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IIF's Doomsday Memorandum Revealed: Disorderly Greek Default To Cost Over €1 Trillion

Tyler Durden's picture




 

While everyone was busy ruminating on how little impact a Greek default would have on the global economy, the IIF - the syndicate of banks dedicated to the perpetuation of the status quo - was busy doing precisely the opposite. In a Confidential Staff Note that was making the rounds in the past 2 weeks titled "Implications of a Disorderly Greek Default and Euro Exit" the IIF was doing its best Hank Paulson imitation in an attempt to scare the Bejeezus out of potential hold outs everywhere, by "quantifying" the impact form a Greek failure. The end result: "It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed €1 trillion."  In other words, hold out at your own peril. Of course, what the IIF does not understand, is that for hedge funds it is precisely this kind of systemic nuisance value that makes holding out that much more valuable, as they understand all too well that they have all the cards on the table. And while a Greek default could be delayed even if full PSI was not attained by Thursday, it would simply make paying off the holdouts the cheapest cost strategy for the IIF, for Europe and for the world's banks. Unless of course, the IIF is bluffing, in which case the memorandum is not worth its weight in 2020 US Treasurys.

Some highlights from the report:

First, "quantifying" the fallout from a disorderly default, based on the one thing that everyone always forgets (as was the case in Bank of America)- contingent liabilities:

  • Direct losses on Greek debt holdings (€73 billion) that would probably result from a generalized default on Greek debt (owed to both private and public sector creditors);
  • Sizeable potential losses by the ECB: we estimate that ECB exposure to Greece (€177 billion) is over 200% of the ECB’s capital base;
  • The likely need to provide substantial additional support to both Portugal and Ireland (government and well as banks) to convince market participants that these countries were indeed fully insulated from Greece (possibly a combined €380 billion over a 5 year horizon);
  • The likely need to provide substantial support to Spain and Italy to stem contagion there (possibly another €350 billion of combined support from the EFSF/ESM and IMF);
  • The ECB would be directly damaged by a Greek default, but would come under pressure to significantly expand its SMP (currently €219 billion) to support sovereign debt markets;
  • There would be sizeable bank recapitalization costs, which could easily be €160 billion. Private investors would be very leery to provide additional equity, thus leaving governments with the choice of either funding the equity themselves, or seeing banks achieve improved ratios through even sharper deleveraging;
  • There would be lost tax revenues from weaker Euro Area growth and higher interest payments from higher debt levels implied in providing additional lending;
  • There would be lower tax revenues resulting from lower global growth. The global growth implications of a disorderly default are, ex ante, hard to quantify.
  • Lehman Brothers was far smaller than Greece and its demise was supposedly well anticipated. It is very hard to be confident about how producers and consumers in the Euro Area and beyond will respond when such an extreme event as a disorderly sovereign default occurs.

A disorderly default, which would happen if hedge funds refuse to comply with the coercive exchange offer, means game over for Greece:

Given these financial traumas, it is difficult to conceive that Greece can remain a functioning member of the Euro Area in the event of a disorderly default. The Greek authorities would have little option but to regain monetary policy independence by exiting from the Euro Area and introducing a new national currency.

 

The practical difficulties, costs (both for the government and the private businesses in terms of switching to a new payments system) and implications of such a rushed decision would be substantial. Practical difficulties in day-to-day transactions would be serious as there would be no easy way to separate the Euro notes circulating in Greece from those circulating in other Euro Area countries, with a potential for further capital flight. There would also be major difficulties/challenges in sorting out the appropriate re-denomination and valuation of existing financial assets and liabilities in current private and public sector balance sheets, in different jurisdictions.

 

In the circumstances, the Greek authorities would be forced to resort to borrowing from the Bank of Greece to cover budget spending, recapitalize the Greek commercial banks (which would be de facto nationalized) and put in place minimum facilities for the provision of credit to the private sector. The risk of embarking on a vicious circle of inflation and devaluation would be significant. Draconian capital controls would almost certainly be re-introduced.

 

The issue of whether Greece can remain in the European Union after defaulting and leaving the Euro Area is not clear-cut. The likely imposition of capital controls and possible inability to honor other EU laws and directives would raise important questions.

 

The Lisbon Treaty, in force since 2009, introduced an EU exit clause, but does not provide for an exit from the Euro Area. The European  Commission has confirmed that there was no provision under EU treaties to exit the Euro without also leaving the EU. In any event, leaving the EA/EU would mean negotiating Treaty changes––essentially negotiating Greece’s disengagement from a vast web of privileges and obligations with all other Treaty members who will have to agree with the changes. This will be a lengthy and messy process, during which financial markets will be driven by panic capital flights spreading contagion to the rest of Europe and the global economy.

Of course, Greece would not be dragged into the abyss alone:

Investors experiencing a traumatic loss in value on their Greek holdings are far more likely to be conservative in their assessment about whether such this might occur in the case of other countries.

 

Problems in Greece spread to Ireland and Portugal in 2010-11, leading the European authorities to assemble large programs to take all three countries out of the market through 2012. The obvious focus will be on whether a second round of contagion might spread.

 

One issue that should be emphasized is that in the circumstances of a disorderly default, the problem of contagion results not so much from the breakdown in trust that creditors have about debtors, so much as the breakdown in trust that creditors have about each other.

 

Greece has delivered on many fronts, but has failed on others; other peripheral countries started with fewer problems and have delivered more on a broader array of fronts, including those of key structural adjustments. These efforts are liable to overwhelmed, however, in an environment where investors become once more focused not so much on the return on their investment, as the return of their investment.

 

Despite bold efforts by the government, contagion would likely be most acute in the case of Portugal, which lost financial market access in early 2011, is already rated well below investment grade by the major agencies, and whose debt currently trades at distressed yield levels. It might then quickly spread to Ireland, Italy and Spain (the latter two continue to roll over their debt in financial markets, but have seen their yields remain elevated despite some decline). Italian and Spanish banks have become far more dependent on ECB funding in recent months.

