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"No Deal" - Greek Bondholders Do Not Think Agreement Can Be Reached Before "Crunch Date"

Tyler Durden's picture




 

Update: the NYT chimes in, just to make the point all too clear:

Hedge Funds May Sue Greece if It Tries to Force Loss

 

Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greece in a human rights court to make good on its bond payments.

 

The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.

 

The tactic has emerged in conversations with lawyers and hedge funds as it became clear that Greece was considering passing legislation to force all private bondholders to take losses, while exempting the European Central Bank, which is the largest institutional holder of Greek bonds with 50 billion euros or so.

 

Legal experts suggest that the investors may have a case because if Greece changes the terms of its bonds so that investors receive less than they are owed, that could be viewed as a property rights violation — and in Europe, property rights are human rights.

 

According to one senior government official involved in the negotiations, Greece will present an offer to creditors this week that includes an interest rate or coupon on new bonds received in exchange for the old bonds that is less than the 4 percent private creditors have been pushing for — and they will be forced to accept it whether they like it or not.

 

“This is crunch time for us. The time for niceties has expired,” said the person, who was not authorized to talk publicly. “These guys will have to accept everything.”

 

According to one senior government official involved in the negotiations, Greece will present an offer to creditors this week that includes an interest rate or coupon on new bonds received in exchange for the old bonds that is less than the 4 percent private creditors have been pushing for — and they will be forced to accept it whether they like it or not.

 

“This is crunch time for us. The time for niceties has expired,” said the person, who was not authorized to talk publicly. “These guys will have to accept everything.”

Time to remind readers of our definition of nuisance value, long before anyone even considered hedge fund hold outs an issue? Thank you for confirming everything we have said so far.

Original:

Five minutes before market close yesterday, Bloomberg came out with an "exclusive" interview with Marathon CEO Bruce Richards, who may or may not be in the Greek bondholder committee any longer, in which the hedge fund CEO said that the Greek creditor group had come to an agreement and that the thorniest issue that stands between Greece and a coercive default (and major fallout for Europe) was in the bag, so to say. To which we had one rhetorical comment: "Well as long as Marathon is talking for all the possible hold outs..." As it turns out, he wasn't. As it further turns out, Mr. Richards, was just a little bit in over his head about pretty much everything else too, expect for talking up the remainder of his book of course (unsuccessfully, as we demonstrated earlier - although it does beg the question: did Marathon trade today on the rumor it itself spread, based on information that was material and thus only afforded to a privileged few creditors, especially if as it turns, the information was false - we are positive the SEC will be delighted to know the answer). Because as the supposed restructurng expert should know, once you have a disparate group of ad hoc creditors, which is precisely what we have in the Greek circus now, there is nothing even remotely close to a sure deal, especially when one needs a virtually unanimous decision for no CDS trigger event to occur (yes, ISDA, for some ungodly reason, you are still relevant in this bizarro world). Which also happens to be the fascination for all the hedge funds, whom we first and then subsequently repeatedly noted, are holding Europe hostage, to buy ever greater stakes of Greek bonds at 20 cents on the dollar. Because, finally, as the FT reports, the deal is nowhere in sight: "Several hedge fund managers that hold Greek debt have said they have not been involved in the talks and will not be agreeing with the “private sector involvement” (PSI) deal – which centres on a 50 per cent loss on bondholders’ capital and a reduction in the interest they receive... Even members of the committee concede the process is unlikely to succeed in time for the crunch date: a €14.5bn bond repayment falling due on March 20." But, wait, that's not what Bloomberg and Bruce Richards told us yesterday, setting off a 100 point DJIA rally. Time to pull up the Einhorn idiot market diagram once again.

Once again: here is why one should never trust the media, especially when it is serving ulterior conflicted interests. From the FT:

Fraught discussions on Wednesday – led on the creditor side by veteran technocrats Jean Lemierre, special adviser to the chairman of BNP Paribas, and Charles Dallara, managing director of the Institute for International Finance – have hit on a formula with Greek officials that an untested minority of bondholders could yet reject.

 

Several hedge fund managers that hold Greek debt have said they have not been involved in the talks and will not be agreeing with the “private sector involvement” (PSI) deal – which centres on a 50 per cent loss on bondholders’ capital and a reduction in the interest they receive.

 

Alongside them are insurance companies, fund managers and pension funds that also have little incentive in agreeing to the negotiated terms.

 

Several hedge fund managers that hold Greek debt have said they have not been involved in the talks and will not be agreeing with the “private sector involvement” (PSI) deal – which centres on a 50 per cent loss on bondholders’ capital and a reduction in the interest they receive.

 

Alongside them are insurance companies, fund managers and pension funds that also have little incentive in agreeing to the negotiated terms.

 

The creditor steering committee Mr Lemierre and Mr Dallara head represents bondholdings worth an estimated €155bn of Greece’s outstanding €260bn debt. That leaves a further €50bn or so of such uncanvassed private bondholders once European Central Bank and eurozone national central bank holdings are excluded, according to estimates by JPMorgan.

 

It is these private bondholders that must now be brought on board for a negotiated settlement if the Greek government is to succeed in its goal of a “voluntary” debt swap on its full borrowings and avoid a default.

 

“The [expected] agreement is a short-term fix. The market will be happy with it for a few days or a week but then we run into the hard stuff,” said an executive at one multibillion-dollar hedge fund that owns Greek bonds and has not been party to the negotiations. “The hard part is going to be getting the rest of the bondholders [outside the creditor committee] to agree.”

Punchline in 3...2...1...

Even members of the committee concede the process is unlikely to succeed in time for the crunch date: a €14.5bn bond repayment falling due on March 20.

And here is why naive Bloomberg reporters should not report anything and everything they hear hook, line and sinker:

“As a firm we are not convinced that any deal today is the last deal,” said Robert Rauch, director of research at the $2.7bn hedge fund Gramercy, which led negotiations for bondholders in the restructuring of Argentina’s debt in 2007. “This is a multiplayer negotiation and not all the players are even at the table.”

 

Gramercy is one of numerous hedge funds that say they have avoided buying into Greek debt – even though it has been trading at huge discounts in recent months – because they still do not see it as cheap enough.

The story from here on is familiar to all who have been following our narrative on this matter since June:

The options available to Greece and its advisers, Lazards and Cleary Gottlieb, should full agreement fail are hardly attractive. Foremost among them would be Greek legislation to insert “collective action clauses” into the country’s existing debt stock.

 

Such clauses could be exercised to force a recalcitrant minority of bondholders to agree new terms, but in doing so they could trigger credit default swaps written on Greek debt – a dangerous move that could trip the eurozone into a full-blown banking crisis.

 

Part of the problem was that many of Greece’s unknown creditors were thought to be holding out for exactly such a CDS trigger, one fund manager said.

Translation: subordination cometh. But we will touch upon this topic in two months, when everyone else is talking about it and/or is an expert on it.

And since everyone is now at least a broad bankruptcy expert, or very soon will be, here, courtesy of FT's Sam Jones, is a refresher on bankruptcy negotiations game theory, and why one pretty much never gets what one wants, absent spending 4-7 years in bankruptcy court first:

“There isn’t much of a reason for anyone to agree to the terms precisely because of the threat of CAC clauses,” said a fund manager who owns Greek debt. “If people think they are going to get forced into a deal anyway, then why agree to the terms before you have to? Especially if by not doing so you can trigger your CDS.”

 

Whatever the outcome of negotiations in the run up to March, there is little doubt among many bond investors about the worth of the PSI process.

 

As the Emerging Sovereign Group, a $1bn hedge fund owned by US private equity giant Carlyle, told its clients last year, European politicians have opened a “Pandora’s box” that now looks likely to lead to a “repricing of sovereign default risk across the euro area”.

And with numbers like $500 billion, €1 trillion and even €10 trillion flying around, to make sure the firewall in advance of the Greek default is at least half full, if not half empty, we can guarantee readers that the repricing won't be higher. But it will take stocks the usual 6-8 weeks to grasp what is patently obvious to anyone who has put in even 10 minutes of work in analyzing the complete fall out from Europe that is about to hit.

 

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Wed, 01/18/2012 - 19:21 | 2076241 rsnoble
rsnoble's picture

I have a question, since I am not as smart with all this stuff, let's say gold goes to moon. $5,000.00oz or something like that. And the dollar collapses and goes by by. So then you couldn't really say it's worth $5,000oz because there's no "$".  How could you value gold if there was no dollar?  If things got as bad as they could I have doubts on gold being the answer.

Wed, 01/18/2012 - 19:33 | 2076285 css1971
css1971's picture

If it gets that bad. What do you hand over to the baker to get a loaf of bread?

 

Thu, 01/19/2012 - 00:19 | 2076990 WonderDawg
WonderDawg's picture

Something he needs or wants that he doesn't have. It's called barter. You have to use your imagination some, but think about what might be valuable in a post-collapse world, that is easily storable and might be scarce for a while. Toothbrushes come to mind. Razors. Whisky. Aspirin. You get the idea.

