

European Union leaders announced a write down of Greek bonds by 50% - bpolania
http://money.cnn.com/2011/10/26/news/international/european_union_crisis_summit/index.htm?hpt=hp_t1

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yxhuvud
Incorrect title. This deal only cut down the debt hold by nongovernmental
entities. The debt will be cut from 180% to 120%, roughly speaking.

This restriction makes this deal a nothingburger.

~~~
iwwr
Exactly, the IMF, the EC or other governmental bodies will still be paid in
full. In effect, the bailout loans _increased_ the private sector haircut by
both delaying and also adding extra super-senior debt on top of the existing
one.

~~~
peteretep
I have this theory, see, about the delays.

The longer the delays have gone on, the more the Greek government has had to
actually implement austerity measures - the more political capital those who
want to see austerity and proper financial liberalization have had to force
those through...

So by the time some breathing room has been introduced, Greek society has
undergone the necessary but painful changes towards a better long-term
solution.

~~~
iwwr
If the bailout loans didn't come then, then Greece would have had to negotiate
a debt restructuring then rather than now, gaining 1-2 years at least.

As for austerity, there is the healthy streamlining and downsizing of public
expenses and there is the hobbling of the private sector with new and higher
taxes. The latter solution merely sinks the Greeks further.

Public debt is not strictly meant to be paid off ever, but it should grow no
faster than the overall economy for this indefinite deferral to work. It also
means the productive aspect of society, namely the private sector, not be
hindered by too high taxes or regulations.

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hopeless
Greece has it's government bonds written down by 50% but next week the Irish
government is due to pay €700m to un-guaranteed senior bondholders in Anglo
Irish Bank (one of our zombie banks). It beggars belief.

~~~
anigbrowl
Yes, but the yield on Irish 10 year government bonds is 6.09%, while Greece is
paying 7.82%. After that payment takes place the coupon on Irish bonds will go
down, possibly under 6%.

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mc32
Great, so German's pay for the fiscal and political indiscretion of the
Greeks. I guess they had little alternative as Greece was too big to fail -or,
had they been allowed to default, The German people, via German bank
investments in Greece,would have lost even more --seems they didn't learn much
from our Wall Street banks and saddling die Volkes with the bag.

Or do I have this wrong? I've been trying to follow this a bit..

~~~
_delirium
I'd consider this a bit of political and fiscal indiscretion of both Greeks
and Germans, both relying on a similar moral hazard. German banks made stupid,
risky loans, expecting that the EU wouldn't let anything go wrong, and would
bail them out if it did go wrong; and Greek governments accepted the money,
with the same expectations that the EU wouldn't let anything go wrong.

~~~
nknight
There's also, as I understand it, the matter of how Greece was permitted to
join the Eurozone with, shall we say, _overly optimistic_ economic reports
that were blindly accepted under a set of rules that would warm a sub-prime
lender's heart.

Greece made quite the mess on its own, of course, but the number of ways in
which the EU has further screwed the pooch are mind-blowing.

~~~
sasvari

      [..] the matter of how Greece was permitted to join the
      Eurozone with, shall we say, overly optimistic economic
      reports that were blindly accepted [..]
    

I think this is one of the fundamental things about this whole crisis
(concerning Greece). _everybody_ knew that the Greece government _s_ were very
creative with their way of presenting their financial situations back to the
seventies (or even longer), and _everybody_ knew it when the decision was made
to let them join the euro.

but _nobody_ checked their balances, but only trusted the numbers the Greeks
were serving and which everybody knew were kind of faked.

so in the end, the most ridiculous thing is that there never was a _Plan B_ ,
or some kind of secret _exit strategy_. all the ones in charge of in the EU
and its member states for more than a decade exactly knew that you can't trust
the official numbers coming from the Greek peninsula, and nobody did a thing
or thought of a plan to follow in the worst case scenario (which had to come
one day)?

Edit: typo

~~~
johnyzee
Since this is so obvious to everyone, the logical conclusion seems to be that
things worked out exactly as planned for somebody. I know, "never attribute to
malice" etc., but the pattern of banks encouraging non-creditworthy entities
to pig out on debt, leading to their devastating and unceremonious bankruptcy
a few miles down the road seems very common by now.

I am not well versed enough in finance to speculate on who gains and how in
these scenarios, but it seems like too much of a lock-in to be 'accident'. I
know that in the past, nations and the IMF used loans and defaults to
influence policies of other countries, could it be something like that going
on here? Default as a way to force spending cuts and other political changes?

~~~
cheez
If there are 147 entities controlling 40% of the global financial market, this
is not that far-fetched.

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brc
I believe the bond market was discounting them at a much higher rate than
that. But at least it's a good start, recognising the actuality of the
situation rather than the fantasy.

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bpolania
It'd be interesting to see what happens next: will investors flee from Europe?
Will the banks have enough to resist the loss? Must the ECB and the stability
fund support banks holding greek debt? Will fear about default spread to Italy
or Spain?

~~~
antimarketing
Basically everyone is waiting for Spain, Italy, Greece, Portugal, Ireland and
Iceland to crash. None of them have, despite all the screaming and all of them
will have to implode in their own sad ways, eventually.

