More pieces of timetable jigsaw falling into place

Astonishing details of a Greek default plot hatched by Wall Street and the White House (with the knowledge of both Barack Obama and Hillary Clinton) have been backed up by growing evidence of an undercover US Fed ‘swap’ deal to bankroll Mario Draghi’s eurobank liquidity programme . As a quid pro quo for this disguised loan, the US demanded a ‘leper’ default for Greece – with a much bigger European-funded contagion firewall than currently exists. But the plans may be derailed by intransigence in Berlin.

US President Barack Obama spent last Martin Luther King Day with wife Michelle and daughter Malia. They joined fellow volunteers at Browne Education Center in Washington. During his brief remarks, on arrival, the President said there was no better way to honour King “than to do something on behalf of others”.

MLKD is a public holiday in the US. On that day this year – January 16th – Presidential staff and Fed advisers were in a conveniently empty office block with a dozen or more top Wall Street bankers. The meeting was called to brief a select band on the White House and Geithner approved operation to amputate the eurozone’s obviously gangrenous Greek leg.

Just 24 hours later, a remarkable undercover bailout slush fund was set up for the use of the ECB under Mario Draghi. On that day, the financial website Wealth Wire posted a piece suggesting the Fed was ‘up to something mysterious’ , and Jonathon Trugman of the New York Post’s financial desk wrote this: ‘Essentially, we just bailed out Europe’s banking system with the full faith and credit of the United States’.

Subsequently, a former Fed official told the Wall Street Journal that the Reserve was indeed bailing out Europe by operating in the shadows – aka a loan masquerading as a currency swap.

Former Vice President of the Federal Reserve bank of Dallas, Gerald O’Driscoll told the Journal:

“The Fed is using what is termed a “temporary U.S. dollar liquidity swap arrangement” with the European Central Bank (ECB).  Simply put, the Fed trades or “swaps” dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.

The two central banks [ECB and US] are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.”

Well, swap or loan, it all went into the eurobank prop-up operation initiated by Mario Draghi. During the period following that transfer, the ECB lent $483bn in various amounts to just over 500 banks in the eurozone. Says a eurozone insider:

“Mario then leveraged the amount he’d been given as collateral. Given his position and influence, it wasn’t hard. Without pulling this scam  [to avoid the amount appearing on the ECB's market intervention charts or in its books] the Central Bank couldn’t have splashed out the liquidity it did.”

I am told that the operation is continuing – and will be used to fund the next round of voracious private eurobank appetite for liquidity.

But what nobody has yet reported in the MSM is that the operation was part of a pre-agreed quid pro quo.

That deal was outlined to the key Wall St players on January 16th. In a nutshell, it was “We bale out the eurobanks for Mario, and in return they [the EU States] build a firewall around Greece”. It was the start of what became known as ‘amputate and cauterise’. And I can confirm that Goldman Sachs played a pivotal role in the session.

The American view is this: Greece must default outside the euro, and become a leper. Secretary Geithner thinks the Europeans don’t have the money to make the banks ultra-safe…and that means an immediate contagion blowback to the US, with disastrous consequences. So we, the US, must covertly help the ECB render the eurobanks safe – and in return, they need to step up to the plate by leveraging whatever firepower they need to ensure the whole mess stops at Greece.

Astonishingly – The Slog has learned – the key players at this point were Timothy Geithner, Goldman Sachs, a tight group of White House Obamites, Ben Bernanke (at “a safe distance”), Mario Draghi, IMF boss Christine Lagarde….and an influential group of German bankers based alongside Draghi in Frankfurt. Both the President and Hillary Clinton are aware of the arrangement and its goals. As far as I can ascertain, it now looks likely that Merkel and Schauble were not involved at all; but whether they’ve become party to it since is unclear. I do know there was a major diplomatic flap on in Berlin last Tuesday (21st February) about the potential leak of papers somehow incriminating the German Chancellor and her Finance Minister…but that has never developed, or been confirmed by any source of which I’m aware.

As a consequence, from this point onwards Christine Lagarde began to play serious hardball about the need for a massive firewall investment by EU member States. Concurrently, Secretary Clinton applied every ounce of available pressure to the Sino-Japanese credit line as a potential further source of bricks in the wall. As we have seen in the last week, unlike the Three Stooges Regler, van Rompuy and Barroso, Clinton’s State Department seems to have had some degree of success. Less so Lagarde: she has come up hard against Berlin’s refusal to expose Germany further. I am told:

“The view in the Fed and Washington is that the Europeans are welching on the deal. This strikes me as kind of dumb, in that I don’t think they ever had Berlin on board in the first place. And while Draghi is a genius, not even he can pull that one round on his own. Just how up to speed Berlin is, I don’t know. I assume they know roughly what the deal was, and I assume that Bankfurt has been applying pressure on the basis of that. I suspect the problem is that Schauble thinks, first off, there’s a lot more in this for the US than there is for Germany…and second, privately he thinks the amputation analogy is unrealistic. He’s more of a pop-corn guy. But some of that is guesswork.”

The pop-corn reference is based on an influential term used by former Bush staffer Edward Lazear. He suggested that Greek debt is really a cooking piece of pop-corn in a pan…once it pops, you can’t stop the other seeds from doing the same. It’s a view shared by The Slog: the leveraging and insurance fire-storm that could potentially follow default is impossible to calculate, because the arrangements of individual banking firms remain a closely-guarded secret.

But on the other hand, it beats the Brussels strategy of writing Japanese poetry and making false promises about action. And in the meantime, the behaviour of some players continues to support the deal’s existence:

* The Greek consitutional change demanded by the Troika (to hierachise debt before other expenditure) will not be possible by the Greek bailout closure date. And they knew that all along.

*European creditor countries are demanding 38 specific changes in Greek tax, spending and wage policies by the end of this month and have laid out extra reforms that amount to micromanaging the country’s government for two years, according to documents obtained by the Financial Times. There is no way the Greeks will stand for that either. Says Mujtaba Rahman, Europe analyst at the Eurasia Group risk consultancy, “The programme is being set up to fail, as many of these conditions will be impossible to achieve”.

