Would you swap a used bond with this man?

Ignore the pro-acceptance hype: Greece will have to apply CACs

When it comes to finance and dealing with the media, motive is everything. On the whole, the larger bondholders represented by the IIF’s Charles Dallara need the Greek restructure bailout to work. The Hedge Funds don’t. The larger banking institutions can try all they might to create some form of impetus towards acceptance, but this is not like a US election race where some folks want to be with the winner – and thus hype becomes a self-fulfilling prophecy: the media roll being attempted will roll off the backs of the Hedgies like water off a greased duck.

Yesterday we were fed release after release saying these folks have accepted and those folks are coming on board. But the feeling one gets at the end of most media reportage is one of cows voting for vegetarianism.

We’re still hearing nothing from the most entrepreneurial and risk-taking sector: the hedge funds and similar carpet-baggers that are chiefly in this cliffhanger to make something rather than save something. For these people, there are no pro’s and con’s to weigh; merely acute awareness of a fairly transparent attempt to con them into acceptance.

The reason we hear nothing from these shadowy wisps is because that’s the nature of their business. They don’t do joining and soundbites and encouraging noises and bollocks: these people hire pr’s to keep them out of the news, not in it. They have sector representatives to dissemble, to send out disinformation via third parties, and to underestimate their power. To a Hedgie, surprise and discretion are everything.

In the end, therefore, it all comes down to how big a chunk of the bonds they own – is it more than 25%? – what they paid for it, and how sore they are about ISDA and the ECB trying to screw them. The Athenians and the Sprouts don’t know anything for certain about that….in fact, even Mario the great loaves and fishes illusionist can only make educated guesstimates. So call me wacky, but yesterday I sent out some random emails (and phoned the sensible) to test the water, sniff the smoke in the air, and decide whether (a) there is a fire and (b) if there is, can it be put out by Thursday.

My conclusions are yes, and no.

In summary – and this is an over-simplification to a degree, with a consequent margin of error – the signs from Brussels, Berlin and Athens are that things are slow at the moment when it comes to take-up. The Greeks are scared, the Germans sanguine. Washington and the Fed, too, are interested…but my view remains that, so long as the end result is amputation of the Greek Achilles heel, there will be lots of smiling faces in the White House. The more all that feedback came in to Sloggers’ Roost – and the more the Dallara hype began to build – the more convinced I became that the PSI will fail – unless there is a major turnround for some as yet unknown reason or other.

First the IIF announced that their steering committee had approved the deal. This wasn’t exactly news, and then when Deutsche Bank said they’d accepted it too, the feeling of non-news trying to create a wave was overpowering. Confident folks simply wouldn’t be bothering to do this kind of stuff: I mean, who the hell thought Deutsche wouldn’t accept the deal? Then, twelve financial institutions, including ING and BNP Paribas, confirmed participation in the Greek bond swap. BNP Paribas probably begged, rather than voted for, acceptance.

In the Hedgies’ hand are two very encouraging cards. First, Moody’s in particular have gone out of their way to stress that any use of CACs will trigger a default and the associated insurance. I’m fairly certain that both the other main ratings agencies would be of the same view. And second, for the latter part of last week, everyone from Venizelos to Junckermann went out of their way to talk about how ‘enticed’ the hedge funds should be about the deal. Again if they weren’t dependent on the Hedgies to get a result, the eurocrats wouldn’t bother doing that. At one point, in fact, if the deal proved unacceptable, said Junckermann, there was a “plan B”. The Luxembourger had clearly said too much, and Sarkozy et al were then very quick to make Plan B an Unplan B. Finally, if I had a finger for every time today some Greek flunkey or another had said “this is the only deal”, I’d make for a great Freak Show.

“This is the best offer,” Evangelos Venizelos said in a Bloomberg Television interview with Nicole Itano in Athens yesterday. “This is the best offer because this is the only one, the only existing offer.” Ahaa..the only existing one?

It’s all a great deal of protesting, and all a bit too much.

The news media beyond the hype are, on the whole, sceptical about the chances of PSI success. This has been firmed up slightly by poor economic data from Markit on the subject of Spain and Italy. Now the EU, perhaps, cannot afford to lose the restructure deal. My own view remains that a helluva lot of them would be glad to lose it…but not everyone is in the loop…or in the same loop. All the ‘AOK’ flags were being frantically waved by the big institutions and the Greeks yesterday; but there was also some bellicosity – “We’ll issue CACs if necessary”.

