Panicked Hedge Funds Now Praying for a Miracle in Greece

“The Bank of Greece governor confirms the stability of the banking system, which is fully secured by the joint actions of the Bank of Greece and the European Central bank,” the Bank of Greek announced on June 19.

After chaotic emergency meetings, this weekend culminated, for this Greek banking system, with an ECB press release that contained this harmless-sounding but deadly line:

Emergency liquidity assistance maintained at Friday’s (26 June 2015) level.

It meant no more cash for Greek banks from taxpayers of other countries, no more cash for Greeks depositors to withdraw and stuff under the mattress. Banks were now illiquid. They’ve been insolvent for a long time. Only the fresh cash, recently supplied on a daily basis, has kept from toppling altogether. What has been rumored since June 18 has become reality: the banks are toast [read LEAKED (Denied then Confirmed): ECB Not Sure If Greek Banks Can Open Monday].

Greek Prime Minister Alexis Tsipras got on TV and announced that his government decided to close the banks for over a week, impose capital controls, and close the stock market for as long as banks are closed. When – or if – they reopen on Tuesday July 7, it will be to a different world.

He blamed everyone but his inept government and the silly game theory or whatever they’ve been pursuing. Tsipras also appealed for calm and tweeted this Cyprus-like promise:

The bank deposits of the Greek people are fully secure.

On Monday, the US-listed Greek ETF (GREK), a substitute measure for the closed Athens stock market, plunged nearly 20%, an indication of where the already battered Greek stocks might be headed. The ETF was started in crisis-year 2012, as part of the early hype to invest in Greece. It’s down 61% from its peak in March 2014. Greek bonds too plunged in value, with the 10-year yield shooting up over four percentage points to 15.1%, the highest since 2012.

Jean-Claude Juncker, back on May 19, 2014, when he was “campaigning,” as he said, for the presidency of the European Commission, gave a speech in Athens, where he proclaimed: “I take it as a call for the new Commission President to reunite Europe after the crisis.” The crisis was long over, and now it was time to move forward under his leadership.

He then tweeted: “I say to all who bet against Greece and against Europe: you lost and Greece won. You lost and Europe won.”

But by that time, hedge funds were already betting on, not against, Greece. With ceaseless hype during 2013 and 2014, they inundated the media with their buy-Greece meme, how Greek markets would rally as the reforms would push the economy forward, how banks, stuffed to the gills with more bailout money, would get back on their feet, and how Greeks would somehow become confident that their banks were solid. This hype about Greek stocks, bonds, and a myriad other “opportunities” become so deafening that the ultimate smart money started believing it themselves.

Now, as the New York Times reported, they’re panicking….

I just can’t believe these guys are willing to torch their own country,” one investor with a large holding of Greek bonds lamented in an email. “They thought this was a game. Now, when the supermarkets run out of food, gas stations run out of gas, hospitals have no medicine, tourists flee, salaries don’t get paid because banks shut — what are they going to do?”

During peak hype a year ago, there were perhaps 100 hedge funds plowing what they thought was fertile financial soil. But when things began to curdle again in late 2014 and in 2015, many of them bailed out, selling what they could.

But 40 or 50, according to local broker estimates, kept their bets and hopes alive that it would all get worked out somehow, that the ECB or Germany or whatever would swoop in and allow them to make a killing, as they’d done with Greek bonds in 2012. So these funds have about $11 billion stuck in these shut-down Greek markets. The Times:

The largest investors include Japonica Partners in Rhode Island, the French investment funds H20 and Carmignac, and an assortment of other hedge funds like Farallon, Fortress, York Capital, Baupost, Knighthead and Greylock Capital.

A number of hedge funds have also made big bets on Greek banks, despite their thin levels of capital and nonperforming loans of around 50 percent of assets.

They include Mr. Einhorn at Greenlight Capital and Mr. Paulson, both of whom have invested and lost considerable sums in Piraeus Bank. Fairfax Financial Holdings and the distressed investor Wilbur Ross own a large stake in Eurobank, one Greece’s four main banks.

