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Hedge Funds Now Hold Future Of Europe Hostage

Tyler Durden's picture





 

Payback sure is a bitch. After being demonized for everything from the tiniest tick down in the EURUSD, to blowing out spreads in CDS, to plunging stocks across the insolvent continent, hedge funds, long falsely prosecuted for everything, even stuff they patently did not do, are about to have their day in the sun, precisely in the manner we predicted back in June of last year when we posted: "Greek Bailout #2 Is Dead On Arrival: A Few Good Hedge Funds May Have Called The ECB's Bluff, And Hold The Future Of The EUR Hostage." Back then we wrote: "we may suddenly find ourselves in the biggest "activist" investor drama, in which voluntary restructuring "hold out" hedge funds will settle for Cheapest to Delivery or else demand a trillion pounds of flesh from the ECB in order to keep the eurozone afloat. In other words, the drama is about to get very, very real. And, most ironically, a tiny David is about to flip the scales on the mammoth Goliath of the ECB and hold the entire European experiment hostage..." Sure enough, we were right yet again. Ekathimerini writes: "Hedge funds are taking on the powerful International Monetary Fund over its plan to slash Greece's towering debt burden as time runs out on the talks that could sway the future of Europe's single currency. The funds have built up such a powerful positions in Greek bonds that they could derail Europe's tactic of getting banks and other bondholders to share the burden of reducing the country's debt on a voluntary basis." Oh no, they will let it happen, but first Europe will pay, with real interest, for every single incident of hedge fund bashing and abuse over the past 2 years. We estimate the final tally, to US taxpayer mind you, will be about $20 billion, to remove the "nuisance factor" of hold out hedge funds. Congratulations Europe - you have proven to be a continent full of idiot "leaders" once again.

More:

Bondholders need to give up some 100 billion euros ($130 billion) of their investment in the planned bond swap, drawn up in October, but many hedge funds plan to stay out of it.

 

They either prefer letting the country go under, which would trigger the credit insurance they have bought, or hope to get paid out in full if enough others sign up. That puts them in direct conflict with the IMF, which wants to force Greece's cost of financing down to an affordable level.

 

"The play is purely 'they'll be forced to pay me'. Greece will want to avoid a wider default. so if it managed to restructure 80 percent of the deal and pay the rest that's still better,» said Gabriel Sterne at securities firm Exotix.

 

Without a deal, the IMF, the European Union and the European Central Bank -- the so-called troika of official lenders -- will not pay out a second bail-out package Greece needs to survive.

 

EU Economic and Monetary Affairs Commissioner Olli Rehn said on Tuesday that negotiators were «about to finalize shortly». But time is running out.

Not complying with hedge fund hostage demands? Why the end of the Eurozone of course.

Without the money, the country is likely to default around March 20, when a 14.5 billion euro bond falls due. A deal needs to come well before that, because the paperwork alone takes at least six weeks.

 

On Monday German Chancellor Angela Merkel and French President Nicolas Sarkozy, the euro zone's two leading powers, insisted private-sector bondholders must share in reducing Greece's debt burden.

 

But the hedge funds are resisting, unlike European banks holding Greek bonds, who have been pressured to agree by politicians.

 

Banks represented by the Institute of International Finance (IIF) agreed last year to write off the notional value of their Greek bondholdings by 50 percent, a deal designed to reduce Greece's debt ratio to 120 percent of its Gross Domestic Product by 2020.

 

But they have been unable to agree on the fine print of the refinancing - the coupon, maturity and the credit guarantees. These will determine the bonds' Net Present Value (NPV), and thereby the actual hit the banks need to take.

 

There are 206 billion euros of Greek government bonds in private sector hands -- banks, institutional investors, and hedge funds -- and it is likely that hedge funds have been building up their positions in the past months.

Naturally, every passing day makes the HF negotiation position stronger, and that of the European banking cabal, and of the fat idiots in Brussels, that much weaker

The bet is that other creditors will sign up to a voluntary deal, and that Greece will pay out in full the hedge funds who do not to avoid a default and trigger pay-out of Credit Default Swaps, a form of credit protection.

 

"Time is on your side, since investors, until now, have received full repayment on Greek debt obligations,» said Kristian Flyvholm at asset manager Jyske Invest.

 

Sterne, whose firm Exotix specializes in illiquid bond investing and counts hedge funds among its clients, said the bet had already worked for some funds. Greece paid out smaller issues maturing in December and January.

The alternative? Europe lets the chips fall where they may.

Europe is increasingly likely to force investors to take a cut on their Greek bondholdings if they do not voluntarily sign up to the deal, Reuters reported in November.

