This is terrifying. The possibilities of a double-dip recession turn depression are growing by the day. Excuse me while I start working out, learn how to use a shot-gun and develop a taste for cider while deepening my voice.
Greece defaults
131–140 of 151 posts
Re: Greece defaults
#132Earlier quoted context omitted.
The ratings agencies have said that arm-twisting bondholders to accept new bonds with less favourable conditions amounts to a default. I promise to pay you $100 tomorrow. I then tell you you'll get your money in 30 years and at a much lower interest rate. That's breaking the original promise, even though I haven't actually 'not paid you back'.
I don't think it's a default in that example until tomorrow comes and I fail to hand over the $100. Until then we're just negotiating and speculating about whether I will or won't hand it over.
i think this is a situation where words are kind of hiding what really matters. what people care about when it comes to 'default' is how this effects the debtors ability to pay in the future and renegotiating debt is a sign that someone may be less able to pay in the future compared to someone that continues to make payments normally.
Re: Greece defaults
#133Earlier quoted context omitted.
Wait a gosh-darn-second - if the situation is either definite default OR not-a-default, then Greece has NOT defaulted. From the article: if you’re a holder of Greek bonds right now, you have three choices... 1. You can do nothing, and hope that Greece pays you in full and on time. (and other stuff)... The first option is by far the most interesting. No one has come out and said that Greece is going to default on bond…
The ratings agencies have said that arm-twisting bondholders to accept new bonds with less favourable conditions amounts to a default. I promise to pay you $100 tomorrow. I then tell you you'll get your money in 30 years and at a much lower interest rate. That's breaking the original promise, even though I haven't actually 'not paid you back'.
Again, you can call X "effective default" or say X "amounts to default" all you want and I wouldn't argue with your definition. But since the OP called default an absolute binary, then if we want that, we have to wait till we have literal default. IE, what I tell you doesn't matter, we have to wait till it is tomorrow and I haven't paid.
The point is that in an "effective default", there's no violation of any explicit contract however much the loaning parties may have lost confidence. IE, if Greece was home-owner renegotiating its mortgage, there is no point where the bank can go to court and demand the house (though against sovereign nation, banks, of course, have no such recourse but its considered important, I believe).
Re: Greece defaults
#134Earlier quoted context omitted.
Well, sure. Greece is a third-world country. And when you owe more than you can pay you have to cough up some assets.
Corriere della Sera (an Italian newspaper) claimed that Finland wanted the Acropolis of Athens as collateral for their part of the loan, so yeah, you can actually ask for way too much.
Good luck with that. Half the Acropolis has been in London for the past two centuries (http://en.wikipedia.org/wiki/Elgin_Marbles)
Re: Greece defaults
#135Does anyone know where I can get more in-depth analysis of the debt soverign crisis ?
I am quite interested in the topic but most articles are just fluff in terms of deep economic analysis
Re: Greece defaults
#136"The total official financing will amount to an estimated 109 billion euro. This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece." Markets and especially the financial sector like banks (especially French banks) owning debt from Greece (or CDO) have positively reacted to the announce for a differe…
Absolutely. Indeed risk is not even just about the "customer's" (in this case, the nation of Greece) inability to pay, but also counterparty risk. It's not just Deutschebank that's on the hook for defaulted Greek debt, but every counterparty who wrote them credit default swaps (CDS) on that debt. That's what triggered the financial crisis in 2008 - as Bear Stearns' and Lehman Brothers' cash flow from their debt holdi…
There is a good solution, namely this, transparency. Just like the law requires manufacturers of food to label what goes into the box, so sellers of aggregated derivatives should label what goes into their CDOs, CDSs, etc. This would enable to buyer to have half a chance at assessing the risk attached. Seller won't do this however until they are forced to do it because they don't want to say what is in the secret sauce. The only reason I can fathom that someone would want to buy a "mystery gift" derivative is greed.
As Warren Buffet says, "I hold my nose and point towards Wall Street."
Re: Greece defaults
#137Earlier quoted context omitted.