Portugal would be next:

The adverse shock for Portugal, which has to implement a particularly ambitious fiscal adjustment this year against the backdrop of a much weaker growth outlook, will be particularly strong. Indeed, the recent sharp increase in government bond spreads suggests that markets are already concerned about possible fallout from Greece. A disorderly Greek default is likely to prevent Portuguese borrowers form returning to capital markets any time soon. If, by way of illustration, it is assumed that Portugal is unable to access markets through 2016, then official lenders would be required to:

  • Provide €16 billion annually in financing to the government from 2013 through 2016, or €65 billion in total;
  • Help assure that €77 billion of term funding is available through 2016, or about €15 billion a year from 2012 through 2016, together with the  refinancing for some €86 billion in short-term credit to fulfill the obligations of Portuguese banks and corporates to foreign lenders;
  • Help assure financing sufficient to manage some €330 billion in debt owed by Portuguese corporates and households to domestic banks, 7 percent of which are nonperforming, and some €220 billion owed by Portuguese banks and corporates to foreign lenders. (Relative to GDP, these exposures amount to 194 percent and 129 percent, respectively.)

Next would be Ireland, Spain, Italy and so on (full details inside the memo). But the biggest risk as all know, is the ECB, the European Banking System, and finally the Fed itself.

Prominent among the broader implications of a disorderly Greek default and Euro Area exit would be the additional capital requirements that markets and supervisors could be expected to place on European banks as a result of both actual and potential losses resulting from the asset prices declines and credit losses that would follow from a disorderly default.

 

Rough calculations assuming the need to offset increases in yields of 300 basis points on Spanish and Italian debt would indicate a need for an additional €100-€110 billion of capital for the larger banks covered by EBA stress tests. Factoring in the effects of further/renewed declines in Portuguese and Irish bond prices (to 20 percent of par) would add another €25-€30 billion in capital needs. Assuming as well increases in yields on French and Belgian bonds could result in a further €20-€25 billion of needs. Taking these together, the additonal sovereign buffer requirement could total nearly €160 billion. This would be four times the roughly €40 billion in sovereign exposure buffers the EBA required in its October 2011 recapitalization exercise.

 

Leaving aside the considerable additional capital that would be needed to provide for the increase in nonperforming loans that could be expected to result from a renewed weakening of activity across the Euro Area, these more expensive sovereign buffers to be met either by raising additional capital of this magnitude from private markets or from additional capital injections by Euro Area governments.

 

The latter would add directly further to government debt and potentially to the deficit, depending on the precise form of capital support. If, one the other hand, the bulk is to be raised in private markets, then recent evidence suggests that this would likely result in accelerated credit deleveraging, which would have a substantial further adverse effect on Euro Area economic activity. In turn, this would further weaken government revenue in a
vicious circle.

Next: global trade would implode:

The Euro Area accounts for about 19% of the world economy. If the loss in Euro Area GDP were to have a multiplier effect on the rest of the world of a similar proportion, then each percentage point lost in Euro Area GDP would translate into an income loss elsewhere of about €90 billion.

These ripples would spread beyond the Euro Area through two key transmission mechanisms:

  • There would be a direct hit to global aggregate demand and trade flows. The Euro Area accounts for about 26% of world trade. Countries closer to the Euro Area -- including the Eastern and Central Europe, the United Kingdom and the Nordic countries -- would be most affected, but the ripples would be far more widespread than that. Importantly, it should be noted that exports to the Euro Area account for about 4% of China’s GDP and about 2% of GDP for both India and Brazil. The US and Japan are less exposed to this direct trade channel (exports to the Euro Area account for about 1% of GDP in both cases).
  • Financial linkages are potentially more powerful, especially since market developments since the onset of the crisis in 2007 have highlighted a propensity for “runs” to occur on a scale and at a pace that had previously been unimagined. Many policy makers incorrectly believed that the fallout from a Lehman bankruptcy would be contained, since markets had been apparently pricing in a significant default risk well ahead of the actual event.

The conclusion: sign the dotted line you evil hedge fund, or the wrath of the world will fall upon your shoulders:

Deliberations now about providing the additional official funding needed to facilitate an orderly restructuring of Greek debt are understandable given the large upfront outlays – €60 billion for bank recapitalization and credit enhancements – needed to secure €100 billion of nominal debt reduction, the large interest savings – on the order of €7-8 billion a year initially – that would result from the proposed bond exchange with private sector creditors. Together with this large effective interest subsidy, the reprofiling and lengthening of maturities on the new bonds to 30 years would help lay the basis for renewed growth.

 

Catastrophic bankruptcy, however, would put at grave risk much of what has been achieved by Greece since 2009. Social strains would intensify as the economy reeled and unemployment surged from an elevated level already in excess of 20 percent. Living standards would collapse with economic activity and the further diminution of the Greek state’s ability to provide basic social services and support. Against this backdrop, it would become more difficult -- not less --to build the political consensus needed to free the economy, the government and the society from vested interests that deeper crisis would more firmly entrench. Whatever its economic benefits, a sharply depreciated “new” drachma under these circumstances would assure that the costs of adjustment, now greatly increased, would be distributed even more unevenly than at present.

 

Europe, too, would take a considerable step backwards, not just because of the considerable additional financial costs that look likely to result from intensified contagion and inadequate firewalls. Europe’s governments and its core institutions, the ECB in particular, would incur enormous financial losses not four years removed from the large but more limited ones incurred in the wake of the Lehman crisis. Tightened fiscal rules would prove still more constraining to growth, employment and living standards under the strains of the additional resources needed to recapitalize banks and  the ECB and as a result of the revenue foregone as activity contracts. Sitting governments would be hard pressed to convince electorates that their mandates should be extended.