 

Also, Greece could change its laws, which for the largest part do not contain the so-called Collective Action Clauses (CAC) that force dissenting minorities into line when new conditions are imposed on outstanding bonds.

 

It is unclear how large hedge fund holdings of Greek debt are. About 20 to 25 percent of Greece's creditors were unidentified, and half of these could be hedge funds, one source close to the creditors told Reuters.

 

Whatever the scale of the hedge fund threat, the proportion of creditors seen likely to sign up for their haircut has slipped. The hopes are now 60 percent can be convinced by the end of the month, the same source said, far less than the 90 percent take-up the IIF was targeting in June.

 

At that low a level, it is unclear whether the troika of international lenders will consider the uptake big enough to warrant a pay-out of the second bail-out package.

 

IIF Managing Director Charles Dallara is due in Athens later this week for troika negotiations, and technical staff from the IMF are expected in the Greek capital from January 16.

 

The IMF itself seemed to throw doubt on the debt swap in an internal memo cited by German magazine Der Spiegel on Saturday.

Ironically, the more we think about it, the more it seems likely the UBS was not posturing when it predicted a Greek CDS trigger to take place in March. Because this may be precisely what will happen.

In that case, step as far away from all moving ventilator blades and fans as possible. Because it is about to get real.

 


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Tue, 01/10/2012 - 15:53 | Link to Comment Stoploss
Stoploss's picture

ZH on fire today!!

Tue, 01/10/2012 - 16:20 | Link to Comment eureka
eureka's picture

I see a day not far ahead when Hedge Fund Heads lie blood drenched on the ground.

Tue, 01/10/2012 - 17:12 | Link to Comment Popo
Popo's picture

$20 Billion?  It's been a while since I saw a number that small on ZH.   Doesn't seem like much of a hostage drama imho...

Tue, 01/10/2012 - 17:27 | Link to Comment Kick_the_Kan
Kick_the_Kan's picture

I'll believe the triggering of Greek CDSs when I see it....the powers that be can change the rules to suit their needs

Tue, 01/10/2012 - 17:47 | Link to Comment Ghordius
Ghordius's picture

I hope not...

Someone really, really loves CDS, eh, Tyler?
Outlaw that hideous stuff...

Tue, 01/10/2012 - 18:52 | Link to Comment gmrpeabody
gmrpeabody's picture

A mere $20B to keep the dominos standing...? Chicken feed!

Wed, 01/11/2012 - 08:13 | Link to Comment jeff montanye
jeff montanye's picture

but if not, as the snake said to the frog, you knew i was a snake when you let me climb on your back.

Tue, 01/10/2012 - 22:04 | Link to Comment In Fed We Trust
In Fed We Trust's picture

Question for Tyler ,

I rembered reading in "War Cycles Peace Cycles"

That euro s are actually US dollars floating in Europe.

Euros are dollars?

Wouldnt that make the ECB the same as the Fed?

One bank, 2 books?

Wed, 01/11/2012 - 08:11 | Link to Comment jeff montanye
jeff montanye's picture

could you mean "eurodollars"  http://en.wikipedia.org/wiki/Eurodollar  rather than "euros"  http://en.wikipedia.org/wiki/Euro ?

Tue, 01/10/2012 - 19:14 | Link to Comment midtowng
midtowng's picture

F*ck hedge funds. I hope they choke on their money.

Tue, 01/10/2012 - 20:21 | Link to Comment SixFeetFromTheHedge
SixFeetFromTheHedge's picture

0hedge is a hedgefund as well.

Tue, 01/10/2012 - 21:17 | Link to Comment stocktivity
stocktivity's picture

Benny will not let a mere $20 billion shortfall dump the EU. He can print it out of thin air and loan it to the ECB overnight.

Tue, 01/10/2012 - 22:40 | Link to Comment Buck Johnson
Buck Johnson's picture

What they are afraid of is one or two holdouts going to the courts or institutions that call the Credit Event and having them say it's a credit event and if not why.  Because if they call it a credit event, then all bets are off and whatever money given to Greece in the new truanche and whatever deal that was made with the other bond holders is null and void.  And all Greek debt is in default and the 278 billion or more I think in bond debt will have to be paid out via the insurers who insured the bonds.  And if they say that this isn't an even, then it opens them up to massive litigation when others start saying that you called us an event when it shouldn't have etc. etc.. 

They want this to be done under the tables but everyone is watching.

Tue, 01/10/2012 - 15:54 | Link to Comment Ahmeexnal
Ahmeexnal's picture

Time for the sociopath euro-oligarchs to burn.

Tue, 01/10/2012 - 16:06 | Link to Comment kaiten
kaiten's picture

Time for you to start treating your europhobia.

