Comments on: The Greece game turns chaotic

By: cnhedge

cnhedge — Tue, 21 Feb 2012 07:17:35 +0000

PSI and OSI with ecb participation is a must, there’s not enough money saved on the cut.

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By: Wainwright

Wainwright — Sat, 18 Feb 2012 15:06:49 +0000

Can we stop using the term ‘haircut’ in these cases? The first time I heard the term used in financial matters it meant ‘a little off the top’, taking a profit but leaving the basic investment more or less unchanged. What we’re talking about here is not a haircut but an amputation, and it would help if our language made that clearer.

Given that analogy, I suppose Felix is trying to prevent them using an anaesthetic!

By: Fish88

Fish88 — Sat, 18 Feb 2012 06:35:39 +0000

Hey, do the Asian Central Banks and Sovereign Funds get the same deal? I bet not…they probably own billions, right?

By: TFF

TFF — Sat, 18 Feb 2012 05:09:48 +0000

DanAllen, some institutions hold bonds for longer than 2.5 years… Those whose bonds matured over the past year were repaid with bailout money. They made out nicely. Those whose bonds did not mature are being asked to take a double share of the haircut.

Yeah, they probably should have sold the bonds at a loss when the troubles became apparent. I don’t feel particularly sorry for money managers of any stripe. Of course the money managers only share in the gains, not in the losses, so the money managers will be fine. Only their clients (e.g. pension funds) will be hurt.

By: DanAllen

DanAllen — Sat, 18 Feb 2012 02:40:11 +0000

Since we’ve known of Greece’s troubles for 2 1/2 years now, you’re telling me I’m supposed to be sympathetic for managers chasing insanely high returns in the last 2 years? They very well knew this was a risk because sovereigns can no longer backstop their banks. They’ve already stuffed as much private debt as they possibly could on the public. From here on in, anything goes. I thought everyone was aware of this.

By: TFF

TFF — Sat, 18 Feb 2012 01:39:17 +0000

DanAllen, the investors who benefited from the earlier bailout are not necessarily the ones who are holding the debt now. Different bonds, different maturities.

By: Diablo3Guide

Diablo3Guide — Fri, 17 Feb 2012 21:52:45 +0000

While we’re at it, why don’t you check out our professional’s overview of the economic situation over at
http://diablo3guideinferno.com

By: Diablo3Guide

Diablo3Guide — Fri, 17 Feb 2012 21:52:03 +0000

While we’re at it, why don’t you check out our professional’s overview of the economic situation over at
diablo3guideinferno@gmail.com

By: DanAllen

DanAllen — Fri, 17 Feb 2012 21:04:01 +0000

How can investors complain? They loaned to Greece, and the ECB and troika shored them up with a bailout. Look at the BIS quarterly reports on Greek debt. It’s been reduced because of the bailout. So, now the investors want everyone playing by the old rules? The old rules said you should have eaten your default instantaneously.

Come on!!!!

By: TFF

TFF — Fri, 17 Feb 2012 16:19:37 +0000

Completely off topic, but on a theme that Felix has touched often:
http://blogs.wsj.com/developments/2012/0 2/15/lowest-income-renters-left-behind-i n-housing-crisis/

By: gordo53

gordo53 — Fri, 17 Feb 2012 16:15:44 +0000

If the ECB took the 50% haircut, it would mean that the balance sheet expansion would become permanent as the 50% would be a loss and no longer a loan. This is where the Germans have drawn their line in the sand. This agreement is no where near a solution. There will be a new crisis soon and ultimately a Greek default and exit from the euro.

By: djiddish98

djiddish98 — Fri, 17 Feb 2012 15:33:39 +0000

“Or maybe it’s just that no one has a clue what’s going on”

I think this may be the best point of the article. Perhaps they are all just talking their book, but I’ve read way too many investing newsletters that simply sweep the current situation under the rug – “Greece is contained”, “Market has priced in Greece”, etc without any further analysis supporting that conclusion. Reminds me a bit of the early 2008 housing analysis, which was a much easier topic to grasp.

I certainly have no idea what’s going on once you start scratching the surface, as the entire process has become incredibly esoteric from a banking / sovereign financing standpoint. The structure of the euro certainly doesn’t help matters.

I’ll echo the sentiment above that FT Alphaville has been doing a great job of covering the nitty gritty, which makes you realize that Greece can’t be sorted out in a sentence or two.

By: alea

alea — Fri, 17 Feb 2012 15:01:28 +0000

“…and swapping them out for shiny new bonds which Greece is going to pay in full.”
How do you know?
This is a baseless claim, the ECB exchange just reduces the pool of eligible bonds for the restructuring swap and increases the odds that it will succeed. The ECB is specifically banned from the engaging in direct monetary financing so it was never on the agenda that it would participate in the PSI.
The new bonds it gets are exactly the same term and maturity and governing law as the old ones and in no way is the ECB protected if Greece eventually defaults.
As per the statutes, if these bonds pay off the profits will
be shared pro-rata as per the capital key of the member states as will losses if they don’t pay off.

By: santcugat

santcugat — Fri, 17 Feb 2012 13:21:52 +0000

However, once a default happens, the bonds can can no longer be posted as collateral, and the bank wil have to come up with the cash from somewhere else very rapidly.

In the case of a voluntary exchange, the banks can continue to use the new bonds as collateral, since no default has happened.

By: FinanceChicken

FinanceChicken — Fri, 17 Feb 2012 12:12:21 +0000

The collateral argument doesn’t fly… Collateral continues to be the property of entity that posted it, it only changes ownership when a default happens.

To the extent that the ECB’s loans are current, the collateral does not yet belong to the ECB.

Of course as we can see from Felix’s excellent post, we have now entered a world where the rules of physics no longer apply!