So... what was it about hedge funds not having the upper hand again?

Full memorandum of mutual aassured destruction handed out to every hold out hedge fund with gusto.

 

 

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Mon, 03/05/2012 - 10:18 | 2223711 Moneyswirth
Moneyswirth's picture

Opa!

Mon, 03/05/2012 - 10:23 | 2223724 GetZeeGold
GetZeeGold's picture

 

 

Surprise, surprise, surprise!

http://www.youtube.com/watch?v=J6_1Pw1xm9U

 

 

Mon, 03/05/2012 - 10:32 | 2223746 Joshua Falken
Joshua Falken's picture

The Institute of International Finance, Inc. (IIF), is the world’s only global association of financial institutions. 

 

The US$1 trillion they are talking about is a mostly 50% inflated hogwash of the cost to its members of taking the Haircut they should have already taken and porobably have priced in for making a bad investment.

 

THAT IS CAPITALISM - YOU TAKE THE LOSS FOR A BAD INVESTMENT 

Unless you can get captive politicians to rule in your favour and make whole what is actually thin air.

 

IIF = a bigger kleptocracy than Putin 

Mon, 03/05/2012 - 10:35 | 2223749 Pinch
Pinch's picture

THAT IS CAPITALISM - YOU TAKE THE LOSS FOR A BAD INVESTMENT

Not anymore. "We'll never let it happen again, Uncle Milton"

Mon, 03/05/2012 - 10:45 | 2223760 GetZeeGold
GetZeeGold's picture

 

 

Playing golf changed Hank Paulsen's life......sooooo......you call that a mulligan?

 

....never would have thought of that!

 

 

Mon, 03/05/2012 - 10:57 | 2223794 Badabing
Badabing's picture

The IIF is made up of the biggest investment banks in the world. The same investment banks that would take a beating for the bad bets they made on Greek bonds. It is possible that these same banks may have a biased opinion on the outcome of this slow motion train wreck, and not want to take there medicine as it where. A common ploy is scare tactics. The IIF is based in Washington DC, most people think the IIF is European but it is the World banks, the same banks that have the western world by the nuts.

Mon, 03/05/2012 - 11:06 | 2223823 Popo
Popo's picture

While this is absolutely true, one must also note that the 1 Trillion "scare number" is actually on the low-side.  Why?  Because without significant structural changes to the banking system, they will of course incur future losses at exactly the same rate as they are incurring current losses.  

The very business model of modern banking is to deeply integrate the banking system with the general economy, and then to feign surprise and milk the serfs for bailout capital when the intended/predictable defaults occur.

There will of course be bailouts in perpetuity until something is changed at a deep structural level -- something we have yet to see even suggested.

Mon, 03/05/2012 - 11:36 | 2223932 msamour
msamour's picture

This change is called a rope and a lamp post. A smart man will be selling boiled ropes, and guillotines on wall street when the SHTF. I'd be selling my ropes for silver rounds of course...

Mon, 03/05/2012 - 10:39 | 2223755 redpill
redpill's picture

It's significant that they had to get this point, essentially begging private investors to voluntarily agree to not getting what they are owed.  Of course there are plenty of scare tactics involved, they want to ensure the banks get saved again while incrementally transferring the bad debt to the public sector via the ECB, IMF, whatever it takes. 

It would be great to watch them get the finger and have the holdouts remain firm, tell them to go screw themselves.  But I don't think one should underestimate the scale of pressure that could truly be put on these holdouts.  If this sort of public pleading doesn't work, the private demands are going to become increasingly dire.  I believe they will cave in the end.

Mon, 03/05/2012 - 11:00 | 2223805 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Mmmm, as a hedge fund holding Greek bonds here are my options:

1. Agree to the coercive swap, get wiped out.

2. Disagree to the swap and get a potential payout where I can then retire to a Greek island of choice bought by me.

What would you do? Hint, screw the banksters.

Mon, 03/05/2012 - 11:16 | 2223858 LawsofPhysics
LawsofPhysics's picture

My sense is that the V.C. funds are thinking the same thing.  I know two guys with well-fortified estates in Barbados already.  If this is correct, my only question is who gets the gold in the vaults of all the banks, like JPM?

Mon, 03/05/2012 - 11:20 | 2223877 goldfish1
goldfish1's picture

who gets the gold in the vaults of all the banks, like JPM?

 

Why do you think they have any gold?

Mon, 03/05/2012 - 11:44 | 2223956 LawsofPhysics
LawsofPhysics's picture

One of the reason that JPM "re-hypothecated" the gold and silver in their vaults that belonged to clients of MF-Global was because it is very hard to break up and distrube these gold and silver bars.  ZH and many other people have already covered this.  JPM has always been willing to lease PMs, but never sell.

Look at JPM history over the last 150 years.  Look at what they have done, they have always been buyers of physical PMs.  J.P. Morgan himself said it best "Gold is money, everything else is credit".  He who has the gold makes the rules and unless you think there is about to be a military take-over of JPM then the song remains the same, hedge accordingly.

Mon, 03/05/2012 - 11:20 | 2223875 redpill
redpill's picture

1. Agree, get wiped out, survive.

2. Disagree, get Breitbarted.

Now what would you do?

Mon, 03/05/2012 - 11:25 | 2223897 prains
prains's picture

is this the part where the MSM starts to leak reports that XYZ hedge fund is developing nuclear weapons and needs to be eliminated

Mon, 03/05/2012 - 11:30 | 2223911 redpill
redpill's picture

Hedge fund is just another word for terrorist.  If you see something, say something.

Mon, 03/05/2012 - 11:41 | 2223948 prains
prains's picture

Iceland's former Prime Minister to go on trial today for bankrupting his country. GO ICELAND

 

Moscovites in the streets today to protest Putin's election, 12000 troops on hand. GO MOSCOW

Mon, 03/05/2012 - 11:19 | 2223873 goldfish1
goldfish1's picture

Capitalism is out. Kleptocracy is in.