Tue, 01/10/2012 - 16:16 | Link to Comment Michael
Michael's picture

Is this a picture of Mitt Romney or John Huntsman, I can't tell?

http://www.wayodd.com/noindex2/funny-pictures-head-up-your-ass-Afq.jpg

Tue, 01/10/2012 - 15:55 | Link to Comment Jason T
Jason T's picture

Free market capitalism ..bitches

Tue, 01/10/2012 - 16:52 | Link to Comment Mactheknife
Mactheknife's picture

You know what they say about "he who laughs last", I'm laughing my ass off.

Tue, 01/10/2012 - 15:57 | Link to Comment Irish66
Irish66's picture

$20 billion US taxpayer nuisance, seems low 

Tue, 01/10/2012 - 16:07 | Link to Comment NotApplicable
NotApplicable's picture

Well, that's before fees.

Tue, 01/10/2012 - 17:33 | Link to Comment Ropingdown
Ropingdown's picture

Well then, they should have simply said "40 billion" up front.

Tue, 01/10/2012 - 15:58 | Link to Comment bankofvol
bankofvol's picture

Hedge funds strategy in this negotiation and why Greece will fail to get a deal was itemized on Jan 2nd: http://qeurope.blogspot.com/2012/01/why-greek-haircut-negotiation-might....

Tue, 01/10/2012 - 15:58 | Link to Comment Vincent Vega
Vincent Vega's picture

"about $20B to remove the nusiance factor".  Once upon a time that was a lot of money. Today it's just a few key strokes.

Tue, 01/10/2012 - 17:06 | Link to Comment Blank Reg
Blank Reg's picture

Bernanke's first dump of the day is bigger than $20B!

Tue, 01/10/2012 - 17:23 | Link to Comment Apocalicious
Apocalicious's picture

Yeah but $20B here, $20B there - pretty soon you're talking real money...

Tue, 01/10/2012 - 15:58 | Link to Comment Buckaroo Banzai
Buckaroo Banzai's picture

How about Greece defaults, and no one ever lends them money again? EVER.

What if governments couldn't go into debt? What if government borrowing (or lending to governments) was punishable by death?

OH NOES! Can't let that happen! Otherwise how would bankers control "sovereign" nations!

Tue, 01/10/2012 - 16:26 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Bullshit. Any decent collateral (gold, productive industry) can be used to enter an actual marketplace to find creditors. I can't imagine that without the right amount of Au backed bonds China wouldn't lend.

Tue, 01/10/2012 - 17:04 | Link to Comment falak pema
falak pema's picture

the greek oligarchs have 200 B sitting in offshore accounts in Swiss banks while the people are burnt at the stake. This is a criminal scam.

Tue, 01/10/2012 - 19:51 | Link to Comment smiler03
smiler03's picture

And your evidence is where?  

Wed, 01/11/2012 - 05:56 | Link to Comment falak pema
falak pema's picture

you don't read the international press, I'm not here to educate you in detail. Go read the Geneva press. Any news paper in Swiss region. All the details are there. As in the greek press...Wake up. As in ZH and on the US internet. 

Tue, 01/10/2012 - 21:49 | Link to Comment In Fed We Trust
In Fed We Trust's picture

Smells like.....

Soros!

Tue, 01/10/2012 - 16:01 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

It has been 'about to get real' for a good two years now. HFs will clearly have to do more than play extortionist like the rest.

Tue, 01/10/2012 - 16:02 | Link to Comment Sudden Debt
Sudden Debt's picture

And still the lemmings believe that our leaders are competent, smart, honest....
Sure....

Tue, 01/10/2012 - 16:06 | Link to Comment Sofa King
Sofa King's picture

Haven't we been through this discussion before.  No one will get paid on CDS triggers, because they are a moving target that can not be allowed to be triggered.  Mainly because there is not enough money in the world to pay out all the claims.  When you insure the same 10 dollars to 100 different people, it adds up quickly.  If there anyone outh there that has money with Hedge Funds who have positioned themselves for a payday on CDS triggers, get your cash before you get MF Globaled.

Tue, 01/10/2012 - 16:16 | Link to Comment Tyler Durden
Tyler Durden's picture

Triggering of CDS will result in absolutely no cash payments as CDS will settle at already insane prices, which have been variation margined to death. In other words, the cash flow has already taken place. What will be impacted, is the ECB, which will not be able to negotiate its Greek holdings at par if there is a CDS trigger determination, and its "capital" will be impaired: something which otherwise would destroy its credibility. Although, in this case it has none to begin with, so nobody really knows what will happen.

Tue, 01/10/2012 - 16:26 | Link to Comment Sofa King
Sofa King's picture

Mayhem.