*In an interview with the Wall Street Journal, Mario Draghi’s support for the deal remains understated bordering on tepid: he suggested that the sceptical market response to Tuesday’s rescue deal suggested many doubted Athens would follow through on a promised austerity cure. “It’s hard to say if the crisis is over,” he warned.

*Commerzbank AG Chief Executive Martin Blessing yesterday said of the Brussels deal, “The participation in the haircut is as voluntary as a confession during the Spanish Inquisition”. For the Bankfurt pro-default team, this is bang on message.

Nor are these people making it up: the bondholders must give more than 50% approval before the swap – and they need to deliver that on a two-thirds quorum. Hedge Funds in particular remain tight-lipped.

As I keep saying: this deal will not make it to the tape. It was set up to fail: but even that plot may now unravel if the firewall doesn’t materialise at a level satisfactory to the Americans.

This piece was compiled and written based on confidential interviews with New York, Washington, German and Brussels sources

Walking round our house at the moment is like a cross between River Safari and a reclamation yard. This is all down to maturing Norfolk  puppy Coco, whose desire to play with everything and pee everywhere has created our New Look. I’m thinking of getting the Sunday Times Home supplement in to record the result as a sign of major social change: the middle classes are keeping chickens in the garden…but at the same time, we bourgeois doggie folks are in the vanguard of reaction to interior minimalism. A vanguard of reaction may seem to you something of an oxymoron, but when one has witnessed thirty years of progressive madness syndrome, it becomes ever easier to argue that oxymorons are exactly what our civilisation needs.

We will never again acquire a puppy in winter. Winter is for closed doors, but closed doors produce interior wee-pools. As the puppy gets bigger, the pools turn into the sort of lakes for which the EU is infamous. To encourage the lakes to migrate into the garden, one needs permanently open doors. But as long as winter endures, this is a battle between hypothermia and soggy kitchen roll as to which might be the lesser of two evils. The First World War battle of the Somme was, I imagine, very similar.

Very few things do better reclamation than a terrier puppy, if only because everything left lying around is seen as something to be reclaimed in pursuit of a new purpose. During any average day, Coco will come across – and drag away for disciplinary action – shoes, glasses, coal, kindling, TV listings, socks, toys, cardboard, and any other objects deemed likely to give good chewing. What she is absolutely crap at is tidying any of it away. What she is even crapper at is discerning the intentionally supplied toy from that heat patch designed to alleviate Dad’s back pain. While I was leaning forward to type on the sofa last night, Coco went to investigate the builder’s cleavage thus created, and liberated my Deep Heat patch. By the time I realised that the patch had gone missing, the puppy was engaged in thrashing it to within an inch of its life against our carefully distressed oak living room doors.

Coco’s abiding obsession involves keeping her dentistry in good order. This is a good thing, in that our oldest Norfolk Foxie’s teeth are the result of her greed in sucking all food directly into her stomach -  a process during which she perceived teeth to be something in the way. The downside is that when Coco’s owner is lying on his back on the floor (with legs on the sofa to repair repetitive blogging injury) she views my head, ears and fingers as more raw material for varietal chewing.

The most engaging action she performs is the four legs off the ground bouncing and growling thing. She does this better than any electronic cuddly toy I’ve yet encountered – and with such determined vigour that middle-terrier Tiggy is clearly impressed to the point of being terrified. Tiggy began by seeing Coco as a toy whose squeak needed to be extinguished, but she has learned otherwise over the last three months. I doubt very much if even Syrian water-cannon weapons could extinguish this latest addition to our menagerie.

When we return to France in two months time, the problem will rapidly cure itself: for there, little bottoms can be gently encouraged outside by human feet to dispose of waste materials via open doors to the outside…..there to chew upon real rodents and rabbits, rather than crucially important investment and probate documents.

Ever since I married Jan eighteen years ago, I have been an incurable dog-watcher. I still stick to my theory that wolves are the stupid buggers who couldn’t grasp how easily animals can manipulate humans into providing all their needs – in return for a bit of obedience and ritual rat-slaying. Many years ago, the Kennomeat dogfood brand ran an advertising campaign casting dogs as owners, and vice versa. In one memorable commercial, a canine ‘Human Owner’ observes, “Y’know, sometimes I think he understands everything I say”. I think that got the real relationship about right.

I know it’s a cheap shot and all that, but there is something sphincter-smashingly funny about CERN scientists announcing that they’ve refuted Einstein’s law about the speed of Light….and then returning to say, mamma mia, it was only a wiring problem after all. Big fat boffin bollocks gets a kick in the teeth again, hurrah.

Last November, The Slog had an outrageously off-message and incorrect take on why the Italians hadn’t noticed any radiation being given off by the Cern neutrino experiments. But even I was not so crass as to imagine that a faulty wire was behind it.

I lay emphasis on this phrase for a very good reason. When I was a kid, my Dad had Practical Householder delivered every month. The colours, illustrations and articles were pure, unadulterated independent ironmonger in nature: all brown overalls, cut-away diagrams, and late deco typefaces. And – just as with Cosmopolitian and the female orgasm thirty years later – the one thing you could always be certain of was an article about faulty wires. ‘Tackling that faulty wire in the scullery’ was a particular favourite, as was ‘Why every family man should beware that faulty wire to the immersion heater’.

Immersion heaters were the forerunner to central heating. I wouldn’t say that every house should have one, but back then every house did. Like some kind of hangover from wartime rationing, they allowed for up to one family member to have a weekly ankle-deep bath. So while on the one hand it is nothing short of a miracle that we have gone from such Da Vinci contraptions to Cern colliders in just over sixty years, it is (for me anyway) profoundly comforting to know that faulty wires still f**k things up.

A similar emotion, one suspects, drives a lot of James Delingpole’s Daily Telegraph blog columns. Although I find his blanket rejection of climate change impossible to justify, we are on the same wavelength in understanding that the task of every ego-driven Bigbrain is to establish that he or she has ‘settled’ the debate. This partly explains who so many medical researchers rush to the nearest Science Correspondent in order to ‘show’ that beetroot causes chilblains or butter is good for you after all: like any form of marketing, if you get into the media first and full-on, you will be the one in the history books and on the way to that Nobel Prize. Science’s self-publicists differ only from hype-marketed brands in the degree of onanism involved in the process.