 

 

Mon, 03/05/2012 - 12:09 | 2224038 Whoa Dammit
Whoa Dammit's picture

Default anyway you fuckers!!!

I am tired of everything except the common people being TBTF.

I don't want to spend the rest of my life paying for some rich shit heads who caused this problem to remain rich, while I have to work for peanuts and live like the peasants did in the former Soviet Union.

Enough already!!!

 

Mon, 03/05/2012 - 11:09 | 2223778 Banksters
Banksters's picture

I love the smell of Napalm in  the morning.   It smells like... Victory.

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

 

Some day this wars gonna end.

Mon, 03/05/2012 - 12:02 | 2224025 battle axe
battle axe's picture

Death by a thousand cuts, Greece just DEFAULT, get it over with......

Mon, 03/05/2012 - 10:20 | 2223716 ebworthen
ebworthen's picture

"Contingent liabilities" that will be once again foisted onto the backs of the hapless citizens suffering under the yoke of the Kleptoligarchs.

Mon, 03/05/2012 - 10:28 | 2223735 mayhem_korner
mayhem_korner's picture

 

 

Like "collateral damage" in wars.

Mon, 03/05/2012 - 10:54 | 2223786 JPM Hater001
JPM Hater001's picture

In fairness the real collateral damage would be to any nation NOT swimming in 100% Debt/GDP.  Everyone else is just a bomb placed in different geographic locations.

Mon, 03/05/2012 - 10:20 | 2223717 Moneyswirth
Moneyswirth's picture

Reuters released a news analysis piece on this.  Said that a Greek default would be a harbinger of good times ahead.

Mon, 03/05/2012 - 11:29 | 2223907 goldfish1
goldfish1's picture

Jim Willie sez:

"No solution exists for Greece without liquidation of their debt, its restructure with huge writedowns if not total wipeout loss, a return to the Drachma currency, recapitalization of their banks, and a hands off to carpetbaggers. Almost none of these measures will be done, except blockage of the foreigners intending to exploit. Talk is clear about a 70% bond haircut, which does not seem enough even though it is brutal."

 

http://webabuser.blogspot.com/2012/02/jim-willie-herding-greek-cats-from...

Mon, 03/05/2012 - 10:21 | 2223718 Nussi34
Nussi34's picture

Keeping Greece in the Euro would be even more expensive!

Mon, 03/05/2012 - 10:29 | 2223720 SheepDog-One
SheepDog-One's picture

Really its all just the longest ongoing game of 'Not It' in history.

Mon, 03/05/2012 - 10:22 | 2223721 Marge N. Callz
Marge N. Callz's picture

So this is bullish right?

Mon, 03/05/2012 - 10:23 | 2223723 Dermasolarapate...
Dermasolarapaterraphatrima's picture

Scare tactics ( a la Hank Paulson) are so much more conducive to convincing the Sheeples the world will end unless banks get their bonuses...oops, I mean the financial system is saved.

Mon, 03/05/2012 - 10:44 | 2223768 Shibumi2
Shibumi2's picture

I agree with you Derma.

This whole euro/greek bailout saga smells like bullshit. This mopes analysis is weak and predicated on a whole lot of nothing. "Maybe this" and "might that" isn't tradeable.

 

The Rothschild family made a fortune creating and spreading false rumors. This whole "global financial crisis" looks like nothing more that "weak hands" noise to me...and I ain't playing.

 

Mon, 03/05/2012 - 10:29 | 2223729 williambanzai7
williambanzai7's picture

So you see, there is no such thing a risk that is not systemic. The world is a giant debt bomb and the banks have the detonator.

Mon, 03/05/2012 - 10:39 | 2223756 i-dog
Mon, 03/05/2012 - 10:27 | 2223731 mayhem_korner
mayhem_korner's picture

 

 

This memo does not meet the specifications of a "bright, shiny, object" per page 4 of the MSM procedures manual.  Please get back to lining up talking heads for the 8.1% UE rate print that is forthcoming.  That is all.

Mon, 03/05/2012 - 10:28 | 2223734 Stoploss
Stoploss's picture

But, but the country is only the size of Delaware?!?!?   LOLOL!!!

Mon, 03/05/2012 - 10:29 | 2223736 LawsofPhysics
LawsofPhysics's picture

So does this mean that the world should be recieving a "paulson letter" soon?  Basically, give the paper-pushers want they want or they will commit financial acts of terror.  fuck the paper-pushers.  Got physical?

Mon, 03/05/2012 - 10:31 | 2223741 SheepDog-One
SheepDog-One's picture

I dont think any of it will be relevant real soon, the central banking fuktards ahve already bought every govt bond and stock in sight for free...safe to pull the rug out any day now. 

Mon, 03/05/2012 - 10:29 | 2223737 Stoploss
Stoploss's picture

And their debt is the size of Neptune!!

Mon, 03/05/2012 - 10:29 | 2223738 Caggge
Caggge's picture

So, the options for the Greek people are accept the deal and you will be slaves for the rest of your life or give them the finger and default and you will be slaves for the rest of your life and the international bankers will have to sell a couple Cadillacs. Let me know when option 3 surfaces. Option number 2 and the bankers have to sell all their cars and take the bus to work.

Mon, 03/05/2012 - 10:30 | 2223739 Comay Mierda
Comay Mierda's picture

please please please tax me to pay banker bonuses when the SHTF.  they are doing god's work

Mon, 03/05/2012 - 10:30 | 2223740 Hugo Chavez
Hugo Chavez's picture

I dunno.

I prefer the rule of law and all bondholders be treated equally.

It is not fair that certain institutions, not just greek pension funds and the ecb, be exempt from losses.

