US "Pours Cold Water" On IMF Expansion Plans, Leaves European Bailout To Europeans

It is probably not too surprising that the negative news of the day, namely that the US has decided against expanding the IMF and thus leaving the European bailout to the Europeans (at least for now), was released quietly long after happy hour started on Friday. Yet that is precisely what happened after Reuters dropped a Friday night bomb that with hours before a communique is issued by the G20 in Paris, contrary to previous rumors and representation "U.S. Treasury Secretary Timothy Geithner and his Canadian and Australian counterparts poured cold water on the idea" of injecting $350 billion into the International Monetary Fund. As a reminder, the IMF expansion myth was one of the latest rumors floated today by none other than the tag team of Geithner and Liesman. It lasted less than24 hours but it served its purpose. The full on media onslaught of never ending lies has never been more acute, more relentless, and more blatant: with every central bank and trade surplussed nation all in, the very nature of the global ponzi is at risk.

From Reuters:

They (the IMF) have very substantial resources that are uncommitted," Geithner said.


German Finance Minister Wolfgang Schaeuble agreed the euro zone debt crisis was for Europe to solve, and expressed confidence that EU leaders would produce a plan at the October 23 summit that would be convincing for financial markets.


The United States is among countries keen to keep pressure on the Europeans to act more decisively to end the two-year-old debt crisis that began in Greece but has since spread to Ireland and Portugal and is lapping at Spain and Italy.


"The first priority here is for Europeans to put their own house in order," Australian Finance Minister Wayne Swan said.

The second priority is to get the world's solvent countries' future so deeply intertwined with that of the bankrupt ones, that letting Greece, and hence France, would result in a Global Assured Destruction.

G20 sources said most BRICS economies were in favor of bolstering the IMF's capital as a crisis-fighting tool.


"We have said this before and have conveyed this again, that if emerging economies and the BRICS are called upon to contribute, we can do it via the International Monetary Fund," one of the sources said. "India is open to it, China and Brazil are also okay with the idea."

The same China which on Monday had to bail out its banking sector, is somehow expected to provide billions to plus briefly an infinitely large European liquidity hole. But those billions are nowhere near as much as what the US taxpayer will have to shovel into the European money pit once Geithner's "cold water" announcement ends up steaming for a few days in a bidless stock market.

And while discussions over what form if any the expanded EFSF will take (a moot point as if a E440 billion expansion took Europe 3 months to ratify, a E3.5 billion version will certainly not be done before 2015) what seems to be increasingly under question is if the conditions of even the second Greek bailout will be satisfied.

The Franco-German crisis plan is likely to ask banks to accept bigger losses on their Greek debt than the 21 percent spelled out in a July plan for a second bailout of Athens, which now looks insufficient.


"It will be more, that's more or less certain," French Finance Minister Francois Baroin said., because the FT informs us that according to Greece itself any haircuts over 21% are out of the question:

The lead negotiator for private holders of Greek debt has said that investors are unwilling to accept greater losses on their bonds than the 21 per cent agreed in July, jeopardising eurozone plans to finalise a second Greek bail-out by the end of next week.


Charles Dallara, managing director of the Institute of International Finance, criticised European leaders on Friday for failing to allow the July deal to proceed. He said any greater losses imposed on Greek bondholders could prompt investors to sell the sovereign debt of other eurozone countries, destabilising the single currency.


We do not see that a compelling case has been made to reopen the deal,” Mr Dallara told the FT. “A deal is a deal.”


Securing a voluntary “haircut” from Greek bondholders has been the centrepiece of the second €109bn ($150bn) Greek bail-out after a German-led group of creditor countries demanded private investors bear more of the rescue burden so eurozone taxpayers would not be saddled with the entire bill, as in previous bail-outs.

So with all apologies to Mr. Baroin, his idealistic version of reality, in which CDOs magically self fund themselves, and in which Greek bond funded pension and retirement funds see 50% losses and virtually guarantee social instability and civil war, is about to fall apart.

Yet the real kicker is the following: the whole Greek "restructuring" with a bankruptcy is predicated upon the voluntary nature of the debt exchange transaction. And as we have now learned, it was voluntary up until 21%. At 21.01% it becomes involuntary... and hence triggers CDS according to even that most corrupt of deterministic organizations, ISDA.

And once there is an official Event of Default, and the multi billion CDS complex starts collapsing on itself, exposing the whole premise of "gross exposure is not net" due to bilateral netting for the lie it is, the not even the loftiest lies and the most incredible propaganda won't do anything to lift the offer in the EURUSD.


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