One minute bellicose, the next confident, Venizelos has struck me from Day One as the last bloke on earth to inspire confidence in anyone. His own confidence seems to me, overall, to be massively misplaced: ‘people in Athens who are close to the debt swap process’ told the FT last night GMT that they expected CACs would be necessary.

“It is a near-certainty that CACs will be activated after the offer closes on Thursday night,” said one of them. That sums up my own pretty random sample of opinion leaders reasonably well.

But there is one final piece of deduction that convinces me the FT (and the Daily Telegraph) are right, and it is this: no ‘anonymous’ bondholder has asked ISDA for a reading on CACs and the credit insurance trigger. That’s because they don’t need to.

The two questions asked last week had a specific purpose: “If we accept without CACs, will we get our insurance money?” The negative answer came back loud and clear.

Now, if you don’t think you have a snowball in hell’s chance of sabotaging a CAC-free debt swap, why ask those questions? And having done that and got a no, why hold out for CACs if you don’t believe it’ll make any difference?

This default is, at last, going to be declared a default. For me, only one question remains: will the Greeks blink before Thursday, and offer a better deal? Given the timescales now, I can’t see how they could without freaking the Troika into a level of hysterical sanctimony beyond even that they’ve shown to date.

72 hours to go. A default can still be ‘called’ and both the deal and the bailout go ahead. But put yourselves in a pair of Germano-Belgian-American shoes. Apart from acute discomfort in the foot area, what are you going to think?

Me, I’d say “This is our excuse to withdraw the money offer in the interim and spend it on something more useful”….or even “this is where we pop up and start complaining about all those poison pills the Greeks didn’t swallow”. Because you’d just know that you were pissing away 130 billion euros forever.

This gets to annoy a lot of banks and other genuine sovereign lenders…but it doesn’t ruin many (if any) of them – thanks to the Washington/ECB joint ops deal to keep chucking sandbags at everyone.

But as I’ve said all along, what it does do is free up money being desperately demanded by Mario Monti for economic stimulation. Plus, it gives the White House both its amputation and its chance to embrace Greece as a malleable Mediterranean base for the Pentagon.

Stay tuned.


  1. “Plus, it gives the White House both its amputation and its chance to embrace Greece as a malleable Mediterranean base for the Pentagon.”

    Greece, the 51st State? That would upset the Chinese lol!

    No, seriously, we have waited a long time for this defining moment, I am inclined somehow to think we are going to wait a while longer.


  2. worth a read


  3. i would not trust this man to walk my dog , after all he is the one that created all the amnesty laws for the greek politicians ( amnesty after a term in parliament ) that led to massive corruption ,he is the one that few months ago tried clever tricks on the troika that led to their sudden departure from Athens but he insisted that all was as planned and of course it led to mistrust and change of mood from the troika , he is the one that said ” no taxes to be collected through electricity bills ” and he did just that , he is the one that was barking ” after PSI all new bonds will stay under greek legislation ” ,…… the list with his lies is endless , even his actual name has been copied after a famous greek PM , his real name is Turkoglou ( more or less meaning ” the turk ” ) .The greek trust this man to save their country and he is confident he will lead the Pasok party to victory at the April elections .( i feel nauseous )


  4. Is Venizelos jumpy? He issues stark warning to bondholders not to hold out for more (Athens News 6 March)
    “Venizelos tells bondholders swap offer is final”
    …”Whoever thinks that they will hold out and be paid in full is mistaken,” he said. “We are ready to activate CACs [collective action clause to enforce losses] if needed,” he said.”


  5. So then, if the CDS ‘insurers’ have to pay up, who drowns?
    Or do they all just refuse to honour the contracts.


  6. The IIF might be “confident”, but according to Bloomberg the IIF only represents bondholders holding 20% of the bonds. Some shortfall there methinks.


  7. John, according to Zerohedge and Bloomberg, the IIF Steering Committee only hold 20%, the headline of the article reads as below.