Complete and pure hypocrisy is the primary thing I see here. Go get 'em hedge funds. Make them default or play fair with everyone.

Mon, 03/05/2012 - 10:31 | 2223743 Moneyswirth
Moneyswirth's picture

Europe’s governments and its core institutions, the ECB in particular, would incur enormous financial losses not four years removed from the large but more limited ones incurred in the wake of the Lehman crisis.

Sucks to be you, oligarch douchebags.  I won't be shedding a tear

 

Mon, 03/05/2012 - 10:35 | 2223747 Long-John-Silver
Long-John-Silver's picture

Falling doesn't hurt, that happens when you hit the ground. Only now do they see the ground rushing up to meet them.

Mon, 03/05/2012 - 10:35 | 2223748 Moneyswirth
Moneyswirth's picture

Jamaica-mon wants a piece of the shit-pie:

“If they could give a bailout like Greece, lord have mercy, you would see Jamaica grow and flourish,” Simpson Miller, 66, said in an interview yesterday in Montego Bay. “The European countries got together and tried to do something so that they can give some serious aid to Greece. We know we would never be able to get the same level as Greece, but if we could get some consideration from countries or the IMF, we would be on our way.”

Free money for everyone! It's raining worthless paper! Whee!!

Mon, 03/05/2012 - 11:35 | 2223928 goldfish1
goldfish1's picture

Free money for everyone! It's raining worthless paper! Whee!!

 

Musical chairs, the exteme version.

Mon, 03/05/2012 - 10:38 | 2223752 SheepDog-One
SheepDog-One's picture

Never fear, I'm sure the PSI numbers due out this morning will be 'highly bullshit' and give the phony indexes a nice boner, and so on we go in fantasy land.

Mon, 03/05/2012 - 10:58 | 2223754 Mercury
Mercury's picture

Page 2: This note does not address the circumstances triggering a disorderly default by Greece on its public debt obligations, but rather the consequences of such a development,…

So, you won't even define the terms and conditions that must be avoided to prevent civilization from collapsing? We'll just take your word for it and do what you say?

Does CDS trigger = a disorderly Greek default in your book?  

One could certainly argue that voiding contracts and steamrolloing the rule of law = disorder...and would lead to its own set of unpleasant consequences.

Mon, 03/05/2012 - 10:39 | 2223757 flyonmywall
flyonmywall's picture

There are way too many headlines on this. This is the setup. Be careful of the one-two punch.

But, I liked the line in there about how exposure to Greece is over 200% of the ECB's capital base. What capital base fuckers? It's all printed or digitally created money.

 

Mon, 03/05/2012 - 10:40 | 2223759 eddiebe
eddiebe's picture

Tylers, I'm asking you to do me in particular and some others that may be a bit challenged in this regard to state clearly what abbreviations in your articles stand for. Especially what I would consider the more obscure ones. Most of us will know what GDP or EU stand for, but I don't know what IIF or SMP for example stand for. Thanks

Mon, 03/05/2012 - 11:17 | 2223864 WonderDawg
WonderDawg's picture

Google is awesome, it even works for lazy people.

Mon, 03/05/2012 - 13:18 | 2224287 viahj
viahj's picture

no need to be a jerk with someone trying to learn, simply point out that ZH has a glossary link at the top

Mon, 03/05/2012 - 12:19 | 2224066 NotApplicable
NotApplicable's picture

Immediate If

Mon, 03/05/2012 - 10:41 | 2223763 The trend is yo...
The trend is your friend's picture

I would like to see ONE just ONE of these Banker's/ Prime Minister's/ Fin ministers/ceo/cfo....take it on the chin. 

Mon, 03/05/2012 - 10:42 | 2223767 Fastback
Fastback's picture

What a BUNCH OF WHINERS! Hey IIF, now whose fault is it that Greece is in the postion it's in .........WAH, WAH. WAH!

Mon, 03/05/2012 - 10:44 | 2223769 undercover brother
undercover brother's picture

What they really mean is it will cost USD 1.322 Trillion.  

Mon, 03/05/2012 - 10:44 | 2223771 Howdan
Howdan's picture

Let;s stop kidding ourselves shall we? By this time on Thursday (and March 20th D-Day) it will blatantly be "Oh, is that the can I hear being kicked down the road again".

Same old bullshit people, same old same old.

Can will be kicked, markets will rise ("...On Greece optimism"), shorts will be squeezed, fatcat bankers and politicians will have another summit and we will go on living this insanity ad infinitum.

Welcome to Greecehog Day people.

Mon, 03/05/2012 - 11:09 | 2223835 scatterbrains
scatterbrains's picture

Or at least they'll pump IBM/AAPL..  they made need to pump doubles from here out of both of these in order to keep the RUT2k from being cut in half with energy, Iran and earnings (Not that that matters) etc.

Mon, 03/05/2012 - 11:30 | 2223912 SmoothCoolSmoke
SmoothCoolSmoke's picture

Spot on. 

When will we stop hoping about "fixed" votes going against the Banksters?  Reminds me of the guy who goes to the "Secreteriat" 10 times and the 10th time bets a guy next to him the the horse does not win the Triple Crown.  He loses and shakes his head mumbling "Dang, I didn't think any horse could win the Belmont 10  times in a row!"

Mon, 03/05/2012 - 11:50 | 2223972 goldfish1
goldfish1's picture

Jim Willie sez:

"No action at all on devaluation, since removal from the Euro currency umbilical would mean enormous debt writeoffs for the major European banks. This is the same obstructive dynamic at work in the United States. Greece needs to go back to the Drachma, devalue it by 30% or more, and enjoy some stimulus. Their list of export items is not in great volume. The austerity budgets are the exact opposite of stimulus. Lunacy has taken root, like with an entire class of public contract workers must work for no pay. The power center of the big banks prevents solutions. So the next phase will be full of risk and intrigue, if not treachery."