The faulty wire is closely akin to the hatpin in the sheath factory: with just one, tiny metal prick in the wrong place, it can make any prick anywhere supremely over-confident. Just as the drive for a wireless, paperless office has produced more reams of paper and miles of wire than at any time in history, so too the search for that elusive Higgs bosun particle has been thwarted, thus far, by…a faulty wire.

Doncha love it?

If you enjoyed this piece, you will probably also enjoy A survey of blended metaphors.

This last week represented one hell of a learning curve for me. Some days, it’s been like having a minor walk-on role in a Le Carre novel where nobody knows the ending. I’m only now beginning to make some kind of sense out of it…but at times, it’s still like lassoing ether. Indeed, one of the major differences between blogging and grown-up Establishment journalism is that the former are more likely to share what my Dad used to call their “workings out”. It does seem to me that it is all-important in the MSM to be seen as an all-knowing, ultra-reliable source of information….no matter how often that inside-track is shown to be wrong. Whereas we upstart pro-ams – having little to lose – present the four-dimensional long-division for inspection. (We are, after all, expected to be off-the-wall).

Two things are reasonably clear. First, when geopolitical forces loosely cooperate to get a result, for loose cooperation read hidden back-stabbing and sabotage of even the most well-meaning of promises – by person or persons largely unknown. And second, when unimaginable amounts of money and power are at stake, the absolute need to win the propaganda battle – as a form of self-fulfilling or denying prophecy – creates a battlefield where the weapons are nastier than anything you’d find in a physical war. We talk of nuclear wars, cyber wars and currency wars, but media wars outstrip anything thus far created. That is a sobering realisation…at least, it has been for me. And I speak as one who studied Nazi propaganda as a special topic at University some 44 years ago.

The range and depth of disinformation is staggering, but there are patterns of it. For example, the range of figures I’ve been given for the size of Hedge Fund Greek bond exposure ranges from $10bn to $60bn. Even allowing for the fact that Hedge Funds make the Mafia look blabber-mouthed by comparison, it surely can’t be hard for the IIF and the ECB to tot up what they hold, ask the Greeks how much they issued – and then assume the missing bit is down among the Hedgerows. (Most banks will have kept a record of what they sold to the Funds anyway).

But the fact is, it is in the Eurocrats’ interest to portray the Hedge Funds as a hugely powerful and psychopathic wolf-pack destroying all their best-laid plans; and it is in the Hedgies’ interest to suggest that their power is overstated by the media. A Hedge Fund’s primary strategy is stealth, and their end-games usually involve the element of surprise.

“Nobody has paid much attention to the Hedge Fund bondholders, because they tend not to engage,” said one senior European wealth manager yesterday, “but the professionals like Monti and Draghi will be worried. Here we are about to do a deal, and a huge portion of the creditor base hasn’t even said it might cooperate on the haircut issue. It’s a no-brainer that if you hold out and claim the insurance, then it clearly isn’t voluntary PSI, and so it’s obviously a default”.

“We think no more than 10 billion [euros of Greek debt] is owned by Hedge Funds,” said a leading UK sector spokesperson yesterday, “bear in mind, the total under Hedge Fund control worldwide is only the same as the capitalisation of  medium-sized bank.”

I’ve no idea what medium-sized bank that person had in mind, but it’s not one I know of. Fine, the sector has reduced from its 2008 peak of $4trillion, but both the sector reports delivered since mid 2010 show a total under management of around $2 trillion. There is also an important qualitative element here: hedge funds have become more ‘legit’ than they were. In 2008, only 44% of their backers were institutional; today, that figure is 61%. These folks are under pressure here: they’re not just going to walk away having calmly made a whopping loss.

At the time of the October deal, the Bankfurt Maulwurf said categorically that the IIF would not be able to deliver its members to sign the agreement. He was right then, and he thinks Dalloran’s tepid approval for the deal is a preface to failure again. Once you start to tot it up, friends, the number of insitutions with the potential not to take a voluntary haircut is pretty terrifying.

Then there are the endless conspiracy theories. On Tuesday and Wednesday I was given information suggesting that my sources concerning an alleged ‘default timetable’ were wrong: that the ratings agencies had been nobbled (that’s why Draghi felt safe doing the separate ECB bond-swap) that Schauble had been blackmailed into shutting up, and that this would be the Brave New World of State debt: ‘there is no such thing as a default unless we say so…and we are never going to say so’.

It’s a theory, but it doesn’t stack up: if that view was recognised, every sovereign bondholder in the eurozone would clamour for the exit. I have no doubt that some information sources are in denial about Greece being in default, but that’s because they have no choice (eg Evangelos Venizelos) or because they are stupid (eg Jose Barroso). By lunchtime yesterday, Fitch had blown a large hole in the theory by declaring a technical default, and Moody’s confirmed to The Slog that it too was mulling ‘a development’ of its view on the D-word.

More credible (but still uncertain) is that the ECB’s boss Mario Draghi has decided to tough out the ratings agency verdicts: ‘it’s an opinion, and we have a different opinion’. He, after all, doesn’t care much about big US insurers catching a cold – that’s their problem. So the hedge funds get a result, so what? It’s not his money: taking this view merely solves a capital debt problem for the Italian…and passes it on to a reluctant Wall Street.

However, that potentially leaves The Slog with holes in its own version of what’s going to happen between now and, roughly, the end of March. If, for instance, there is a ‘plan’ for Greece to default, why does Brussels still occasionally go into overdrive about the catastrophic consequences of default?

I think there are two reasons for that: first, the other ClubMeds have to sign up to the belief system. Make it OK to default, and they’ll all do it. (This is, I think, the flaw in the ‘Draghi doesn’t care about the ratings’ view: sooner or later, chicken licken’s sky will be seen not to have fallen in, and all cooperation with the ESM and IMF could cease immediately.)

