Global Debt Time Bomb explodes soon

[TC]

Greece passes crucial bailout vote as country burns

The Greek parliament approved a deeply unpopular austerity bill to secure a second $130bn (£110bn) bailout from the European Union and International Monetary Fund and avoid a messy default.

The 200-74 vote was passed against a backdrop of serious violence on the streets Athens and in other Greek towns and cities, including the holiday islands of Corfu and Crete.

Fire-bombs and tear gas greeted negotiations at Greek Parliament on Sunday over the contraversial loan and austerity package which sets out €3.3bn in wage, pension and job cuts for this year alone.

More than 45,000 protestors, many facing steep cuts in pensions, wages and a bigger fall in living standards besieged the building in two demonstrations. A minority were met with tear gas by the 4,000 policemen after throwing fire bombs.

Inside emotions ran high over the price the country was being forced to pay for its second bail out, a EURO130bn (£108bn) loan from the EU and the International Monetary Fund to head off the threat of bankruptcy and withdrawal from the euro.

Finance minister Evangelos Venizelos, in a passionate appeal for support before the midnight vote, said: "We must show that Greeks, when they are called on to choose between the bad and the worst, choose the bad to avoid the worst."

The Greek cabinet unanimously approved the package on Friday after six members resigned. Laos, the small nationalist party headed by Giorgios Karatzaferis withdrew support but with the two main parties continuing to back the draconian measures Prime Minister Lucas Papademos was anticipating winning parliamentary approval.

But the Government still faces a tight timetable to meet terms and conditions tied to the loan and meet a Friday deadline to accommodate a deal with bondholders and repay an outstanding E14.4bn bond by the March 20 cut off date...(continued at link)

[Kommander]

Aren't they having elections soon? That should be interesting, though I don't know what the chances of a new government that will refuse the bailouts terms being elected.

[dogbane]

My friend the disaster tourist was in Greece last week.

Just figured out I'm in the middle of a Greek Communist Party demonstration with several thousand people protesting against capitalism. Probably not the best time to mention that I'm an American investment banker, huh?

He was also detained by riot police for taking photos of them.

[phil_in_cs]

The likely next Greek PM (elections in April) says the deal will be renegotated after he's in power

http://www.guardian.co.uk/business/2012 ... te#block-6

[Kommander]

Thanks for the link. Looks like a good time to invest in riot gear manufacturers.

[phil_in_cs]

http://www.ft.com/intl/cms/s/0/4d2faecc ... z1mIfWaH5W

European officials rushed to finalise details of a €130bn Greek bail-out on Monday amid signs Germany and its eurozone allies may not be prepared to approve the deal at a finance minsters’ meeting on Wednesday, despite Athens backing new austerity measures.

Bold by me.

[phil_in_cs]

http://www.equities.com/news/top-financ ... 68&cat=fin

Greece Headed For A Default, Central Bank Sources Tell Paper

BERLIN, Feb 14, 2012 (Dow Jones Commodities News via Comtex) --
Some central bankers expect that Greece will fail to enlist enough private investors in a voluntary debt restructuring to avoid a technical default, a German newspaper reported Tuesday.
Greece is likely to make its case for a voluntary debt swap after a meeting of euro group finance ministers Wednesday, the Handelsblatt newspaper says. The Greek government is seeking to lower its burden by EUR100 billion.
Handelsblatt cites unnamed central bank sources as saying the country will fail to achieve that goal, leaving the government little choice but to make the write-down mandatory for investors holding out.
Requiring investors to take a loss would prompt credit rating agencies to declare a debt default for Greece, an event with unforeseeable consequences for financial markets.
The report doesn't specify whether its sources are with the European Central Bank or with the German Bundesbank. Neither bank would comment early Tuesday.
Newspaper: http://www.handelsblatt.de
-Berlin Bureau, Dow Jones Newswires; 49-30-2888-410.
(END) Dow Jones Newswires
02-14-12 0419ET

Copyright (c) 2012 Dow Jones & Company, Inc.

[Krustofski]

[...]

German "newspapers" (I use the term losely) have been predicting a Greek default "in the next few weeks" for over a year now, and gave minority dissenting opinions of unimportant bank figures way to much space and attention... so I'd normally shrug it off.
It's the Handelsblatt, though. They are pretty reputable, and also the official publication organ of both the Frankfurt and the Düsseldorf stock exchange. Shit, they were all over the banking crisis and the American housing market days before any government official noticed anything.

