In Hoc Veritas Non Est

Greece, creditors move to breach gap as clock ticks

Greece and its private bondholders inched closer on Thursday to a vital debt swap deal needed to avoid a messy default by Athens, with both sides saying progress has been made and negotiations would continue on Friday.

Nearly a week after talks hit an impasse over the coupon, or interest payment, that Greece must offer on its new bonds under the swap, there were signs the two sides were moving to overcome their differences as time to strike a deal runs out quickly.

"The atmosphere was good, progress was made and we will continue tomorrow afternoon," Finance Minister Evangelos Venizelos said after talks with Charles Dallara, head of the Institute of International Finance representing bondholders.

The IIF issued a statement echoing the minister.

Bankers and sources close to the talks say a deal could be wrapped up in the next few days, though previous predictions of a quick resolution have proven premature.

The stakes could not be higher this time. Greece must thrash out a deal within days to pave the way for a new infusion of aid that allows it to avoid bankruptcy when 14.5 billion euros ($18.5 billion) of bond redemptions fall due in March.

Even if a deal is struck rapidly, the paperwork will take weeks and Greece's official lenders, the European Union and the International Monetary Fund, say the work must be cleared before funds are doled out from a 130 billion euro rescue plan they drew up in October.
My view:

A desperate Trioka (European Commission with the European Central Bank and the International Monetary Fund) is attempting to prevent hard default on Greek bonds.

Negotiations are dragging on and on to the point of ridiculousness.

The latest proposal is for Greek bonds to have the yield written down on them to the 3.5 to 4.5% range. 

This laughable exercise is an attempt to trick the bondholders into thinking Greek debt is safe and that the Troika has divine-like powers to stop contagion reaching weak banks.

Now we understand why the authorities wish to slap a band-aid on Greek debt, because the consequences of default are so immense.

The authorities, at some level, understand that all banks are tied together by Credit Default Swaps.  And they understand that a bond default will cause the CDS insurers to pay out capital from the bank's tangible equity.  This is exactly the opposite of the outcome they want - the objective is to build up bank capital, not shrink it - so the ponzi game of bank lending (and coincidentally, government nanny state spending) can go on..

Consider this problem from both the German & Greek perspective:

The Greeks wanted in on the Euro & the Germans let them in despite their shoddy repayment record over the past two hundred years.  This was dealt with in detail in a recent post here on Game Theory.

The German export machine wanted to grow their exports and therefore the German trade surplus (which is second only to the Chinese globally).  The Greeks wanted to spend and have lower borrowing costs.

 It worked!

For a while.

Now the Greeks run a massive trade deficit of >10% of GDP importing 3 times the value of the goods they export.

The Troika wants them to implement huge austerity and wage cuts and have bond holders take "voluntary" haircuts to avoid triggering CDS insurance payouts.

Do you think the Greeks will go for it?

I doubt it.

The pathological state is showing its true colors now.

The Euro was a lie.  And the truth is not found in the Troika.

Greece is likely to default and return to the drachma.

Given the present conditions, I place odds at better than 50% this occurs by the Easter weekend this April.


  1. Well the Egg of Doom sure seems to indicate that 2012 will be a bad year for equity value.

    A stealth flight to USD could bring down the indices.

    One problem I have with charts, and it makes no sense to me, therefore I have to assume that it is intentional method of deception, it the way that mathematical lines image differently on different time frame charts. Annoying --more than annoying.

    You can see on the near term Egg of Doom, we are just touching the Egg line.

    However, on the longer term Egg of Doom, we have already broke the shell and into overthrow mode if that is what that is.

    Anyone have any type of explanation at all on this matter?

    OH and by the way, klik some adz, thank you.


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