The second reason splits into two parts as I see them. The first comprises useful idiots like the newly-unelected Herman van Rompuy who simply aren’t in the loop. They’re there to have their windey mechanisms renewed, and potter about the place saying doom-end of world-children in slavery. The second reflects the fact that not everyone is on board with ‘the plan’. There’s a very good chance that such players include – to quote an abnormally large exception – Angela Merkel the Chancellor of Germany…although there is clear evidence that she is bending on the issue of default in Athens.

It’s very likely that the French President in turn isn’t a signee, because he perhaps still has at least one bank to worry about. But he might be: I simply don’t know for sure – and I doubt if he’d tell me. However, I rather fancy that Mario Draghi’s bold card-playing suggests that the major eurobanks have been sorted. Ultimately, I doubt if anyone knows that for sure: but I do find it funny to hear Brussels Sprouts saying ‘default is not a problem’ one day, and ‘default is the HNR51 virus reborn’ the next. In a world of 24/7 ‘news’, you don’t need to worry about the veracity of your soundbite: half an hour later twenty new ones will have erased it from the popular memory.

Geopolitical plans are by definition based on false hubris. They very rarely come to fruition, and events change both the aim and the game along the way. I think this ‘default plan’ will fail, because you can’t ‘amputate and cauterise’ a fissile substance – and because things in the pipeline will render its aims irrelevent. (See yesterdays Slogpost on the subject).

For now, I’m sticking with my view of what the plan is or was: an attempt at, if you like, at constructing  a planned firewall. It is designed to protect the US, help Obama get reelected, and shelter Germany from interim debt liability prior to FiskalUnion.

Far from being ‘a consipracy theory’, the corroborated allegations still stand, and the actions of the players fully support them: Christine Lagarde is reversing away from involvement like an Italian tank, the German track record of seemingly senseless hurdles to unseat the Greeks is blatantly obvious, the ratings agencies probably haven’t been bought off, and all the poison pills remain.

This deal will not make it to the tape. On verra.

Related: When a deal is not a deal

                   Good game, Mario – but you can’t win

Filed under: Uncategorized Tagged: Greek default in March still on track, Hedge Funds, Live Debt Deal Unravelling brought to you by The Slog ]]> http://hat4uk.wordpress.com/2012/02/23/cloaks-daggers-disinformation-how-the-powerful-are-fighting-to-get-the-greek-result-they-crave/feed/ 76 hat4uk dealbreakpaint http://hat4uk.wordpress.com/2012/02/22/at-the-end-of-the-day-134/ http://hat4uk.wordpress.com/2012/02/22/at-the-end-of-the-day-134/#comments Wed, 22 Feb 2012 22:08:36 +0000 John Ward http://hat4uk.wordpress.com/?p=8825 Continue reading →]]> At the top of every bottom line, there’s a pot of rainbows

Standing at the bar of a pub the other day, I overheard two blokes of roughly my age discussing mates who had shuffled off the mortal coil.

“I tell you,” said one them, “They’re falling off the perch like flies”.

Now you and I both know that flies don’t have perches. And only very rarely do they fall off any upon which they might land. We are in the land of metaphor blending here. It is an inexhaustible seam of humour, and much of it originates in pubs.

A mate who had worked on the old TV series Minder told me how the show’s star George Cole was in well-known watering hole with his son one day, when he heard one bloke say to another, “Listen son, get this right and the world will be your lobster”. He asked the writers to incorporate it in an episode, and they did.

Although there is a certain cruelty to mixed metaphor gags, as so many come from political rhetoric, I find them irresistible. Many sources attribute this one to George W Bush, but it was actually Al Gore who said, “A leopard can’t change his stripes”. Barack Obama began a speech in 2008, “As we consider the road that unfolds before us…”.  Tory novelist and chancer Jeffrey Archer once accused a Labour MP of “biting the hand that rocks the cradle”, while Rush Limbaugh invited his listeners to “button your safety belts”. And 1950s Commie-bashing Congressman Joe McCarthy told a witness at one of his enquiry committees, “I can’t imagine myself sitting in your shoes”.

Quite a few of them start life as the over-excited pronouncements of news anchors and sports commentators. An American football commentator described majorettes before a game as “drop down gorgeous”. Another said one team “isn’t taking any wooden indians”. One UK soccer manager said in an interview that his job was like “beating life with a dead stick”. He also described one of his defenders as “not the sharpest marble in the drawer”. “You can almost hear the writing on the wall,” said Alan Parkes while commentating a game between Arsenal and Derby County. Defending a bad refereeing decision, Alan Shearer said, “To be fair to the bloke, he didn’t have two minutes to rub together”.

Walking a thin cliff, drowning in a field of opportunity, stepping up to the plate and grabbing the bull by the horns, at the spur of the hat, a storm of protest nipped in the bud, hitting the nail right between the eyes: they’ve all been said by public figures who later cringed in embarrassment. There is even a US website dedicated to offering at least one example a day of metaphorical confusion. Recent ones include ‘It’s not over until the fat lady comes home to roost’, ‘I’m going to sleep like a baby’s bottom’, and ‘There’s no use crying over fish in the sea’. I’m giggling away here as I write.

One sadness of the EU is that its top pillocks don’t misuse metepahors, because they speak that Euro-English which comes from not speaking English well enough to know about metaphors in the first place. But it’s nice to dream. How good it would be, for example, to hear Nicolas Sarkozy say, “You think we French know f**k-nothing, but you are wrong – we know f**k-all”. Or Jose Barroso to pronounce that the Greek debt accord in Athens “Has shown to the markets that the glass houses of Brussels will gather no moss”.

I shall, however, take great pleasure in replaying to Sloggers a notice I saw in the painfully English part of the Dordogne. It said, “Trespasssers will be violated”.

When I joined the JWT ad agency in London during the Autumn of 1971, one of the first accounts I was asked to cut my teeth on was the South African Wine Farmers Association (SAWFA). This presented me with a moral dilemma. Being Left-Wing and clueless, it didn’t occur to me to investigate the details about SAWFA: it was South African, and ergo sum it must be Bad. No way was I doing anything to support Apartheid.

