When Is A Default Not A Default?


Why when governments and central banks lie about it, of course!

(Reuters) – The French government and banks have agreed on a proposal to make a Greek debt rollover more palatable to creditors, a banking source said on Sunday, confirming a report in Le Figaro newspaper.

Under the plan, creditors would reinvest 70 percent of the proceeds reimbursed when Greek debt falls due, with 50 percent going into new Greek bonds with a maturity of 30 years instead of five, the newspaper said on its Web site.

Now notice what’s going on here: Many of these banks bought these things when they were severely distressed, thereby paying a discounted price.  Now they’re going to “exchange” at face, effectively stealing the difference.

Greece, for its part, shouldn’t care.  Remember, original issue was at or near par with a given coupon.  Trading price now is immaterial to Greece, since it must redeem at maturity at par.  Therefore, this isn’t about Greece, it is about protecting and ensconcing the bogus “profit” that these institutions will have managed to not only use for Repo purposes, but now will actually capture as a capital gain!

Must be nice…. but again, how is exchanging a five year bond for a 30 year one not a default on the five?

Well, see, we just say it wasn’t.  That way the banks that wrote the CDS on that debt (several times the actual outstanding amount, I’m sure) won’t detonate either, and those who bought the (worthless, since the writer had no capital) CDS won’t wind up with an exposed marked-down position, possibly rendering them undercapitalized or even resulting in a “kaboom.”  (The latter becomes particularly likely if this little bit of gangrene spreads to, oh, Italy or Spain.)

What’s the purpose of such a contract if, every time someone gets into trouble with one, they get bailed out?

Oh, it doesn’t stop there either: We have the obligatory “tanks in the street” threat too:

“Returning to the drachma would mean that on the following day banks would be surrounded by terrified people trying to withdraw their money, the army would have to protect them with tanks because there would not be enough police,” said Pangalos.

“There would be riots everywhere, shops would be empty, some people would throw themselves out the window … And it would also be a disaster for the entire European economy.”

Go perform an anatomically impossible act Pangalos.  You and Hanky Panky Paulson should both be rotting in prison eating bread and water rations until you expire.

You’d think it would end there, but it won’t.  The next piece of garbage is from Axel Weber

FRANKFURT—Former Bundesbank chief Axel Weber said Europe needs to consider guaranteeing all Greece’s outstanding debt because Athens’s only viable alternative is a messy default that would be more costly and risk sparking broader financial turmoil.

No, what the people of Germany should do is demand (and enforce by whatever means are necessary) the cessation of this crap and if that means over-levered fools in Europe go prompt critical and detonate, so be it.

The next day there will be a fine group of capitalists that will set up new banks, properly chastened about taking on leverage that they have no capital behind.  As for the investors (bond and stockholders) in the other banks?  Well, if you buy something without giving a damn what the board of the corporation is doing, you deserve to lose your money.  Next time pay attention.

Oh wait – Weber wants to be chair of one of those banks, doesn’t he?  Well gee, there’s no conflict of interest there, right?


Ps: Best-a-luck with all ‘dem rabbits gents.  You know damn well that one of these times you’re going to reach into the hat and instead of a rabbit a lit stick of dynamite is going to come up in your hand, just as it did in 2008.

The Market-Ticker