Thu, 01/19/2012 - 08:05 | 2077351 Arkadaba
Arkadaba's picture

or knowledge. How to grow something or fix it. Iodine might come in handy too.

Wed, 01/18/2012 - 19:34 | 2076289 pakled
pakled's picture

Then at that point gold and silver (and everything) would no longer be priced in USD. Rather they would be priced in:

 

a) a new currency

b) another existing currency

c) against other goods / services

 

I have a Mercury dime. 90% silver content. When this dime was in circulation it bought a loaf or two of bread. Today that dime still buys a loaf or two of bread. When the US dollar is gone, I expect it will still buy a loaf or two of bread. That's why I keep it.

 

 

Wed, 01/18/2012 - 19:50 | 2076343 rsnoble
rsnoble's picture

My first thought was a new currency.  All that could really suck, you might be able to buy an entire machine shop for $500,000 today and the same $500,000 you spent to buy gold in a new currency might buy you loaf of bread.  And I also thought about goods/services.  So then what, we all pass out a circular that everyone in the country is supposed to abide by? 1 coin=blowjob, 2 coins=lawn mowed etc?  LOL, I will  stick to my original idea that it  will be a complete disaster and bullets will have more purchasing power than gold.

Of course this is all doomsday stuff, I realize the dollar could be around for quit sometime.  I'm not convinced on your mercury dime example.  It's worth a loaf of bread because it's worth a couple dollars.  Goddamit Im gona start drinking now.

Wed, 01/18/2012 - 20:28 | 2076441 cameldojo
cameldojo's picture

Note to self....Buy lawn mower

Wed, 01/18/2012 - 21:25 | 2076580 rsnoble
rsnoble's picture

No, save up for the blowjob.  I don't think pristine lawns, nor homeowners associations, are going to be a priority.

Wed, 01/18/2012 - 21:28 | 2076587 fall
fall's picture

"So then what, we all pass out a circular that everyone in the country is supposed to abide by? 1 coin=blowjob, 2 coins=lawn mowed etc?"

Not really. There is no standard value. The real value is determined by simple bid/ask offers. The same thing goes for real currencies. Maybe a blowjob was 1 USD in 1900 but since it's not a standard a hookers ask price would be much higher today.

And yeah, of course events in which ONLY precious metal would have real value and any form of regular, paper money would be gone, no one really knows whether people would still care about some metal. However, in cases of hyperinflation or switching currencies (both events that actually have happened and still do every so often) silver and gold would save your ass better than almost any other investment. This is because the money might have become almost worthless or even competely worthless in case it can't even be exchanged anymore (new currency), while the silver can still easily be exchanged for a new fair amount of money. In this case the dollar lost value against other currencies while the silver didn't.

Wed, 01/18/2012 - 21:41 | 2076623 Cheesy Bastard
Cheesy Bastard's picture

Maybe a blowjob was 1 USD in 1900 but since it's not a standard a hookers ask price would be much higher today.

Unless chicken mcnuggets are on the dollar menu.

Wed, 01/18/2012 - 21:14 | 2076552 fall
fall's picture

Simply correct the price by calculating the inflation. Say, the dollar really goes to shit and loses 50 percent of its value, the corrected price would be 2,500.00 USD and not 5,000.00. Alternatively it might be easier to simply use a more stable currency to represent the value. You are using USD in your example but of course you could also use EUR or any other currency intead. It's really totally irrelevant and does not have any effect on the value (big difference, value =/= price! (the price can go up while the value stays the same)) of the gold in any way.

Wed, 01/18/2012 - 21:48 | 2076646 spinone
spinone's picture

At that point, turning over all your gold to the soldiers tearing your house apart will keep you from being shot in front of your family.

Wed, 01/18/2012 - 19:21 | 2076244 trebuchet
trebuchet's picture

im still of the opinion that holdouts will happen till the last minute, then these guys get the best deal twice: the best value on the bond deal plus the reinvestment of that on the bounce. 

 

The alternative is a CDS trigger, armageddon and financial meltdown which could lead to no cds payout. 

 

peeoplez pls tell me why im with the sheeplez

 

 

Wed, 01/18/2012 - 21:41 | 2076621 fall
fall's picture

Important is that even if the banks would agree and take a shitload of losses to cover Greece's ass once again, they are still in some very deep shit and those CDSs are still there luring from the shadows, (in case you didn't know, most CDS contracts cover 5 years but 10 or even longer is also possible) simply waiting for the next close call, or once the moment is finally there, the devastating strike.

No matter how long this shit continues, there is no way it will end well. Not one county has ever recovered from a simmilar situation without defaulting.

They are fucked, the CDS writers are fucked and yes, in case of double defaults, even the owners and everyone (every- every- EVERYONE!) else.

And you know what? I enjoy it.

Thu, 01/19/2012 - 01:06 | 2077061 forexskin
forexskin's picture

that's the spirit. good old fashioned doom porn - nothing like it.

Wed, 01/18/2012 - 19:22 | 2076246 zerotohero
zerotohero's picture

First post - starting to feel like this whole "mess" could go on forever as long as TPTB are creative enough and remain in control. On certain days I think perhaps we are all looking at this the wrong way - that there will be no Total Collapse in our life time - that it will just continue to morph and churn and consume its way along. Sure there will be blips and quite possibly wars, but I'm starting to think they have got enough game to keep this machine running for quite a long time. Hell its easy to get away with running the biggest ponzi scheme in history when zombies run the show and the sheeples are comfortably numb. Just sayin.

In the meantime I too have fallen into protective mode - little gold, little bit more silver, cash out of banks........

Wed, 01/18/2012 - 19:38 | 2076300 sabra1
sabra1's picture

while the globalists are buying all the debt they can muster, they keep us entertained with the stock markets, which are just an illusion. once their plan of collecting all debts is done, they'll crash the markets, shorts and longs will not be able to collect! the pleebs will be taxed on absolutely eveything! this whole collapse was engineered to impoverish all. do you really think we'll be able to walk away with our market fortunes? NOT!!! 

Wed, 01/18/2012 - 20:16 | 2076335 pakled
pakled's picture

Been thinking about this too lately. Some folks have been waiting years for the system to fully flush. And it hasn't yet.

 

If I had to bet a nickel -hell, I'll bet a dime- I would vote that your opinion will be held by many, perhaps a majority, before the bath water is entirely drained.

So in a way, such opinions are temporal markers pointing the way toward the inevitable. The thing is too, the trigger may come from an external (non economic/financial) source. It's a CONFIDENCE game, and confidence could evaporate tomorrow.

"The price of freedom is eternal vigilance". Someone said that.

Wed, 01/18/2012 - 22:05 | 2076653 fall
fall's picture

I once read here, on ZH, that collapses take about ten times as long to happen than you would think, but once they do, they happen 100 times faster. That is so true.

Wed, 01/18/2012 - 20:20 | 2076410 Hohum
Hohum's picture

To reflect a moment, what's the DOW up in 2012?  About 3%.  What's WTI up.  2-3%

Wed, 01/18/2012 - 19:27 | 2076262 pakled
pakled's picture

Another great cutting-directly-to-the-truth-of-the-matter article.

 

Here is CNBCs best effort of the day

Wed, 01/18/2012 - 19:29 | 2076271 ElvisDog
ElvisDog's picture

More blah-blah bullshit. They will do a deal before any real deadline comes up. How many times does Lucy have to pull the football from Charlie Brown (us) before we don't believe anything they tell us?

Wed, 01/18/2012 - 19:30 | 2076274 GaryNeville
GaryNeville's picture

I'm sure the DOW can fond a way to rally 100 points on this news!

Wed, 01/18/2012 - 19:33 | 2076286 ambrosiac
ambrosiac's picture

 

 

Net Greek CDS less than 4 bn...   the mouse that roared?

 

Wed, 01/18/2012 - 19:49 | 2076345 Tyler Durden
Tyler Durden's picture

What is that gross when one single counterparty goes under? And what is the secondary level gross exposure when countparties to that single countparty go under. And what is the tertiary level gross exposure when countparties to the counterparty to that single countparty go under. Hint - many, many trillions.

Required reading: How US Banks Are Lying About Their European Exposure; Or How Bilateral Netting Ends With A Bang, Not A Whimper

Wed, 01/18/2012 - 20:07 | 2076384 ucsbcanuck
ucsbcanuck's picture

Thanks TD - that's one of the reasons for all the uncertainty. I think there's also some fear about the precedent it will set if Greek CDS are triggered.

Wed, 01/18/2012 - 19:34 | 2076292 roy10
roy10's picture

This is no surprise to anybody. A hard default is coming but it will be meaningless. CDS are already adjusted.

Wed, 01/18/2012 - 19:42 | 2076318 Tyler Durden
Tyler Durden's picture

Often we wonder if anyone actually reads anything posted on this website, or just waits for their chance to comment.

