Next Steps For Greece

Tyler Durden's picture


And so we are back to the same fiscal feudalism that Germany demanded, and the Greece refused weeks ago. We have been pondering the ECB bond swap 'news-story' and the market's reaction to this with incredulity. Our earlier discussion of the deal (here and here) pointed to the problems and now Peter Tchir explains how this debt swap is actually a step towards a Greek default (thanks to the removal of the CAC-encumberance within the ECB). It is also a large step towards colonization as the FT notes that the bailout terms will contain "unprecedented controls" on Athens. It is our earlier comments on the unintended consequence of this ECB action - that of explicitly subordinating all other sovereign bondholders in Europe, and that this would likely raise the very large specter of legal action by other Greek bondholders arguing the ECB has received unfair treatment - that the FT also brings to investors' attention (which is seemingly being ignored on the eve of OPEX). Whichever way you look at this - it is not good for Greece and could have significantly negative implications for the rest of the European sovereign bond market just as investors are starting to dip a toe in the cool risk water once again.

From Peter Tchir:

Firstly this debt exchange story is still that, just a story, and just doesn't read right. It feels like either the reporter didn't understand the source, or the source had some key detail wrong, but let's pretend it's true.


Well, early this week I tried to put some ideas down on what Greece should be doing. The key is ensuring that they have financing in place after a default. An operating central bank would be helpful and the ECB was on the list of groups that Greece needs to deal with. The exchange seems very favorable to the ECB. No notional reduction - which frankly seems greedy - why not just take a notional amount equal to the cost basis. Most importantly, it looks like the ECB is trying to segregate its holdings from the "private sector" bonds. This step would make it easy for Greece to default on old bonds and remain current on new bonds. Maybe that encourages greater participation, maybe it won't. Why would Greece cut a special deal with the ECB that is so favorable to the ECB? Did they negotiate continued ECB support for its bonds as part of the exchange deal? I really don't understand the exuberance over the story (which really does seem to be off).


On the other hand, maybe the problem is solved. Italy issued a 100 billion 30 year bonds with a 1% coupon. Banks buy these at 50 on the auction (since the ECB can't participate in auctions). The banks then sell the bonds to the ECB for 55 .  The banks build equity capital quickly since 5 points on a 100 billion adds up quickly. The ECB then exchanges these bonds for new bonds with a 1.1% coupon. It distributes the 45 points of "profit" to the Italian central bank. Italy would owe 1.1% on 100 billion of debt due in 30 years. Italy would have received 115 billion from the sale of the original bonds and their share of the ECB profits based on the exchange. The banks will have made 5 billion on a single trade. Repeat this as often as necessary. Does this sound stupid? If so, how is it so much different than the bond swap story the market is so excited about?

and from the FT: ECB avoids forced losses on Greek bonds


However, the deal secured by the ECB for its Greek holdings could undermine its intervention in other eurozone government bond markets, by raising fears among private sector bondholders that it would also receive preferential treatment in any future bail-out. It could also trigger legal action by other Greek bondholders arguing the ECB has received unfair treatment.

and further from the FT: Athens faces tough bail-out terms


A €130bn bail-out of Greece will contain unprecented controls on Athens’ ability to spend aid, officials said, as European leaders scrambled on Thursday to paper over their division... If the deal is finalised by Monday, it will still include a list of 24 “prior actions” that Greece must complete by the end of the month, before aid is released.


And so, as we noted above in the introduction (despite Weidmann's insistence just yesterday on non-profit sharing and concerns on monetization - which this seems to be more like just a simple legal action to remove CACs) we are back to the same fiscal feudalism that Germany demanded, and the Greece refused weeks ago.

It seems like nothing has changed for the positive here in terms of Greece's debt sustainability, the PSI is unchanged simply because the blocking-stake holders that we have been so adamantly describing will not budge (and why should they) and now we will likely see non-UK law sovereign bonds for Portugal (and perhaps Spain) also being sold again to avoid the long-arm of Draghi.

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Thu, 02/16/2012 - 16:49 | 2167129 battle axe
battle axe's picture

DEFAULT DEFAULT might be suprised how good it feels.

Thu, 02/16/2012 - 17:03 | 2167191 TruthInSunshine
TruthInSunshine's picture

It's now  4:02 pm EST.


