Are we having fun yet? The market sure seems to be (do algo's get headaches?) As tomorrow's deadline approaches, the rhetoric continues to heat up on both sides of the PSI argument. On one side you have those who say the holders of Greek debt have no choice, either they sign up or they are forced via CAC to take the haircuts, and run the risk that apparently in some warped world may not trigger a credit event. This is the camp that says they simply cannot allow a default to take place on March 20th, no matter the cost. Nevermind the LTRO's, which are only resulting in banks foregoing the carry trade and parking the money back at ECB [6], this entails the ECB hitting Ctrl+P, buying directly, and having the keys stick indefinitely. The sterilization thing isn't working so well, as banks don't have any collateral left [7], so direct buying would be the end result. Which would be neat, they'd enjoy that inflation.
On the other hand, there are those that say to hell with it, let this thing finally meet it's inevitable demise & have a hard default. In which case they'll trigger the credit event (presumably) and get paid their insurance (albeit settled against the cheapest to deliver bonds [8]). The glaringly obvious risk here is this outcome would likely lead to bank runs and total chaos throughout the Eurozone.
As ZH points out [9], as of tonight they don't have the 75% participation rate necessary to force the haircuts via CAC's.
So, who's ready to make a deal?
A decent summary of options below:
"This is silly. We're hoping to get Greek debt down to 120% of GDP by 2020. That's still to me unsustainable."
"There's a different issue, which is the Collective Action Clause. If Greece gets away with a CAC and you're in Lisbon or Madrid, aren't you going to want the same thing? Will Monti want the same thing if Italy's economy starts to contract and he doesn't get growth"