[phil_in_cs]

German "newspapers" (I use the term losely) have been predicting a Greek default "in the next few weeks" for over a year now, and gave minority dissenting opinions of unimportant bank figures way to much space and attention... so I'd normally shrug it off.
It's the Handelsblatt, though. They are pretty reputable, and also the official publication organ of both the Frankfurt and the Düsseldorf stock exchange. Shit, they were all over the banking crisis and the American housing market days before any government official noticed anything.

as we've discussed, it is hard for me to know which German papers are worth listening to, but I figured if Dow Jones Newswire ran it, they must think it legit.

[Krustofski]

Handelsblatt is definitively legit.

(In that they probably have reliable sources in the central bank that say a default is unavoidable, not in that they have clairvoyance or anything, of course.)

[phil_in_cs]

Likely due to the increasing chance of a Greek default.... With the interconnection, insurance, and re-insurance no one is quite sure who will get hammered or how badly.

Feb. 16, 2012, 9:23 a.m. EST
Moody’s puts big banks on review for downgrade
114 financial institutions in 16 European countries on review as well

MADRID (MarketWatch) — Moody’s Investors Service triggered fresh worries for investors after placing 17 major global financial firms review for potential downgrades due to the euro-zone crisis and other issues, as well as putting more than 100 European financial institutions on review.

The global capital markets “are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions,” Moody’s said in a statement late Wednesday.

“These difficulties, together with inherent vulnerabilities such as confidence-sensitivity, interconnectedness, and opacity of risk, have diminished the longer term profitability and growth prospects of these firms,” the ratings firm said.

more @ the link http://www.marketwatch.com/story/moodys ... beforebell

[phil_in_cs]

Greek one year bonds yielding 629%

[williaty]

OK, given what's over there, I assume the yield means how much Greece is having to agree to pay buyers above and beyond the "face value" of the bond in order to sucker someone into buying one?

[phil_in_cs]

bond yield is a function of the interest rate paid (coupon rate) and the discount/premium at which the bond is sold.

If a bond is sold at 20 cents on the dollar, you will have a 500% rate of return even if the coupon rate is zero. Assuming the bond is paid back, of course.

[phil_in_cs]

http://www.ft.com/intl/cms/s/0/b5909e86 ... z1mybJBWA8

Greek debt nightmare laid bare
By Peter Spiegel in Brussels
A “strictly confidential” report on Greece’s debt projections prepared for eurozone finance ministers reveals Athens’ rescue programme is way off track and suggests the Greek government may need another bail-out once a second rescue – set to be agreed on Monday night – runs out.
The 10-page debt sustainability analysis, distributed to eurozone officials last week but obtained by the Financial Times on Monday night, found that even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of a new three-year, €170bn bail-out.
It warned that two of the new bail-out’s main principles might be self-defeating. Forcing austerity on Greece could cause debt levels to rise by severely weakening the economy while its €200bn debt restructuring could prevent Greece from ever returning to the financial markets by scaring off future private investors.
“Prolonged financial support on appropriate terms by the official sector may be necessary,” the report said.
The report made clear why the fight over the new Greek bail-out has been so intense. A German-led group of creditor countries – including the Netherlands and Finland – has expressed extreme reluctance to go through with the deal since they received the report.
A “tailored downside scenario” in the report suggests Greek debt could fall far more slowly than hoped, to only 160 per cent of economic output by 2020 – well below the target of 120 per cent set by the International Monetary Fund. Under such a scenario, Greece would need about €245bn in bail-out aid, far more than the €170bn under the “baseline” projections eurozone ministers were using in all-night negotiations in Brussels on Monday.
“The Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned in the baseline,” the pessimistic scenario warned. “Greater wage flexibility may in practice be resisted by economic agents; product and service market liberalisation may continue to be plagued by strong opposition from vested interests; and business environment reforms may also remain bogged down in bureaucratic delays.”
Even under a more favourable scenario, Greece could need an additional €50bn by the end of the decade on top of the €136bn in new funds until 2014 being debated by finance ministers on Monday night. That “baseline” scenario includes projections that the Greek economy stops shrinking next year and returns to 2.3 per cent growth in 2014.
Details of what has gone off course in the report are long and daunting. A recapitalisation of Greek banks, originally projected to cost €30bn, will now cost €50bn. A Greek privatisation plan, originally to raise €50bn, will now be delayed by five years and bring in only €30bn by 2020.
The report also paints a troubling outlook for the debt restructuring, expected to begin this week. The deal involves a debt swap, where private investors trade in existing Greek bonds for a package that includes €30bn in bonds issued by the eurozone’s rescue fund and €70bn in new, long-term Greek bonds.
The analysis says the swap, co-financed by Greece and the rescue fund, essentially creates a class of privileged investors who will chase off new bond investors when Greece attempts to return to the bond market.
“It is now uncertain whether market access can be restored in the immediate post-programme years,” the report warned.

emph mine: basically, insiders get 100%, others get very little (20%). The current squabbles are over who is an insider.

