Welcome to DU!
The truly grassroots left-of-center political community where regular people, not algorithms, drive the discussions and set the standards.
Join the community:
Create a free account
Support DU (and get rid of ads!):
Become a Star Member
Latest Breaking News
General Discussion
The DU Lounge
All Forums
Issue Forums
Culture Forums
Alliance Forums
Region Forums
Support Forums
Help & Search
Economy
In reply to the discussion: STOCK MARKET WATCH -- Thursday, 19 January 2012 [View all]Demeter
(85,373 posts)40. Greece’s game plan By Felix Salmon
http://blogs.reuters.com/felix-salmon/2012/01/18/greeces-game-plan/
Greek prime minister Lucas Papademos gave an important interview to the NYT on Monday night. Think for a minute about the natural fractiousness of bondholders, and then read this:
This is a pretty clear message: if the bondholders dont agree to Greeces terms, then Greece can simply force them to join the exchange. Greeces bonds are issued under Greek law, and Greece can change its own domestic law any time it wants. My guess is that this is exactly whats going to end up happening. Papademos has two sets of advisors: its bankers, Lazard, and its lawyers, Cleary Gottlieb. Lazards Greece team is headed by Mark Walker, the former managing partner at Cleary Gottlieb, and Clearys Greece team is headed by the dean of sovereign debt advisors, Lee Buchheit. Bondholders, in general, have a lot of experience going up against Walker, Buchheit, and Cleary generally. And whenever thats happened, the sovereigns have won, and the bondholders have lost. Just ask anybody who held Russian domestic debt in 1998: Russias lawyer, back then, was Mark Walker.
Meanwhile, the lead negotiator on the creditor side is the IIFs Charles Dallara, an amiable buffoon whose main purpose in life is to try to make sure that everybody likes him and thinks that hes important. When faced with hard-nosed and single-minded Cleary types, hell be useless especially given that the banks have already cut him off at the knees by refusing to let him negotiate on their behalf. He can wave his hands around and agree in principle to a deal, but he cant actually commit any bondholders to participating. Which means that the negotiations are really just an opportunity for Dallara to talk a lot (he likes doing that), and for Greece to flatter him into agreeing to whatever it is theyre going to do in any case.
In her interview with Papademos, Rachel Donadio says that European leaders are set against the idea that Greeces credit default swaps should be triggered, on the grounds that it could ignite a chain reaction with unpredictable and potentially catastrophic results for the world financial system. Shes wrong about that: it couldnt. The only thing a CDS trigger does is make sure that people who bought insurance on a Greek default get paid when Greece defaults. It would mean that the people doing the insuring lose money, of course. But anybody writing an insurance policy has to be willing to pay out on it especially when youre insuring a credit as risky as Greece. A CDS trigger would not be catastrophic at all, and theres really no reason to try to avoid one...The real negotiations are the ones which are certainly going on behind the scenes, between the troika (the EU, the ECB, and the IMF) and the Greeks. The one thing which Greece needs is for the troika to keep on funding Greeces deficits. And so its the troika the organizations who are actually providing money, here which holds all the cards. As in any bankruptcy, if you put up cash, you call the tune....But the big-picture game plan is clear. Greece is going to default, on March 20, and theres really nothing the banks can do to stop it. If youre not willing to accept whatever deal Greece comes up with, you probably shouldnt be holding Greek bonds at all.
Greek prime minister Lucas Papademos gave an important interview to the NYT on Monday night. Think for a minute about the natural fractiousness of bondholders, and then read this:
Mr. Papademos said that if Greece did not receive 100 percent participation in a program in which bondholders would voluntarily write down $130 billion from Greeces unwieldy $450 billion debt, the country would consider passing a law to require holdouts to take losses.
It is something that has to be considered in the light of expectations about the degree of the participation to be achieved, Mr. Papademos said. It cannot be excluded. It is contingent on the percentage.