Big positions have also been taken in some of Greece’s largest companies. Fortress Capital bought $100 million in discounted debt belonging to Attica Holdings, Greece’s largest ferryboat holder. York Capital has taken a 10 percent stake in GEK Terna, a prominent Greek construction and energy firm.

In 2014, Blackstone’s credit arm bought a 10 percent chunk of the Greek real estate developer Lamda Development. And Third Point, one of the earliest, most successful investors in Greek government bonds, has set up a $750 million Greek equity fund.

Among the most dubious of these was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson’s hedge fund took last year in the Athens water monopoly. The company had little debt and was set to be privatized, making it an attractive prospect at the time. But the privatization process is now frozen, and the monopoly is struggling to collect payment on its bills from government entities that are nearly broke….

Now Greece’s financial system is shut down to control the chaos. Parts of the economy are shut down with it. Greek banks had already been reduced to penny stocks before the bank holiday, confounding these hedge funds that had invested in them. Now, they’re cutoff from the lifeline that has kept them from toppling.

“People are freaking out,” Nicholas Papapolitis, a corporate lawyer in Greece who has led some of the largest hedge-fund deals in the market, told the New York Times. He was working through the weekend, comforting and cajoling his frantic hedge-fund clients. “They have made some really big bets on Greece,” he said.

They weren’t betting on Greece, however. They were betting on the ECB, the European institutions, and taxpayers – as they’d done in 2012, when they’d made a killing – to shovel money their way. Only this time, it didn’t happen, leaving the ultimate “smart money” to twist in the wind.

But here is the thing: the Greeks could have solved the crisis on their own, if they’d wanted to. Or did they know something that others didn’t? Read…  If Greeks Did This, the Terrible Crisis Would Be Over

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  31 comments for “Panicked Hedge Funds Now Praying for a Miracle in Greece

  1. Julian the Apostate says:

    All Hell is breaking loose. Imagine that.

  2. Vespa P200E says:

    I used to look up to Wilbur Ross the king of opportunistic and successful distressed investment rescuer/vulture who has done quite well.

    Well Wilbur made bets on Greek Eurobank and making noise about possibility of losing his shirt… These smart hedge fund managers ought to know that they took the RISK and the ECB/Germans and heck even the Fed ain’t gonna bail them out or something.

    How it all unravels now sans US government owned AIG isn’t there to pay off the intertwined CDS mess is the $10k question…

  3. Jerry Bear says:

    Sigh! Hasn’t anybody ever heard of the old adage “Caveat Emptor”? if you make high risk speculative investments you have to expect to lose at times. I find it hard to weep over the sad plight of anyone who got involved in that never ending mess called Greece!

  4. Mike R. says:

    Don’t count your chickens before….

    It’s not over yet.

  5. NotSoSure says:

    Many hot hedge fund managers are probably years removed from college and haven’t seen a bear market yet.

    Imagine if the entire Project “Everyone is gonna be Germans” blows up in their face. Some might jump out of the window.

  6. Mike From Michigan says:

    Margin calls. Will the sudden market fall trigger margin calls?

  7. Erwin Gordon says:

    Normally I find your opinions quite poignant but it seems that you are suffering from the same illness as those who invested in Greece as well as IMF, EU and ECB officials. It’s an aversion to basic math. Do you understand that there is NO WAY FOR GREECE TO PAY OFF ITS DEBTS??? Repatriating funds, as you mentioned in your article of Feb 26 on how to end the crisis is a crock. The only option is to default and hopefully start again on a more sound basis as before by living within its means. A novel concept and message that ALL EU countries need to take on board since all the EU countries have either passed or are approaching 100% debt to GDP ratio and when one considers corporate, financial and personal debt as well it’s clear they are all going to blow up in the not too distant future when interest rates finally rise. So everyone has a role to play in this sad affair be it the the greeks, the EU, the ECB, the IMF and the investors. But at the end, at least the Greeks have realised within the political games going on that the only way to resolve this situation is NOT to borrow more money to pay the interest on the money it already borrowed, but instead to default on the debt and start over. It’s the only rational and common sense course to take. Too bad you and your fellow bloggers, like Yves Smith haven’t seem to grasp this fact.