[raptor]

http://www.ft.com/intl/cms/s/0/b5909e86-5c0f-11e1-841c-00144feabdc0.html#axzz1mybJBWA8

basically, insiders get 100%, others get very little (20%). The current squabbles are over who is an insider.

If the non-insiders get only 20% of the face value, a yield of 629% is not enough to offset the inevitable write down. Look for the current yield to go up even further to offset this write down risk.

[survivaljoe]

@BreakingNews: Dow Jones breaks 13,000 for the 1st time since May 2008 - @cnbc

Got this over twitter. Seems like everything is going bacK to normal right?

About the Greek bailout, 250 billion euros is the high end estimate, but that doesn't seem like its a whole lot. The USA spends that kinda money for breakfast. So what's the big discussion about?

On a side note, Castle has an interesting show last night. Espionage and economics were part of the plot.

[TC]

@BreakingNews: Dow Jones breaks 13,000 for the 1st time since May 2008 - @cnbc

Got this over twitter. Seems like everything is going bacK to normal right?

About the Greek bailout, 250 billion euros is the high end estimate, but that doesn't seem like its a whole lot. The USA spends that kinda money for breakfast. So what's the big discussion about?

I wouldn't count on the Dow crossing the 13,000 mark as a sign that everything is alright. Stock indexes aren't like a meter to measure the health of the economy by. Without wanting to instigate some sort of argument, there are plenty of people who would say that there is a serious disconnect between reality and the markets right now.

As for saying that €250b is small money because it's relatively little compared to US debt, that is a poor comparison indeed IMHO. The US is not Greece, first of all, in terms of each country's economy, culture, and how their currencies are controlled. Secondly, consider this analogy, $10,000 is small change to a big shot super star but is an absolute fortune for someone who isn't even making enough to cover next months rent.

From where I'm standing, things are not ok because the Dow is up and €250b doesn't seem very much in comparison to US debt (that probably says more about US debt than Greek debt anyway!!!)

[phil_in_cs]

The Dow is priced in dollars, so by simple inflation it should go up and up and up. If look at the Dow indexed to a commodity, such as gold or oil, you will see a different story.

[phil_in_cs]

If the non-insiders get only 20% of the face value, a yield of 629% is not enough to offset the inevitable write down. Look for the current yield to go up even further to offset this write down risk.

How about 763%?

[raptor]

If the bondholders takes an 80% haircut, then the yield has to exceed 800% to even start getting a return on the bond. Nevermind the risk premium. So IMO even this rate is too low.

[max v]

This fixation on Greece is becoming pretty silly were it not for all the good people affected by it. Does anyone honestly believe that the euro architects are going to let their baby drown? After putting so much time and effort in this project for decades, now all of a sudden they're going to get stingy and scrap the whole thing because Greece can't pay its debt? Which reminds me of a quote:

Permit me to issue and control the money of a nation, and I care not who makes its laws.

Mayer Amschel Bauer/Rothschild

[Kommander]

It's not just Greece. There are a number of countries in trouble right now. If Greece leaves the Euro to fix its financial issues then others may follow suit. The ECB et all are being careful to push hard enough for the concessions that they want without pushing so hard that Greece decides it's better off outside the euro.

[Valarius]

Funny thing. You guys remember Iceland? One of the countries in "PIIGS" that were set to crash and burn if they defaulted?

They defaulted.

http://www.ft.com/cms/s/0/2f8e6e72-5d71 ... z1nHo1lhC6

Arion, the bank created from the assets of failed Kaupthing, has established a €1bn international covered bond programme, the first by an Icelandic lender since the country’s banking crisis.

And after reorganizing, rewriting some laws, reinvesting in better things and doing other stuff, they got their act together well enought that Fitch raised their credit rating over investment grade again.


http://online.wsj.com/article/BT-CO-201 ... 09137.html

Fitch Ratings lifted its rating on Iceland to investment grade, citing the nation's progress in stabilizing its economy and pushing ahead with structural reforms.

The upgrade puts Iceland's long-term foreign currency issuer default rating at triple-B-minus, placing it on the first rung of investment-grade territory. The outlook is stable.

Interesting. Thoughts?