The Rise Of Activist Sovereign Hedge Funds, The "Subordination" Spectre, And The Real "Coercive" Restructuring Threat

 

When Zero Hedge correctly predicted the imminent rise of the "activist sovereign hedge fund" phenomenon first back in June 2011 (also predicting that the "the drama is about to get very, very real") few listened... except of course the hedge funds, such as Saba, York, Marathon, and others, which realized the unprecedented upside potential in such "nuisance value", long known to all distressed debt investors who procure hold out stakes, and quietly built up blocking positions in European sovereign bonds at sub-liquidation prices. Based on a just released IFRE report, the bulk of this buying occurred in Q4, when banks were dumping positions, promptly vacuumed up by hedge funds. More importantly, we learn from IFRE's post mortem of what is only now being comprehended by the market as having happened, is the realization that the terms "voluntary" and "collective action clauses" end up having the same impact as a retailer (Sears) warning about liquidity (and the result being the start of the death clock, with such catalysts as CIT pulling vendor financing only reinforcing this) to get the vultures circling and picking up the pieces that nobody else desires. As a reminder, it was again back in June we predicted that "the key phrase (or two) in the proposed package: "Voluntary" and "Collective Action Clauses"." Why? Because what this does is unleash the prospect of yet another word, which is about to become one of the most overused in the dilettante financial journalist's lingo: "subordination" or the tranching of an existing equal class of bonds (pari passu) into two distinct subsets, trading at different prices, and possessing different investor protections (we use the term very loosely) with the result being an even greater demand destruction for sovereign paper.

 

Incidentally this is precisely the reason why we predicted the second Greek bailout would be dead back in June of last year (proven right) as it underscores a very specific dynamic in bond trading, and thus demand, which apparently nobody in Europe grasped at the time, except for the hedge funds who now control the entire process and can demand anything to keep the Eurozone from falling apart. Unfortunately, it is now likely too late - with everyone finally figuring out what subordination means, and the S&P making it the highlight of their downgrade FAQ, the fear of future subordination alone is why demand for peripherals will likely plunge even more, paradoxically allowing activist funds to build up even bigger blocking stakes at cheaper price, throwing Europe into a toxic loop where courtesy of its stupidity it will now have to pay fund managers, the same ones it vilified, billions and billions, so they don't pull the plug on Europe.

 

Which is what the real threat of a coercive Greek default is: not the triggering of Greek CDS - that event will have no actual cash flow impact whatsoever. What it will have an impact on, is the waterfall bifurcation of all sovereign debt bonds into a universe of "covenant-stripped" bonds, all of which will have special treatment with the ECB, with Repoclear for repo pledging purposes. Most importantly, it will further collapse bond demand as investors will no longer know if the bond they purchase will be the same bond tomorrow, or some metamorphozed monster trading at pennies on the dollar because of some hedge fund's activitist strategy.

Bolded, double-underlined for your attention span deficit pleasure.

Wed, 01/18/2012 - 20:09 | 2076391 roy10
roy10's picture

Sorry, but this makes little sense. The Greek bonds are not trading at pennies because of some hedge fund activism. They are trading at pennies because Greece is defaulting on its debt (whether “voluntary” or not). The underlying value of the bonds will still be determined by one major driver – the probability of default. As for demand for sovereign bonds – the LTRO more than took care of it for the foreseeable future.

Greece is a non-event whatever the outcome is and the markets have been conveying this message loud and clear.

Wed, 01/18/2012 - 20:21 | 2076415 Tyler Durden
Tyler Durden's picture

You haven't done much corporate bankruptcy work in your life, have you. Or, for that matter, it appears any work that relies on non-abrogation of contract law. Don't answer: that's rhetorical.

Here is JPM's Michael Cembalest explaining it so anyone can understand.

Will Greece put “collective action clauses” (CAC) in place? Without getting too detailed, many Greek bonds were issued under language known as “universal consent”, which means that all creditors have to agree to changes to maturity, interest or principal. A CAC allows the issuer to obtain a plurality of support from bondholders for changes to the bond indenture, and then impose them on any holdout creditors. There’s nothing wrong with CACs, except for the fact that applying them retroactively changes the rules of the game, and makes a mockery of the quaint notion of contract law. As we explained in Appendix C in our 2012 Outlook, contract law protections for investors in sovereign debt are very weak. Don’t like retroactive CACs? Go sue in an Athens court; good luck to you.

Well, may not anyone.

Wed, 01/18/2012 - 20:29 | 2076445 The Alarmist
The Alarmist's picture

When you live in a post-constitutional world governed by the rule of men, what's a little abrogation of contract rights?  It's not your money, its theirs, and they are merely finding creative ways to speed the process of taking it from your pocket and putting it into theirs.

Wed, 01/18/2012 - 20:51 | 2076492 Goldilocks
Goldilocks's picture

Abrogate this... <middle finger>

Wed, 01/18/2012 - 20:48 | 2076485 roy10
roy10's picture

This is not a "bankruptcy". It is a sovereign default. Any laws pertaining to bankruptcy are irrelevant. There is no recourse on sovereign debt. In the case of default the sovereign can pay whatever it wants under any terms it chooses, so the contract is pretty much irrelevant.

Again, I’m not sure what kind of point you’re trying to make here. This is not the first sovereign default we have seen. In all previous defaults bond contracts weere rewritten pretty much unilaterally by the sovereign.

If you’re trying to argue contagion from a Greek default, that’s a legitimate argument, but I can’t see how that’s not priced in. If you’re trying to argue some legal/contractual reasons for re-pricing of bonds, I can’t see that either since everybody knows these contracts cannot be enforced.

Wed, 01/18/2012 - 20:55 | 2076501 fonzannoon
fonzannoon's picture

I don't know what the hell either of you are talking about but there is no way this is priced in.

Wed, 01/18/2012 - 21:02 | 2076517 roy10
roy10's picture

That's exactly the question I'm asking - what is not priced? A Greek default is clearly priced in (I'm sure nobody will disagree).

The only question here is whether a coerced default is priced? The difference between the two is:

1)    

CDS will be triggered in a coerced default – Tyler says that’s not a big deal and I agree.

2)    

Tyler claims there are some contractual consequences to a coerced default. I can’t really understand this point since the lenders have no recourse in the case of default and the borrower can do pretty much whatever it wants. So how does the contract matter?

Wed, 01/18/2012 - 21:19 | 2076563 ebworthen
ebworthen's picture

What is not priced in?  I'll take a stab at it:

If there is a coercive default, the Hedge funds won't go along, and CDS's will be triggered.

The defaults will hurt the banks and other bondholders, but not the hedge funds who probably priced in 20 cents on the dollar and hedged with CDS's to make money even if they get 10 cents on the dollar.

If the coercive default occurs it will affect trust in sovereign debt bond issuance, as well as make the CDS market more attractive; the opposite of what the governments and banks want.  They want sucker money, not smart money.

This will lead to an abhorrence of Italian, Spanish, and French bonds (Portugal is toast already, it appears).

Can you say "Dominoes"?

Wed, 01/18/2012 - 21:27 | 2076584 roy10
roy10's picture

The question I'm asking is why would the coercive default hurt confidence more? The outcome is the same – a deep haircut. The only difference is the CDS trigger and there seems to be a consensus that it will be a non-issue. In any case, I don’t think the market is stupid enough not to realize a coerced default is very probable. That’s why I believe it is priced.

Wed, 01/18/2012 - 21:32 | 2076599 ebworthen
ebworthen's picture

Um...did you read what I wrote and then think about it for at least 10.2 seconds?

Again, I recommend you go "all in" on Italian 10 year bonds, and throw in some Unicredit, and BNP for good measure (based upon your follow-up posts).

Wed, 01/18/2012 - 23:53 | 2076934 Return2Sanity
Return2Sanity's picture

roy10:

I don't think the references Tyler gave suggested that the triggering of CDS is a non-issue, just that it would not involve significant cash flow. I do agree with you that a coercive default where CDS is triggered would not hurt confidence in sovereign debt unless the CDS seller(s) went insolvent. However, I do think that this would paint a giant target on all the other PIIGS since their bonds would be worth more in a default situation because of CDS. The alternative situation is that a Greek default where the CDS is not allowed to be triggered would hurt confidence in sovereign debt generally and drive up yields because of the perception that the insurance will never pay off.

So, the thing that's not priced in is the longer-term consequences of having the CDS trigger or not trigger, because there will different profit/loss situations created going forward, depending on which one happens.

 

Thu, 01/19/2012 - 03:37 | 2077209 trebuchet
trebuchet's picture

this splained something to me.. thx

 

ZH is the best site for the insight

Thu, 01/19/2012 - 04:30 | 2077235 ebworthen
ebworthen's picture

I agree with you; however, who wins when CDS is triggered?

Hedge funds?

O.K., but that means those on the other side of the trade lose, which affects the marketability of bonds.

And...in Ouroboros fashion...affects CDS's profitability if it becomes a crowded trade.

Sooner or later, reality will intervene.

Timing, and moral hazard.