I want my Greek/EU rumors of a 'big deal' or 'major complications' flavor in exactly 13 minutes, damnit!


baaa baaaa baaa

Thu, 02/16/2012 - 17:07 | 2167210 DaveyJones
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"The next steps for Greece" Do they lead to the basement?

Thu, 02/16/2012 - 17:21 | 2167251 The Watchman
The Watchman's picture

nope... bombshelter in the backyard.

Thu, 02/16/2012 - 17:25 | 2167268 Max Fischer
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With all doom and gloom coming from Europe, it's easy to miss the $7+ billion in profits that GM announced today for fiscal 2011, nearly 62% better than 2010. 

The stock has catapulted from $19 to $27 in less than 60 days.  Such an incredible turn-around story and a huge victory for the American worker, American manufacturing and Obama.  I know most of the libertarians want GM to burn and die, but it's nice to see a little good news every now and then.  

Max Fischer, Civis Mundi

Thu, 02/16/2012 - 17:29 | 2167282 AgShaman
AgShaman's picture

That's great news. If they keep doin well....they should be able to pay back the taxpayer bailout monies someday

Thu, 02/16/2012 - 17:37 | 2167303 duo
duo's picture

and the bondholders that got screwed. 

Thu, 02/16/2012 - 17:55 | 2167296 DaveyJones
DaveyJones's picture

Yes, America is saved. The Resurrection has nothing on selling a second rate car

Thu, 02/16/2012 - 21:24 | 2167933 Bringin It
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I recall back in 2007 some guy yelling at me about all is saved because GM is back to making a profit.  But it turns out it wasn't really GM making a profit.  GM the car manufacturer was still losing big money.  But GMAC, the pseudo-bank, Ponzi vehicle, slapped on to GM was racking up big ponzi paper gains, until it wasn't. 

Fri, 02/17/2012 - 01:46 | 2168613 AgShaman
AgShaman's picture

Haven't you heard?....Ally Financial is your friend...they are the controllers of needn't worry

Thu, 02/16/2012 - 17:46 | 2167345 taraxias
taraxias's picture

Best laugh of the day in my opinion.


Thu, 02/16/2012 - 18:47 | 2167539 greensnacks
greensnacks's picture

Greece is a lot like buying a lemon from, say GM. No matter how much money you spend to repair it, it keeps breaking down and each repair gets more and more costly. It's just better to walk away from it and spend your money on a good toyota from Kentucky.

Thu, 02/16/2012 - 19:02 | 2167583 q99x2
q99x2's picture

Does it have anything to do with the US economy? Accounting rules are no longer enforced. Go follow BO into the abyss troll.

Thu, 02/16/2012 - 22:16 | 2168078 DCFusor
DCFusor's picture

I have to admit I don't understand all the GM hate out here.  When I was homesteading and dirt poor, I got by buying GM luxobarges used with about 100k miles on them - usually used for long range commuting, so not super old.  Got them cheap, from 2k to 6k, drove them for a few years, got another when I got bored.  I had one total repair out of, lessee - a Buick (cool with a CRT screen), a pontiac, an olds, another buick.  The one repair was a plugged catalytic converter - all cars have those sometimes, and this is out of a few hundred k total miles on cars that started with around 100k each - they felt barely broken in.

Since I started having a lot more money, well, I've owned a 2010 Camaro SS - a real frigging hot rod, a 2012 Cruze - a nice econobox, fun to drive too - and a 2012 Volt which is one cool car indeed - and I charge it off my solar system and drive with no OPEC fee.  All have been exactly as advertised, high quality fit and finish, no "issues".  Sure, it sucks we bailed out all the car companies but the cost of not doing it might have been worse - all those guys on the dole and so on.

I got to drive a Chrysler Challenger - a complete piece of crap by comparison to the Camaro - not as fast, way too obviously flimsy (had to be careful not to break the dash and door handles), because it got stuck on a hill nearby and the driver couldn't extricate it.  After a ride in the Camaro, his jaw dropped and he sold it quick.  The Volt produces similar reactions in riders and drivers.  The Cruze the local dealers can't seem to keep on the lot - they go out fast because it's a hell of a car for the money if you're not rich.

All the companies got bailed (Ford got loan guarantees) - who's got a car as cool as the Camaro or the Volt as a result?  Does Chrysler have an electric?  They took the incentive money like everyone.

Is all this GM hate astroturfing by employees of the other companies or what?  I've had a lot of experience with american cars and I just don't see it - I must have been incredibly lucky or something?  I find a lot of things in other american cars to like a lot less than my GMs.