    • Vespa P200E says:

      I think Wolf and other financial bloggers do get it that Greece is dead broke and unable to pay back the money they borrowed for years living off a “good” life thanks to OPM (other people’s money) all the while sinking further the giant sink hole abyss they created tapping into more debt merely to pay off the other debtors (kind a like Ponzi scheme?).

      In the mean time just about everyone closed their eyes and pretended and extended with the top 3 creditors Euro zone countries (60%), IMF (10%) and ECB (6%) buying off the debts from the EU banks aka stealth bailout. I can only imagine how tangled the CDSs are like by all these parties now expecting to be made whole thanks to their “insurance” only to find that counterparty risks are a bitch when it comes to collecting from BK’ed parties…

    • VegasBob says:

      I think Wolf understands that Greece is broke.

      Virtually every part of Wolf’s ‘solution’ outlined in the February column would have required Greeks to act in the best interest of their country rather than the best interest of the individual.

      In this day and age, putting one’s country above oneself is probably akin to “The Impossible Dream” – not likely to happen.

    • Wolf Richter says:

      Erwin, a default doesn’t eliminate the debt. Countries cannot shed their debts via bankruptcies and “start over,” as you said, like businesses can. It doesn’t matter how broke they are. They can only negotiate to restructure their debts – that is, talk creditors into reducing them.

      Countries that have their own currencies can also shed their debts denominated in their currencies by devaluation. Greece doesn’t have that option. Its debt remains, default or no default, until creditors agree to forgive part of it (see Argentina).

      This is a fundamental principle. If you don’t understand that, you’ll never understand the real predicament Greece is in.

      BTW, Greece already defaulted in 2012 and obtained a 70% haircut from private sector bondholders via negotiation. Now taxpayers are on the hook for most of Greece’s debts, directly and indirectly.

      • Erwin Gordon says:

        Wolf, I do understand that the default doesn’t eliminate ALL of the debt, but it will eliminate MOST of the debt that cannot ever be paid off. Because it’s a bit like asking a hardcore leftist mom who has a job at the local food bank and makes all of $20 k per year to pay off a $1 million dollar loan. IT AIN’T EVER GOING TO HAPPEN!!!

        The problem is that you’re assuming that the troika is actually trying to help Greece solve their problems whereas I’m looking at the facts of what is being imposed by the troika and clearly seeing that the troika are not only NOT helping Greece to solve their problems but are actively seeking to strip the country of all its value while helping its friends in the banking community.

        There is this thing called math that the institutions such as the troika and the large banks have ignored that intervenes in these matters when debitors and creditors need to discuss about what is realistically possible. One cannot give a bailout where 80% of it goes to EU banks and not to the Greek economy and expect Greece to recover. One cannot in it’s infinite genius (i.e. the ECB) swap out all of its Greek sovereign bonds for new bonds that would not take a haircut so that the bonds could could still stand as high grade collateral for the banks that had lent them to the ECB while expecting the Greek economy that was in shambles and receiving at best 20% of the funds that it actually needs expect to suddenly recover. It doesn’t take a rocket scientist to realise that the troika has not been focused on solving Greece’s problems and helping it get back on to sound financial and economic footing but instead has been focused on helping out it’s friends (i.e. re-collateralising the banks).