Thu, 01/19/2012 - 06:19 | 2077303 roy10
roy10's picture

A Greek default is a certainty right now. The only question is whether the CDS will be triggered or not. You're saying the neither scenario is priced and that doesn't make sense.

Thu, 01/19/2012 - 09:24 | 2077437 Return2Sanity
Return2Sanity's picture

It could be that neither outcome is fully priced in. It is like a two-horse race—if everyone thinks horse 1 will win, it gets priced in (people bet on it heavily, but the payout is not huge), or if everyone thinks horse 2 will win, that gets priced in instead. However, if the two horses are considered equally likely to win, then the bets will be evenly split. So, when one horse wins, a lot of money changes hands, and we conclude that neither event was fully priced in.

I think that's where we are with CDS. Everyone knows Greece is going down, but about half the market participants think CDS will pay out (the buyers), and half think they won't be allow to trigger (the sellers). Only one side is right, and once it becomes clear, either CDS costs will go up a lot, or CDS will be considered pointless and bond yields will rise (or the Eurocrats may figure out some way to convince people that CDS could still pay off at some later date as they have done before). The CDS payout on Greece itself may be small, but once the CDS question is settled, the ramifications for the CDS and sovereign debt markets generally could be huge.

Thu, 01/19/2012 - 08:59 | 2077401 Arkadaba
Arkadaba's picture

The rules/laws may be changed in order to kick this can down the street a lttle further.  CDS exporsure is huge and people in governments around the world know it. I don't know what the answer is in response to this issue but I would not assume that we are going not to be operating under standard law.

Thu, 01/19/2012 - 09:38 | 2077470 Return2Sanity
Return2Sanity's picture

Arkadaba-- I totally agree. And so, the challenge to us as investors or traders or hapless victims of circumstance, is to make an educated guess about what those rule/law changes are likely to be and how the market will react to them.

Thu, 01/19/2012 - 13:41 | 2078414 The Alarmist
The Alarmist's picture

So what if CDS's are triggered? If they get to be a problem they will be declared contrary to public policy and simply declared illegal and unenforceable. After a few days of bank holidays, you will hardly miss them.

Thu, 01/19/2012 - 13:49 | 2078443 Ghordius
Ghordius's picture

+1 made the same point further up, add "crime against sanity, morality and public hygiene" to the "contrary to public policy".

Wed, 01/18/2012 - 21:25 | 2076578 fonzannoon
fonzannoon's picture

roy in my completely humble opinion I think you are looking for a straight line to connect two dots. Here is my point....who gives a shit? I truly believe the information on this site. But according to the info here the banks have screamed that a market crash is imminent if QE is not unleashed. It has not happened. Maybe it will. So maybe own some VXX or something. The monetization of debt that is occuring is going to imminently cause hyperinflation. So maybe own some precious metals. The deflationary spiral downward can't be overcome with printing money...so own some huge dividend paying multinationals like Greenlight capital said today. Buy a bottle of scotch. Hang out, and wait.

Wed, 01/18/2012 - 21:30 | 2076598 roy10
roy10's picture

The ECB has unleashed QE with full force, so I guess that took care of the market (as we can see).

Wed, 01/18/2012 - 21:35 | 2076605 fonzannoon
fonzannoon's picture

Maybe. Everything is fine until it isn't.

Wed, 01/18/2012 - 21:07 | 2076528 ebworthen
ebworthen's picture

roy10 - May I recommend you purchase some Italian 10-year bonds?

Wed, 01/18/2012 - 21:37 | 2076614 roy10
roy10's picture

I'll pass. I still believe a haircut is coming to those as well.

Wed, 01/18/2012 - 21:43 | 2076629 ebworthen
ebworthen's picture

Well, we can agree there.

Wed, 01/18/2012 - 21:56 | 2076666 roy10
roy10's picture

The point where we probably disagree is that I don’t think a liquidity crisis would bring the Italian default, but rather an austerity induced recession, which will push debt/GDP to 130% in 2012 and would force the EU to drop the solvency charade (same as in Greece) and take measures to reduce the debt load.

Wed, 01/18/2012 - 22:04 | 2076676 ebworthen
ebworthen's picture

How do you decrease debt load with more debt?

Austerity eventually will lead to revolt; monetary revolt, not paying taxes, not spending, then physical revolt.

Instead of giving the bankers and hedge funds haircuts, the "austerity" is being shoveled onto the populace.

We have seen this before, reference the French Revolution, and more currently, Egypt, Syria, etc.

They need to quit playing games and get real before reality intervenes in an ugly way.

Wed, 01/18/2012 - 22:09 | 2076689 roy10
roy10's picture

The only way to decrease the debt load is via default. With the rest I agree (and so does Monti).

Thu, 01/19/2012 - 06:32 | 2077310 Element
Element's picture

come on, it was evident a week ago that roy10 is just a tribal troll playing dissemble games

Thu, 01/19/2012 - 03:39 | 2077210 trebuchet
trebuchet's picture

so its not all priced in

Wed, 01/18/2012 - 21:20 | 2076559 deflator
deflator's picture

This is not the first sovereign default we have seen. In all previous defaults bond contracts weere rewritten pretty much unilaterally by the sovereign.

 While this isn't the first sovereign default it has been in the past usually under developed and developing countries. Now we are beginning to see defaults circling developed countries. We will continue to see defaults in developed countries including cities and municipalities in the U.S.

 

Wed, 01/18/2012 - 21:46 | 2076631 Teamtc321
Teamtc321's picture

Pony up and buy some of those bond's now. 

Wed, 01/18/2012 - 23:20 | 2076861 RiverRoad
RiverRoad's picture

There's "no recourse on sovereign debt"?  Hmmmm, the word "War" comes to mind.

Thu, 01/19/2012 - 06:03 | 2077253 slewie the pi-rat
slewie the pi-rat's picture

hey roy @ This is not a "bankruptcy". It is a sovereign default. Any laws pertaining to bankruptcy are irrelevant.

i think you may have misunderstood tyler;  he did not say that the greek default would be a bankruptcy;  he was asking you a rhetorical question about BK b/c he seemed to think you didn't understand what he was saying about the dynamics of the negotiations = BK game theory.  well, none of us had read that link & long paste before monday, either

so, you checked it out and were very clear that you didn't get his point

there are actually a few of them, and each is based upon a lawful complexity of the situ as you decribe it, which i think you do quite well, btw

you see that you don't see what is not priced in here;  but, you see a lot, so here goes

1) the ECB will not accept a haircut.  the original "idea" [and i'm not even sure i have this right, really] was for the banks and the other holders to eat shit, but not the ECB, contractually.  No.No.No.  well!  that settled it for the banks! ECB sez they're gonna get a haircut on these "zero-risk" sovereigns.  not only that, but your credit default swaps are now dubious, too!  the banks respond with the obligatory EAT ME! and promptly begin rolling the bonds to the hedgies who a) can tell the ECB to go pound salt, and b) are now in the catbird seat b/c having bought the bonds at a nice discount, who knows what they can get for them?  and, they don't hafta agree to anything ["coerce me, baby!  do me"]  the banks took it where the sun don't shine, but hopefully they didn't write too many naked swaps and may even have a few longs around, who knows?

2)  due to 1) above, any default = 2 classes of bonds where certain interests are legally subordinated to other interests

3) [re the quote about the greek courts, from tyler]:  legally, some of the bonds are administered under british bond laws and others issued subject to greek bond laws...just in case one ever needed legal/courtroom help with anything, here...

4) 2) isn't really true.  fuk the ECB!  if the hedgies can block the subordination, there is only 1 class of bonds, and the hedgies get the same cheese as the ECB

5) if 4), then the ECB may have trouble with some of its "assets" no longer marked-to-unicorn;  functionally, the "EU" might have dynamited its centralBank

6) if 2), then the debt subordinated to the ECB and the future of other debt which may be "reclassified" may become unfit for human consumption;  functionally, the "EU" may have dynamited its bond markets and (maybe) triggered the default swaps and that process [not a bad bargaining chip since the ECB wants to avoid this].  this "seems" more likely than 4) altho talk in greece is cheaper than their paper and nothing has been decided.  oh, yeah!  there is that "bankruptcy court game theory of negotiations" where [paste]:  "The options available to Greece and its advisers, Lazards and Cleary Gottlieb, should full agreement fail are hardly attractive."  really?  i think it might be rather fun for greece to hold the ECB by the scrotum m/l while telling them you're really just not sure about doing that subordination thingy...

7) either way there is the "house of cards" or "falling dominoes" danger/aspect/certainty/uncertainty.  capital is being "destroyed" and it can't be "re-capitalized" nomoJoe.  there are already "holes" in the capital structure, and this is starting to look like alpine lace, here.  contracts aren't gonna get paid.  not just "shit happens" but systemic negative feedback loops of "coercive deleveraging"

8) other countries may want a waffle cone at the stateFair, too!

i think that what is priced in is the deus ex machina.  hey!  good luck!

mathematically, i would express what is not priced in as: 

winpi = having cake + eating cake2 + humptyDumpty   so, good luck there, too!

