7 ms·

European Union leaders announced a write down of Greek bonds by 50%

56 points by bpolania 15y ago

brc 15y ago
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.
bpolania 15y ago
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 15y ago
  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 http://online.wsj.com/article/BT-CO-20110823-709045.html [2] http://www.latribune.fr/entreprises-finance/banques-finance/banque/20110822trib000643686/la-societe-generale-demande-a-rothschild-de-soutenir-son-cours-de-bourse.html http://www.latribune.fr/entreprises-finance/banques-finance/...
  - nknight 15y ago
    Are you sure this applies to Iceland? My understanding is they've had their crash and are cleaning up from it.
    - Loic 15y ago
      Iceland crashed but they also declared default for all the foreign debt at the same time. As Iceland is very small, the effects were negligible for the foreigners. The effect was also a devaluation of the ISK because of the lost of trust in the country/currency: http://www.xe.com/currencycharts/?from=ISK&to=EUR&view=10Y http://www.xe.com/currencycharts/?from=ISK&to=EUR&vi...
  - danmaz74 15y ago
    If everybody was waiting for those countries to crash, nobody would be buying their debt, which is not the case. Moreover, Iceland already had its crash. Stop spreading FUD.
  - paganel 15y ago
    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 15y ago
      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.
sliverstorm 15y ago
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 15y ago
  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 15y ago
    '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 15y ago
      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.
      - sliverstorm 15y ago
        Oh, I see. I was not aware of that.
      - miratrix 15y ago
        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 http://www.bloomberg.com/quote/GGGB1YR:IND/chart German bond chart: http://www.bloomberg.com/quote/GDBR1:IND/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.
mc32 15y ago
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 15y ago
  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 15y ago
    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 15y ago
      [..] 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 governments 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
yxhuvud 15y ago
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.
- ars 15y ago
  The article says 150% not 180%.
- iwwr 15y ago
  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 15y ago
    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 15y ago
      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.
hopeless 15y ago
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 15y ago
  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%.

56 points by bpolania 15y ago

brc 15y ago

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.

bpolania 15y ago

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 15y ago
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 http://online.wsj.com/article/BT-CO-20110823-709045.html [2] http://www.latribune.fr/entreprises-finance/banques-finance/banque/20110822trib000643686/la-societe-generale-demande-a-rothschild-de-soutenir-son-cours-de-bourse.html http://www.latribune.fr/entreprises-finance/banques-finance/...
- nknight 15y ago
  Are you sure this applies to Iceland? My understanding is they've had their crash and are cleaning up from it.
  - Loic 15y ago
    Iceland crashed but they also declared default for all the foreign debt at the same time. As Iceland is very small, the effects were negligible for the foreigners. The effect was also a devaluation of the ISK because of the lost of trust in the country/currency: http://www.xe.com/currencycharts/?from=ISK&to=EUR&view=10Y http://www.xe.com/currencycharts/?from=ISK&to=EUR&vi...
- danmaz74 15y ago
  If everybody was waiting for those countries to crash, nobody would be buying their debt, which is not the case. Moreover, Iceland already had its crash. Stop spreading FUD.
- paganel 15y ago
  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 15y ago
    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.

sliverstorm 15y ago

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 15y ago
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 15y ago
  '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 15y ago
    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.
    - sliverstorm 15y ago
      Oh, I see. I was not aware of that.
    - miratrix 15y ago
      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 http://www.bloomberg.com/quote/GGGB1YR:IND/chart German bond chart: http://www.bloomberg.com/quote/GDBR1:IND/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.

mc32 15y ago

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 15y ago
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 15y ago
  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 15y ago
    [..] 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 governments 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

yxhuvud 15y ago

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.

ars 15y ago
The article says 150% not 180%.
iwwr 15y ago
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 15y ago
  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 15y ago
    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.

hopeless 15y ago

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 15y ago
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%.