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The name of the game is Bailout.

October 15, 2011

Global markets rallied nicely recently. Wonder why..

“European policy makers have put out some very positive and optimistic messages”.

Hmm, some positive economic data?

“European officials are outlining a rescue plan that may include increased firepower for bailouts”

Oh right, more bail outs. Yay.

BBG- “The bank-aid model under discussion is to set up a European-level backstop capitalized by the 440 billion-euro ($609 billion) EFSF rescue fund, the people said. It would have the power to take direct equity stakes in banks and provide guarantees on bank liabilities.”

Feeding time boys! Everybody line up. “Sorry sir, this line is for Banks ONLY. The unemployment line is across the street. Oh, and keep paying your taxes. We are counting on you to foot the bill.”
Bondholders and stockholders need not be held accountable for their foolish investments.

“Forcing investors to take losses in bailouts will have direct negative effects on banks”.
European Central Bank

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11 Comments leave one →
  1. October 15, 2011 10:15 am

    That’s why they keep having these big meetings. The primary question at each one is “How can we ensure these people aren’t held accountable?”

  2. October 16, 2011 7:25 am

    Economics as alchemy. Chemistry need not apply.

  3. debaseface permalink
    October 16, 2011 8:47 pm

    This is rich..
    See, the European Central bank has been bailing out Greece in order for them to continue to pay principal and int. Payments to Banks (not default). So the ECB approaches the banks and says “guys, this is not sustainable. Only way to truly avoid a default is the lower the principal due on the loan. (take a haircut), the bonds are trading at 40 cents on the dollar and banks value them on their books at 80 and say – “we agree to reduce the principal owed to 80” ECB says ok! Deal! But now want the revisit the agreed haircut and says no no no , we need it reduced to 50.
    BBG:
    The potential risk and potential costs of revisiting the deal far outweigh any potential benefits,” Tran said. “July 21 represented a balanced approach with significant concessions from private investors. We should remind the public sector that we need to preserve the voluntary nature of the Private Sector Agreement, and therefore honor and implement the deal.”

    Voluntary??
    Voluntary??
    The ECB should say ok boys – we will no longer bail out Greece and you will lose 60 to 70 cents on the dollar.
    Guess why the ECB doesn’t tell the banks to go pound sand??

  4. October 17, 2011 3:15 am

    My recovering Catholic brain is still uncomfortable with usury. Can you explain that to me as though I was a 4 year old?

  5. debaseface permalink
    October 17, 2011 7:53 am

    So the ECB has been bailing out Greece as they are unable to issue debt to pay bills.  Greek bonds are trading at Like 37 cents on the dollar – meaning the interest greece would need to offer would be 30%-40%.

    The debt overhang is something  like 170% of GDP so the only viable solution is to reduce the debt outstanding.  You can do this 2 ways: default or ask the investors to write off a portion of their debt (take a haircut on their bonds) and the private investors (mainly Euro banks) agreed To take a 20% haircut. (if Greece defaulted the haircut would be 60% at min)

    Now the ECB is again asking the banks (and other private investors) to revisit the agreed haircut.

    Now a haircut of 50 for bonds trading at 37 seems like a deal.. But here is the punch line.

    If you recall back in 2009 they did away with the “fair value accounting” rules.  Therefore banks can mark Geek debt at par (100) as it is a sovereign risk free even though it’s trading at 37 cents.

    Thats why banks don’t want to agree to an additional haircut as they were nice enough already to agree to 20% (reduce principal to 80’cents)

    Now the banks are crying..

    “The potential risk and potential costs of revisiting the deal far outweigh any potential benefits. The 20% haircut was a significant concessions from private investors. We should remind the public sector that we need to preserve the voluntary nature of the Private Sector Agreement, and therefore honor and implement the deal.”

    Fuck em. Let Geeece default.

  6. November 3, 2011 9:04 pm

    Well you almost got your wish. The proposed referendum was polled at a 60% support to refuse the second Greek bailout. That is until the Greek government surrendered their sovereignty to the EU. (France and Germany).

    • debaseface permalink
      November 3, 2011 9:43 pm

      Keep your eyes on Italy.
      And that “leverage” to the EFSF hasnt materialized eh? They couldnt get a bid on 3bln… Fucking idiots.

      • November 4, 2011 7:23 am

        Not to be too over simplistic, but if I was a non-elected organization, a combined €220 billion loan (partly subsidized by the IMF), with an implied guaranteed payback by Greek tax-payers imposed by said organization, seems a pretty good deal for an entire nation’s sovereignty. I bet you could buy a railroad for a song.

      • November 4, 2011 7:27 am

        Wait a second. Are you saying the taxpayers foot the bill if the bank doesn’t pay it back?

  7. November 4, 2011 8:53 am

    I did say I was over simplifying things. The previous and current bailout is non-Greek tax-payer revenue going to Greek debt to private banks. The (now reduced to 3.5% interest) future debt would come from Greek tax-payers. The majority of that money coming from foreign demands on austerity programs and the selling of Greek national assets. (Which will further hurt the Greek economy.) So, either a miserable Greek tax addled, debt ridden economy, or a future default/third bailout. I’m a simpleton in these matters, but I’m guessing there’s the rub. Further oversimplification: Bank causes crisis, refuses liability, tax-payers pay principal and interest, an entire nation goes into debtor’s prison.

  8. November 8, 2011 4:01 pm

    Italy appears to be officially wobbling now.

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