Thu, 01/19/2012 - 10:38 | 2077639 Return2Sanity
Return2Sanity's picture

Slewie--great job with the summary! The image in my mind is that Greek debt is like a card, and we all have to pretend it's a diamond when it's face down even though it's clearly a spade when it's face up. The hedgies want it to be a diamond even when it's face up, but the ECB-EU-IMF want the game of flip and pretend to go on indefinitely. I half expect Greece to come up with some crazy new bond that has a huge balloon payment on the end, as in “don't worry, you'll get everything we owe you—in 2042. But if not, be sure to keep your CDS 'til then.”

 

Thu, 01/19/2012 - 14:46 | 2078675 ebworthen
ebworthen's picture

Thanks for the assist me bucko!

Wed, 01/18/2012 - 21:06 | 2076524 swani
swani's picture

That's the whole point. If the law is rewritten, NO ONE will invest in bonds. This is just one of those situations where they will have to find a way to pay these 'activist' geniuses or the trigger those CDO's which would bring down the whole fucking Ponzi. 

Wed, 01/18/2012 - 21:36 | 2076609 roy10
roy10's picture

My point was that the law being re-written is completely anticipated in the case of default. This happens every time. What’s the surprise here?

If your point is that investors will now take into account the CDS will be triggered in future defaults – that’s a valid point, but it looks like the market has significantly reduced the probability of default for other EU sovereigns (other than Portugal).

Wed, 01/18/2012 - 20:24 | 2076430 Ahmeexnal
Ahmeexnal's picture

Greece defaulting is just a butterfly flapping it's wings.
Since the debt based system is nonlinear, that butterfly will cause a tsunami that will completely obliterate core eurozone countries.

Wed, 01/18/2012 - 20:42 | 2076476 barkingbill
barkingbill's picture

the irony that it's greece, the so called 'birthplace of democracy' that is now like a shrinking big bang threatening to implode that same universe it created...if it is all that...well, maybe the planners thought that was a nice touch. 

Thu, 01/19/2012 - 04:47 | 2077247 Tyranny is Love
Tyranny is Love's picture

 

 

Wed, 01/18/2012 - 20:37 | 2076464 deflator
deflator's picture

I think many investors are paying bond prices based on past performance rather than a realistic expectation of future growth. Compound interest is a wonderful thing if you are living in an era of many years of persistent economic growth. Most wealthy bond investors have lived their entire lives in an era of persistent economic growth and have benefited greatly from the miracle of compound interest.

 I for one do not see an extrapolation of the pasts persistent economic growth into the future. In order to extrapolate the past 40 years of economic growth into just the next ten we would need to find 15 new elephant oil fields. It will take many defaults over a period of time before the pasts compound interest glory is wiped from memory--it isn't something that will give up easily.

Wed, 01/18/2012 - 20:59 | 2076503 swani
swani's picture

Yeah. The 'activists' will be paid by all means necessary and the Ponzi will continue. They have no choice, it's like being in a situation where you are faced with a certain and immediate death, or a much slower death where many others go down with you. Cowards, sociopaths and sadists would always chose the latter and this is what we're dealing with here.   

Wed, 01/18/2012 - 19:46 | 2076332 virgilcaine
virgilcaine's picture

The banksters keep pulling at the bones like there is still meat on the bird, Greece is one dried out carcass, they do realize this?

Wed, 01/18/2012 - 19:54 | 2076351 alien-IQ
alien-IQ's picture

Yes, this is the news that will push the /ES over 1350.

Everything is bullish if you drink enough of the kool-aide.

Wed, 01/18/2012 - 20:02 | 2076369 loveyajimbo
loveyajimbo's picture

These bondholders must be something... I am hoping that instead of a 50% haircut they lose it ALL, like all the rest of the unconnected schlubs out there that invest, some winners, some losers... the scum like Goldman and JP Morgan want to have only an upside, with the public absorbing any losses for bad bets... didn;t they used to tar and feather those types of 'roids??

Wed, 01/18/2012 - 21:01 | 2076514 swani
swani's picture

This is the business model baby. Buy the house and cheat all the way to the bank. 

Wed, 01/18/2012 - 20:08 | 2076385 virgilcaine
virgilcaine's picture

Tyler would it be fair to say the CDS risk has been transferred to the 1-2 Yr Greek bond? 

 

 

http://www.bloomberg.com/quote/GGGB1YR:IND

 

Wed, 01/18/2012 - 20:09 | 2076392 Awakened Sheeple
Awakened Sheeple's picture

Off topic but might be of interest to ZHers, Modern Marvels: Silver Mines is on H2.

Wed, 01/18/2012 - 20:20 | 2076408 ActionFive
ActionFive's picture

Pipelines, Greece, Euro, jobs,- whatever news piece fits the way they want to take the market police state.

Wed, 01/18/2012 - 20:22 | 2076423 luna_man
luna_man's picture

 

 

They're not "banksters"!...Sounds more like the "hyena"!...Eat's bone and all.

Wed, 01/18/2012 - 20:38 | 2076466 Outlaw Of The W...
Outlaw Of The Wasteland's picture

The script has been written and approved by goldman sachs.

The timing and all plot twists intentional and known in advance.

The goal is maximum damage.

Wed, 01/18/2012 - 20:42 | 2076480 YesWeKahn
YesWeKahn's picture

Market will rally on "news", any news, good or bad. Because bad news are priced in, good news never.

Wed, 01/18/2012 - 20:54 | 2076495 jimmyjames
jimmyjames's picture
The problem was that many of Greece’s unknown creditors were thought to be holding out for exactly such a CDS trigger,
*****************
As we have noted before, there are furthermore doubts as to the true extent to which US banks are exposed to the troubles in the euro area. The banks themselves say their exposure is negligible, but the data published by the BIS say otherwise. According to the BIS, US banks hold some $520 billion in derivatives exposure related to Europe.
Naturally these are gross exposures, but one must always keep in mind that 'netted' exposure ultimately depends on the solvency of counterparties.
  We suspect that US banks are among the biggest writers of CDS on euro-land sovereigns and that they are therefore exposed to far higher risk than they admit to. After all, there is a non-negligible chance that the euro area will indeed 'blow up', which could conceivably result in cascading cross-defaults of fractionally reserved banks across the continent.
  http://www.acting-man.com/?p=11952
Wed, 01/18/2012 - 21:15 | 2076553 FairyTale
FairyTale's picture

Well looks like the only thing the Greeks can do now is:

http://www.youtube.com/watch?v=x6cW779sBF8&feature=related

Wed, 01/18/2012 - 22:32 | 2076751 Randall Cabot
Randall Cabot's picture

The old dude looks like a mexican

Wed, 01/18/2012 - 22:36 | 2076759 ucsbcanuck
ucsbcanuck's picture

I like this version of events set to the same song:

http://www.youtube.com/watch?v=u6-NHK-GzwU

More apt don't you think?

Wed, 01/18/2012 - 21:19 | 2076555 LouisDega
LouisDega's picture

Henny Youngman biotchez.. " My doctor gave me six months to live. Couldn't pay my bill, He gave me another six months"  I love this crowd!!

Wed, 01/18/2012 - 21:58 | 2076669 WmMcK
WmMcK's picture

I want a second opinion - you're ugly, too -- oops that's Rodney, isn't it.

Wed, 01/18/2012 - 21:49 | 2076649 kill switch
kill switch's picture

 

 

Column Title

Column Subtitle

Date

Fred and his beloved will be on travel in Morocco and suchlike diabolic climes until February1, when his seditions nonsense will resume. Links to Kindle editions of books are temporarily screwedup, but will eventuall be fixed..

Vote? Why? What candidate in the quadiennial resurrection of the Mickey Mouse club wants to do anthing that I want done?

I want to roll back the onrushing police state and return to constitutional government. The plunge into totalitarianism is a far worse danger than World War Two, in which the US was never in danger of being invaded, and in which the outcome was a foregone conclusion. Who do I vote for? No candidate (except Ron Paul: ERP) is against sovietization.

I want to end our stupid wars, now. Yesterday. Who do I vote for? There is no anti'war candidate (ERP). Obama sends the troops anywhere he can think of, and all the Republicans want to attack Iran.

I want to reduce the military by half and end the militarization of the country that is bankrupting us. Who do I vote for? (ERP)

I want to reduce the size of government, get rid of the departments of Educationh, Housing and Urban Development, and Commerce, toss the Bureau of Indian Affairs, and so on. What candidate wants to do these things? Republicans talk a good show, but which of them actually wants to cut?

I want to end affirmative action, which means governmental favor for some citizens over others, and rely on merit. No candidate speaks of this. Who do I vote for?

I want to end the empire, quit meddling in the business of other countries, get out of South Korea, Japan, and NATO. I don't want to be the world's mommy. Who do I vote for?

