The bailout/debt bubble should finally and gloriously collapse in 2012.

It should be epic and alter the perceived reality around the globe.

The order that comes out of the chaos has me concerned...

Pfft, old news. Iceland already did it.

I like to try and understand what is going on. I have a view, I am sure it is wrong, but I take the facts and see if they fit. When I am wrong, I can change how I think about things.

Im gonna disagree with Karl on Credit Default Swaps on Greek bonds, I think that it is a very big deal. Here is why.

Greece has known for sometime that it has the upper hand, it can default on its borrowing. It has also known for a long time, that it has to default on its borrowing, the debts are just too high to be repaid, and it looks like they really ought to write off every Euro of the debt. And yet they havent done this, why is that?

The IMF are there, and European officials, they have seen that the Greeks have made only half hearted measures to close their deficit, and yet they lend them more money time after time. The proud boast of the IMF, that they have never lost money lending to anyone, is going to come unstuck this time, and yet they lend more? Why? And what on earth are the Eurozone officials doing lending to a Greece that is clearly out of control? It looks to me like a country that is run by criminals, taking their slice of any new loan that comes their way, and moving it Switzerland as soon as it comes in or buying some gold or a house in London, and yet the Eurozone and the IMF still send money their way. What on earth is going on?

Well, it looks to me that there is a kleptocracy in charge of Greece. They take their share of any new loans, and then distribute what is left to spending and debt repayments and interest. They know that there is no point in trying to do something serious about balancing the budget, because they feel sure that there will be more money coming their way when they run out of cash, so there is no need to plan for a Euro exit or balance the books.

The only reason I can think of why Greece continues to be offered more money when it cannot be repaid, is because it has a massive lever of some sort. And that must be the huge amount of CDS outstanding against its debt. If they default, the default event occurs, bankrupting the powerful. I assume that the masters of the World themselves go bust in such a spectacular way if that were to happen, that the US Fed themselves cannot bail them out this time. So instead they funnel more loans the way of Greece in the hope that something happens to end the cycle of Greek dependency.

Greek officials know what will happen if they default, and are using the threat of default on their own bonds as blackmail to obtain more funds, in one gigantic scam.

Am I close?

Bloomberg is quoting Greek Debt at a 396% yield, up from 40% last summer.

http://www.bloomberg.com/apps/quote?tick....

I know it was stated last summer that that's not an actual 40% yield, but an implied assumption of eventual default.

Does a ~400% yield imply an expected recovery value of 0.25% of the face value of Greek bonds?

400% on a one-year means that the price on that bond is approximately 20 cents.

Nobody expects to be paid the coupon on that, obviously. It's an implied recovery value. The exact place where this occurs is a bit fuzzy, but once you get over a 15% coupon or so on a 1 year obligation (scale for duration of course) this is usually what it means.

There is some good stuff on this subject on this site: http://www.acting-man.com/

Here is the real deal. The more the ECB buys, the more the IMF lends, the less is left for those left behind to collect. The annual fee on CDS's on Greece went over 100% last month, which is a call for an immediate default and paymment on these instruments. I have read a couple of stories where the various hedge funds that have purchased Greek debt are going to refuse to take the haircut and settle (they are going to take a haircut and terms which appear to reduce the NPV of the settlement down to 25%, thus hiding 1/3 of the loss) so they either get paid on the debt or on the CDS's they own.

I sent Karl these links I found posted on Mish's site. I think you will have fun with these KD.

http://www.youtube.com/watch?feature=pla....

This is Max Keiser with a woman named Nomi Prins that used to work for Paulson at GS talking about MF Global and JPM. She refers to them as mafia. Ms Prins wrote a book, which, if it is as good as her interview, is probably worth reading.

http://www.nomiprins.com/

"Pfft, old news. Iceland already did it."

Iceland is tiny-tiny, geographically, politically, economically. The failure of Watchovia dwarfed even the total-disappearance of Iceland (which did not happen). Iceland still has all of the physical infrastructure, Range Rovers, smart people, payments incoming by having the USAF base there, fishing, etc. Only the criminal banksters have been slightly inconvenienced. Some of the banksters laundry customers and a few foreign customers have been screwed, but the UK made most of them whole. Whaaaaaaa!

I predict that Iceland will be a future bastion of civilization, rule-of-law, and generally good place to be if you can stand darkness/cold/fish. They will have a very nice long-runway airbase after the US Gov't makes a final exit, but the payments are more useful than the runway.

The fun begins when a. The Euro becomes DM's at a steep discount, b. OPEC demands gold or DM's for oil, or US Dollars at a discount, c. COMEX deliverable metals go the way of the MF'ers over at Global. d. There is no orderly swirly down the bowl of depression/deflation/hyperinflation/martial law- everything metaphorically backs up onto the floor with additional attempts to flush. Next stop: Safeway, for the Battle of Aisle 3 (canned food). EBT/debit/credit cards no-workee, cash-only. Grid down? Folks are gonna start dying fast if it's February in most places. Even gangsters will die of dehydration/cold/CO poisoning much more than by violence. I see Rawles "Patriots" & "Survivors" as bright and shiny optimism for the best possible circumstances for the best people in the best places.

Oh, yes, this was planned.

Cheers.

Leicestersq

"The proud boast of the IMF, that they have never lost money lending to anyone"

They never lost money, they revalue the gold and call it debt relief.

http://en.wikipedia.org/wiki/Heavily_Ind....

And Spain is quite screwed.
http://www.zerohedge.com/news/q4-spanish....