        So in that context where the ECB has around €121 billion in Greek liabilities, Germany have €35 billion in Greek liabilities and with the ECB being exposed as lacking any credibility whatsoever, seeing interest rates in the PIIGS heading north while the bankrupt EU countries (all sporting debt to GDP ratios either approaching or beyond 100%) and banks sitting on $700 trillion in derivative exposures, do you seriously think that the discussions will lead to anything other than a rather large haircuts and significant restructuring of Greece’s debt on a more sound economic and financial basis rather than continuing the fantasy that it can be paid off by having Greece borrow money to pay interest on the money that they had already borrowed while being obliged to pay a pound of flesh as well? For me it is just shocking how when one reads most comments about the situation not only in Greece but in Europe that most people are unable to grasp this basic fact. Especially as the last “deal” on debt re-structuring worked so well (with 80% of the funds going to the banks and not the economy) the debt to GDP ratio went from 120% to 180%.

        At least it appears that the present Greek government recognises this and are really trying to address the economic and financial problems and put the country on a more sound footing.

        As for the your statement about currencies, we’ll see what currency Greece is using in a couple of months! All the best.

        • Wolf Richter says:

          Erwin, I think you’re mixing up the terms.

          You said: “I do understand that the default doesn’t eliminate ALL of the debt, but it will eliminate MOST of the debt that cannot ever be paid off.”

          BUT: a default does not eliminate ANY debt. All a “default” means is that the debtor stops making payments on the debt, and is therefore deemed to be in default (there can also be technical reasons to be in default, particularly for companies, even if payments continue to be made).

          So default is not a solution. Is just a failure to pay.

          To reduce the debt burden, a country that does not control the currency in which it issues the debt has only one option: negotiate with creditors and persuade creditors that it would be better for everyone to cut the debt to a manageable pile.

          I think that is what you mean: that default is used as a tool to force a solution – and usually it is because there is no other good way out, for either side.

          If the country fails to handle this properly and get most/all creditors on board in cutting the debt (see Argentina), it becomes a pariah for the bond markets, and it may be impossible afterwards for that country to borrow money in the international markets. For Greece, this would be a very bad outcome.

          It would mean that Greece would remain completely cut off from the international bond markets (and that’s where the money is), perhaps for decades (see Argentina), and that it would also no longer receive funding from the Troika. Which means that Greece could not fund its budget deficits.

          Now, I would love to see Greece have a balanced budget. Then the whole problem would go away. To heck with creditors. If you don’t need to borrow, you can set the terms. But Greece is far from having anything near a balanced budget, and like the US and other countries, will likely never have a balanced budget.

          BTW, Japan is in much, much worse fiscal shape than Greece. But it controls the currency in which it issues its debt, and so the central bank essentially funds the huge government deficits and debt. This destroys the currency, which is already happening. That’s how Japan is dealing with its problem: devalue the yen over many years. It’s a painful deal for individuals.

          Greece doesn’t have that option.

          If Greece does go back to the drachma, its existing debt will still be denominated in euros and still won’t go away, but will be even harder to deal with. And no one is going to buy its drachma-denominated bonds (because everyone knows that the drachma will be devalued). So really, negotiation is the only way out.

      • Erwin Gordon says:

        Wolf, with respect I have the feeling with talking at cross purposes and semantics. Yes, I was a bit loose with my terminology and for that I apologise.

        If a country cannot pay the debt because it is well beyond its means, then the debt has to be significantly reduced or eliminated? It doesn’t matter whether the country controls the currency because effectively the debt is going to be reduced whether the country runs the printing presses or not. Once the creditor has accepted (reality) the reduction in the debt it is gone (i.e. eliminated).

        A default is a signal of one’s inability to pay a debt and in almost every case would prompt discussions around how much the debt has to be reduced before the other party can hopefully start to pay off the rest of it (unless of course the other party is just a deadbeat.). In the case of Greece, I’m not in any way excusing the Greeks for being profligate. What I am saying is that because the debts are so large across the western world, the western institutions and governments are playing a silly game where they are all pretending that they are going to be made whole (i.e. fully paid off because it’s in the same currency) and what I’m saying is that irrespective of whether Greece has the drachma or stays in the eurozone, reality will impinge and force the creditors to take a haircut because Greece has stopped pretending it can pay its debts.