My guess is the can is kicked until the gold is taken from Greece.

Mon, 03/05/2012 - 20:39 | 2226278 StychoKiller
StychoKiller's picture

Some cynical bastid on this site is gonna be right, I just hope it's not you!

Mon, 03/05/2012 - 10:49 | 2223774 Zero Govt
Zero Govt's picture

it's a Wank Paulson special... peddle a tragedy the financial system will collapse when what you're really doing is covering over The Parasite Clubs mistakes and protecting (bailing out) their asset base

in this game of Rape the Sovereigns the elite don't lose money, only taxpayers, goddit?

Mon, 03/05/2012 - 10:53 | 2223784 HD
HD's picture

Well, at least this time no one has to go down on their knees for Pelosi. Last time it made John Boehner so jealous he cried orange tears...

Mon, 03/05/2012 - 10:55 | 2223790 rsnoble
rsnoble's picture

So how long is the DOW going to flatline at 13k? Something has to give one way or another soon.  I'll just shit if it's to the upside.  Generally after 7 days of linear action it fails and goes down. So that means the next phase of the bullmarket is probably coming, lol. What a crock of shit.

Mon, 03/05/2012 - 11:06 | 2223820 HD
HD's picture

I honestly don't know how it could break to the upside here, money printing or not. Of course, maybe I just have tunnel vision as I'm talking my book. I'm betting we get at least a 10% correction in the next few weeks. I honestly don't believe they want it to go parabolic now - because the crash will happen closer to election day.

Mon, 03/05/2012 - 11:52 | 2223980 goldfish1
goldfish1's picture

I honestly don't know how it could break to the upside here, money printing or not.

Keep up. Headlines last week: The foreign central banks are buying stocks.

Mon, 03/05/2012 - 12:53 | 2224198 HD
HD's picture

...and already taking losses.

Mon, 03/05/2012 - 11:10 | 2223802 tarsubil
tarsubil's picture

Here is a video of the situation the world faces. Money velocity is the temp (as it goes down the system becomes supersaturated) and the dollar serves as the world reserve currency therefore we are all in the same flask. The monetary base is the water or solvent, debt is the sodium acetate or solute, and the added crystal is any imaginable black swan. They are attempting to block off the Greek portion of the flask. Good luck with that. If you've ever tried to add water to a flask where the solute is precipitating, you understand how messy this is going to get.

Stockman was right when commenting on how fragile this monetary system has become. 

Mon, 03/05/2012 - 12:42 | 2224144 MsCreant
MsCreant's picture

Metaphor did not work for me. Isn't the added crystal sodium acetate? If that is right, then adding the crystal is adding debt, not a black swan. 

Black swans are not supposed to be something imaginable.

I do see the point you are making about contagion though. There is no fence you can build around it, it will transform the whole substrate.

Mon, 03/05/2012 - 13:34 | 2224345 tarsubil
tarsubil's picture

The crystal really represents default when debt precipitates. It leads to a cascade.

Mon, 03/05/2012 - 15:10 | 2224782 MsCreant
MsCreant's picture

AH!! My brain can work with that. Thanks.

Mon, 03/05/2012 - 11:02 | 2223810 kito
kito's picture

nothing disorderly will happen this year. not in an election year for all the usual suspects. 2013 is when the fun begins.......

Mon, 03/05/2012 - 11:20 | 2223876 WonderDawg
WonderDawg's picture

Right, because nothing happened in the last presidential election year of 2008.

Mon, 03/05/2012 - 11:25 | 2223891 tarsubil
tarsubil's picture

Don't worry. Everything is under control. /sarc

Honestly? How can anyone think that at this point?

Mon, 03/05/2012 - 11:41 | 2223950 lizzy36
lizzy36's picture

This time is different ;)

Mon, 03/05/2012 - 11:09 | 2223833 marketblip
marketblip's picture

looks like PSI involvement could be higher than 85%, default averted?

www.marketblip.com

 

Mon, 03/05/2012 - 11:11 | 2223834 kaiten
kaiten's picture

€1 trillion? That would be LTRO3 + LTRO4 in central bankers language, right?

Mon, 03/05/2012 - 11:13 | 2223850 The Swedish Chef
The Swedish Chef's picture

If Greece doens´t default it´s going to cost European tax payers a trillion so get it over with.

Mon, 03/05/2012 - 11:20 | 2223874 AN0NYM0US
AN0NYM0US's picture
Does your organization have to be a bank to join the Institute?

No. Membership in the Institute is open to a wide variety of global organizations with interests in international finance and emerging markets. Membership is also open to non-banks such as:

  • Securities firms
  • Banking associations
  • Fund managers
  • Law firms
  • Multinational companies
  • Stock exchanges
  • Trading companies
  • Central banks
  • Advisory firms
  • Rating agencies
  • Multilateral agencies
  • National agencies
What are the steps to become a member of the Institute?

Complete the membership information request form and submit the form to the Institute's membership team.

 

http://www.iif.com/download.php?id=v1mCg54envc=

Mon, 03/05/2012 - 11:28 | 2223903 Badabing
Badabing's picture

Hey Anon, TBTF are all this stuff In one monopoly.

  • Securities firms
  • Banking associations
  • Fund managers
  • Law firms
  • Multinational companies
  • Stock exchanges
  • Trading companies
  • Central banks
  • Advisory firms
  • Rating agencies
  • Multilateral agencies
  • National agencies
Mon, 03/05/2012 - 11:22 | 2223881 Bastiat009
Bastiat009's picture

The end of the euro will kill gold ... well, that's what bankers think at least. I have yet to see the market react otherwise. This is somewhat concerning though. Not my opinion, just an observation.

