Greek PSI Here We Come? Be Careful What You Wish For

Via Peter Tchir of TF Market Advisors,

So it looks like we should get an announcement sometime today about the proposed Greek PSI deal.  Yes, proposed, not finalized.  Asides from the obvious fact that there will be limited or no documentation for the deal, we still have no clue who has agreed to what.

As far as I can tell, no one has given the IIF negotiators any binding power.  Obviously some of the institutions that the IIF negotiators are associated would have trouble not approving the "deal", but how many bonds do they really represent?

I think this will be a relatively small portion of bondholders and then the real game begins.  The carrot and stick that the EU and ECB can use with other holders and the desire to maximize profits (or minimize losses) on the other side.  So far, this news seems to be acting inversely to the "downgrades" price action, as early front-running is meeting sell the news.

If the terms of the deal being leaked are true, it will be extremely interesting to see what other countries do.  Not only will Greece receive a 50% notional reduction (except from the ECB and other "public" holders), but they will get very long dated money at very low rates.  Who woundn't want that?  Why should Spain both going through semi-legitimate auctions when Greece can get longer dated money at lower rates?  Why should Portugal or Hungary bother with painful steps to reduce debt when the alternative is spend more, reduce debt via restructuring, and get lower rates on that reduced debt?

I have to admit that there is one thing that strikes me as strange.  For a country that doesn't have a reputation for working excessively hard, the politicians seem more than happy to work whatever hours necessary when it comes to getting some free money.  It seems like most of their austerity votes come in the middle of the night, and here we are waiting for them to begin more negotiations at 7:30 pm on a Friday, but maybe that is just me being bitter?