        Even in the scenario where the debtor country like Japan controls the currency the creditor country is not made whole because everyone knows that the purchasing power of quantity of the currency being reimbursed is significantly reduced. In the case of Japan, that is for the most part the local population. So the debt is still effectively being eliminated. So yes, there will be a negotiation around how much the debt is going to be reduced and maybe the charade will continue on for a couple of more months or a year until it returns. Even the IMF acknowledges this by the report which was leaked today that highlighted that even if Greece implemented all the austerity measures that troika wanted the debt would still be unsustainable in the next 15 to 20 years. So whether Greece have their own currency or not, the creditors will be obliged to write off significant amounts of the debt. And that is going to create a massive problem for the ECB, the EU and the large banks because significant amounts of capital is tied up in those ECB bonds that are linked to Greek debt. It’s not going to be pretty.

        • d says:

          “If a country cannot pay the debt because it is well beyond its means, then the debt has to be significantly reduced or eliminated? ”

          NO IT DOES NOT.

          The creditor is not “bound” to reduce the burden.

          Particularly when the debtor is aggressive, intransigent, and obstructive.

          As is the current administration in greece.

          This is part of the problem, people like you, are TELLING the creditor what to do. (You, and the debtor, dont have the wright to do that)

          Then refusing to cooperate with the realistic conditions set by the creditor.

          So the creditor will simply sit and wait, for the current administration to be replaced, by a more realistic one. And the people will continue to suffer, as the administrators they elected, are incompetent militant communists.

          This morning (Thur 02/07 0900 Southern pacific time) the Debtor is telling his people:

          “vote no, next week the banks will open normally, and all will be well”.

          It is not possible to reach a realistic agreement with Debtor administrations like the greek Marxists/Maoists. Their difficulty’s must be shown as an example to other debtors, of what can happen, when constrained Debtors, are uncooperative and unrealistic.

          The creditor has the ultimate weapon.

          TIME. As the debt, structured as it is, will never go away, further, penalty interest will keep accruing, and the debtor will be restricted, for ever.

          Yes, shooting wars do get started like that, this debtor does not have the national engines required, to build a successful shooting engine of war, even for a short duration.

          The greek Marxists are in fact waging diplomatic and Economic war against the creditors. One of their weapons is the damaged inflicted on the people of their country, for which they are blaming the creditor.

          And you are supporting them, with another of their weapons, negative global public opinion, against the creditor.

          As surely as Muslims are attempting to Demonize, and Delegitimize Israel, you are Demonizing, and Delegitimizing the creditor.

    • Alan Harvey says:

      Five years of austerity was evidence enough for the Greeks. They were the champions of austerity under previous governments. The nonsense is that getting out of the burning building is bad policy or bad economics.

      They had two options: continued depression or crash and recovery. They tried to get the Troika to do what any bank would do for a corporation in similar condition. Crashing the Greek economy is the worst solution for the creditors.

    • Orlando says:

      Here! Here!

  8. Richard says:

    I find it odd that there is very little discussion about the relationship between sovereign debt and the pyramid of derivative gambles that can be built upon it. Why do hedge funds and national central banks choose to hold the sovereign debt of other countries on their books? Even when such debts are built on quicksand as Greek debt has obviously been for some time. The search for speculative yield? Hardly.

    Sovereign debt has traditionally been classed as the most secure of assets. Default is never a necessary option if you print your own currency, and apparently the financial world thought that the EU was a sovereign state. So what better asset to build a pyramid of “fully hedged” derivative gambles upon?
    20/1–100/1— what could possibly go wrong.

    • Erwin Gordon says:

      Richard, You are absolutely right. I alluded to it in my response to Wolf but it seems at though there are significant number of individuals who don’t realise what is happening and who didn’t understand my comments (especially D). The troika have been kicking the can down the road for so long we are at the point of what Mises called , the crack-up boom. D thinks that the debtors (i.e. Greece) are telling creditors (i.e. the troika) what to do. He doesn’t seem to grasp the analogy that I laid out of the hard core leftist grandmother working in a soup kitchen surviving on €20 k per year who has a €1 million dollar debt. Basic math would tell anyone with half a brain that the debt is not going to be paid off in 20 or even 30 years (even the IMF, ECB, EU and the US know this) if ever! But yet, the troika and the majority of the media outlets pretend as though it can be paid off.