Tue, 01/10/2012 - 17:00 | Link to Comment falak pema
falak pema's picture

Don't be blinded by technicalities, this is a broken market and pure power play by people desperate not to lose their ponzi ante and who are prepared to bring the world down if thet don't get paid. Agememnon is alive and well. All that haunts his dreams is that Gazprom or Petrochina will be bigger T-REX or top dog than him. That's all that counts in the demented minds of the TBTF Oligarchs. 

Tue, 01/10/2012 - 17:51 | Link to Comment Ghordius
Ghordius's picture

Which makes outlawing CDSs a priority
Either de jure or de facto

Tue, 01/10/2012 - 21:57 | Link to Comment In Fed We Trust
In Fed We Trust's picture

Yes you have done it Sherlock.

Weapons of mass Destruction.
Warren buffet already said so.
The new laws are in place to backfire on their makers.

Now we just need to convince the military , the bankers are the terrorists.
Jail the bankers.

Wed, 01/11/2012 - 07:45 | Link to Comment Archduke
Archduke's picture

I like the european variant: moving CDS to a listed market with central clearing.

 

Tue, 01/10/2012 - 17:58 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

I seem to recall a conversation, Tyler, between two people bearing a startling resemblance to you and me arguing . . . .

It's All About The Swaps.

Remember?

Tue, 01/10/2012 - 16:17 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Put it this way: as long as you have agencies/commissions determining the 'triggers' of an event then that simply means it's open to interpretation, which means that none of this is objective and unrigged in any way shape or form.

Tue, 01/10/2012 - 16:29 | Link to Comment slaughterer
slaughterer's picture

Has Kyle Bass already sold his Greek CDSs?

Tue, 01/10/2012 - 16:38 | Link to Comment ucsbcanuck
ucsbcanuck's picture

he said he was out of Greece during the BBC Hardtalk interview

Tue, 01/10/2012 - 16:09 | Link to Comment Chupacabra-322
Chupacabra-322's picture

The Banker.

http://www.youtube.com/watch?v=peX4dBEF0Vg

Chilling to say the least. 

Tue, 01/10/2012 - 16:09 | Link to Comment treemagnet
treemagnet's picture

It'll never happen.  They'll just come up with another plan to address a prior plan that allows for plans that fail to live up to the expectations of "the plan".  The ponzi lives on.

Tue, 01/10/2012 - 16:18 | Link to Comment AldoHux_IV
AldoHux_IV's picture

The problem with central planning morons and their idiotic policies: it leads to a situation that doesn't solve the initial problem and has created another one. In this case, whether the hedge funds get more say or not in the restructuring and subsequent CDS triggering event is now more important than the concept that is continuing to be drowned out in the idiocy: more debt and technical loopholes will not allow the insolvency of periphery countries to go away and more importantly the current euro system is a perverse one in that it allows broke nations to purchase goods they don't need on credit.

The system is no longer zero-sum, but just plain negative as no one is really a winner in the end.

Tue, 01/10/2012 - 16:59 | Link to Comment Urban Redneck
Urban Redneck's picture

Given the revolving door between the finance industry and the State on both sides of the Atlantic, you would think at a few of the idiots on the State side right now could have explained to their co-workers how a distressed asset (debt) fund operates, or do they not get overtime pay for that? 

Tue, 01/10/2012 - 16:20 | Link to Comment LeBalance
LeBalance's picture

Hi, Mr Hedgie!

Is your wife safe?

How are the kiddies?

You eating enough lately?

Damn shame if anything were to happen to you or to the family.

Damn shame.

Keep buying our paper.

Nice, hedgie!

Tue, 01/10/2012 - 16:25 | Link to Comment dracos_ghost
dracos_ghost's picture

Yup. It seems that they could easily be considered "Financial Terrorists" and be subject to haircuts in the Biblical sense.

Tue, 01/10/2012 - 16:21 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Hedge Funds are dark pool money. Pure instruments of financial warfare. No one else could ever take the risks they do. Same with Vulture Capitalists. 

Hedge Funds are weapons. And the monies mix in very strange ways behind the scenes. I've seen some of it, first hand, it's nuts.

I'm sure India's jewels are also in hedge fund hands. I can see a mother of all credit squeezes coming to India when the software industry in particular and the real estate and export industries in general meets the reality of vanishing jobs from an increasingly protective and broke anglosphere reality.

Saftey nets....

ori

My First Ever Post 

Tue, 01/10/2012 - 17:08 | Link to Comment imapopulistnow
imapopulistnow's picture

It all began with Soros and the BOE.  He is such a fine progressive fellow.  Looking out for the poor don't cha know.

Tue, 01/10/2012 - 17:26 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Sorrows----Kissmyasssinger-----Dark Pools.....