    IIF Steering Committee Holds Only 20% Of Greek Bonds Subject To PSI


  8. Earlier this morning, to much fanfare, the various member of the IIF steering committee announced that they would all gladly be part of the voluntary haircut that would chop off over 70% of their hair. The FT described this development as follows: “A large grouping of private creditors agreed on Monday to take part in the multibillion-euro Greek debt swap in a significant step forward for Athens as the country struggles to avert a sovereign default. Twelve banks, insurers, asset managers and hedge funds in the steering committee of bank lobby group the Institute of International Finance said in a statement that they would take part in the bond exchange. Members of the IIF steering committee include BNP Paribas, Deutsche Bank, National Bank of Greece, Allianz and Greylock Capital Management. A spokesman for the IIF said this represented a “substantial” amount of the €206bn in Greek bonds held by the private sector that banks managing the swap are trying to involve. Analysts estimate that institutions represented by the IIF make up about 50 per cent of the private sector bonds.” Bzzz. Analysts, as so often happens, may have been wrong to quite wrong. According to just released data from Bloomberg analysts analysts may have overestimated the substantial amount… by about 150%. From Bloomberg: “Private Investors Holding About 20% of Greek Debt to Join Swap…The 12 members of the creditors’ steering committee that said today they would join in the exchange have debt with a face value of about 40b euros ($53b), compared with the 206b euros of Greek bonds in private hands, according to data compiled by Bloomberg from company reports.” If so, this means that a whopping 80% of the bonds subject to exchange are unaccounted for, and more importantly, it means that the likelihood of a major blocking stake having organized is far greater than even we expected.

    As we said earlier today, everyone is now scrambling to get some color on how many funds are currently part of the Bingham group of ad hoc hold out creditors and how many bonds they represent. If the above is even remotely indicative of holding patterns 3 days ahead of the deadline, the PSI ain’t gonna happen.


  9. Is this tragedy or comedy? There may well be advanced plans for annexing Greece territorially but it’s not really necessary or affordable without a raging war in the entire Middle East. Kosovo already suits the Pentagon’s dual purpose of heroin weighbridge and tactical forward base.


  10. From Mish Medlock.

    Greek 1-Year Bond Yield Hits 1,006%
    As a matter of curiosity more than anything else, I occasionally take a peek at Greek bond yields. Today, the Greek 1-year yield topped 1,000% for the first time. To be specific, the yield is a nice 1,066.661%.
    That yield reflects the idea that 1-year bonds will be nearly worthless before the month is over.



  12. “Market talk that the Greek government is considering extending the deadline for the PSI deal from this Thursday to next Wednesday – Unconfirmed “


  13. georgie, this has been denied, see below.


  14. My guess: ISDA will say “no default” no matter what happens. The banks who sold the CDSs will not pay out.

    Like taxes, and going to jail if you break the law, “paying out” is for little people only.


  15. Post from Megan Greene, Roubini Global Economics, via D Tel financial crisis blog stating that Greece would be better off outside eurozone. Also some comment on young politicals waiting on the sidelines. It seems there is hope.
    “10.09 Megan Greene, Senior Economist at Roubini Global Economics, sets out why Greece could be better off outside the eurozone in her latest blog:

    Greece faces a stark choice about how to return to growth. It can continue along its current path of endless austerity aimed at engineering an internal devaluation. This option would probably involve a decade of depression and is therefore likely to be politically untenable.

    The alternative to internal devaluation is for Greece to default and abandon the common currency. A new drachma would depreciate massively, boosting Greece’s competitiveness almost overnight.

    She says “bright, young Greeks” are waiting to form “new political movements, untainted by the parties that have gone before. When she asked when this would happen, one young man told her:

    We are all on the sidelines waiting for Greece to hit bottom. We do not want to mobilise and get involved now, because the house of cards could come crashing down on top of us. We will wait until the collapse has happened and then we can finally start rebuilding anew.

    Greene adds that a Greek default and exit could signal the turning point that a desperately needed new political class is waiting for. “


  16. Trevor Lloyd-Hughes and Marcia Falkender ? Yeah, right ! A 51st State that kept well away from the Vietnam War ? Utter ludicrous nonsense.


  17. Apparently all Greeks should immediately start Tango lessons !! ;)

    the only problem is that the cavaljero will probably be a Turkish grey wolf !

    WW3 is imminent !! ( I know how far-fetched this sounds but it all adds up to this)


  18. “greek finance ministry” is under occupation from troikans the last couple of years. If they demand ( politically correct “ask”) an extension , the extension shall be met.
    Yana above expressed very well the trust and the credibility of the “greek finance ministry” and this applies to the whole entity of greek politicians. Their ability to twist , spin and reverse is more than admirable


  19. I agree they may try this but as with all these things the consequences will be massive (and could result in a complete melt-down of the derivatives market which would be even more damaging in the long term).