It is something that has to be considered in the light of expectations about the degree of the participation to be achieved, Mr. Papademos said. It cannot be excluded. It is contingent on the percentage.
This is a pretty clear message: if the bondholders dont agree to Greeces terms, then Greece can simply force them to join the exchange. Greeces bonds are issued under Greek law, and Greece can change its own domestic law any time it wants. My guess is that this is exactly whats going to end up happening. Papademos has two sets of advisors: its bankers, Lazard, and its lawyers, Cleary Gottlieb. Lazards Greece team is headed by Mark Walker, the former managing partner at Cleary Gottlieb, and Clearys Greece team is headed by the dean of sovereign debt advisors, Lee Buchheit. Bondholders, in general, have a lot of experience going up against Walker, Buchheit, and Cleary generally. And whenever thats happened, the sovereigns have won, and the bondholders have lost. Just ask anybody who held Russian domestic debt in 1998: Russias lawyer, back then, was Mark Walker.
Meanwhile, the lead negotiator on the creditor side is the IIFs Charles Dallara, an amiable buffoon whose main purpose in life is to try to make sure that everybody likes him and thinks that hes important. When faced with hard-nosed and single-minded Cleary types, hell be useless especially given that the banks have already cut him off at the knees by refusing to let him negotiate on their behalf. He can wave his hands around and agree in principle to a deal, but he cant actually commit any bondholders to participating. Which means that the negotiations are really just an opportunity for Dallara to talk a lot (he likes doing that), and for Greece to flatter him into agreeing to whatever it is theyre going to do in any case.
In her interview with Papademos, Rachel Donadio says that European leaders are set against the idea that Greeces credit default swaps should be triggered, on the grounds that it could ignite a chain reaction with unpredictable and potentially catastrophic results for the world financial system. Shes wrong about that: it couldnt. The only thing a CDS trigger does is make sure that people who bought insurance on a Greek default get paid when Greece defaults. It would mean that the people doing the insuring lose money, of course. But anybody writing an insurance policy has to be willing to pay out on it especially when youre insuring a credit as risky as Greece. A CDS trigger would not be catastrophic at all, and theres really no reason to try to avoid one...The real negotiations are the ones which are certainly going on behind the scenes, between the troika (the EU, the ECB, and the IMF) and the Greeks. The one thing which Greece needs is for the troika to keep on funding Greeces deficits. And so its the troika the organizations who are actually providing money, here which holds all the cards. As in any bankruptcy, if you put up cash, you call the tune....But the big-picture game plan is clear. Greece is going to default, on March 20, and theres really nothing the banks can do to stop it. If youre not willing to accept whatever deal Greece comes up with, you probably shouldnt be holding Greek bonds at all.
Edit history
Please sign in to view edit histories.
101 replies
= new reply since forum marked as read
Highlight:
NoneDon't highlight anything
5 newestHighlight 5 most recent replies
RecommendedHighlight replies with 5 or more recommendations
$10 TRILLION Liquidity Injection Coming? Credit Suisse Hunkers Down Ahead Of The European Endgame
Demeter
Jan 2012
#7
Speaking of the skunk, I just meandered over to Automatic Earth and found this.
Fuddnik
Jan 2012
#18
Yeah. What would be the corresponding statistics for the States? The Skunk, you see,
Ghost Dog
Jan 2012
#19
Well, ZH has a tendency to go way over the top, on occasion. The 'soundbite' is based on
Ghost Dog
Jan 2012
#20
I don't really "understand" any of it, Tansy - but I don't think it matters
bread_and_roses
Jan 2012
#62
Not as far back as our reptile brains. Just a hundred and fifty years of Western social progress,
Ghost Dog
Jan 2012
#65
The A-List: Jeffrey Sachs - Self-interest, without morals, leads to capitalism’s self-destruction
Demeter
Jan 2012
#37
Obama's "tax-policy", the new puppet-in-waiting and the collapsed UBS business model.
Ghost Dog
Jan 2012
#87