The GreeceFire Threatens To Burn The Continent


But we were told this was just a little bailout, remember?  And that it wouldn’t be of material consequence or size, right?  So….what’s this?

In a preview of a story to run Monday, the German magazine Der Spiegel said on its web site that the package — the equivalent of $145.2 billion — could be necessary if the economically ravaged nation continued to rely on foreign aid through 2013 and 2014. That comes on top of the 110 billion euros, or $160 billion, in bailout funds agreed to last year.

At what size does a bailout package become “material”?  Is not $300 billion, roughly, in that range?

And remember, this is Greece – a small nation with a “small” problem.  What of Ireland, Portugal, Italy and…. Spain?

Seventeen governments in the zone will seek longer maturity from creditors for Greece’s debt. The process is to begin as early as July. A new Greek aid package is expected to be approved by Euro finance ministers at a meeting on June 20.

Ah yes, “seek.”  This is an attempt to avoid triggering the Credit Default Swaps that we know the banks had written against this debt.  Well, that’s nice.  Now about those swaps and the number of them compared to the actual bonds outstanding….. and whether anyone had capital adequacy to pay them.  They didn’t, right?

The Journal noted:

Standard & Poor’s Friday said in a report that for issuers rated at Greece’s level, single-B, a “voluntary” debt exchange would likely be default if creditors received securities with terms less favorable than are available in the secondary market. With 10-year Greek debt yielding 15% in the secondary market and two-year debt yielding over 20%, that is almost certain to be the case under the exchange process planned by euro-zone governments.

Officials say that they are willing to accept a downgrade of Greece by the credit-rating agencies due to the exchange offer—so long as a “credit event” that would require payouts to holders of Greek credit-default swaps isn’t triggered.

Of course it’s a default – “take this bond with less-favorable terms in exchange, or we don’t pay.”  That’s very much identical to sticking a gun in someone’s face.

Now how you keep that from being a “credit event” is beyond me.  More to the point, why is it that four years into this mess we have as citizens – not just here but worldwide – failed to demand that these swaps and other instruments be exchange traded and that capital adequacy and margin be proved, in cash, on a nightly basis?

The Market-Ticker