“Ha Ha – we’re a bunch of fraudsters and we’ve suckered you again – we have your money & you can’t get it back. We might give you some toilet paper in exchange. Now we’re going to gets lots of lovely free money from our fellow swindlers and liars the leaders of the 4th Reich. Of course we won’t pay it back – you the peasants and suckers will do that for us”

“Ha Ha – we’re a bunch of fraudsters and we’ve suckered you again – we have your money & you can’t get it back. We might give you some toilet paper in exchange. Now we’re going to gets lots of lovely free money from our fellow swindlers and liars the leaders of the 4th Reich. Of course we won’t pay it back – you the peasants and suckers will do that for us”

More generally while the bond exchange is part of the solution, I can’t hel but think that people forget that the problem faced by Greece and other European periphery countries is that they are experiencing twin crises (fiscal and current account crisies). And, twin crises mean that they need two policy tools to deal with the situation.

So far policy makers have dealt treated the situation mostly as a fiscal crisis and ignored the current account crisis; and as a result they have focused on one policy tool — financing of the Greek fiscal psoition to avoid “default”.

The other policy tool, to deal with the current account imbalance, is a devaluation. The classical internal devaluation means high unemployment and prolonged recesion. External devaluation avoids much of these problems. The periphery therefore needs to consider options for an orderly euro exit and devaluation (as well as financing).

http://www.specie-flow.net/2012/02/22/it s-twins/

Two policy tools for twin crises.

The reason it doesn’t apply to other euro goverments’ bonds is because, as Felix was written (see “The Greece game turns chaotic”) they’ve already converted them in shiny new different bonds which are not part of the deal.

Can anyone tell me what Europe gets in return for their 15% contribution? To me this would be like congress voting to give a massive amount of aid to a single state.

Next can anyone explain to me why Greece is bothering to pay the last 13%? I suppose that token jesture is sort of like a thank you paid for out of the new bailout money.

Lastly, where will the Greek budget stand in 2013. Their interest payments just fell by something north of 85%. What % of their budget was debt service? My guess is that they will have borrowing needs in 2013 and beyond.

If this deal is consumated on terms anywhere near the ones just announced investors the world over need to take a good hard look at the risk/reward profile of soverign debt. What interest rate justifies the risk of a 72% loss of principal?

Just a thought.