I believe that's true of the large private banks also, which is part of why this group amounting to 90% is on board. It's in the rational self-interest of a bank like Deutsche Bank or Societe Generale to take a haircut on their Greek-debt portfolio if it keeps the rest of their EU bond portfolio from blowing up--- especially if they can get a deal like this one where the EU governments partially reimburse the haircut…
OK, but what if you were using these Greek notes as collateral? Suddenly they're downgraded and you on the phone with your lenders. Are your lenders on board with this plan? They have reporting requirements too, it seems like you might be under an obligation to invoke your CDS policy if at all possible. After all, why would the world spend $B on CDSs and then not invoke them when it came down to it?
Unless the notes were a large portion of your portfolio, it's not a problem. Given the relative size of Greece to the rest of the EU, unless you were running the "Greek Debt Investment Fund" you're still probably better off helping to prevent contagion and your lenders are too.
Re: Greece defaults
#138Earlier quoted context omitted.
The privatization of Germany in the 90s was so bad that it has now one of the strongest economies and enough money for Greece. And obviously became a third world country.
My guess is that a large-scale privatization in Greece would look more like Eastern Europe's privatizations than like Germany's, i.e. firesale sales to well-connected businessmen.
I think it did work for Poland. The only economy in the EU that did not shrink during the financial crisis.
Re: Greece defaults
#139Earlier quoted context omitted.
As far as I can see in other reporting, it's something of the order of a 20% write down (at least for the German Banks) with the EU buying up some of the bonds and the terms being extended to 15 and 30 years. In other words, it is not clear that how this is a default. In fact The Guardian says: German government sources said they had received assurances from the international ratings agencies that they would not rush…
Right, the headline is a little dramatic. I think the ECB was extremely careful in the crafting of this deal to do everything possible to NOT trigger a technical default. A default is a delay or missing any coupon (interest) payments or failing to pay back a bond upon it's redemption date. The reason why it is so important that Greece not default is that a huge amount of hedge funds and other speculative investors ha…
> equivalent would be that you're allowed to take out a fire insurance policy on your neighbors house, and then proceed to smoke cigarettes and flick the lit butts at his house
Yes, hedge funds (and everyone) are allowed to bet on this. If there's an issue here, the question is who is selling fire insurance policies (at non-exorbitant rates) when they know that arsonists are around? If it's European banks that know they'll be bailed out, that's a problem.
In theory, all CDS trades are registered with DTCC since 2009, and my understanding is this works pretty well for contracts as standardized and liquid as Greece. See also the WSJ article linked by ristretto below.
source: http://www.dtcc.com/news/press/releases/2009/cds_contract_va...
data: http://www.dtcc.com/products/derivserv/data_table_i.php?tbid... (see 'Hellenic Republic')
some analysis of data integrity: http://www.bis.org/publ/qtrpdf/r_qt0912y.htm
thanks to: http://www.zerohedge.com/article/debunking-some-myths-about-...)
Re: Greece defaults
#140Earlier quoted context omitted.
OK, but what if you were using these Greek notes as collateral? Suddenly they're downgraded and you on the phone with your lenders. Are your lenders on board with this plan? They have reporting requirements too, it seems like you might be under an obligation to invoke your CDS policy if at all possible. After all, why would the world spend $B on CDSs and then not invoke them when it came down to it?
Unless the notes were a large portion of your portfolio, it's not a problem. Given the relative size of Greece to the rest of the EU, unless you were running the "Greek Debt Investment Fund" you're still probably better off helping to prevent contagion and your lenders are too.
But... If I'm a hedge fund, why even own Greek debt plus the insurance? Just buy the insurance, and burn Greece. I'd also be buying (CDS) on other tipping-point countries, and watching the knock-on effect.
Ah : But that demonstrates how terrible CDS is, and how amoral hedge funds are. Actually (IMHO) the fact that Greek CDS was so cheap to buy was just an indication of how little trust people have that politicians respect the law in European countries. It would have been far cheaper to have sorted through this mess on day one, rather than spending taxpayer funds giving Greeks a lifeline when the changes that they have to make were always inevitable.
And now the politicians words have been demonstrated to be completely worthless, there'll be a lot more pain - in countries where it might otherwise have been unnecessary.