One PSI Chart To Rule Them All

Tyler Durden's picture

As the Greek PSI deal rears its ugly head on our screens once again with Merkel, Schaeuble, and Papademos all pulling from one angle or another (and Dallara disquietingly silent in his uselessness), BNP created a simple flowchart of the various steps and probabilities of participation rates, retroactive embedded CACs, CDS triggers, and actual debt reduction that may (or may not) occur in the next week or two. The price action in Greek CDS and Bonds strongly suggest the CDS will trigger (as we have been vehemently explaining for weeks/months now) but there is a long way between here and there.




The Greek CDS-Cash basis package has risen dramatically - implying the market's expectation of a CDS trigger in the short-term is rising rapidly.

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Xibalba's picture

70% loss or 100% gain?  Decisions...decisions. 

Dr. Engali's picture

Assuming that there is the ability to pay off should the CDS trigger. A lot of counter party risk out there.

Ghordius's picture

Assuming we find out if the megabluff called CDSs will ever be called out - if yes, I expect some manifestation of this new physics of vaporization.

Dr. Engali's picture

That is just fucked up. Send that picture into Mike Rowe see if he will climb up an elephant's ass on dirty jobs.

MillionDollarBonus_'s picture

The ECB needs to aggressively buy as much Greek debt as they can get their hands on, so that in the event of PSI they can vote for a restructuring that does not trigger CDS contracts. This is absolutely critical, as a large proportion of these CDS contracts have been issued by the SIFIS (systematically important financial institutions). I cannot emphasize this enough: these institutions CANNOT be allowed to fail. Primary dealers, top tier investment banks and other SIFIS are critical to our economy, and no matter what nerdy libertarians say, these institutions are and always will be TOO BIG TO FAIL.

Dr. Engali's picture

You're right MBD. As a matter of fact we need to subsidize them more and allow them to consolidate so that there is just one giant institution controlling everything. The sooner that happens the better off we will be.

JPM Hater001's picture

You put that so beautifully I nearly cried.

economics1996's picture

 "SIFIS (systematically important financial institutions)"  ROLMFAO.

Taint Boil's picture




 "SIFIS (systematically important financial institutions)"  ROLMFAO.

Every molecule in my body explodes into multiple orgasms that are triggered by the sweet poetry that flows out from MDB’s keyboard.


lasvegaspersona's picture


to big to fail

to 'connected' to behave

I believe this audience is of the opinion we would rather deal with calamity now rather than put up with more of this privileged behavior any longer.

What is worse?... a few months of reset or a lifetime of living in a world where the 'few' play by their own rules while the rest of us sink while we agree to be governed by the law (you know 'country of laws not of men' law)

JPM Hater001's picture

MDB cant fail...failure doesnt exist in the land of lolli-pop dragons and unicorns.

jakshafter's picture

MDB your posts literally do make me "Laugh Out Loud" 

You sir, are marvelous.



prains's picture

i believe one of the esteemed medical staff is our own ZH alum Hamy, also know as hamster to his friends as gerbil is obviously too small for the job. can't tell if he's entering or exiting in search of MDB.

IrritableBowels's picture

NSFW, apparently.  Thanks.

Calmyourself's picture

I always enjoy a Fred Lapides fix in the morning..  Except when he gets lazy with the babes..

disabledvet's picture

"Vapor paper!" I like that! And here's my answer!: "the numbers don't mean anything...until suddenly they do."

vast-dom's picture

risk = reward on the flipside of sheer stupidity. lots of oppurtunities.

Moneyswirth's picture

Pass "GO", collect $200?

JPM Hater001's picture

Pass "GO", Collect Parthenon...

There fixed.

Gomie's picture

Meanwhile back in the good ol USA:

Stockton, CA city council is expected to begin the process of filing for bankruptcy protection next week. A rough town of 292K population and $702M of long-term debt, it would be the largest city to ever file.

Dr. Engali's picture

What was that blond girl's name again?You know the one that they all said was crazy? Mer....Mera.....Meradith!

camaro68ss's picture

I live 20 min from stockton.....getto for sure. you dont want to go any slower then 20 mph when driving through there.

carbonmutant's picture

Neighborhood for people who speak English as a second language...

Fed_Printstone's picture

How do they call it then? Estoctón?