      And you are absolutely correct in that on top of this is a mountain of derivatives which are about to go up in smoke as well in which the bond values (in the hundreds of billions) pale in comparison (hundreds of trillions). And since Greece has missed a payment and the process of notifications of missed payment has started down the chain which will lead to a credit event within less than 30 days and the invoking of said credit default swap. It’s truly striking how certain individual who make comments are unable to do the simple math involved.

      • d says:

        The greek s were promised debt relief (unwritten) after they reformed.

        What was also unwritten was what would happen if they did not reform.

        Which is where we are.

        As long as they reformed, the debt value was irrelevant, as the intention was always to write part of it off.

        This is what you deliberately miss in your maths based argument. And why your maths based argument is irrelevant.

        Unless the greeks leave the EU, taking their debt mountain with them. Should they do that. The group of creditors they will not receive relief from, are the Euro ones, dont see the US being happy about that.

        Justy as the Marxists demands for debt relief before reform, or without reform, are completely untenable for the EU. As the core of the entire agreement was reform which greece has failed to do.

  9. Julian the Apostate says:

    Richard, I suspect sovereign debt is coasting on reputation, from a time when these things mattered and people could trust them, i.e. “The full faith and credit of the US Treasury”. Now it has morphed into a shell game and the con artists are COUNTING on the idea that you still believe that. When you (and everyone else) stop believing the con is wrecked, and the reputation destroyed.

  10. Alexandre says:

    And in 50 years ago the greeks rules the world wiht Onassis, Niarchos, Livanos, etc

  11. Owl says:

    These circumstances are truly ironic. The Greeks, living off other Europeans money, get to vote on a referendum that asks if they want to continue to live off other peoples money. When does the European populace get a referendum on providing money to Greece?

    It’s well known that the Greek populace consider themselves European. I think Syzria may have miscalculated this one. They believe they have a mandate and appear ready to scuttle the Greek ship. They may find themselves tossed overboard instead.

  12. PML says:

    I just can’t believe these guys are willing to torch their own country,” one investor with a large holding of Greek bonds lamented in an email. “They thought this was a game. Now, when the supermarkets run out of food, gas stations run out of gas, hospitals have no medicine, tourists flee, salaries don’t get paid because banks shut — what are they going to do?”

    Duh – has this guy been to Greece?

    I’ve been — and the country is already torched… Huge numbers of businesses in Athens are shuttered — there are no jobs — people have left to try to find work in other EU countries.

    There is nothing left to torch — this is a failed state…

    What needs to happen is the country must default. The idiots who loaned them all this money need to be punished for their stupidity.

    But that cannot happen:

    As Wolfgang Munchau has explained in a brilliant analysis in the Financial Times, Germany and France alone stand to lose €160bn when this happens, making Mrs Merkel and Mr Hollande the biggest losers in the history of money. They have a lot more to lose than Mr Tsipras.

    This should remind us of old adage: “if you owe the bank £1,000, you have a problem – but if you owe it £1,000,000, it has”.


    • Wolf Richter says:

      A default doesn’t eliminate the debt. Countries cannot shed debts via bankruptcies. They can only negotiate to restructure their debts. Countries that have their own currencies of course can also shed their debts denominated in their currencies by devaluation. Greece doesn’t have that option. Its debt remains, default or no default, until creditors agree to a haircut (see Argentina).

      BTW, Greece already defaulted in 2012 and obtained a haircut from private sector bondholders. But now taxpayers are on the hook. And you’re tight, they were stupid to lend money to Greece. But no one asked them….