I want to reform America's dysfunctional system of taxation, go to a sales tax or flat tax or value-added tax, anything to get IRS off our backs. It isn't the amount of taxation that I dislike, but the intrusiveness, mystery, complexity, and lack of recourse. Who do I vote for?

I want to reform the public schools, outlaw teachers unions, requires decent GRE scores from teachers, cut the propaganda and outlaw drugging of students. Who do I vote for?

Why vote at all? Nothing of substance is on the table, other than the desire of Republicans to attack Iran. Yes, we must get America back on track, get it going again in the right direction, turn the country around, get back to the American values that made the nation great, promote the American Dream—none of which means anything. We must creatr jobs (how?), get America back to work (how?), and favor all the vague platitudes intended to mulct fools. All right, I hereby declare myself mulcted. So why vote?

The elections are supposed to indicate the presence of democracy, but they do not. Elections do not determine policy but only the division of spoils. An election in which candidates take no positions becomes a high-school popularity contest. The way to have elections without having a democracy is to let the people vote, but not on anything.

And oh god, the boredom. Night after night, day after day, we will have this version of Dancing with the Stars, the judges in the media solemnly that Santorum displayed Confidence, but Gingrich committed some trivial gaffe or other. Nuance, gesture, composure, but no substance.

Where is this going? The country is in grave difficulties and needs desperately to make hard decisions. Those in power seem to have decided to keep picking the nation's bones while the corpse slides towards the precipice. Cosset the morons, assure everyone of everything, avoid the issues and do nothing that might upset anyone. Greece, Spain, Ireland all take unpopular measures to try to bring things under control. The US? It spends on, wars on, as if the gravy days of 1960 had never ended.

Having a one'party system called by two names is a technically slick way of disenfranchising the public without their noticing. In a parliamentary system all manner of politics would gain expression in proportion to their prevalence in the population. With two identical parties, no dissenting view can ever gain office. A masterly dodge, this.

Over the years I have read or listened to many men rattling on about this and that arraangement of matters human, socialism, capitalism, republics, direct democracy, fascism, militarism, all the gang. What the theorists all seem to overlook is the irresistable buoyancy of excrement. Communism, theocracy, the divine right of kings, all eventually fall into the hands of the crafty and unscrupulous. If they don't, it is only because they haven't gotten around to it.

It has to happen. Once society becomes more complex than a modest tribe or small town, once its affairs extend beyond the immediate visual horizon of the citizens, they become clueless. Most don't have the brains, and almost none the time or interest, to monitor sprawling bureacracies and distant wars. Villains thrive in the shadows.

Vote? You can choose between Gingrich and Gingrich, between Santorum and Santoru, or between Gingrich and Santorum which is the same choice, or you can choose Romney, who is both Santorum and Gingrich. Such a deal.

Wed, 01/18/2012 - 21:53 | 2076656 Reese Bobby
Reese Bobby's picture

Rosie recently quoted this, from Barron's of all places:

What happens at the next level of turmoil?

Zulauf: The banking system goes bust. Assume Greece won't repay anything, or at most 10% of its total debt. It is not just the government but the private sector that is bust. That means banks in other countries will be in trouble, which means they will be nationalized. Governments won't have the money to pay for this, so they will assume even more debt. That is the chain of events I expect in 2012, and if you believe it won't affect the U.S. you are dreaming. The estimated notional value of the over-the-counter fixed-income-derivatives market in Europe is estimated to be about 60 trillion euros. There are many links to the U.S. banking system, although we don't yet know who is positioned how. If one country exits the euro, all hell will break loose.

 

Sounds about right.

Wed, 01/18/2012 - 21:53 | 2076657 StockHut
StockHut's picture

Can the eurozone just implode already

Thu, 01/19/2012 - 06:19 | 2077304 the tower
the tower's picture

Actually, all problems would be solved if the dollar implodes, think about it.

Why is the US so fucking chicken about inflating the hell out of the dollar? Think it through and you'll see it's the sloution to everything...

Thu, 01/19/2012 - 06:36 | 2077313 falak pema
falak pema's picture

except to the livelihood of the 99%ers of the US of A! They will be worth Weimar dollars, pensions n all,  and MOST of them are not PM bugs!

Wed, 01/18/2012 - 22:05 | 2076683 hairball48
hairball48's picture

Which American "banksters", if any, have the most exposure if the swaps are triggered?

I don't see why any of the hedge funds would agree to a haircut. Why? They win on the CDSs and if they're short the EUR, they'd win again.

Someone explain more about that to me?

Thu, 01/19/2012 - 02:22 | 2077163 Teamtc321
Teamtc321's picture

HB,

Meaning the hedge fund is shorting the euro currency say against the U.S. dollar. They are betting the euro will fall in price against other countries currencies. 

Here is a site where you can see different trade's and if they are up or down against each. 

Hope that is what you where asking above.  

 

http://www.forexpros.com/currencies/eur-usd

Wed, 01/18/2012 - 22:11 | 2076696 yogibear
yogibear's picture

The Greek Economic Tragedy, a weekly series brought to you by the ECB and IMF .

 

 

 

Wed, 01/18/2012 - 22:25 | 2076731 slewie the pi-rat
slewie the pi-rat's picture
"No Deal" - Greek Bondholders Do Not Think Agreement Can Be Reached Before "Crunch Date"

personally, i find the

Greek Bondholders Do Not Think

part of that most reliable

 

 

Wed, 01/18/2012 - 22:33 | 2076749 xela2200
xela2200's picture

I don't understand the attitude of the bond holders. I mean they have brass balls. If I had a loan with somebody and the only collateral that I have was his word, I would have the nicest tone when talking about it. Greece should do an Iceland on their ass.

Wed, 01/18/2012 - 23:15 | 2076842 Reese Bobby
Reese Bobby's picture

The leverage is not with the Greeks. It is the EU that bondholders are playing chicken with and I'd say they have a strong hand: "We can handle the write-off.  Can you handle the domino-effect?"

 

The poor Greeks are screwed pawns no matter what happens.

Wed, 01/18/2012 - 23:21 | 2076865 alien-IQ
alien-IQ's picture

It's a very elegant form of financial terrorism isn't it?

Wed, 01/18/2012 - 23:34 | 2076897 Reese Bobby
Reese Bobby's picture

It's not friendly, that's for sure.  I might argue the worse financial terrorism was the EU empowering Greece to dig the hole in the first place, with The Squid "helping" the Greeks with the accounting.  But I am a conspiracy guy.  The Global Bank Cartel is nothing if not patient.  Always has been.

Wed, 01/18/2012 - 23:19 | 2076856 alien-IQ
alien-IQ's picture

I agree, they should pull an Iceland. They really don't have many (any?) other choices.

Wed, 01/18/2012 - 23:27 | 2076882 Reese Bobby
Reese Bobby's picture

Somewhat different situation.  Iceland has great geothermal and hydro power assets among other things.  Greece is an island that imports most everything they need to live.  They should sell a lot of territory, buy a lot of gold, and then quit the Euro.  Seems like the only shot they have to me.  But then, I'm no EU technocrat.

Wed, 01/18/2012 - 23:51 | 2076930 xela2200
xela2200's picture

Sorry chief, but Greece is NOT an island, but point taken. They do have some beautiful island, I hear.

Thu, 01/19/2012 - 00:05 | 2076962 Reese Bobby
Reese Bobby's picture

Oh sure.  Next you'll be calling me scout and denying Italy is an island as well.  I do find it interesting Greece became an island in my mind.  Jump!

Thu, 01/19/2012 - 12:49 | 2078171 xela2200
xela2200's picture

In everybody's mind. They have been selling Mykons forever. My friends tell me it is a dessert, but they are dicks so..

Wed, 01/18/2012 - 22:50 | 2076790 flyonmywall
flyonmywall's picture

Any bets on the lowest denomination brachma bill to be printed, assuming of course, they can buy some ink? I'm betting 1,000,000 drachmas will be the lowest denomination. Anybody care to raise me a few drachmas?

 

Wed, 01/18/2012 - 23:17 | 2076849 alien-IQ
alien-IQ's picture

Realistically, I think it might be worth .50 - .40 against the USD.

Which would make a vacation to Greece quite cheep. I've always wanted to go there.

Wed, 01/18/2012 - 23:58 | 2076943 RiverRoad
RiverRoad's picture

In that instance I'm willing to do my bit to get their economy going again.......

Wed, 01/18/2012 - 22:51 | 2076791 flyonmywall
flyonmywall's picture

Gah, double post.

 

 

Wed, 01/18/2012 - 22:51 | 2076796 deflator
deflator's picture

 All this talk of bond defaults makes me think of deflation hanging over our heads like the sword of damocles. The threat of deflation is a great tool at the moment for out of control  money supply inflators that control the WRC. 

 Once the cat is out of the bag that bonds are not going to perform longterm as they have in the past will remove the sword hanging over the markets heads.