QED.

ori

Tue, 01/10/2012 - 16:23 | Link to Comment you enjoy myself
you enjoy myself's picture

Whatever the scale of the hedge fund threat, the proportion of creditors seen likely to sign up for their haircut has slipped. The hopes are now 60 percent can be convinced by the end of the month, the same source said, far less than the 90 percent take-up the IIF was targeting in June.

and that percentage will continue to decline, now that there's open defectors to the "voluntary" haircut.   we're getting very close to the moment when the chips just may be allowed to fall.

 

Tue, 01/10/2012 - 16:26 | Link to Comment mark mchugh
mark mchugh's picture

Time out.

This isn't about Europe.  Some idiots insured the unpayable Greek debt via Credit default swaps, remember.  Who are they?

JP Morgan

Citigroup

Goldman

Morgan Stanley

Bank of America

The IMF doesn't give a rat's ass about Greece, the Euro, or anything else but protecting these financial terrorists.

http://acrossthestreetnet.wordpress.com/2011/12/25/seasons-greedings/

Tue, 01/10/2012 - 16:31 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Exactly, going long counterfeit cash across Europe and black markets.  You cannot collect what isn't there.  The insitutions have power ONLY because people still use the dollar and actually listen to what the Federal reserve says.  

Tue, 01/10/2012 - 17:55 | Link to Comment Ropingdown
Ropingdown's picture

It's a big world out there.  It seems to me The ECB and IMF aren't trying to save the TBTF listed above, but are trying to avoid really pissing them off.  The TBTF can handle some EZ losses, but the EZ can't risk credit drying up completely, joined with a simultaneous huge lobby against any further IMF involvement in Euro-currency-region disasters.  The hedgies and the listed banks are hand in glove.

Tue, 01/10/2012 - 16:35 | Link to Comment oleander garch
oleander garch's picture

The secret to being a good oligopolist is similar to the secret to being a half ton man trapped in a the bedroom of a mobile home in a trailer park: get so fat that other people will bring you food, empty your trash and change your diapers.  What if they don't accept that the TBTF fat man is worth saving?  

Tue, 01/10/2012 - 16:36 | Link to Comment roy10
roy10's picture

Again, there's an irrational fear of triggering Greek CDS. The CDS has already been reflecting a certain default for a year now. These "negotiations" are pure BS. Greece should restructure all its debt (including the debt held by the IMF and ECB) and go forward from there with a balanced budget.

Tue, 01/10/2012 - 19:32 | Link to Comment ucsbcanuck
ucsbcanuck's picture

From Tyler:

"What will be impacted, is the ECB, which will not be able to negotiate its Greek holdings at par if there is a CDS trigger determination, and its "capital" will be impaired: something which otherwise would destroy its credibility."

Insofar as destroying credibility, Tyler is backed up by Willem Buiter:

http://articles.businessinsider.com/2011-10-27/markets/30327493_1_credit-default-swaps-cds-market-duck

"Failure to trigger would all but discredit the entire CDS market.

It is possible that some exceedingly clever lawyers and PR specialist could convince the relevant Determinations Committee of ISDA that a 50% or 60% haircut need not indicate a credit event, but, were this to occur, it would probably do more damage to the EU sovereign debt and CDS market than would have occurred had a credit event been declared and CDS triggered. The reason is that a failure to trigger CDS when, according to common sense, economic logic and commercial rationality, CDS ought to be triggered, would impair the value of CDS as an asset class. In the Euro Area there are more than a trillion dollars’ worth of sovereign CDS outstanding. Market participants (pension funds, insurance companies, banks, asset managers and hedge funds) that have bought CDS as insurance against Greek default would be denied the pay-out on their insurance policies. The response might well be a rush to unload the underlying assets of these Euro Area CDS, the sovereign debt of all vulnerable Euro Area member states. This would be rational contagion par excellence – and it would have been triggered by a failure to trigger CDS on Greek sovereign debt when the sheer magnitude of the write-down on the Greek sovereign debt would have made a credit event the reasonable, logical outcome.

Even worse, it could completely destroy the success of the current proposed plans to leverage the EFSF.

What is more, avoiding triggering CDS when the fundamentals suggest they ought to be triggered, would further erode credibility of EU/EA policymakers. That credibility is already weakened by the slow and piecemeal response to the crisis. But some of the support measures considered currently make a further erosion of policymaker credibility especially problematic. For instance, the success of the proposal that implies that the EFSF provided (first-loss) guarantees for new issuance of EA sovereign debt in the primary market relies on the belief of market participants that such guarantees would actually be honored in the future. Avoiding CDS payouts on technical or legalistic grounds could make any such assurances less credible. And even the original EFSF relies on guarantees by EA member states. Any action that undermines the credibility of promises by EA member states or the EFSF to honor guarantees thus has the potential to unravel the entire EA support architecture."