    The elite are scrambling to ensure they don;t get hit by the fall-out but they are running out of time


  20. An article on the investigative work done by German economist, Hans-Werner Sinn,1518,818966,00.html
    gives an explanation of why the eurozone leaders say the eurozone must be saved at almost any cost.
    “The Hundred-Billion-Euro Bomb
    Euro-Zone Central Bank System Massively Imbalanced
    By Stefan Kaiser
    “……After weeks of work, Sinn had assembled enough pieces to create a picture that would make any one shudder: Since the 2007 financial crisis, immense imbalances have formed within the otherwise harmless payment system that exists between the central banks of the 17 euro-zone member states. While Italy, Spain, Ireland, Portugal and Greece, all hit hard by the debt crisis, show deficits totaling over €600 billion, the claims owed the Bundesbank have climbed to €498 billion.
    ‘Caught in a Trap’
    As long as the monetary union continues to exist, this isn’t a catastrophe. The money is virtual, created by central banks, and its existence doesn’t mean that an equivalent amount is lacking elsewhere. But as soon as a country leaves the euro zone, or the currency union collapses entirely, things get critical….”


  21. @Andy:

    The operative word being “PLANS”. Meaning they don’t have any plans at this moment in time when the official spoke. If they produce a plan, that will be different…


  22. I’ve long since given up thinking you can work any of this out. You can have all the data/knowledge, but you just know this lot all have a secret handshake and back-room dealings. For all we know, the biggest Hedge Funds will be given an offer of pre-warning of future actions ahead of the pack, that they can make money on, in exchange for them accepting the current deal.


  23. From DT

    ‘ 11.30 Here’s a more positive view of the eurozone economy. Olli Rehn, European Union Economic and Monetary Affairs Commissioner, said:
    While the euro area is currently in a mild recession there are at the same time signs of stabilisation. I am convinced that, as a result of our collective efforts, and if we keep up our recent decisive action, we can witness a turning of the tide in the coming months in the European economy.’

    If this was a script from Wall Street 2 it would be laughed out of the cinema.
    The europrats really live in fantasy land.


  24. It’s a bit like studying the ins and outs of a cat’s rectum. Getting up close is completely fascinating for a while but, as any vet will tell, in order to see the big picture and avoid having to wash your glasses (eye protection should be worn at all times), you need to stand well back on a regular basis. I accept that standing well back is unlikely to be any protection in the current circumstances.

    OT perhaps, but it’s Wes Montgomery’s (Rommel’s favourite guitarist) birthday. The eurotwats may be good improvisers, but they will never come within a million miles..


  25. I, too, have problems making sense of it all, but I do value John’s significant efforts to create some sort of meaning out of a baffling situation. Time to do something slowly like prepare a five-minute talk in Spanish on the Harbin Ice Festival for my next Spanish class.


  26. Jason
    Spot on. This is a deadly combo of hubris-fuelled Goldman jerks and semi-market literate eurocrats: kick this can down the road and it becomes a UXB.


  27. There’s no way the US wants Greece as the 51st state (they have enough problems funding there own Southern States).

    Maybe basing rights, etc but not part of the Union


  28. They are (handsomly) paid to do just that. An institution that lies persistently and without shame will eventually fail. I am surprised that a Scan chap has such intellectual cowardice.


  29. These waters just keep getting murkier, if it wasn’t so critical it would be comical.
    I wonder if anybody has any idea what is really going on?
    Reminds me of playing Snakes and Ladders as a kid…


  30. Ironic that for the players, it all comes down to taking a punt on a percentage of who holds what. I wonder if any of them, while piling in to extend the Black-Scholes equation in ever more creative ways, thought to divert a bit of the funding to have a couple of their whizz kids to do some Game Theory R&D.


  31. Hello kfc,

    I hope you don’t mind if I dust this comment down, pump its tyres up and then trundle it around once again….

    Kfc 1404 writes: “Most people here tend to think of the demise of the euro as a foregone conclusion.
    It isn’t. Certainly not yet anyway.”

    I couldn’t agree more. I’ve posted this before (and will more than likely be able to do so again).

    For the sake of any doubters, here’s what WON’T happen:-
    1. Germany leaving the euro
    2. France, Italy and Spain likewise
    3. Greece voting to leave the EU
    4. Greece actually getting a referendum on the issue
    5. The UK likewise
    6. UK interest rates increasing

    Here’s what WILL happen:-
    7. Greater integration of members of the EU
    8. Proposals touted for a central EU government
    9. Quantities of EU-held gold sold to Rothschild, Rockefeller and Blankfein
    10. EU banks recapitalised by EU taxpayers
    11. Bank mergers & acquisitions planning nearing completion.


  32. Kosovo is landlocked. So strategically it’s a bit limited. Nor does it have potentially useful hydrocarbon resources like Greece.