My Kennedy Democrat boss Judie Lannon was a little distressed at this impasse, and tried to explain how SAWFA was a model employer. But I wasn’t having any of it. I knew it all, didn’t I? I was a Politics graduate for crying out loud.

But there was another, much older woman in the Creative Research Unit. She was in charge of consumer recruitment for research samples, and her name was Patricia Chiswell. Pat was – like most people in JWT at the time – more cut-glass than Waterford Crystal. I suppose I saw her as an haute bourgeoise who must be 97 at least. She was probably a fraction over 50: I thought she was smashing, but I also thought she hadn’t a clue about politics, right, wrong, race or indeed any of the subjects in which my own wisdom was of course universal.

One morning, Pat pitched up at my desk around noon and said c’mon, we’re going to lunch. This was clearly an order not an invite, and so I said fine, let’s go. At the time, JWT had an expenses code number, ‘H47′. To a few privileged employees, it was a licence to become morbidly obese at the company’s expense, as its official designation was ‘Staff Motivation’. Anyway, off we went to a long-since deceased eaterie called Serafinos.

As we played with bread sticks and ordered the usual pre-lunch G&T – the past is another country – I learned that far from being a product of Roedean, Pat Chiswell was South African. The story that unfolded taught me never to prejudge…and was also quite amazing.

Patricia Chiswell had founded a chain of ultra-upmarket fashion shops – particularly renowned for its hats – in 1950s Johannesburg. She was married to a nationally-known radio personality called Peter Chiswell. His catch-phrase – “Be-Beep” – was an integral part of a weekly Saturday show for kids on the main State channel. (In those days, the Nationalist Party kept TV away from the populace as a dangerous foreign influence).

Pete Chiswell was a distinguished Second World War fighter pilot. Oxbridge educated in the 1930s, he wasn’t a Communist – but he was virulently anti-Fascist. Before South Africa even bothered to get its conscription act together in 1939, Peter stowed away on a ship to England, and immediately joined the RAF.

Twenty years later, Peter and Patricia lived a life of unimaginable privilege right at the top of the social scale among the South African white minority. Together, they nurtured an image as the perfect conformist couple. They seemed about as political as Donald Duck. They lived in a massive house in Joburg’s best area, and their society parties were legendary.

But in fact, the couple were working hard for the ANC. Peter was slotting code-words and phrases into his radio broadcasts to inform black activists about this or that development or danger. Patricia meanwhile was funnelling untaxed cash from her rich clientele’s purchases into foreign ANC bank accounts.

During the summer of 1961, things turned very, very nasty in Nationalist South Africa. The ANC formed a military wing in May of that year, and the Chiswells wondered whether they could continue to support terrorist violence. Their ruminations became somewhat academic when, shortly afterwards, Peter received a phone call from a sympathiser. The voice used an immediately recognisable code: get out now. Chiswell rang his wife, telling her to grab their passports and meet him at Joburg airport. They left everything behind, and caught a flight to London that afternoon.

During that 1971 lunch a decade later, Patricia patiently explained to me how SAWFA was not only a model employer, but also a Liberal Party supporter under constant BOSS surveillance. But after she’d finished – in a most matter-of-fact way – telling me about their lives in South Africa, I really did feel something of an inadeqate prick. The bravest thing I’d ever done was throw eggs at Harold Wilson on his arrival at Lime Street station in 1968.

“In 1959,” Pat told me, “I asked my cook ‘You won’t kill me after the revolution will you?’ And she said, ‘Oh no ma’am, I’m going to kill the people next door – they’re coming round here to kill you’. She then giggled, but I was never entirely sure how much was gallows, and how much humour, in that response”.

A great deal of life is about learning to be humble about some stuff. I didn’t feel humiliated by Pat – she was the kindest of people – but I was humbled by her account. And I went to work with gusto on the SAWFA account.

Filed under: Unlikely events in South Africa Tagged: 1950s South Africa, Patricia Chiswell, Peter Chiswell ]]> http://hat4uk.wordpress.com/2012/02/22/anecdotage-6/feed/ 21 hat4uk http://hat4uk.wordpress.com/2012/02/22/slog-prediction-vindicated-as-fitch-downgrades-greece-to-call-default-on-bond-swap/ http://hat4uk.wordpress.com/2012/02/22/slog-prediction-vindicated-as-fitch-downgrades-greece-to-call-default-on-bond-swap/#comments Wed, 22 Feb 2012 15:32:38 +0000 John Ward http://hat4uk.wordpress.com/?p=8815 Continue reading →]]>

Moody’s admits it is monitoring ‘development’ of rating

Papademos rumoured to be mulling further election postponement

I have never known the major ratings agencies so tight-lipped as they have been over the last three days, but it looks like Fitch has now broken cover. Following its downgrade of Greek bonds this lunchtime, a few sources and insider tongues have loosened a little.

The AP report times the downgrade at 6.50 am EST, and Reuters has since added that ‘Fitch said it was downgrading Greece to “C” from “CCC,” and would follow up with further downgrade to a “restricted default” when the bond swap is completed.’ Fitch’s Peter Fitzpatrick had earlier today declined to comment on The Slog’s information about an impending default judgement, but American sources have since clarified things slightly.

“The main bond swap is scheduled for March 10,” a Washington insider told me within the last hour, “and at that point, they [Fitch] will name the event as a technical default. So now everyone wants to know what the ramifications are for insurance. That’ll depend on what deal, say, Hedge Funds have signed with specific insurers. But you could certainly speculate that some insurance will be triggered.”

The downgrade is an early blow for those who put the Brussels accord together just 36 hours ago….and quite possibly a victory for others who always wanted it to fail.

And within the last hour (since first posting this piece), a Moody’s spokesperson told me,  “Greece is currently rated Ca with a Developing Outlook. Moody’s is assessing the credit implications of the Greek bailout and will comment in due course.”

Meanwhile, following the Greek Environment minister’s suggestion that the elections in Greece be further postponed, there is widespread speculation in Athens that Goldman Sachs implant Prime Minister Lucas Papademos is under pressure to announce this formally.

I’ve also conducted a qualitative interview study with 15 senior investment/sovereign credit/currency team members across the UK and eurozone – and Switzerland.