However, Buiter seems to also think the following:

"Fundamental contagion following a triggering of Greek CDS, that is, contagion through interlinkages of exposures and through other financial or commercial interconnections, would likely be a matter of comparatively little importance in the case of Greek CDS. The amount is limited ($74bn gross, less than $4bn net) and the collateral backing of CDS contracts and the rigour with which they are marked to market and are subjected to margin calls have improved since Lehman days. [My emphasis] Unpleasant surprises can never be ruled out, particularly as the high degree of interconnectedness of the financial system and the size of the gross exposures have the potential to create chains of events that magnify initial impacts. However...the fact that any Greek credit event must surely be anticipated much reduces the risk of pernicious domino rounds of insolvency."

Key phrase: "Unpleasant surprises can never be ruled out, particularly as the high degree of interconnectedness of the financial system and the size of the gross exposures have the potential to create chains of events that magnify initial impacts."

What does the ECB know that no one else does?

Tue, 01/10/2012 - 22:51 | Link to Comment roy10
roy10's picture

I'm not sure the ECB really "knows" anything. Much of it if fear of the unknown IMO. An 80% "voluntary" restructuring doesn't make sense and would never go through.

Why does Europe insist doing everything the wrong way? This is not the first sovereign default in history, nor it is the last. I assure you that the global economy would not crumble over a Greek default, just like it did not crumble after any other default in the past.

RE the ECBs capital and credibility – that’s been lost long ago (does anybody believe that Italian bonds can be valued at par?). The ECB is printing and nobody believes otherwise any more.

Playing games and denying reality has only made things worse for Europe. There are 4 countries that need debt restructuring – Greece, Italy, Spain and Portugal (Ireland is a maybe) – the sooner they do it, the better off the world economy will be. Denial only leads to more fear, volatility and suffering from idiotic austerity.

Fri, 01/13/2012 - 00:17 | Link to Comment ucsbcanuck
ucsbcanuck's picture

Problem is the extent/impact of CDS on the over-leveraged European banks and the interconnectedness of the global financial system was never at the same scale as it is right now. 

The global economy will not crumble over a Greek default - there is some core level of economic activity that will continue in the world. There will be massive upheaval no doubt, but I think things will settle after a few years. My only hope is that we don't begin WW3. 

Tue, 01/10/2012 - 16:37 | Link to Comment taniquetil
taniquetil's picture

Dear ECB,

 

People aren't willing to take a 95% haircut on their money.

 

Sincerely,

 

People

Tue, 01/10/2012 - 16:48 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

"IMF on the phone again - they want to know if you're in or out."

"Tell them I went home early. No more calls today."

Tue, 01/10/2012 - 16:53 | Link to Comment falak pema
falak pema's picture

Like I have always stated American capitalism is suicidal schizophrenia; a few uber alles Oligarchs want their cake and to eat it. Go destroy Troy and it will kill you as well; hubris is its own nemesis. Two headed god n clown.

Tue, 01/10/2012 - 16:54 | Link to Comment sbenard
sbenard's picture

"...step as far away from all moving ventilator blades and fans as possible. Because it is about to get real."

 

Can't wait. It's about time for a wake-up call!

Tue, 01/10/2012 - 17:13 | Link to Comment NuYawkFrankie
NuYawkFrankie's picture

These slime-ball, parasitic, sleaze-bag Hedge Funds need to be taken-out (and No, not to The Prom) - and they will be, all of them.... and not a moment too soon.

Tue, 01/10/2012 - 18:59 | Link to Comment ucsbcanuck
ucsbcanuck's picture

NYF - there's a principle at work here. If you owned a bond, and had insurance against credit default, and someone tried to make you volunteer to take a 50% haircut so that you don't get paid out on your insurance as well as lose money - wouldn't you  be angry as well? Not only are you out the 50%, but all the insurance premiums you paid are now worthless.

here's an analogy - you get into a car accident, which isn't your fault. You try to get your insurance payout, but someone tells you "Admit that it's partly your fault and that you were driving under the influence so that you can't get your insurance payout." How would you feel now?

Tue, 01/10/2012 - 16:56 | Link to Comment sbenard
sbenard's picture

What is U.S. bank exposure to CDS'? What is the likelihood that it tips the US back into a debt crisis?