I just can't see it; if you own and drive one - they're nice.  Maybe some furrin cars are nicer, but not for the bucks, that I've seen yet - and those foriegn cars don't create the American jobs I hear all this whining about us sending overseas - Volts are built in Ohio.  Ford uses Microsoft software, and I sure hear a ton of complaints about that one - blue screen of death might become all too real at some point!

GM uses linux in the car, for what it's worth.  Same as I use for trading, because it's rock solid reliable and more secure than the alternatives.


Fri, 02/17/2012 - 02:02 | 2168628 LowProfile
LowProfile's picture

Oh, WTF...

Do I really want to take the time to...  Hell no I don't.

Read up on the example of crony capitalism that is GM, willya?  If you won't, then STFU NOOB.

Thu, 02/16/2012 - 17:27 | 2167275 He_Who Carried ...
He_Who Carried The Sun's picture

The reality of the Greek situation is very simple, and extremely grave. The country will not deliver on the vast majority of its promises. Frankly speaking, it never did deliver anything real or sustainable in terms of growth and competitiveness in the past and it is not about to start doing this in the near future. The only uncertain part of this equation is just how long will it take the markets to realize that the Greek economic recovery arithmetic is simply bogus, computed not to reflect the reality of rising debt, falling tax revenues, collapsing economy and destabilized society, but to fit the Brussels-Frankfurt objective of pretending that debt to GDP ratio of 120 per cent is sustainable...
(Source: Constantin Gurdgiev, Trinity College, Dublin)

Thu, 02/16/2012 - 17:59 | 2167399 withnmeans
withnmeans's picture

Tyler, I have just a thought on this chain jerking the German's have been doing. Check their markets for shorting U.S. equities, I believe they run it up , put on the shorts "then run out some bad news". Then repeat the process. I think its called "Getting Even".

Thu, 02/16/2012 - 20:01 | 2167738 falak pema
falak pema's picture

you make it sound like multiiple big O...

Thu, 02/16/2012 - 23:06 | 2168234 Buck Johnson
Buck Johnson's picture

Greece should default and be done with it.  The people who don't want that is the rest of Europe and the US.

Thu, 02/16/2012 - 16:50 | 2167131 SheepRevolution
SheepRevolution's picture

Oh for f*ck sake, default already!!!

Thu, 02/16/2012 - 16:49 | 2167133 slaughterer
slaughterer's picture

I think the news story--no matter how mangled in logic--simply confirms that the ECB is printing and will print.  That is what equities are reacting to.    

Thu, 02/16/2012 - 16:50 | 2167134 indianajohns04
indianajohns04's picture

Chance to hop on the TVIX train!

Thu, 02/16/2012 - 16:52 | 2167145 Frank N. Beans
Frank N. Beans's picture

I'm on it, but today it didn't go anywhere but backwards.

Thu, 02/16/2012 - 16:59 | 2167173 indianajohns04
indianajohns04's picture

Haha yeah ....... although you definitely have to save some cash so you can average down; decay is a b!tch. Just waiting for some back-to-back 30% pops. It's hard to justify investing at these levels mightas well do a little gambling.

Thu, 02/16/2012 - 16:57 | 2167136 falak pema
falak pema's picture

Zero percent interest to Greece, Ireland and Portugal, 2% to Italy and Spain, and the problem is solved. If the rich in Europe plus the Oligarchs of Eurozone  in Caymans/Schweizer land contributed it would be possible and even certain. 

Creating a dynamic euro zone is worth it; with a two tier currency or a readjusted north south one with south to devalue 30-40%.

Percent chances of this occuring in current screw up and spuke out euro technokrat land : 1% (optimistically, never-say-die-hard projection).

Thu, 02/16/2012 - 16:51 | 2167139 Mongo
Mongo's picture

Monty Python is a drama compared to the european farce...

Thu, 02/16/2012 - 16:54 | 2167148 sabra1
Thu, 02/16/2012 - 16:55 | 2167155 Everybodys All ...
Everybodys All American's picture

This is also a downgrade in the debt the rest of Europe is holding. Subordination means you own something of lesser quality/value than the ECB now. Unintended consequences of this are going to be severe. Who wants to buy the next Italian or Portuguese treasury issued when the ECB can just decide to change the rules?