Thu, 01/19/2012 - 05:08 | 2077261 PhattyBuoy
PhattyBuoy's picture

Armstrong agrees ...

http://www.martinarmstrong.org/files/Europe%20Hit%20by%20Downgrades/inde...

This is part of the final stages of DEFLATION. As debt defaulted in 1931, the INFLATIONARY turn around took about two years to unfold. As it stands right now, this downgrade is still reflecting the collapse in asset values. As sovereign debt is downgraded, the resale value of existing debt declines. This not only undermines the banks giving them incentives to avoid sovereign debt investment, but pension funds are hit as their asset values also decline. Thus, this is very much the final stage of DEFLATION. Inflation starts only when the majority of bond holders begin to realize that they are better off with private assets. This will make the shift from PUBLIC to PRIVATE asset investment come alive. No government debt will be safe!

Wed, 01/18/2012 - 23:05 | 2076816 tahoebumsmith
tahoebumsmith's picture

There is no Deal, there is no bailout. The Global rescue of the EU never materialized either. Here in the US the super commitee can't do anything, were back at the debt ceiling debate again after a mere 4 months? It's pretty simple to see they have no real answers because they have no money..It's gone and they are on life support now. Just fricken die and get it over with already and stop hoodwinking evey market into believing your going to somehow recover. One thing is for sure, Russia, China and other big players ain't buying any tickets for the show as they have been doing everything they can to avoid the dollar and the Euro.

Wed, 01/18/2012 - 23:21 | 2076863 Reese Bobby
Reese Bobby's picture

Oh there's more money.  Always more money.  Any useful-idiot, soul-forfeiting Princeton economist can tell you that.  MMT! MMT! MMT!

Wed, 01/18/2012 - 23:24 | 2076877 alien-IQ
alien-IQ's picture

yet the market has barely seen two hours in the red since 2012 and even with this news, futures and the EUR/USD are up.

Go figure.

This shit is just nuts.

Wed, 01/18/2012 - 23:35 | 2076901 tahoebumsmith
tahoebumsmith's picture

The market is acting like a person that pulls into their driveway and realizes that their house is fully engulfed in flames. They are running in and getting what they can before the roof comes crashing down. These are the bots, the insiders that are bilking every last dime before it goes. Believe me, they have been in full communication with the fire chief and will know when to run nano seconds before it goes down leaving anyone else inside to burn..

 

Wed, 01/18/2012 - 23:10 | 2076823 lynnybee
lynnybee's picture

we do read what's on this website, Mr. Tyler !    "we" love this website !   it's the best website for education & information that i've ever seen.     it's difficult reading for some of me, but, i keep on plugging along, hoping to understand what's happening to this country.     i've known for years that something just wasn't right, but, now i know why !!    

Thu, 01/19/2012 - 00:53 | 2076905 Goldilocks
Goldilocks's picture

+1 , long live ZH!!!

~//~

ab•ro•gate

To abolish, do away with, or annul, especially by authority.
To annul by an authoritative act; to abolish by the authority of the maker or her or his successor; to repeal; -- applied to the repeal of laws, decrees, ordinances, the abolition of customs, etc.
To put an end to; to do away with.

Thu, 01/19/2012 - 06:18 | 2077287 falak pema
falak pema's picture

hey don't turn me on!`

Abrogate the desire for truth, annul the impulse to express inner soul, repeal the rule of corrupt authority, defy decrees that ban freedom of speech, march against ordinances that make emprisonment on suspicion the rule of the land, abolish the FED that pumps money out of the economy into the laps of the rich and powerful, put an end to a Congress that enriches its friends and its incumbents on the side and defies human logic. There... said it with ire and I hope raging fire!

I'm turned on!

Thu, 01/19/2012 - 02:25 | 2077173 tahoebumsmith
tahoebumsmith's picture

Here is a good video Lynnybee for you to watch...It will help you make more sense of what you read everyday...

http://www.youtube.com/watch?v=ed2FWNWwE3I&feature=player_embedded#!

Thu, 01/19/2012 - 02:27 | 2077174 tahoebumsmith
tahoebumsmith's picture

") Peace

Wed, 01/18/2012 - 23:27 | 2076881 The Heart
The Heart's picture

Wow!

Speaking of crunches and dates.

Look at this Mitt Romney well researched video crunch and imagine that we approach the NC DATE!

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

 

Wed, 01/18/2012 - 23:51 | 2076931 tahoebumsmith
tahoebumsmith's picture

Like it, especially the facts presented from Ms. Barnhardt. Thank you

Wed, 01/18/2012 - 23:39 | 2076903 honestann
honestann's picture

Hedge Funds May Sue Greece if It Tries to Force Loss

Greece should flat out default 100%.

Without any debts to pay, Greece could prosper.  Then swear off debt forever more, and be an honest, rational country.

They should also adopt ONLY real, physical gold denominated in grams as "money", with no fractional reserve practices of any kind.  They'd become the new Switzerland in about 12 months.

Thu, 01/19/2012 - 00:16 | 2076984 alien-IQ
alien-IQ's picture

Largely due to banking propaganda, people have it all backwards.

Default is NOT the problem...it's the SOLUTION.

Thu, 01/19/2012 - 00:27 | 2076997 honestann
honestann's picture

#####  EXACTLY  #####

Lending is not a risk-free endeavor.  If it was, then every loan to every individual or organization would carry the exact same interest rate.  This is obvious.  This has been well known for dozens of centuries.

The only way an individual or nation can be dynamic is to carry no debt, or very little.

However, when you have a predator-class who can create fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-money out of thin air at zero expense and lend it to individuals and organizations and governments at interest, they have ZERO incentive to be prudent or even rational.  They have ZERO skin in the game.  The WORST that used to happen is their bank goes bankrupt... and the executives simply go start another one.  Today, that doesn't even happen if your scam-bank is huge... the government AKA taxpayers pay your losses and hyper-insane executive salaries and keep your racket going.

This is why ONLY real, physical gold can be money.  And this is why all fiat, fake, fraud, fiction, fantasy... and especially all fractional-reserve practices must END.

Otherwise, predators rule the earth - permanently.

Thu, 01/19/2012 - 06:24 | 2077301 Element
Element's picture

honestann ... if Ron Paul turns out to be ... heaven forbid, ya know, another Goldman puppy (golden retriever?) ... would you run in 2016?

I'd vote for you (if I were a yanky)... need someone to tear this allegedly 'civilized' shit down at that point ... and I do believe you mean it

(no, not trying to get you assasinated here, love you too much for that girl)

Thu, 01/19/2012 - 16:48 | 2079167 honestann
honestann's picture

If I thought there was a plausible chance, I might... even though I do not accept that any individual has any legitimate authority over any other, including me.  However, if my purpose is what you say, to eliminate the [authority of the] system from within, I guess maybe I could hold my nose and get the job done.  Like you say, the job sure needs to be done.

As it so happens, I'm working on a project that could lead to the same result.  The good news is, it is vastly more likely to succeed than someone like me would be to get elected.  The bad news is, our chances to finish the project in time are marginal because we cannot accept financial support from governments or corporations (at least not any corporation that would require they control the technology).

I wish more people understood what an incredible cliff mankind is running towards at top speed, and how permanent and terminal the consequences will be.  With modern monitoring, police-state and military technologies the predators-that-be and predator-class will soon be able to assure their absolute, complete, total domination of their new mutated two-legged sheep species will be permanent.

Perhaps the most disgusting aspect of this disaster is... those few of us who understand what's happening seem to be almost completely incapable of any real, effective collaboration.  By collaboration I mean REAL collaboration on something REAL and PHYSICAL... not just posting blobs and forum messages on the internet and voting for Ron Paul.  I mean real, serious actions to achieve one or the other solution (exterminate the predators, or develop our own frontier outside the effective grasp of the predators).  I prefer the later, but either will do at this point.

Frankly, by far the best first step is getting Ron Paul elected.  That could lead to a large number of honest, benevolent people finding their way into the federal government over the following 8 years, which at least provides a chance to try to turn the titantic around... rather than sink it.

Thu, 01/19/2012 - 00:36 | 2077008 jimmyjames
jimmyjames's picture

They should also adopt ONLY real, physical gold denominated in grams as "money", with no fractional reserve practices of any kind.

They'd become the new Switzerland in about 12 months.

***********

I suspect the radioactive fallout from the nuke would still be too high in 12 months-

Thu, 01/19/2012 - 02:47 | 2077185 honestann
honestann's picture

Good one.  And possible.  The predators-that-be and predator-class ARE predators after all.

However, that would expose the predators AS clear and unmistakable predators in a way that almost nobody could possibly deny any longer.  That's why I doubt they'd do anything like that.  They didn't nuke Iceland, did they?

