Greek Headline Reality Check

Mainstream media is desperately scrambling to fill copy with stories of collaboration, rescue, heroism, sacrifice, and altruism among the European leaders. The dismal reality facing real people and real participants is quite different and as Peter Tchir points out "How many 'untruths' have become so accepted that they are now treated as facts or axioms". In an effort to get to the facts and reality, we disentangle Bloomberg's 'Greek Rescue' story and note the increasingly Orwellian nature of the events unfolding across the pond.

From Peter Tchir,


What grade should this paper "Greek Rescue Close as Ministers Meet to Resolve Disputes" receive?  How many "untruths" have now become so accepted that they are now treated as facts or axioms.

The "Greek Rescue" in the headline is funny.  Why is this a "rescue"?  What are they being "rescued" from?  Has any laid out what a debt free Greece would look like?  What Greece would be able to do?  Where Greece could raise money once defaulting?  No.  So maybe the "rescue" is worse than what would actually happen.  I haven't seen any actual evidence to the contrary, but politicians have said over and over it would be bad, so it must be true?  Yes, everything politicians say over and over to push through their own agenda must be true.

The first sentence states that "officials are attempting to fend off the euro area's first sovereign default".  Really?  If PSI is successful, 100 billion euros of debt will be wiped clean.  Not paid.  I searched a few definitions of default, but pretty much they all say not paying is default.  So it is a default. The rating agencies are correct to call it a default.  It may or may not turn out to be a CDS Credit Event, but it is definitely a default.  Why pretend it isn't?  It is a default with a recovery of less than 50%.  Why is it not being called what it is?  Explain how the PSI isn't a default?  It might be orderly, it might be voluntary, but it is still a default.

"Merkel, Papademos, and Italian premier Mario Monti" expressed....Why those 3?  Because Merkel got the other two their jobs?  Maybe that doesn't have to be mentioned each time they are quoted, but it does seem like an interesting threesome (ugh - bad mental image).

And the talk about "Greek Bailout" is becoming almost offensive.  It is a "bank" and "central bank" bailout far more than it is a "Greek bailout".  Whoever gets the money is the one that is getting bailed out.  How much of the money is going to Greece?  The EFSF money is going to bondholders.  Bondholders are taking a loss, but it is mitigated by money from the EFSF.  Central banks and the ECB are earmarking some money to pay themselves back for money they lent to Greece.  How much of this money is going to pay for the operations of the Greek state?  How much actually trickles down and goes anywhere other than bondholders? Even if you add in the money that is going to Greek institutions that own bonds, the bulk of this money is not going to Greece.  Calling this a Greek bailout is wrong, it is a bank and central bank bailout.  Why is it so hard to say that here?

"The ECB is swapping its Greek bonds for new ones"....  No questioning whether they are allowed to do this?  Whether they should be doing this?  No mention that this action is not only incredibly unique but is showing that the ECB and the Greek government play by a different set of rules?  Why is Greece even willing to do this?  How does this help Greece?  But no, all is good.

The commentary on retroactive collective action clauses is also feeble.  Some comments from sources saying they would use them if the PSI is unsuccessful.  Not a single comment from anyone questioning how potentially damaging that action is?  There are lots out there that think this is a bad idea - I mean, changing rules is one thing, but changing rules and saying they are retroactive is another.

There is a brief mention about the March bonds.  14.5 billion of principal.  In this case, I can't blame the author being unclear, because logic would dictate that these are part of PSI and don't get paid, but then again, you never know.  Think about the 8 billion or so of bond payments Greece made in December.  They have carved another 400 million out of the budget - but by my calculations, had they done PSI by December, they would have saved 10 times that amount!  That seems like a staggering amount relative to the budget cuts and so clearly shows that this is not a bailout of Greece but a bailout of the debt holders.  Why not default, wipe out all debt, and get the EFSF to give Greece 30 billion instead of giving it to bondholders?  Bet you that would be a far better outcome for Greece.

But anyways, the machine is grinding along towards headlines of "rescue" where Greece will have been "saved" and "default will have been avoided" and it will be "great that banks and politicians worked to save Greece" in spite of the "lingering doubts that Greece will fulfill its obligations".

It will be interesting to see the details and actually be able to analyze them.  If PSI is 100% successful, those new bonds will be the biggest issue out there?  Greece would basically have only 1 bond outstanding for the masses, and it will be over 100 billion euros in notional.  That should be fun to trade.


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