In turn, The Slog has spoken with sources representing the interests of Hedge Funds.

Finally, I’ve received one rather concerning piece of information about a source for the original Slog story about alleged Greek default ‘timetables’.

So far, I can tell you this much – and it’s conspiracy fact rather than theory: there is a titanic struggle going on out there between those who want a default, and those who don’t. There is dissembling, disinformation, cloaks, daggers, geopolitics, and obviously tainted briefing in play. I’m currently engaged in weighing empirical evidence alongside several explosive allegations; but even after that, it will probably still be impossible absolutely to discern the difference between truth and spin when it comes to the Greek debt restructure.

The relevant post might appear later today, or – if another interesting story develops – tomorrow. But as always, it will go behind the spin….and extrapolate based on common sense rather than bollocks.

Also I’ve done my back in. So please be patient.

Three problems the great illusionist can’t make disappear

One of the more engaging features of European Central Bank boss Mario Draghi is that his spin isn’t aimed entirely at the gullible. It isn’t so much a lie as an interpretation. The interpretation on offer isn’t ‘Americans never went to the Moon’ mad either: more that he is, you know, in control of things. Nobody is in control of things at the moment, but Signor Draghi is at least competent. Not for him any grand overstatement a la Barroso. “We have made a good agreement” was his comment on yesterday’s Brussels mirage. Spin, of course, but not risible spin.

Draghi’s problem is at its core very simple: he has far too many audiences to satisfy, and far too little money with which to meet their expectations. In order to deal with this, he seems to me to have two guiding principles: do one thing at a time well; and make it all look like progress. (There must be something about this in the Goldman Sachs training programme, because Mario Monti follows the exact same strategy).

For example, Problem 1 – market fear of buying ClubMed bonds: the ECB boss knows only too well that he could already paper the walls of his Frankfurt base with worthless junk bonds. He also realised early on that bond-buying produces private bank dependence. But in creating an aura of success around his ‘liquidity programme’, Mario has now calmly announced that the bond-buying programme “is no longer necessary”. And there are enough trusting traders and bankers out there who will believe such tosh.

The reality is that he has given 500 eurobanks a billion euros each (on average) that nobody else would’ve given them. The idea that they have pushed this cash out into the economy is nonsense: the credit crunch is every bit as bad as it was six weeks ago, and the EU economy is at a standstill outside Germany. But the banks feel a little calmer – and for Draghi, the economy is Problem 4 further down the can-strewn road. His achievement is that very poor Eurobond demand is now seen by many as an ex-problem. As the two things aren’t really connected, this was an amazing card trick.

Like all accomplished illusionists, Mario Draghi gives good distraction. Eurobond demand is a problem that will return at all stops along the railroad to Grand Canyon Gap, but for now that money can now be focused on Problem 2 – making sure no major banks fall over in the context of Greek default. The next issue of his liquidity scam is at the end of this month. The distraction by then will be an unravelling Greek survival deal. Private bank demand for ECB money will still be very high; but probably, amid all the Athens/Brussels shuttle diplomacy, not many people will notice.

Not long after that, Problem 3 – Greek amputation – will solve itself. Some of the commentariat (Stiglitz, Wolf, Evans-Pritchard) will meanwhile have been pointing out the continuing huge eurobank demand for money, and round about then the two Marios will start banging the eurogrowth drum: bailout will be rebranded ‘investment’, and this in turn (I suspect both men hope) will bring in Sino-Japanese funds – assuming Klaus Regler hasn’t snatched defeat from the jaws of victory by then. For good measure, I wouldn’t be surprised if some eurobank lending figures are released at the same time – with much fanfare – to reveal a percentage increase in bank lending to business. Now we are dealing with Problem 4, and Problem 3 is also seen as an ex-problem. M&M will start quietly syphoning ECB and ESFS/ESM monies into Italian and Spanish growth.

Sleight of hand is a wonderful thing, but there are three problems Europe’s Central Conjuror can’t magic away. The first of these is Portugal.

This will present problems of an entirely different kind to Greece. Having positioned Greece as the first and last one-off unique special deal, the room for Eurozone manoeuvre will be severely limited. Two amputations in a year will make it look as if ClubMed will soon be paraplegic. Once again, there will be seen to be no final guarantor. Here, Draghi must hope that Merkel wins her race towards FiskalUnion. I have my doubts about that. In fact, I have my doubts about her political future, but that can wait for another day.

The second problem is the French election. Much as Wolfie Schauble would dearly love to tell the Elysees to postpone it, it’s going to happen, and almost certainly Sarkozy will lose. Nico’s two insurmountable problems are first, he’s been useless; and second, Marine Le Pen may well split the Right vote badly. I think if Angela Merkel turns up to help Sarko, that really will seal his fate; but again, somehow I suspect she won’t.

So unless something dramatically helpful to Sarkozy’s cause happens in the next six weeks, a Socialist President will be in place. His first act, very probably, will be to blow up the FiskalUnion train. Keep your eyes peeled for the dramatically helpful event….but at the same time, don’t rule out the power of fiscal blackmail from Berlin and Frankfurt to change Francois Hollande’s mind.

The third problem is the Greek General Election. The psephology isn’t looking good. While one or two BBC scaremongers are drivelling on about the Extreme Right there, the Hard Left has almost ten times as much support. My continuing belief is that the Brussels deal will be in smithereens by then, and social unrest will be a serious problem. The outside world will look at events, and finally realise that its precious neocon austerity has handed power to the Hard Left. The expectation will be for Portugal to go the same way.

Other things – Iran, China, Putin’s failing career, lack of growth investment in time for Italy and Spain, and Cameron’s decision to back Spain and Italy in a ‘Growth Troika’ – could be influences in one form or another. But as a magician, proving you have no tricks up your sleeve is not just a useful distraction: it also proves you haven’t got any hidden weapons either.

Signor Draghi is going to lose this war. But he will have won several battles in a game manner. Whatever one thinks his aims might be, he is making a far better fist of his job than any of the other players. I shrink from offering applause; but he certainly has my respect.

which art in the Financial District, obfuscated be thy game.