Tue, 01/10/2012 - 19:49 | Link to Comment ucsbcanuck
ucsbcanuck's picture

Not just US bank exposure - who sold the Greek CDS? I have a feeling that someone big might have been in trouble.

http://articles.businessinsider.com/2011-10-27/markets/30327493_1_credit-default-swaps-cds-market-duck

Willem Buiter: 

Fundamental contagion following a triggering of Greek CDS, that is, contagion through interlinkages of exposures and through other financial or commercial interconnections, would likely be a matter of comparatively little importance in the case of Greek CDS. The amount is limited ($74bn gross, less than $4bn net) and the collateral backing of CDS contracts and the rigour with which they are marked to market and are subjected to margin calls have improved since Lehman days. [Emphasis added] Unpleasant surprises can never be ruled out, particularly as the high degree of interconnectedness of the financial system and the size of the gross exposures have the potential to create chains of events that magnify initial impacts. However...the fact that any Greek credit event must surely be anticipated much reduces the risk of pernicious domino rounds of insolvency.

Key phrase: "Unpleasant surprises can never be ruled out, particularly as the high degree of interconnectedness of the financial system and the size of the gross exposures have the potential to create chains of events that magnify initial impacts."

Tue, 01/10/2012 - 16:56 | Link to Comment Hannibal
Hannibal's picture

Hedge funds are scum of the earth, pushing worthless paper stuffed with manure. They will fail vaporizing themselves.

Tue, 01/10/2012 - 17:04 | Link to Comment Blank Reg
Blank Reg's picture

"I see dead people."

Tue, 01/10/2012 - 17:05 | Link to Comment dcb
dcb's picture

Your characterization is wrong. this is hedge funds Vs. the banks, with tax payers of course having to foot the bill for more bank bailouts. there colearly is a cds player or two that will have problems if cds is triggered.  since the government has trouble direclty bailing them out anymore, this way by getting the money to the hedgeis, the cds isn't triggered, saving banks. surprised your cynuical self didn't see this.

 

You need to get it through your head. noting is done for the benefit of the eurozone or it's people. You first must ask how this helps the bankers, and then you get the true story.

Tue, 01/10/2012 - 18:39 | Link to Comment ucsbcanuck
ucsbcanuck's picture

So it's a win-win for the hedge funds - if Greece goes under, they get a CDS payout. If Europe forces them to take a writedown they get a CDS payout. Sounds like the best option is to pay them out in full. Good luck with handling the political fallout from that.

Tue, 01/10/2012 - 20:02 | Link to Comment dcb
dcb's picture

sorry for the typo's

Tue, 01/10/2012 - 20:13 | Link to Comment ucsbcanuck
ucsbcanuck's picture

Not a problem mate - understood what you were saying.

Tue, 01/10/2012 - 17:07 | Link to Comment Clifhanger
Clifhanger's picture

Remeber how Obama/Geithner pulled the "end around" in the GM resturucturing, where bond holders were forced to settle for less than Union workers in the resturcuring terms?  Hopefully there will be no gamesmanship here against the minority holdouts!

 

 

Tue, 01/10/2012 - 18:50 | Link to Comment ucsbcanuck
ucsbcanuck's picture

Well - here's the thing. If they refuse to give in voluntarily, then it's forced, which means CDS payout. You can't say we made everyone take a voluntary cut when 40% of the bondholders say "No." Follow the money, someone BIG is in trouble here if there is a CDS payout. I wouldn't be surprised if the hedgies have short positions in that company as well.

Tue, 01/10/2012 - 19:57 | Link to Comment dcb
dcb's picture

good point.

Tue, 01/10/2012 - 22:12 | Link to Comment In Fed We Trust
In Fed We Trust's picture

Lets all remember that derivative holders get

Precedence over assets before bond holders or stock holders.

Of course the cds holders will get paid .

Im wondering who is the new AIG will be to make payment in full?

Tue, 01/10/2012 - 17:21 | Link to Comment Kick_the_Kan
Kick_the_Kan's picture

I'm sure the powers that be will change the rules again to suit there own needs....I'll believe the triggering of Greek CDSs when I see it

Tue, 01/10/2012 - 17:46 | Link to Comment Shizzmoney
Shizzmoney's picture

The Mafia is now apparently biggest bank in Italy now

http://t.co/oUC870DH

Tue, 01/10/2012 - 17:47 | Link to Comment Dcheeth2
Dcheeth2's picture

Here's what will happen.

Bondholders will fail to agree on a deal. The EU Dream, which must be kept alive at all costs, will step in and pay up for Greece regardless. All that work, for what they are going to do anyway. 

 

Like I say, don't under-estimate the stubbornness of the idiots in charge of the European Dream. 

Tue, 01/10/2012 - 17:57 | Link to Comment Ghordius
Ghordius's picture

Blablabla, hang separately? No thanks...
And Greece is being kept so because of the derivatives, don't know when we dreamt up them?