Mon, 03/05/2012 - 11:29 | 2223908 Nobody For President
Nobody For President's picture

One 'solution' occured to me while reading this: 

Merge Portugal with Spain - Portugal becomes one of Spain's 'autonomous communities'; and the Eurocrats have one less country to ringfence, thou Spain would become a bit bigger of a problem...

Hey - it makes as much sense as anything else these asshats have come up with.

And the other bit in this IFF hit piece that struck me:

Catastrophic bankruptcy, however, would put at grave risk much of what has been achieved by Greece since 2009.

 

Ah, just what HAS been achieved by Greece since 2009, besides going a fuck of a lot deeper in debt and goosing the unemployment rate by 5% or so? Whichever member of the committee that wrote this piece missed his calling as a comedian.

Mon, 03/05/2012 - 11:31 | 2223917 asteroids
asteroids's picture

These jokers have such a short time frame. Greece was there 2000 years ago, it'll be there 2,000 years from today.

Mon, 03/05/2012 - 11:33 | 2223921 Watson
Watson's picture

Tyler,

Can you post a link to the IIF report in pdf?

Thanks,
Watson

Mon, 03/05/2012 - 11:34 | 2223926 Stuck on Zero
Stuck on Zero's picture

A new take on the Greek debt crisis.  Oil and gas discovered in a huge reserves off the Greek coast:

Tulane University oil expert David Hynes told an audience in Athens recently that Greece could potentially solve its entire public debt crisis through development of its new-found gas and oil. He conservatively estimates that exploitation of the reserves already discovered could bring the country more than €302 billion over 25 years. The Greek government instead has just been forced to agree to huge government layoffs, wage cuts and pension cuts to get access to a second EU and IMF loan that will only drive the country deeper into an economic decline.

 

(http://www.321energy.com/editorials/engdahl/engdahl030612.html)

 

 

Mon, 03/05/2012 - 11:36 | 2223934 rsnoble
rsnoble's picture

Someone please explain todays main headline and sub headline to me:

"U.S. service companies expanded in February at the fastest pace in a year, helped by increased demand for new orders and growth in hiring."

And ....."January factory orders fall most in over a year"

Maybe the new orders are for fast food since the unemployed can no longer afford to eat healthy and fast food is also the one doing the hiring.

Mon, 03/05/2012 - 11:38 | 2223942 oogs66
oogs66's picture

Seems like BS and maybe they should give Greece a much better deal if a default costs the banks and central banks a trillion?

Such BS, so sick of it. The real number that scares them is about 10 billion of bankers bonuses over the next couple of years that would go up in smoke.

Mon, 03/05/2012 - 11:39 | 2223943 boiltherich
boiltherich's picture

And what does the memo say about the cost of an orderly default?  Or the cost of kicking the can for years and then default?  The costs are what the cost were always going to be as a consequence for the silly one size fits all monetary policy that is the eurozone.  My only real problem with this report is that understates the real costs and does not say forcefully that the cheapest and best long-term outcome is the liquidation and destruction of the euro now. 

Mon, 03/05/2012 - 11:40 | 2223946 rsnoble
rsnoble's picture

I guess every order in fast food is a new order. LMAO.

Anyone care to take bets if the market recovers all it's losses by eod? That would be monumental if it didn't and we don't have a big btfd wave come tommorow. I'm wondering if those in gold aren't smarter than the equity pigs and seen this coming and started exiting beforehand? Nothing to get excited about just yet.

Mon, 03/05/2012 - 11:40 | 2223947 Dorky
Dorky's picture

Sounds more like a potential $1 trillion+++ bailout.

Mon, 03/05/2012 - 11:44 | 2223954 Dorky
Dorky's picture

Greece? I understand there is one state in the US that is as worse as Greece but never get mentioned in the media.

Mon, 03/05/2012 - 11:45 | 2223958 jmcadg
jmcadg's picture

So the IIF have set the bar for the value of a hold out €1 trillion.

If hedge funds bonds are less than this amount at 100 cents on the euro/dollar, then they are better off paying off the holdouts? Or the CDS's kick in for a 100% pay off.

But no, they'd be better off taking a 70% haircut and bugger all afterwards!!!

What percentage of Greek bonds are held by hedge funds?

Mon, 03/05/2012 - 11:47 | 2223963 mark mchugh
mark mchugh's picture

But, but Jamie Dimon said....

Mon, 03/05/2012 - 11:50 | 2223970 mick_richfield
mick_richfield's picture

I wish I knew more about the CDS market.  I think that the declaration of a non-event for the Greek 75% 'haircut' is the same as declaring that all CDSs are meaningless.  I'm trying to figure out what that means down here on the ground.

If anyone has any thoughts, I'd be very happy to hear them.

Sorry, this post doesn't sound very much like Fight Club, does it? 

OK, then -- one more thing:  Anybody who disagrees with the opinion I will eventually form (I hope) is a troll and a fucktard!

Mon, 03/05/2012 - 11:56 | 2223976 falak pema
falak pema's picture

this report has been written by the guys that organise the London Olympics: don't spoil our fun. Default afterwards, we don't care. As long as the world hinges together thru the summer is all we are saying; give the big Wheel a chance to spin in the London sky! Ides of March is just not on!

IIF and IMF all add up to IGF or IZF; which ever you prefer. IGF = I greek fuk in September. IZF = I zillion fuk the Euro-USD in november. It all adds up to the same F.

Mon, 03/05/2012 - 11:55 | 2223988 goldfish1
goldfish1's picture
Greece looks set to default after all on Thursday

 

Fromhttp://webabuser.blogspot.com/2012/03/greece-looks-set-to-default-after-... Peter Cooper:

"Bankers are looking very unlikely to sign off a $227 million ‘voluntary’ bond swap this week that will leave them nursing more than 70 per cent losses on their Greek debts. That leaves the eurozone facing its first ever sovereign default on the deadline set for Thursday."