JPM Hater001's picture

"it would be the largest city to ever file..." for now.

LA or NY will be the largest and about twice the size each of Greeze.

JPM Hater001's picture

I forgot to mention...they are also in as much trouble as Greece.

Martial's picture CDS triggers. Then what? Domino effect? Or do we have to wait until Italy/Spain do the same?

All that fear they were pushing 3-4 months ago of a Greek default, and now they just act like it's no big deal...Does Head of UniCredit's "A Greek default will trigger an immediate “magnitude 10” earthquake across Europe." prediction still stand? I wonder.

Tortfeasor's picture

That's one hell of a chart.  6.7% chance of no default.  What's that equate to, rolling a hard 8?

JPM Hater001's picture

Hard 4 then doubling down on the field with a 6/8 hedge.

Lost Wages's picture

When those CDS trigger I'm gonna be rich beeyotch!

Not sure whether or not I'm being sarcastic.

Mr Lennon Hendrix's picture

One currency to rule them all,

One currency to find them,

One currency to bring them all

And in the darkness bind them

Dr. Engali's picture

Speaking of vaporized.:


Japanese pension fund looses 2.3 billion dollars.





JPM Hater001's picture

So roughly what, a days debt in the US?


Dr. Kananga's picture

George Carlin saw it coming:

"You know what they [the owners of this country] want? They want obedient workers. Obedient workers, people who are just smart enough to run the machines and do the paperwork. And just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and vanishing pension that disappears the minute you go to collect it."

EL INDIO's picture

According to this week’s market action, everything is terrific and none of this needs to be confronted next month !

Less than a month for this to happen and the market is steaming ahead as if the tracks have no end.

EZYJET PILOT's picture

How many of the bondholders stand to take a 70% haircut? I read somewhere that only applied in ~30% of cases.

Smartie37's picture

Fascinating perspective on high probability of imminent default


eBuddha's picture

isnt' it time for STOLPER to say something wrong?

AccreditedEYE's picture

...and in the European Union, bind them.

How can an institutional investor even stomach any of the PIIGS debt at this point? I mean, at the most basic level, you aren't getting paid anywhere NEAR the yield that this risk is flashing. I'd call the bond vigilantes to action but, really, what's the use.... the amount of complacency in world bond markets is staggering.

vote_libertarian_party's picture

93.3% probability of CDS trigger?


I say no way.  The WS banks probably have 100's of billions of those contracts sold that they would be on the hook for.  Sell many many many multiples of the insurance vs the actual bonds.  No problem.  Easy revenue stream.  No risk.

So the WS banks run the entity that can rule the contracts are null and void?  How convenient.

alexanderstollznow's picture

back in reality, this is the real picture with Greek CDS:

Although a Greek trigger is unlikely to have systemic implications – net notional of CDS referencing Greece is currently US$5.6bn, according to the Depository Trust and Clearing Corporation, compared with around €223bn of euro-denominated bonds outstanding (and US$394bn of Greek debt in total) – some fear it could spread contagion to other peripheral sovereigns.

whether or not CDS trigger is decided by a panel of sell side and buy side banks, on the basis of known criteria.  same as always.  this idea that somehow the actual banks which have sold the CDS will just arbitrarily say there isnt a default, irrespective of those criteria, is just baseless, peanut gallery bullshit.


randfan's picture

interesting comments, but that net notional CDS amount seems quite small.  (I realize that's not your number but a reported number from somewhere.) For well over 2 years Greek default has been in the news with the probability of default rising and shrinking over the same period which, I assume, perhaps wrongly, means that CDS costs moved in concert with the probability.  With that backdrop it's hard to imagine that more CDS insurance contracts were not written either by holders of Greek debt or non-holders of Greek debt merely speculating.

Bansters-in-my- feces's picture

CDS's They still sell those things..?


carbonmutant's picture

CDSes will not pay off, they're worthless. And all major parties in this deal know that. That has been a major component of the problem. They need to prevent a default to keep this CDS ponzi from collapsing.