Thy bonus come, voters be damned -

in Greece, as they are in Beijing.

Give us this day our Media Idiots, and forgive us our bond purchases -

as we screw those who hedged against us.

And lead us not into morality, but deliver us from the markets -

for thine is the Blankfein, Obama and Geithner

for Merkel and Schauble

Amen.

WHEN….

1. it’s a default

2. there’s no real agreement

3. there are poison pills

4. there are very high hurdles to jump

5. there are loose ends all over the place

6. all-powerful forces don’t want a deal in the first place

1. Reading the deal’s main points this morning, although the ECB has made a reasonable fist of complicating its subordination of the private bondholders – money out, profits redistributed, local central banks reinvesting and so forth – it remains a preferential deal done outside this so-called ‘bailout with PSI’. The IIF creditors have sort of voluntarily taken the extra 3.5% hit, but the coupon they’ve been offered is worth less than the original. In a statement issued by representatives of private bondholders, the new interest rates – 2% for the first three years, 3% for the next five, and 4.2% thereafter (this is the scheme revealed by The Slog three weeks ago) were described as “well below market rates”, and the creditors will lose money on them. The tone of the statement screams ‘involuntary’. In English, all these factors spell default.

2. Nobody has actually signed up to anything yet: as usual with all things EuroZen, the bankers are alleged to be on-board, but the IIF statement made after the press conference suggests otherwise: ‘We recommend all investors carefully consider the proposed offer, in that it is broadly consistent with the October agreement’. That’s not true for one thing: but as a recommendation, it’s somewhat limp. Further, there is still a body of hardline ezone sovereigns who don’t want to do the deal – and in Germany itself, a growing rearguard campaign to stop it. (See this morning’s Spiegel for immediate evidence). And finally, most Greek citizens themselves will react violently to some of the more pernicious clauses.

3. The ‘agreement’ contains almost a full bottle of poison pills: Berlin has got its debt Gauleiters in the end, only 19 cents on the euro will go to the Greek Government itself, 325 million euros in additional spending cuts have been found, Athens has agreed to change its constitution to make debt repayment the top priority in government spending, the escrow account must have three months debt money in it at all times etc etc. The idea that Greece can now toddle off and have a liberal democratic general election without any of these being issues is Brussels space-cadet stuff at its most tragi-comic. (An opinion poll taken just before the Brussels deal showed that support for the two Greek parties backing the rescue package had fallen to an all-time low while leftist, anti-bailout parties showed gains.)

4. Several Grand National leaps lie ahead before the default is avoided. Parliaments in three countries that have been most critical of Greece’s second bailout – Germany, the Netherlands and Finland – must now approve the package. In Greece itself, further violence will test political resolve about yet more cuts in wages, pensions and jobs. Greece’s two biggest labour unions have already lined up protests  in the capital tomorrow. Very significantly, Jean-Claude Juncker of Luxembourg and the IMF’s Christine Lagarde stressed at the press conference that Greece still had to live up to a series of “prior actions” by the end of the month before eurozone governments or the IMF can sign off on the new programme. If ever I saw a get-out clause, that’s it.

5. Other loose ends are left hanging everywhere. Nobody has elicitied any response so far from the Hedge Fund creditors. Entirely absent from comments was  the IMF’s contribution to the €130bn bail-out. Christine Lagarde would say only that the contribution would be ‘significant’, but my information is that she’s lying through her $240,000 teeth as usual: the IMF will only contribute €13bn to the  in new Greek funding. Not exactly a resounding vote of confidence for the deal. Juncker said he was optimistic that ezone members would cough up more cash at the EU summit in March, but this too simply doesn’t bear examination: Portugal is broke, Spain is technically insolvent, Italy has asked to be excused from this dance, and Germany has already shown extreme reluctance to to increase its exposure further still. Fritz Schmidt in dem Strasse isn’t too keen either. Finally, as Bruno Waterfield notes in his latest column at the London Daily Telegraph, the agreement remains ‘overshadowed by the pessimistic debt sustainability report compiled by the IMF, ECB and Commission, that warned of a “downside scenario” of Greek debt hitting 160 per cent of GDP in 2020 – far higher that the agreed 120.5 per cent target’.

6. This is where we get to what the MSM will largely dismiss as ‘conspiracy theory’….but for which the circumstantial and corroborative evidence gets increasingly compelling: whole crowd-scenes of actors off-stage (and several on it) simply do not want this deal to reach fruition: they have factored in a Greek default, and believe that the best way to avoid further debt-crisis contagion is for the money earmarked for bailouts to be invested in bank-propping and growth.

The cast of players who think this include David Cameron, Mario Monti, Mario Draghi, Wolfgang Schauble and most of the German Finance ministry, Christine Lagarde, probably Angela Markel herself, Tim Geithner, huge swathes of the German banking community, The White House – and elements in both Beijing and Tokyo.

I understand that the Sino-Japanese response to a switching of EU funds emphasis from bailout to growth stimulation might well attract funds from that quarter. In fact, there is a global shift of opinion now away from austerity: it having killed the Hellenic patient, the Alchemists in Berlin and the IMF are an increasingly small minority. This won’t stop the Berlin Blinker Blitzkrieg, but it is changing the actions of legislators and lenders everywhere.

Certainly, my New York source was unrepentant late last night EST. The response was brief and lucid: “If you launch a seagoing sieve, it’ll never leave harbour. No deal has been done, and no bailout will occur. The March default is still on track.”

That’s sticking your neck out, but the informant’s track-record in other areas has been impressive. I’m inclined to agree with the conclusion – as indeed was the Bankfurt Maulwurf this morning.

“Well, it’s the usual formula,” he observed, “But I am reassured that Germany’s commitments are now effectively limited. Like all the other deals made by these people, it will collapse….perhaps within days. Or things will develop in Portugal, and then people will get a clearer perspective and the insanity will end. I can certainly tell you there will be consequences for the Chancellor if it doesn’t”.

I did suggest vigorously to Maulie that he was wrong about Schauble and his Ministry ‘not being involved’ in the Greek default timetable.