  33. @Kennyboy;
    You may well be right. I’m not sure anybody is confident on the outcome though, there are far too many cooks for this broth, it will eventually spoil IMHO.
    But, what do I know?


  34. I’m interested in some side-play. Why haven’t the EU parachuted in a placeman to take over from the Spanish Prime Minister who has had the audacity to challenge the diktat? Too pre-occupied with the more immediate drama of Greece, or putting the poor guy on hold to play with later?


  35. On 5 March 2012, the Director General of the Public Debt Management Agency of the Hellenic Republic attended a meeting convened by members of the German banking industry in Frankfurt, Germany and addressed questions relating to its invitations to private sector holders of bonds issued or guaranteed by the Republic …

    … The expiration deadline for the invitations is 9.00 pm CET on 8 March 2012, subject to the Republic’s right to EXTEND, RE-OPEN, AMEND OR TERMINATE the invitations as provided therein. …


  36. KFC
    As much as the rest of us, I just think that the room for maneuver on the Titanic is getting tighter & tighter, but the bankers have stocked up the lifeboats.


  37. 38 cac entries in business & finance alone, says internet acronym finder. UGH!!

    A collective action clause (CAC) allows a supermajority of bondholders to agree to a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring. Bondholders generally opposed such clauses in the 1980s and 1990s, fearing that it gave debtors too much power. However, following Argentina’s December 2001 default on its debts in which its bonds lost 70% of their value, CACs have become much more common, as they are now seen as potentially warding off more drastic action, but enabling easier coordination of bondholders.–Wikipedia (In which everything is incorrect, according to Gore Vidal).


  38. @kfc
    “Greece, the 51st State?”

    Love it. Being American citizen prefer retirement there over most places I can recall. Northern islands especially.


  39. @shaftedagain

    “Remember,’ Wilson wanted UK to be the 51st US state’ in the late 60′s..”

    What an interesting idea. If so, wonder about extended dimensions (or dementia) of the raging ‘multiculturalism’ debates. Leave that mess for novelists.


  40. John I’m a bit confused you said
    “The two questions asked last week had a specific purpose: “If we accept without CACs, will we get our insurance money?” The negative answer came back loud and clear.”
    How is the ISDA screwing the Hedgies if they are giving them a heads up concerning the CAC’s It seems that they are telling them to hold on and you will get your insurance. What am I missing?


  41. @Mukoshi
    “A 51st State that kept well away from the Vietnam War ? Utter ludicrous nonsense.”

    Problem is these days you can’t dismiss a notion simply because it is nonsensical.


  42. The “side-play” may prove significant. Rajoy was elected only a few months ago, and so carries weight. If Brussels tries to shift him, they may run into serious trouble in Spain at least; and the rest of Europe may have their eyes opened a little more.

    Meantime, it may be coming to Monti and colleagues here in Italy that Berlusconi’s comment about the Euro, which precipitated the coup, was actually accurate. They want growth. The high-profile attack on tax evasion probably helps, but will solve nothing fundamental in the real economy. Sooner or later Monti et al will have to look at reality and if they don’t the next – elected – government will.


  43. Your font is extremely difficult to read – I am especially referring to the emails. Is it possible to change it to a more visible variety? Fatter, larger possibly?


  44. Hedge fund operators could well be rounded up on barges and sunk in the middle of the Atlantic for all I can see is fit for them. Lets hope at least that one outcome of the Greek fiasco is for people to come to their senses and realize that CDS betting should have been outlawed as an obviously criminal enterprise. Contracts which should be declared null and void because they are illegal.


  45. Wouldn’t want any humour to eclipse the fact that Wes was a very, very beautiful human being and truly in the first rank of all musicians.


  46. At least Spain appears to be coming clean with the general and Spanish specific pieces of manure. Well done the author. Would like to see UK accounts presented in the same way; not much chance, unfortunately. I love the ‘use now, pay later’ electricity scam.


  47. I cannot condone the abuse heaped upon bond holders and hedge funds for their investments. Nobody forced them to buy and there were no bitter comments when they did pick up soon-to-be-worthless sovereign bonds from a nation with a long history of defaults. The EU was happy when bond auctions went smoothly.

    The bond holders played the game according to laws and rules and now they are expected to take massive loses?

    For what? For the precarious expectation that Greece will restructure, offer more bonds for sale in the future and not default a second time??

    The actions of the IIF and their pet monkey will determine if ANY new bonds are purchased by PIIGS or other potential dead beats.

    The bond holders did not trash the Greek economy. That was a Greek triumph. Spain is probably next and California is headed that way as well.


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