Tue, 01/10/2012 - 18:46 | Link to Comment lightning_fast_draw
lightning_fast_draw's picture

The outcome was cast when the ISDA ruled that Greece CDSs would not be triggered because the 50% haircut was voluntary. The logic behind a 50% haircut being a voluntary consession on the part of bondholders is at best nebulous. Banks and governments may be thrilled to receive .50 cents on their investment dollars but what exactly is suppose to motivate private funds to do so? According to my algorithms, if you receive .50 cents for every dollar you invest eventually you'll have no money to invest with. Only governments and money-centered banks can flourish using math like that. For everyone else, it makes more sense to put Greece into default. The ISDA ruling sealed Greece's fate but saved billions for the issurers of the CDS (or so they believed). The real question should be did anyone seriously believe that CDS holders "would not" press Greece into default? Who are these people and why aren't they sharing their drugs?

Tue, 01/10/2012 - 18:54 | Link to Comment ucsbcanuck
ucsbcanuck's picture

Which is what I don't get - where's the voluntary part if you're being coerced into a haircut?

It's looking increasingly like the EU is going to blink. From RANsquawk:

http://ransquawk.com/headlines/196180

"EU prepared to drop voluntary restructuring procedure according to a senior Euro-zone government official"

Wed, 01/11/2012 - 02:21 | Link to Comment FlyPaper
FlyPaper's picture

Lightning:  I seem to recall discussion some months back that the ISDA does not have the power to RULE in this case.  Each CDS is a contract with different terms, and good luck trying to do a blanket sweep away of contract rights for every possible plaintiff.   ISDA does not have the power to overturn contracts.  Neither does POTUS (think Chrysler's unions being given precedence over bondholders) - even though he seems to have ramrodded this.

Hence a potential deadlock is years of litigation for the Hedgies if they have to sue to enforce.  They must be gambling that this is a lower risk than not being paid off.

 

 

Tue, 01/10/2012 - 18:55 | Link to Comment Georgesblog
Georgesblog's picture

Although it is very pleasant to see giant central banks have to settle for half a loaf, never forget that they are masters at turning the tables. The hedge funds that win this round will have to constantly be on guard. Central banks don't like the taste of their own medicine.

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Tue, 01/10/2012 - 20:12 | Link to Comment Paul67
Paul67's picture

I think I’ve seen this before on the Dave Chappell show?;

 

“When keeping it real goes wrong”

 

http://www.comedycentral.com/videos/index.jhtml?videoId=24432

 

The only question is who keeps it ‘realier’ the Hedge Funds or the ECB?

 

Looks like we won’t have to wait to long to find out the answer to that one.

Tue, 01/10/2012 - 22:21 | Link to Comment Winterland
Winterland's picture

All of you people calling for hedge fund manager's heads do realize that their stance on this will hasten the reset we are looking for?

 

I really don't get all of the hate.

Wed, 01/11/2012 - 02:23 | Link to Comment FlyPaper
FlyPaper's picture

Perhaps not the reset you think.  There is little history to demonstrate that global mayhem ends in anything but war and misery.  And further, when you push the reset button on humans - they die...

Wed, 01/11/2012 - 04:16 | Link to Comment BlackholeDivestment
BlackholeDivestment's picture

What do you get in defense of your strong delusion, given to you because you don't love The Truth and you are Antichrist? 

...your judgment, which was you, having rejected the mercy of our Father in Christ. 

My friends, what we are witnessing is the prophetic fulfillment of the global counterintelligence offense, designed to establish the borderless new world order market security system seal and mark of debt upon labor, and peace among all nations and Israel. This is the final phase of that effort, to reach that goal. Things are going to happen very quickly when the weapon of mass destruction CDS combines with a WMD event. The theatre has now been set in place upon the grand chessboard,  the force is in ready position, timed with the dramatic affect of the 2012 year and U.S. election cycle with the pullout from Iraq's anceint Babylonian position, which was do to the 911 inside job portion of the effort. The aftermath of sudden destruction will seal the false peace, which shall be broken a few years later. That's just the way it has to go down. So, when you see Israel surrounded by a buildup of forces after a U.N. post ''Joe Biden'' generated WMD event, which led to the peace sealing all nations and Israel, well, ...your shit will either be in the wind or you will be ready to rise in agreement with mercy. 

...divest securely, Bitchez. http://www.youtube.com/watch?v=7Jr-2eyRtV4

 

Wed, 01/11/2012 - 08:40 | Link to Comment Construct
Construct's picture

Everybody with a brain knows that EU and EMU is doomed. Everybody now knows that it has and will lead to low growth with no jobs. Everybody knows that EU has ruined every opportunity they did have. It's just a question of time before it falls apart. My entire aim and focus right now is to just get out. So I can pick up the tarnished pieces of my life and start over. It is a serious tragedy what has been going on under the EU Dictator Reinfeldt of Sweden.

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