Quote:

In percentage terms this means that Spanish unemployment rose by a ridiculous 2%, or from 21.5% to 23.3%, in one quarter!

Spanish unemployment will be well north of 30%, and 2 out of 3 people aged between 16 and 25 will be out of a job, if ot more.

And Germany has gone insane.
http://www.zerohedge.com/news/der-verkau....

Quote:

Der Verkauf Ist Verboten - Germany Considers Ban On Sovereign Bond Sales

Ms Merkel said she would consider calls from her party colleagues for legislation to bar institutional investors such as insurance companies from selling bonds when ratings were downgraded, or fell below investment grade."

WUT????


This world is bonkers.

But I thought Spain was leading the world in Green Jobs???

Lemonaid : you believed Obama didn't you?

Quote:

looks to me like a country that is run by criminals, taking their slice of any new loan that comes their way, and moving it Switzerland as soon as it comes in or buying some gold or a house in London, and yet the Eurozone and the IMF still send money their way

Why not? Greece take all you can. The IMF banksters have become the enablers. Rather than sound conservative banking you the bankers hoping for more loans and the income from it.

If I was a criminal and I knew the IMF could be manipulated easily by threats of a default I would keep the game going as long as possible. The IMF just keeps throwing money at Greece and then announces a solution has been found seems like a perpetual blackmail game. Surprised the Italians are not doing it as well.

The ECB/IMF deserves what's coming.

Basel Faulty Towers Crashing.

With apologies to John Cleese.

"The utter and complete fraud in our banking structures that allow institutions to hold these sorts of debts as "risk free", requiring no reserves and no capital behind them, is an outrage. It is systemic and intentional fraud perpetrated upon the world for the sole benefit of making possible national overspending with impunity, destroying any sort of market discipline aimed at budgetary deficits."


Probably the greatest two sentences of economic journalism written so far this decade! Way to go!

Quote:

The only reason I can think of why Greece continues to be offered more money when it cannot be repaid, is because it has a massive lever of some sort. And that must be the huge amount of CDS outstanding against its debt. If they default, the default event occurs, bankrupting the powerful. I assume that the masters of the World themselves go bust in such a spectacular way if that were to happen, that the US Fed themselves cannot bail them out this time.

Who's to say that _any_ default will cause a trigger? ISDA could just stick their fingers in their ears and go "LALALALALALALAALALALALA!!!", or some authority could declare any failure to pay as an 'act of God' or force majeure out of it in some way. These ****ers have neither honor nor shame. The only question you need to ask is, "cui bono?"

It is time. Greece needs to begin the purge.

Greece will keep taking money as long as it is offered. Why not? The IMF and EU member countries have to know this. So, what is their end game? What are they hoping for? I don't get it...why throw good money after bad, unless you know you will fully recoup your money?

Its not their money of course as it comes from the taxpayer.

Quote:

The only reason I can think of why Greece continues to be offered more money when it cannot be repaid, is because it has a massive lever of some sort.

maybe the lever is not a financial one.

Otiswild said - Who's to say that _any_ default will cause a trigger? ISDA could just stick their fingers in their ears and go "LALALALALALALAALALALALA!!!", or some authority could declare any failure to pay as an 'act of God' or force majeure out of it in some way. These ****ers have neither honor nor shame. The only question you need to ask is, "cui bono?"

_____________________________________________

True - but that implies there is a **** load of this that will trigger, Or not !

I tend to think Greece has not been allowed to default so TPTB can figure out how to handle the financial mess that would be caused by the OTC Derivatives. Hell, Lehman caused one hell of a mess and it was a small Company - Not a small country.

I also believe that TPTB have determined they cannot contain the financial mess so they are using this time to prepare for a*****ed of citizenry once food, oil, and power shortages are in your face.

The US has taken a major step with BarryO signing NDAA !

Quote:

I also believe that TPTB have determined they cannot contain the financial mess so they are using this time to prepare for a*****ed of citizenry once food, oil, and power shortages are in your face.

I tend to agree.

When TSHTF regarding this mess (IMO) look for a "Wag The Dog" with Iran and Syria.

We are well on our way to the Sovereign Debt Jubilee. What other logical conclusion can come from a world-wide explosion of debt issuance over the next few years?

You can kiss the derivatives market goodbye at that point which will usher in the new currencies. Private debt will become sticky subject at that point. Especially unsecured debt like CC's, etc.

I see a big difference between today's debt problems and that of Argentina, Weimer, etc. is that ALL countries have a problem so there is no one "else" to bail them out. Gold is impractical as a currency as there is too little physical.

So, my conclusion to all this 1 of 2 options over the next 10 years:

1. A complete debt jubilee with a one time reset and new currencies issued. National interests will prevent the one world currency from being enforced.

2. A World War.

Quote:

Der Verkauf Ist Verboten - Germany Considers Ban On Sovereign Bond Sales

Ms Merkel said she would consider calls from her party colleagues for legislation to bar institutional investors such as insurance companies from selling bonds when ratings were downgraded, or fell below investment grade."

I'm no expert on German politics, but if this has any chance of getting passed then these bond holders better start unloading those bonds soon. That should make future bond auctions real fun!

Next, they'll pass a law forcing everyone to buy gov't bonds...


As for CDS: I won't be the least bit surprised if they follow Iceland's lead and say FU, we ain't paying! What are the bondholders gonna do then? Why anyone buys these things is beyond me. If a big sovereign like Spain or Italy goes boom the money simply isn't there to payoff all the claims. You think the Masters of the Universe in the financial sector would know this.

Stuart - it will be #2