Thu, 02/16/2012 - 17:15 | 2167212 slaughterer
slaughterer's picture

Junk me if you want, but I think the whole subordination thing is not such a big deal: Who gets preferential treatment today besides central banks and deep-pocketed high-profile plutocrats like Buffett ad Soros?  How can a measly (technically insolvent) bank demand an unsubordinated position any more?    

Thu, 02/16/2012 - 16:55 | 2167156 Yen Cross
Yen Cross's picture

Fancy Vernacular? That works for the Asia session.<> Ping Pong

Thu, 02/16/2012 - 17:03 | 2167162 Zero Govt
Zero Govt's picture

"Next Steps For Greece"

Concrete blocks, bottom of the ocean

Plan B. Iceland, Iceland, Iceland


Thu, 02/16/2012 - 16:57 | 2167163 lix333
lix333's picture

Tyler, Any comments on this




Thu, 02/16/2012 - 16:59 | 2167171 Zero Govt
Zero Govt's picture

Monday's a good day... as good as any other ..go for it (for fucks sake.. get it over)

Thu, 02/16/2012 - 17:07 | 2167209 Tyler Durden
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Yes. Any proof aside from "sources" would be a start

Thu, 02/16/2012 - 17:13 | 2167227 Yen Cross
Yen Cross's picture

Tyler = Truth

Thu, 02/16/2012 - 17:21 | 2167250 battle axe
battle axe's picture

Mondays a holiday so might be a good time for a default....At least it will be something different.

Thu, 02/16/2012 - 17:45 | 2167338 Always Positive
Always Positive's picture

Tyler = Agenda

Truth may or may not come into it

Thu, 02/16/2012 - 17:53 | 2167378 DaveyJones
DaveyJones's picture

yeah, objective, independent, critical journalism is a pretty sick agenda isn't it

Thu, 02/16/2012 - 18:02 | 2167403 Yen Cross
Yen Cross's picture

 You / use those " tentacles" well Davey Jones! +1

Thu, 02/16/2012 - 18:35 | 2167501 slewie the pi-rat
slewie the pi-rat's picture

yup:  "everybody's got an agenda" is trueTyler

the 2nd statement is also valid in said scheme0'thingies

somebody gaveUaGreenie!

Thu, 02/16/2012 - 21:13 | 2167907 wiser
wiser's picture




Thu, 02/16/2012 - 21:38 | 2167966 Bringin It
Bringin It's picture

Friday March 23rd could work.  You're gonna need a big diversion for the sheeples though.  Like Obummer's bc released some old guy got wacked in Abbotobad.  What could be big enough to cover this up? ...  Could something be planned for the new moon evening of March 22?

Thu, 02/16/2012 - 23:55 | 2168352 He_Who Carried ...
He_Who Carried The Sun's picture

They are expecting "voluntary" participation in Greek haircuts to fail and therefore they change their holdings of old Greek bonds in to new ones in order to be on the safe side of the "bet"...  That operation alone is not leading to default. Not yet!

Thu, 02/16/2012 - 16:58 | 2167170 Hedgetard55
Hedgetard55's picture

I got tired of being kicked in the balls by Uncle Ben and sold 10% of my Prudent Bear Fund, so it is probably ok for you dudes to get short again.

Thu, 02/16/2012 - 17:11 | 2167221 fourchan
fourchan's picture

lol ditto this market is not going down any time soon.

Thu, 02/16/2012 - 17:15 | 2167232 sabra1
sabra1's picture

the markets might not go down, but the internet sure will!

Thu, 02/16/2012 - 17:03 | 2167196 tobinajwels
tobinajwels's picture

What the difference between a disorderly default and a default? Isn't that the same thing?

Thu, 02/16/2012 - 17:20 | 2167235 nonclaim
nonclaim's picture

I think the former includes cascading defaults through the financial system.

Catastrophic uncontained engine failure versus a catastrophic failure, in other words.

Thu, 02/16/2012 - 17:35 | 2167291 tekhneek
tekhneek's picture

It's the difference between paying a portion of your bill at a restaurant vs. just running out and ignoring your obligation to pay entirely.

Only imagine you've ordered all the food that restaurant had to offer, twice. Now if you run out, you very well might be the end of that restaurant.

Thu, 02/16/2012 - 17:04 | 2167197 YesWeKahn
YesWeKahn's picture

" €130bn bail-out of Greece will contain unprecented controls on Athens’ ability to spend aid"

The whole shitty thing is unprecedented, I don't see any surprise.

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