      • John O'Brien says:

        It seems to come down the fact that the ECB can maintain the fiction that it is solvent while the Greek’s cannot. Accounting-wise…both are left partially insolvent (Greece because it doesn’t have the ability to pay, the ECB because the lack of ongoing debt payments by the Greeks reveal the “fiction” that the Greek debt has substantial value…blowing a hole in their “balance sheet”).

        ECB (and other central bankers) are in a lather at this point not necessarily due to the fact that their balance sheets could blow up (they just devalue as they have been doing for 7 years….or possible change accounting standards again as the U.S. did in 2008)…but rather that the resulting contagion is NOT CONTROLLABLE. There is still ALOT of Greek debt that central banks haven’t managed to hoover up in the past three-four years…and those external holders don’t have the same staying power the central banks do. That means the central banks must decide on more backdoor bailouts (in an even worse political and economic environment than 2008) or let them fail and HOPE the consequences don’t spread too far.

        With the undocumented system leverage that many hedge funds and investors can deploy….this HOPE is just that….in my opinion.

        It is FEAR of the unknown which leads to the seizing up of financial system liquidity because no one is confident in their counterparty’s soundness…..this freeze in the repo market almost destroyed the banking system in 2008….and the leverage is the same (or worse now)….yet the market’s and investors’ confidence in the ‘powers-that-be” continue to ebb (in the face of more outrageous lying by officials). The markets have been fed HOPE for years (thanks Obama’s campaign slogan!)…but HOPE is not a PLAN….

        As the crisis persists…especially if against the odds Greece votes NO on Sunday (?)…the level of FEAR is likely to increase not decrease as other businesses who actually did business with Greek businesses start to see effects on THEIR business….and this translates to European economies outside of Greece very rapidly. The evaporation of value in a system as leveraged to the hilt as the current global economy is….means extremely rapid moves downward are likely. (In other words….there is NO scenario where economic value is actually CREATED in this environment so investor sentiment should necessarily worsen going forward…..)

        • Alan Harvey says:

          Good comment. The difference between the ECB’s profligacy and that of Greece is that the ECB can print money. It should give sovereigns a pause in the future to give up this possibility.

          I worry about the demonizing of the Greeks. They have been the Olympic champions of austerity over the past five years. It hasn’t worked. It can’t work. Yet the meme is still that the problem is the absence of willingness to “reform.”

          It will be along time, whatever the outcome, before trust between the European states returns. Not a pleasant outlook for the European experiment.

      • d says:

        Cuba finally paid off its $ US denominated IMF, Pre Revolution, overdue loan’s, with penalty interest. After something like 60 Years.

        The greek loans are in $US and EUR. Written in London, under English Law.

        They are never going away.

        Argentina, Loans in $ US, written in NYC. Stringer , or His, and His Shareholders Descendants, will make a killing on those, simply a matter of when. Calculate the “Penalty Interest” that will be figured into any final settlement with Argentina, no matter who finally settles them.

        All these people running round claiming “State International Default”, eliminates “State International Debt’s”, really need to educate themselves.

        Even those who “cite” the “devalue their way out of debt” forget.

        Most international loans/bonds are issued in “Hard Currency’s” not the Currency of the Borrower.

        The only “Borrowers’ with the ability to inflate themselves out of Debt are the hard currency issuers, and even then, only slowly.

        This is what makes O bummers huge increase of the “Trillions” the US owes, a “Future Issue”. Let alone the coming “Nightmare for the US State, and State’s” (The only thing Whitney had wrong, was the time frame) when Interest Rate’s rise.


        Meanwhile china keeps clandestinely printing, and the chinese lenders keep creating, 40F’t container loads of money, from thin air. Which they are using to buy up HARD Western Assets, and “Third world resources”.

        Yet the west is starting to bow to the chinese major push, for putting the Yuan/Rembi, in, the Reserve currency basket. (Next they will want the Ruble in there) Who is zooming who with that game???.