“I wasn’t wrong,” he purred, “You simply asked the wrong question.”

The Bankfurt Maulwurf is, as we established some time ago, anti-Merkel and hawkishly anti-integrationist. I have no way of knowing if he represents a small lunatic fringe or a broadly based group of senior financial opinion leaders in Germany. The bloke’s background and achievements suggests he’s not that fringe or lunatic. But then, since when did sanity have anything to do with any of this?

As always, we shall see.

S&P, Fitch, Moody’s weigh default ramifications

Hardliners briefing hard to the end on ‘hopelessness’ of leaked Troika report

Connivance, confusion and chaos reigned supreme in Brussels as the 10 pm press conference was cancelled, but at 3am a deal was announced. The Slog remains fairly certain that the key ratings agencies will see the deal in its current form as a default, triggering massive insurance payments. The major development priot to the deal was a ‘further’ leaking of the Troika Report -with heavy use of this in the discussions by hardliners.

The Slog’s New York informant said there would be no deal Monday, and there wasn’t. What we had up to 3 am was ‘movement’…if you think of overnight stubble-growth as movement.

For one thing, the bar closed at 11.00 pm. That was a bad sign – a bit like the covers being dragged on at 11.01 am at Lords.

For another, Schauble wanted the 2020 Greek debt-to-GDP ratio to be 120%, the Troika report said it would be at least 129%, but the Ministers had haggled it down to 124%. Ring loud the bells and raise high the roofbeam.

Earlier in the day, Northern European hardliners including Holland, Germany, Austria and Finland, demanded a “permanent representation” of the troika in Athens, so it could run Greek finances. This too was movement, but very probably one involving fourth reverse gear.

The decision by the hardliners to leak further damning details of the Troika Greek debt viability report produced the mildly amusing spectacle of the London FT leading with the story Tuesday morning, although Reuters had the story last Saturday afternoon EST, Bruno Westerfield broke details in the Telegraph last Saturday night GMT along with his German default plans scoop, and The Slog ran with both that and the New York informant’s confirmation of an international default timetable during Sunday.

But several ezone finance ministers now describe themselves as ‘shocked’ by the revelations of Greece’s hopeless economic/fiscal outlook. Bollocks.

However, two other vital elements are being neglected by the gathered bigwigs. First, as my New York mole pointed out yesterday, the private bondholders are feeling just a tad neglected. Dalloran is alleged to have said this evening “53% and that’s it on the haircut”, and the Greek delegation has had to stop the session three times to talk further with IIF representatives. These are pretty big ‘minor points’ to be still undecided….and we still await details.

But my main focus remains the credit agencies’ attitude to the structure of the proposed bailout/restructure deal – and I’m not the only one: Zero Hedge has been boffing on about this all day, Tyler Durden there being on a similar wavelength to me – although he thinks the ‘default done deal timetable’ story is tosh. We shall see Tyler, we shall see.

Bloomberg had this late Sunday:

‘Compounding the issue is the role of the ECB and the Greek bonds it has accumulated over the course of the crisis. The Frankfurt-based central bank is holding talks on exempting Greek bonds in national central banks’ investment portfolios from a debt restructuring, two euro-area officials said last week.’

Reuters said this last week:

‘The ECB is swapping its Greek bonds for new ones to ensure that it won’t be forced to take losses in any debt restructuring, three euro-area officials said on Feb. 16. The move may be completed today, the officials said.’

In turn, websites and print business media have been overflowing with sovereign credit dealers saying the ECB action subordinates the private bondholders. And the greater the Troika demands for IIF haircuts get, the more that too will create a non-several deal which is in turn another technical default.

All this supports gossip I had early yesterday evening suggesting that the Hedgies were quietly rolling over to every Troika demand – in the certainty that their credit insurance will pay out. But that’s all a tad esoteric if the S&P/Moody’s/Fitch axis pitch up and yell default with a capital D.

I spent much of yesterday afternoon trying to get a straight answer from the UK offices of The Big Three. The situation seems fairly straightforward: Mario Draghi’s ECB debt swap deal was so brazen and unexpected last week, the ratings chaps are in a state of catatonic shock. The agencies swamped me with scoped scenarios and critical path analyses, up to but not including balls-out subordination of the private bondholders by the Central Bank. Looks like nobody factored that one in. This gets more amazing the more it unfolds; but it does confirm Signor Draghi as a bloke with no problems in the cojones department. I really get the impression that the ECB boss is more or less saying “Sabotage us if you dare”.

So I was back to the States again by mid-evening. And while all I have is insiders who know insiders, the general consensus of the feedback is that S&P and Fitch are at best lukewarm about the deal’s ability to avoid the default tag. Moody’s is as tight-lipped as a ever. It’s not much, but even so: who’s keeping an eye on this one in Brussels? Mr Durden the bareknuckle guy over at Zero Hedge says the ECB action is a flagrant breach of the Rule of Law that will make all future bailout negotiations a nightmare. If I was the ECB, Berlin and Brussels, I wouldn’t have any PSI next time – but there you go, I’m not – so who knows?

But then just on 3 am, cor blimey, there’s a deal at 121% debt/gdp ratio by 2020. So to get that ratio down to 121% from 124%, as Reuters reports, someone has taken a larger loss. Is it the private creditors? Is the deal voluntary? And does that make the previous ECB swap even more subordinating?

Before going to bed now, I thought I’d offer some closing remarks about the situation we have at the moment. It’s flakey beyond belief, Machiavellian beyond anything Niccolo might have envisaged, optimistic to the point of ridicule, and 100% irrelevant: Greece is dead – Washington knows it, the markets know it, Berlin knows it, Frankfurt knows it, even Wolfgang Munchau now knows it. Even at this stage, I remain convinced the package will be destroyed by something zooming into frame before March 20th. Could be Wolfgang Schauble riding a scud missile, Mickey Mouse, Marble Arch or even Charles de Gaulle. But my money is on the ECB subordination being a deal-breaker for the credit agencies.

If you enjoyed this piece, you will probably also like:

How Washington shattered the Iranian currency

The murky past of Chancellor Merkel…and the presence of President Gauck.