Mon, 03/05/2012 - 11:57 | 2223994 Catullus
Catullus's picture

Practical difficulties in day-to-day transactions would be serious as there would be no easy way to separate the Euro notes circulating in Greece from those circulating in other Euro Area countries, with a potential for further capital flight. There would also be major difficulties/challenges in sorting out the appropriate re-denomination and valuation of existing financial assets and liabilities in current private and public sector balance sheets, in different jurisdictions.

You don't know which bonds are Greek and which are someone else. Therefore all bonds go to junk. Sort of like how subprime mortgages were indistinguishable from prime mortgage bonds -- the mortgage bond market became illiquid.

Not to mention that if you hold assets in Greece, you would have to remark the books to whichever currency they move to.

Practically, they'd have to tell people that they're pegging the drachma, and break the peg as soon as they see fit to do so. All currency pegs fail eventually because governments break their promises, but they're still going to claim they have one.

Mon, 03/05/2012 - 12:00 | 2224016 TheSilverJournal
TheSilverJournal's picture

What the release of this memo shows is the importance of the bond holders accepting the deal, as well as the stage of desperation the money printers are at in making sure the pieces of paper they run off the printing press and the numbers they punch into the computer maintain value.

If in fact enough acceptance is failed to be gained on the bond deal by Thursday at 3:00p and silver takes a hit, it may make a great entry point to buy silver.

TheSilverJournal.com

Mon, 03/05/2012 - 12:02 | 2224023 cdskiller
cdskiller's picture

I think I just experienced tumescence.

"This will be a lengthy and messy process, during which financial markets will be driven by panic capital flights spreading contagion to the rest of Europe and the global economy."

Yeah, baby. Just like that.

"These ripples would spread...causing "runs" to occur on a scale and at a pace that had previously been unimaginable." 

Oh, my God. I think I love you. Now, if you want me to marry you, no contracts related to this crisis will be honored when it goes all disorderly. Just rip 'em up. Wipe out hedge funds and banks at the same time, baby, and let a new religion begin.

 

Mon, 03/05/2012 - 12:12 | 2224046 unununium
unununium's picture

The Greece round is already won -- by the bankers. They got away with introducing RETROACTIVE CAC's WITHOUT TRIGGERING CDS.

Now a holdout's choice is simply between not getting paid, and not getting paid while also destroying the world.

Mon, 03/05/2012 - 12:19 | 2224068 malek
malek's picture

Shills and fearmongers.

Now someone please tell us what cost the IIF calculated the (orderly?) default of Lehman Brothers really had?

Mon, 03/05/2012 - 12:21 | 2224075 gloogle
gloogle's picture

So, if the "memo" doesn't get the desired results, what next?  Do they send over Cleavon Little holding a gun to his own head, screaming "Do what he say!!  Do what he say!!"??

Mon, 03/05/2012 - 12:33 | 2224115 jmcadg
jmcadg's picture

What's €1 trillion between Central Wankers

Mon, 03/05/2012 - 12:50 | 2224187 Attitude_Check
Attitude_Check's picture

I tried Google translate on the file.  It autodetects Azerbajani (Not).  I told it to translate from Greek - fail.  So what exactly is this posted document?

Mon, 03/05/2012 - 12:53 | 2224190 MsCreant
MsCreant's picture

Isn't it something that we stayed afloat this long, after Nixon took us off the gold standard? We were bankrupt then. 

I think this is important to remember.

Until there are real shortages, the show goes on.

Mon, 03/05/2012 - 17:28 | 2225667 supermaxedout
supermaxedout's picture

The sword is hanging over the financial system.

The deadline looms. Looks like, that on Thursday we know a lot more.

Seems like there is no way out for the banks to take the hit from the Greek showdown. But the European banks have a lot of CDS to protect them from the fallout.  But the US banks guaranteeing for these CDS  do not want to pay because till now they announce, that they regard the 75% haircut not as as default triggering the CDS.

But such a behaviour would backfire worldwide  to all other banks relying on CDS protection to save their balance sheets from ugly or even deadly write-downs.   Because it is highly questionable, that the important auditing companies (PWC etc) are then willing and capable to continue to accept CDS as an insurance cover for ailing positions in the testified balance sheets of banks etc. . In my opinion they simply can not do it because  the guarantee or insurance of the CDS is simply not existing as we may see on Thursday.

Then it makes whoops or wwhosh or whatever and all the pretty well balanced balances of the financial institutions are sudenly out of balance.  It will then not anymore accepted by the auditors that a bank guarantee is accepted as an insurance except it is in combination with separated and tangible colloteral.  Without such colloteral all promises of the banks are worth nothing at all.

So whats left is a guarantee of the state. Since the ECB is not guaranteeing anything only the Fed is left to jump in, which would be justified since the big five US banks issued the overwhelming part of these CDS and made hefty profits while collecting the insurance fees for many years.  If the Fed does not do it, then a lot of banks are going broke but not all. I believe,  that the main European banks are prepared (in close collaboration with the ECB)  and have a good chance to survive this financial "schlachtfest".

So again its the decision whether the Fed prints more money or the system is collapsing. My best bet is, that the printing machines are already printing since weeks day and night to be prepared for the next cash infusion into the arm of the zombie-junkie-banks. Fortunately for him, Mr. Bernanke is capable nowadays to produce the needed green backs electronically - a few key strokes can do it maybe.  I wonder how long it would take to print 1 Trillion US Dollars in 100 bills with the existing printing machine park of the FED. One year ? Or longer ? Does anyone have an idea?

http://www.cbc.ca/news/business/story/2012/03/05/greece-private-debt-rel...

 

Tue, 03/06/2012 - 03:18 | 2227208 cnhedge
cnhedge's picture

 

they try to scare the investors.

 

http://www.jinrongbaike.com/

http://www.cnhedge.com/

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