  13. “It meant no more cash for Greek banks from taxpayers of other countries, no more cash for Greeks depositors to withdraw and stuff under the mattress.”

    Non-Greek EU taxpayers aren’t on the hook the banks aren’t either, the collateral is currency not bonds. If the banks making the loans cannot make good is the fault of the ECB funds transfer regime not Greek depositors … who are guilty of ‘borrowing’ their own money.

    It isn’t just hedge fund managers who believed the hype about Greece, so did the hopeful Greeks who deposited money (made unsecured loans) to Greek banks (and thence to German/French banks whether they realized it or not). The banking bosses know the Greek banks are insolvent … they also know all the Euro banks are likewise insolvent and have been since the mid-2000s.

    As long as one car runs in Greece (Europe) the economy will continue to collapse. Underway is ‘Conservation by Other Means ™’. Instead of jettisoning the cars voluntarily, Europe is being de-carred in the most violent, ugly way possible. May God have mercy, etc. etc.

    Freezing Greek bank accounts means businesses cannot meet payroll; anyone with money is a Greek bank has long ago ‘yanked’ it out (and into a safe German bank, LOL). Bailins mean the same businesses are completely ruined, somehow this is supposed to ‘fix’ things. Meanwhile, the EU bosses dare not cut the Greeks a break as any sort of ‘success’ (Greek recovery) would be incentive for Spain, Italy, France, Portugal, Ireland, etc to demand the same exact same thing.

    EU cannot even risk a default but they cannot escape default without giving Greece a break … Syriza government has not given the EU any room to maneuver: it must believe that conditions really cannot get much worse in Greece (of course they can … as long as one car runs in Greece … )

    Greece cannot retire its own debt by way of human labor … not even the Americans nor the rest of Europe together could hope to do so. Labor is unproductive … subsidized by lavish application of a) debt and b) petroleum.

    Petroleum that Greece can no longer afford … neither can the rest of Europe.

    Are you paying attention, American drivers? Coming to a town near you.

    Greece is bankrupt the exact same way as all the other European countries. They all tried to imitate the US and its car-centric waste-based way of life and have squandered whatever resource capital it could get its hands on. In tech-speak, the Continent has destroyed its own purchasing power with its energy guzzling toys … all that remains are worthless empty claims against it, against its long- lost purchasing power.

    They will never get it back either. If the Europeans don’t get smart really, really fast the outcome will be worse than World War Two. Get smart and get rid of the cars.

  14. realist says:

    An interesting thing to see is wether the Greek government will be able to have the referendum on next Sunday. Greek administration is not known to be among the most efficient organizations around and to print and distribute voting lists, ballots, mobilize the needed personel for the polls etc, all in one week, wow. And as an additional treat, all this costs money and do the government in Athens have that money ?

    • d says:

      A referendum has been planned by the marxists for some time, all they need is the long since printed yes/no ballot papers and boxes deliver to polling sites.

      The “Question”, can printed from any computer, and simply hung in public, on the wall, in the vetoing places.

      They can fund its organization, as the work will be done by state employees, paid electronically, with the banks being given more greek Treasury Bonds, to counter the transaction. Should the banks refuse they will be nationalized, or forced in some other way to cooperate. Note the only restriction on Electronic Transactions is in moving funds OUT OF THE STATE.

      The greek state can keep on creating Electronic Euro’s inside greece like this, for a long time, what they wont be able to do is transfer it Electronically outside greece or get Euro cash.

      Grexit has already happened. Draggi wants 86 B Eur, + for whatever more EUR they want, from greek banks, in cash, or non-greek, good security’s, before he will allow them any more EUR cash.

  15. ERG says:

    It’s been a foregone conclusion for some time that Greece would default; it was only a matter of time. Now the question is: how long before Spain, Portugal, France, and Italy go the same way? Again: it’s only a matter of time. Say Buh-bye to the Euro. Not that it wasn’t a stupid idea right from the start, but was it really necessary to give it a try just so we could all see for ourselves just how stupid it is?

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