ireland and Portugal?  This won't be over for a long time.

Sun, 10/23/2011 - 10:30 | 1801663 BandGap
BandGap's picture

No, it will be over....suddenly and quite brutal.

Wonder how many will realize when they go off the cliff?

Hey, Baracka needs my help.  Fancy that.

Sun, 10/23/2011 - 10:37 | 1801677 spanish inquisition
spanish inquisition's picture

Ah yes, the Irish politicians who bent over for the price of a happy meal, now see the Greeks and how much they could of charged if they would of played hard to get. Of course Portugal could still toss bankers in jail, using the Iceland approach and still have its virtue intact.

Sun, 10/23/2011 - 10:27 | 1801654 BandGap
BandGap's picture

Somebody put on a fresh pot, we'll roll up our sleeves and clean up this mess.  I have seen 50% off sales before, and this close to the holidays things are going to get hectic.

Sun, 10/23/2011 - 10:30 | 1801656 lolmao500
lolmao500's picture

Let Greece get out of the euro. (still won't solve the problems, but still)

Will be interesting to watch when we reach the point that Italian bonds and FRENCH bonds have to take a 50% cut... But I doubt the EU will make it that far.

Sun, 10/23/2011 - 10:30 | 1801662 Banksters
Banksters's picture

So this means I should be buying Italian bond with both hands.   Shit, I don't have much money though because I spent it all on the Mexican 100 year bond!   Fortunately they are liquid, like piss...

Sun, 10/23/2011 - 10:32 | 1801667 BandGap
BandGap's picture

Get them while they're hot!

The funny thing is they have no idea where and at what point they can stop the snow boulder from crashing into Chalet Europe.  But the longer it rolls, the bigger it gets.

Sun, 10/23/2011 - 10:34 | 1801669 Ted Baker
Ted Baker's picture


Sun, 10/23/2011 - 10:42 | 1801672 PulauHantu29
PulauHantu29's picture

"Why do today what you can put off 'till tomorrow....."


Sun, 10/23/2011 - 10:53 | 1801710 Alea Iactaest
Alea Iactaest's picture

"Why do tomorrow what you can put off until the day after tomorrow?"

-- Linus

Sun, 10/23/2011 - 11:44 | 1801852 PulauHantu29
PulauHantu29's picture

"I'll gladly pay you next Tuesday for a gyro today."


Sun, 10/23/2011 - 15:48 | 1802464 earleflorida
earleflorida's picture

,... but, i want it now!!!

Sun, 10/23/2011 - 10:35 | 1801675 RossInvestor
RossInvestor's picture

What is the difference between the IMF and IIF?  The author appears to use them interchanably.

Sun, 10/23/2011 - 10:46 | 1801697 lolmao500
lolmao500's picture

Well they all work for the same people so no big deal.

Sun, 10/23/2011 - 10:38 | 1801680 sabra1
sabra1's picture

the whole purpose of this worldwide manipulation is to transfer wealth to the elite bastards! if i were an elite bastard, my cohorts and myself would short the markets, ruin everyone, then wait for all, to cry and plead, to please, save us, we'll pay anything, just make it stop! we elite will own it all, just remember to bow, and bow again, serfs!

Sun, 10/23/2011 - 10:42 | 1801687 LuKOsro
LuKOsro's picture

Stay tuned for some more BOJ massive intervention. Only on bubble-vision!

Sun, 10/23/2011 - 10:46 | 1801696 Rockfish
Rockfish's picture

No debt is an island. Let the dominos brgin to fall.

Sun, 10/23/2011 - 10:51 | 1801702 Zero Debt
Zero Debt's picture

in spite of months of talk, headlines, and propaganda, very few people in the EU worked on any details.

Let's correct this statement: months years of talk

The "Stability and Growth Pact" (SGP) was adopted in 1997, that is, 14 years ago. Greece budget deficit was fudged in 1997 to be reported as 4%, not 6.6% as it actually was. So 14 years ago, the greek deficit was twice the agreed level of the SGP requirement, which was a key criteria of Euro entry.

Sun, 10/23/2011 - 11:03 | 1801730 RiverRoad
RiverRoad's picture

Let's face it, the reason we've had no action out of Europe is because they've been waiting for the US to blink and write them a check.  If that happens, all hell better break loose.

Sun, 10/23/2011 - 11:05 | 1801739 ISEEIT
ISEEIT's picture

Well lets summarize:

What WE want is to play sims with an entire continent. What WE want is to be 'politicians'. As it turns out, that did not work!

Fucking losers. Get a real job and stop trying to manage MY life.

Fucking asshats.

So a politico fucks a bankster. Who gets pregnant?


Sun, 10/23/2011 - 11:15 | 1801775 Hansel
Hansel's picture

"Get a real job and stop trying to manage MY life."

What is a "real job" when all money is backed by debt and taxes must be paid in debt-money?  For there to be money to pay you at your "real job," the government had to take out debt in your name.  You are owned, slave.

Sun, 10/23/2011 - 11:05 | 1801741 Segestan
Segestan's picture

Socialist -Liberals are like hippies, they hate hair cuts..( reality)... won't happen. Besides you can forget the bond market afterwards, add that fact that these countries have no real industry.... they sent their social dreams to, China......saying they were doing the right thing.... oops! This whole thing is going to spiral down the toilet.