Wed, 01/18/2012 - 23:39 | 2076911 jimmyjames
jimmyjames's picture

A few months old-so likely more by now-

**********

The aggregate CDS exposures of the big US banks are certainly large enough to be plausibly consistent with the BIS estimate of about $100 bn in indirect exposures to peripheral Europe. If you add up the highlighted numbers (and make a guess at Citi's position), it seems reasonable to guess that the total net open positions on CDS protection sold to third parties by the big US banks is between $1,500 and $2,000billion. Attributing $35 bn of that (about 2%) to Greece, which has certainly had one of the most active markets (proportionally) for CDS contracts over the past year, doesn't seem to be a stretch.

http://streetlightblog.blogspot.com/2011/06/indirect-us-exposure-to-euro...

Wed, 01/18/2012 - 23:48 | 2076929 Calmyourself
Calmyourself's picture

"especially if as it turns, the information was false - we are positive the SEC will be delighted to know the answer"

See how he did that making everyone think there is like a financial cop that stops lawbreakers tweeet, stop with that market manipulation, what a cute story..

"creditors thought to be holding out for a CDS trigger"  This one is even better..  who in the heck can pay all the CDS contracts layer upon layer of them, will magic CDS fairies descend to make it all ok and dispense milk and cookies...

 

 

Wed, 01/18/2012 - 23:54 | 2076937 HD
HD's picture

I gave some homeless guy a few bucks for a sandwich and hot coffee and he promised he'd pay me back. Well, it's been months and I'm shocked, SHOCKED that this man doesn't feel the need to live up to his legal and moral obligation to make good on this loan.

I hope he has a good lawyer because I'm going to take him for everything he has.

Thu, 01/19/2012 - 00:51 | 2077027 jonjon831983
jonjon831983's picture

Dammit 2nd time suckered by Bloomberg.

 

1st time was their Samsung-RIM story!

Thu, 01/19/2012 - 04:24 | 2077231 ebworthen
ebworthen's picture

RIMM is toast, or pork.

Stick a fork in them, they are done.

Samsung and LG appear to be "on it" however.

Thu, 01/19/2012 - 00:50 | 2077039 gwar5
gwar5's picture

I saw the title and immediately thought of Einhorn's earlier circular flow chart, and then there it was, Tyler already had it qued up. 

 

Thu, 01/19/2012 - 01:02 | 2077055 Return2Sanity
Return2Sanity's picture

 

Default, Greek style:

"Okay, we offer you three options.

1. We don't pay you back and you are okay with that.

2. We pass a law that makes it illegal for you to accept our money. Then we pay you back, but we arrest you after and you pay us a big fine.

3. You come to Greece and we repay you in full with feta and kalamari, but you must pay for your lodging while you're here, and believe me, this will take a very very long time.

You get to choose, so it's totally voluntary, you see."

 

Thu, 01/19/2012 - 01:21 | 2077083 Outlaw Of The W...
Outlaw Of The Wasteland's picture

http://www.abc.net.au/news/2012-01-18/greece-to-rent-out-ancient-sites/3779612/?site=melbourne

 

Greece to rent out ancient sites

Updated January 19, 2012 09:15:57


Available for rent: The Parthenon atop the Acropolis

In a move bound to leave many Greeks and scholars aghast, Greece will open up some of the debt-stricken country's most-cherished archaeological sites to advertising firms and other ventures.

The Greek culture ministry says the first site to be opened will be the Acropolis.

It says the move is a commonsense way of helping "facilitate" access to the country's ancient Greek ruins, and says money generated will fund the upkeep and monitoring of sites.

For decades, archaeologists have slammed such an initiative as sacrilege.

The culture ministry says any renting of ancient Greek sites will be subject to strict conditions.

According to a ministerial briefing dating from the end of December, a commercial firm could rent the Acropolis for a professional photographic shoot for as little as 1,600 euros a day ($1,950). Demonstrators could also rent the ancient landmark.

Greece needs every euro it can get. The country's public coffers are drained and the nation is struggling to avoid a historic debt default in March.

Greece was bailed out in May 2010 by the European Union and International Monetary Fund and is in the process of nailing down a second rescue, though it is undergoing tough talks with private creditors to reduce its massive debt mountain.

Commercial use of Greece's archaeological sites has until now been the responsibility of the Central Council of Archaeology, which has been very choosy about who gains access.

In recent decades, only a select few people, including Greek-Canadian filmmaker Nia Vardalos and American director Francis Ford Coppola, have been able to use the Acropolis.

Most filming and advertising requests have been refused.

 

 

Perhaps shaquille o'neal is a time traveler after all: 

Asked whether he had visited the Parthenon during his visit to Greece,
sportsman Shaquille O'Neal is reported to have replied:  "I can't really
remember the names of the clubs that we went to." 1994

Thu, 01/19/2012 - 01:56 | 2077143 jimmyjames
jimmyjames's picture

Legal eperts suggest that the investors may have a case because if Greece changes the terms of its bonds so that investors receive less than they are owed, that could be viewed as a property rights violation — and in Europe, property rights are human rights

*******************

Didn't the Icesave losers from the UK try something like that with Iceland after the default-because Iceland's government kept the local depositors and bond holders whole and let all the foreign holders sink with zero returns-

The circumstances are a bit different-but as far as I've heard-litigation hasn't worked-

Thu, 01/19/2012 - 03:43 | 2077213 Element
Element's picture

"Hedge Funds May Sue Greece if It Tries to Force Loss"

 

The saying "you can't get blood out of a stone", comes to mind.

Thu, 01/19/2012 - 05:37 | 2077279 falak pema
falak pema's picture

This game is looking more and more theatre of the absurd.

Two MAfias competing to "bleed the stone" of the Greek nation; one, the kleptocratic Oligarchy that runs it and blackmails Eurozone, and the other, the HFs brigands; financial vultures, who want their pound of meat off the carcass of suffering, bloodless people!

And the Ponzi CDS world, creators of the biggest fiat bubble that puts to shame the tulipmania of old as its on world-wide scale,  looks on at this antichamber of horrors to its own inevitable demise; financial Sarajevo type moment, which will sound the bugle of collective folly if it goes sour. 

How can a ponzi financial market that generates synthetic derivative marketbets  of a value of 700T every year pretend it serves the cause of the real economy of 60T annual value? The shadow market now dwarfs the real economy to the point where all else becomes meaningless. We are in ethereal levitation and heading for a hard landing when the fizzle will go out!

 

Thu, 01/19/2012 - 05:53 | 2077291 Element
Element's picture

It's the sum of listening to liars, and what it brings into our world.

Humans will never be able to walk the talk of Austrian economics.

Same goes for democracy.

Humans may have formulated these, but it seems they were meant for another completely different and so far non-existent species.

 

Oh look, re-runs of Big Brother 2003!

Thu, 01/19/2012 - 09:51 | 2077495 RiverRoad
RiverRoad's picture

Or blood out of a turnip.

Thu, 01/19/2012 - 04:20 | 2077228 ebworthen
ebworthen's picture

"Stand or Fall"

The Fixx

1980's Classic.

"Crying parents tell their children
if you survive don't do as we did
A son exclaims there'll be nothing to do to
Her daughter says she'll be dead with you
While foreign affairs are screwing us rotten
Line morale has hit rock bottom
Dying embers stand forgotten
Talks of peace were being trodden

Stand or fall
state your peace tonight
Stand or fall
Let's state it tonight

Is this the value of our existence?
Should we proclaim with such persistence
Our destiny relies on conscience
Red or blue, what's the difference?

Stand or fall
state your peace tonight
[Stand or fall
Let's state it tonight

It's the euro theatre
It's the euro theatre
It's the euro theatre..."

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

Thu, 01/19/2012 - 05:36 | 2077268 falak pema
falak pema's picture

The song of the 80s : 

But that was before Reaganomics were invented to save the Western world! Right???

Absolutely, and, it fathered the current Ponzi, of which the Euro is the illegitimate son, specially fathered by Eurocrats to compete with the elder brother, the all powerful Greenback! 

Now they are both in convolution, and the solution does not look like Evolution but more and more Revolution !

"Stand or Fall...Let's state it tonight... has a Call beyond the theatre of the absurd! 

Don't cry for Euro, cry for freedom, as that's what is now truly on the line!

Thu, 01/19/2012 - 06:05 | 2077295 the tower
the tower's picture

"Bondholder rights" are a human right? Since when? 

I think this shows that losses are hitting home, where they belong: by the people that created all this shit in the first place.

Get in line for foodstamps guys, that's where you banker and hedge fund elite scum belong!

 

Thu, 01/19/2012 - 09:57 | 2077512 RiverRoad
RiverRoad's picture

Fer sure.  Apparently every other sector can collapse and consolidate except for the banksters little fiefdoms.

Thu, 01/19/2012 - 06:06 | 2077296 DutchMadness
DutchMadness's picture

The question is: who owns those CDS on Greece and other European Olive Oil countries? Those institutions are toast after a Greec default.

Thu, 01/19/2012 - 06:09 | 2077299 FairyTale
FairyTale's picture

I think I have the answer to the European debt crisis, including Greece.  Sell the jewels. 

http://www.dailymail.co.uk/femail/article-2088395/Tiaras-dawn-Europes-Ro...

Do NOT follow this link or you will be banned from the site!