muses of the moment

February 23, 2012

The Ongoing Greek Crisis

Filed under: Bank bailout, Credit Derivatives, European Debt Implosion, Global Debt, The Banking Crisis — totallygroovygirlfriday @ 1:38 am

Click here for a rather scandalous post from zerohedge on the second Greek bailout. We could have guessed it was a scam, but here it is in black and white.

So there you have it: the Second Greek bailout is nothing but the first Greek bailout of Europe’s banks! And the Greek constitution is about to be changed to reflect that.

Totallygroovygirl’s bullet-point summary of the Greek Crisis:

  • Greece actually defaulted over a year ago.
  • GG questions whether all the pieces of this latest “bailout plan” will actually happen as described. The story of Peter and the Wolf comes to mind.
  • The first and now second Greek bailouts are actually funds to give to the European banks that would otherwise implode if Greek “defaulted”.
  • Making sure European banks have cashflow in the mist of the Greek default is keeping the European banking system from collapsing and nothing more. It is not about the health of the banking system, the Greek debt holders, making new debt cheaper/available, or the Greek people surviving.
  • These bailouts do nothing for bond holders.
  • If bondholders (i.e.) hedge funds are counting on the regulated and unregulated credit derivative market to hedge a default, they will be very disappointed.
  • Once bondholders realize they are totally screwed, losses and legal proceedings will fan out across the globe, just as they did with Lehman.
  • As soon as bondholders of other PIIGS debt see what happens to Greek bondholders, the chain reaction will speed up as they rush for the door. European banks will buy that debt and the whole thing starts over with the next country.
  • The way that European leaders are handling the Greek Crisis is a blueprint for how they will handle the rest of the PIIGS. Only bailout big European banks and only with enough cash to keep the banking system from collapsing in the shortest term possible.
  • Greece should have gone the way of Iceland.

And here are Mr. Lira’s thoughts on Greek crisis.

And here is an update from The Slog’s blog on Greece and Fitch’s downgrade yesterday. (Bold is groovygirl.)

“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.”

Will insurance be triggered? Will ISDA call it a default? The answer to that question will determine immediate losses or long-term legal battles. Result is the same, timeline is different. And the unregulated market?…..who knows?

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