Sun, 10/23/2011 - 11:10 | 1801746 alexwest
alexwest's picture

blah blah blah.. again

does any have time span bigger than 1 day? lets pretend Greece defaults w/ 50-60% haircut.. so instead of 150/180 % debt/gdp ratio it will be 75-90%..

of course its stupid compare debt w/ NOBODY 'actually knows how much Greece gdp is' , its better comparing debt to government revenues, but nevertheless

what next? 100% percent guaranteed Greece will be in recession for next 3-5% years, so gdp is gonna contract..

now Greece deficit is 8-10%, so it will be at least 15-20% of GDP next 3-5 years

so within short 3 years GDP/debt ratio is again 150% and its over again...

Greece cant and wont have access to capital markets as long as economy is Greece, but currency of bonds is EURO... aint gonna happen.

only full default and return to drachma will to magic.. see Iceland for reference..


Sun, 10/23/2011 - 11:20 | 1801793 hackettlad
hackettlad's picture

So, the IIF was going to “force” banks to exchange bonds where all of the exposure was to Greece and are trading at less than 45% of par, and make them take bonds where on day 1 they received a zero coupon AAA bond worth 35% of par, and received (in most cases) higher coupons than on their existing holdings?  


Apologies for the ignorance but I don't get this.  If the banks were "forced" to give up their Greek bonds trading at 45% of par (but with a coupon nonetheless) in exchange for a zero coupon AAA bond worth 35% of par, how are they getting higher coupons with the AAA bonds which are zero rated?  Do you mean the implied rolled up interest of the zero coupon bonds is greater than the interest on the Greek bonds given up?

Sun, 10/23/2011 - 11:36 | 1801831 oogs66
oogs66's picture

the iif plans include interest rates starting at 4% and rising to 5% that is to be paid by Greece.  So they get a zero coupon bond from EFSF and a stream of interest payments from greece.  right now both the principal and interest come from Greece.

Sun, 10/23/2011 - 12:27 | 1801982 hackettlad
hackettlad's picture

thank you - much appreciated

Sun, 10/23/2011 - 11:58 | 1801884 steve from virginia
steve from virginia's picture


Just more and more bullshit from the Eurocrats!

The never-ending assumption is that Greece can pay 'something'. The never-ending assumption that a worthless promise to repay from one bank or country can be replaced by another worthless promise to repay from other (broke) banks or countries.

The never-ending assumption that Europe's problems can be solved by shuffling paper with numbers on it from one empty suit to another.

The problems are at the foot of Europe's economy, not its head. The foot cannot bear any more weight, regardless of the 'will' or 'lies' or 'hopium' of Europe's head.

Now the banks are in a pickle, they will lose money and must collapse as a consequence, otherwise they will lose all credibility. With that loss comes the end of moral hazard. The banks have to put up or shut up.

There is another moral hazard component that everyone here on ZH and elsewhere is missing even though it stares all in the face. Ordinarily a country defaults and restructures. With the debt burden lifted and the dead weight of useless institutions removed the defaulting county's economy recovers. The defaulted-on debts are eventually repaid due to the defaulter's return to growth plus inflation (GDP growth IS inflation).

This is the default process and has been repeated over and over for centuries, with discomfort but small real consequences over the longer term. Countries, businesses, individuals default ... but generally repay the debt principal to the penny if not the interest.

NOT SO NOW: the ongoing refinance frenzy is by itself an acknowledgement that there will be no more growth and loans will never be repaid, ever!

Grab with both hands and take!

This is what the end of industrial economies looks like: debt backwardation. Not me: by their actions, the banks are talkin'.


Sun, 10/23/2011 - 12:17 | 1801956 azusgm
azusgm's picture

Greece should listen to what Max Keiser and Nigel Farage have been saying repeatedly. Greece should just default already and go back to the drachma.


G-Pap should bug out to a secure, undisclosed island and email back the default news. Does he really think he'll be well cared for if this game continues until it explodes?

Sun, 10/23/2011 - 12:51 | 1802065 holdbuysell
holdbuysell's picture

If everyone takes a 60% writedown on Greece debt, it seems that the other PIIGS are simply going to demand a similar deal.

And they have MUCH more debt.

Sun, 10/23/2011 - 13:02 | 1802089 slewie the pi-rat
slewie the pi-rat's picture

tha banks?  the banks? 

The “Global Association of Financial Institutions” has the interests of their members at heart.  They want to do as little as possible and receive the most benefit from doing so.  They are not doing this for the “public” good, or what is best for sovereigns, they are doing this for what is best for “banks, globally active securities firms, and insurance companies.”  All anyone has to do, is look at their July “21% haircut” proposal for a few minutes, and you can see that it is contrived to actually benefit the banks while sounding like it helps Greece.

seems2me that if we keep paying them for being TBTF and to "save & fix the econom" and "prevent global contagion", they will keep "helping us out" docha think? 

  1. M2M
  2. Let Them Fail!
  3. enjoy the day!


Sun, 10/23/2011 - 13:06 | 1802103 chaartist
chaartist's picture

groupon on national debt, find the true price fast

Sun, 10/23/2011 - 16:27 | 1802540 zippy_uk
zippy_uk's picture

The best plan is to bury ones head in the sand, repeat "there will be no default because there are no bad debts" and hope for the best...

Wait - this is the current plan...

Sun, 10/23/2011 - 20:59 | 1803108 Hedge Fund of One
Hedge Fund of One's picture

I still don't get how the counter-parties short CDS would be able to make whole the CDS holders. Wouldn't they have to pay 100% par?

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