If a default occurs those who sold the swaps will demand the same terms as Greece... and negotiate a pennies on the $ settlement.

slewie the pi-rat's picture

not too ironic it's from a bank!

they're not wasting any lube here, are they?  L0L!!!

if those swaps trigger, slewie puts it @ 71,4% that the entire world will run outa popcorn within a week!

hopefully we can trust all those involved not to generate more than $1 Tril of counterfeits.  in which jurisdictions will what "regulators" do wtf?  those bonds could be worth their face in gold, for all we know, at this point.  even par!  scratch!

any verification of this goldCore "scoop" about the gold now being hypothecated for these "payments" to "work", yet?  maybe we'll hear something soon...

these new meds take some getiing used to!  L0L!!!  lQQks like we're coming to a possible important "intervention" to save the economy


who will end up with these hirsute greek bonds?  why?

stay tooned for the calls,  BiCheZ! 

randfan's picture

I can partly understand why the Euro countries don't want Greece to leave the Euro:  worried about domino effect, will weaken Euro, will cause period of uncertainty (god knows political leaders hate uncertainty unless they plan it themselves), public and social unrest, etc., etc.


What I can't quite understand is why Greece wants to remain in the Euro.  Sure, a default will be awful and fraught with political, social and economic problems for some period.  That said, it's highly improbable that Greece will become Europe's Venezuela.  Perhaps it would move further to the left -- isn't pretty far to the left already? -- but with very little money and access to credit, there's not much a government can promise.  Nationalization may be the biggest risk, but nationalization of industries will not help the Greeks.)


On the plus side.  Greece generates roughly 20% of its GDP from tourism.   A severely weakened drachma will dramatically increase that 20% to, most likely, 40%, turning Greece into a tourism-juggernaut with Americans happily getting greater value from the depressed Drachma than they can get visiting Euro countries where Americans stay away from because of the high cost.  And Europeans will flock there because it's a stone's throw away and will be so cheap.  Even in the interior and "mainland", Greece could build some of the largest and grandest casinos in Greek country side and coast for European tourists looking for a quick cheap weekend getaway.  Such intense construction and investment would stimulate much needed construction and development jobs.


That leaves the non-tourism interior.  A default will make the drachma incredibly cheap vis a vis the Euro, dollar, RMB, Real, and any other currency you can name.  Private investors may very well flock to the country for cheap drachma-denominated labor and assets. (Is it not possible that one of the bigger Euro-block fears and reasons to keep Greece in the group is that cheap drachma-dominated labor might put further pressure on Spain and Portugal where employees are still paid in expensive Euros?)


I've never understood (and still don't) why weaker European countries were interested in joining the Euro.    I've always believed that the strong northern economies of Germany, France and tiny Netherlands would ultimately dictate monetary policy -- foisting higher interest rates and a stronger Euro on the rest of the Euro countries when the northern economies got strong, regardless of where in the business cycle those weaker economies were.  A stronger Euro in an under-employed country, for example like Spain or Portugal, with sub-optimal GDP could dampen a full recovery in weaker economies but would be necessary to keep northern countries' inflationary risk subdued.

(The satellites like Hungary, Poland or Estonia are an exception to the comments above as participation in the Euro gives them legitimacy and, consequently, stimulates private investment they would probably never see if they stayed out of the Euro.  Over time, however, once legitimacy is earned, those countries will likely realize that they're not benefiting as much and may seek to exit.  But that is years away.)


(I realize that the comment section at ZH is generally a place for sophomoric Tosh.0-like humor and my comments may be a bit too serious, but I thought I'd throw them out there anyway.)


e92335i08's picture

MBD I think your post clearly states the financial system is a giant ponzi! What they can't fail because it will wreck the system? Well maybe the system isn't set-up properly then. If you are a business and you make poor decisions guess what, you go bankrupt. So if the CDS's are triggered banks will fail and they will either have to print a ton of money to prevent it OR let deleveraging take place. Either way not good.

So lets think if they have to print more money where is oil gonna be along with middle east tensions?? Higher

How is $5 or 6 dollar gas for US economy very damaging.

So for these economists who say S&P 1700, and oh yea Oil $150 with all this growth. You think the markets gonna rise and oil's gonna go down NO there pretty correlated and highly correlated to changing the reserve digital amount for banks.(CTRL + P)

We get to S&P 1700 and oil at $150 I would short futures blindfolded and sell everything I had except the clothes on my body to finance more contracts short.

"Hey Ben can you hit CTRL P again, I can't find it on my keyboard because I've been hitting it so much the writing on the key has worn away."