Thus, despite all the media talk about fear, drama and emotion people in the
investment community are actually very unemotional and pragmatic and unfearful
(I can not say they are courageuous now can I?)

The problem is that all of the above countries are still stuck in economic
bubbles, yes the bubbles are not as rosy but they are in bubbles still —
partly to keep American, British and French banks safe (who are the largest
other party to all the debt that these countries have taken), partly because
the populations there love to delude themselves.

Investors will get back into Europe after the crash to buy on the cheap —
almost everybody is as cunning as a fox these days, nobody buys when the price
is percieved to be too high, because of the abudance of information.

These types of investors are small guys like you & me, sovereign wealth funds.

However, there is an another type of investors who look for even a bigger
score. Obviously, the counterweight to buying on the cheap in Europe is that a
lot of banks in the U.S., British and France will be up for grabs as well.

To give you an example of how these other type of investors operate — you
might not have noticed but there was a lot of noise during this late summer
from the controlled alternative media, such as Zerohedge and even your trusty
old charlatan Alex Jones and from rumours on the trading floor about Societe
Generale being on the verge of a collapse — these rumours were magnified until
the moment that S.G. turned to the Rothschilds in France for help and
guardianship — then suddenly everything stopped. Heheee.... somebody is
beginning to take control of the banks on the cheap.

The funny part is that the Rothschilds are not as rich as people claim or
think they are — there have been a lot of people in the U.S. who are richer
than them in terms of net worth, however they just manage affairs by spreading
rumours and perception better than you or I can or that glamorous, over-the-
top big, soverign wealth fund ever can — connections, connections.

I mention this as an example to conclude that there are two types of
investors, the ones who are waiting for the big crash and the ones who are
trying to manipulate through the anxiety and rumours prior to the big crash.

But nobody is particularly scared of anything as far as things go. Everybody
is preparing themselves, like F1 cars for the start of the race. A game of
nerves, perhaps but not of emotions if you know what I mean.

References, before you judge me:

[1] <http://online.wsj.com/article/BT-CO-20110823-709045.html> [2]
[http://www.latribune.fr/entreprises-finance/banques-
finance/...](http://www.latribune.fr/entreprises-finance/banques-
finance/banque/20110822trib000643686/la-societe-generale-demande-a-rothschild-
de-soutenir-son-cours-de-bourse.html)

~~~
paganel
There's a thing I do not understand, nominally speaking French banks' exposure
to Greek debt is not that large. I have not a easy link as reference, but I
seem to remember reading in some of last week's FT editions that BNP Paribas
had the highest exposure, with ~4 billion euros, followed by Societe Generale,
with 2 or 3 billion. Of course that to you and me it looks like a lot of
money, but the Kerviel case alone cost SG almost 5 billion euro in direct
losses (not counting the losses incurred by the case on the share price), so
Greece going down (or taking a 50% cut) shouldn't be that much of a tragedy,
at least in theory.

Now, why then all this panic? It could because of what you said ("spread
rumors, accumulate riches"), or because there's a hidden iceberg somewhere in
these muddy waters: maybe countries like Italy and France are much closer to
collapse than people think.

~~~
patd
Maybe it's because other countries could follow the same path. Greece isn't
that big but if the other PIIGS fail to pay, it could be much more than a few
billions.

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sliverstorm
As someone not wholly familiar with government bonds, let me ask- does this
mean that private creditors, aka individuals like you or I, are taking a 50%
loss on investments? Or is this at a corporate or governmental level?

~~~
anigbrowl
Both. Pension funds and the like often invest in government bonds;
traditionally they're a safe investment used to hedge against riskier ones
like stocks. With the latter you know there's no guarantee of performance, but
you expect a risk premium in the firm of a dividend or accelerated growth.
'Bond' is another word for 'promise' so you should be able to rely on it.
Saying that 'people knew the risks' of investing in bonds misses the point:
they're supposed to be risk-free, so bond default is a very big deal.

~~~
sliverstorm
_'Bond' is another word for 'promise' so you should be able to rely on it...
they're supposed to be risk-free_

Agreed. I'd be livid right about now if I held Greek bonds. Although I suppose
anyone looking for shelter in the form of government bonds could have taken
the next step and diversified across nations, further reducing their exposure.

~~~
_delirium
A large number of the holders (especially the foreign holders) bought the
Greek bonds precisely _because_ of the higher risk, which resulted in them
having higher interest rates than, say, American or German bonds. They made a
bet and lost.

~~~
miratrix
Not quite true - Greek bonds did not have significantly higher interest rates
than other Euro denominated bonds.

Greek bond chart: <http://www.bloomberg.com/quote/GGGB1YR:IND/chart> German
bond chart: <http://www.bloomberg.com/quote/GDBR1:IND/chart>

Go back out 3 years, and you'll see that as late as December 2009, the yield
spread was minor, and that it didn't start to really diverge until July of
this year.

~~~
_delirium
Hmm, that makes it somewhat puzzling that anybody bought Greek bonds at all.
Was there any reason to prefer Greek bonds to German bonds, given the superior
fiscal position of Germany and the greater liquidity of the German bond
market?

