IIF Warns That The Costs Of A Disorderly Default Will Exceed €1 Trillion

Financial Market Report for March 7, 2012

1) … Reuters reports, IIF Warns That The Costs Of A Disorderly Default Will Exceed  €1 Trillion.
Alex Chambers and Lefteris Papadimas of Reuters report that A Disorderly Default Will Exceed  €1 Trillion. Analysts said an Institute of International Finance document, marked “IIF Staff Note: Confidential”, seemed designed to alarm investors into participating in the exchange by estimating the extent of havoc a disorderly default would wreak.

“It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed 1 trillion euros,” the IIF, which represented private creditors in months of tortuous debt negotiations with Athens, said in the February 18 document obtained by Reuters.

Greek private creditors have until Thursday night to say whether they will participate in the exchange that is a key part of a bailout program to help Greece manage its wrecked finances and meet a debt repayment on March 20.

A number of the biggest bondholders are signing up but despite the dire warnings, a clutch of Greek pension funds and some foreign investors rejected the offer which will see investors lose almost three-quarters of the value of their holdings and lop about 100 billion euros off Greece’s debt.

If Greece misses the March 20 payment without a deal in place and succumbs to a hard default, it could be taken as a sign that politicians have lost control of the crisis again, prompting investors to target other weak euro zone countries.

Spain and Italy might require 350 billion euros in outside support to contain the fallout, the IIF said, while the cost of helping Ireland and Portugal could total 380 billion euros over five years.

“When combined with the strong likelihood that a disorderly Greek default would lead to the hurried exit of Greece from the euro area, this financial shock to the ECB could raise significant stability issues about the monetary union,” it said.

The bank lobby group also said bank recapitalization costs could easily hit 160 billion euros if no swap is agreed.

Investors in a Swiss-law governed Greek government bond have teamed up to challenge the terms of Athens’ proposed bond swap, highlighting the wave of litigation it could yet face, particularly over the minority of its debt not issued under Greek law.

Greece wants a take-up of 90 percent or more, and if it falls below that but exceeds 75 percent it is expected to use collective action clauses (CACs) to force losses on all. It could trigger CACs on Greek law bonds, which account for 177 billion euros of the total, with two-thirds acceptance. Below that level, the deal could be off, potentially plunging the euro zone back into crisis.

Obviously the report is written on a worst-case basis to try and encourage participation in the exchange,” said Gary Jenkins, analyst at Swordfish Research.  “The most likely outcome may well be that Greece passes its 75 percent target and then uses CACs to ensnare the remainder,” Jenkins said.

2) … Bloomberg reports Hans Humes, president of Greylock Capital Management, expects holders of more than 80 percent of Greece’s government bonds to accede to the swap.
Maria Petrakis and Fabio Benedetti-Valentini of Bloomberg report Investors With 58% of Greek Bonds Agree to Swap. “Adding up the commitments to participate in the Greek PSI, it is now clear that the CAC hurdles will very likely be cleared,” Commerzbank AG (CBK) head of fixed-income strategy Christoph Rieger said in a note today. Hans Humes, president of Greylock Capital Management, expects holders of more than 80 percent of Greece’s government bonds to accede to the swap, he said in a Bloomberg Television interview today. Humes is a member of a committee of private bondholders that negotiated the deal with the government.

3) … Commentary
An inquiring mind asks … Why would bondholders take the offer as the new securities are GDP linked, when Greece is neither a sustainable sovereign that is a country that is incapable of sustaining any viable economic activity?

I agree with Shaun Richards who relates “I am left with the thought that we will see a substantial amounts of rejections of the deal.”

I believe that there will be a hard default, and that Collective Action Clauses, CACs, will be activated  to impose the deal, and that this will be declared an official default by the rating agencies, but perhaps not by the IIF, and thus perhaps there may not be a payout on the Credit Default Swaps, CDS; that matter is a decision that will be made by internal bickering of the members of the IIF, and the details of the debate never published. It may be determined that defaulted Greece’s Swiss franc bonds and others, which do not have a CAC, trigger a payout of CDS.   

Insolvent financial institutions, and insolvent nations cannot sustain growth or profitable investing. Fate, through the creative destruction of capitalism, will bring forth a United States of Europe, that is a Federal Europe, out of a soon coming financial armageddon, that is a credit bust and global financial collapse, to provide security, stability and ongoing regional economic sustainability. The Eurozone region will be one of ten such regions, as called for by the 300 elite of the Club of Rome in 1974 for regional global governance.

In my Financial Market Report for March 6, 2012, I wrote “Competitive currency devaluation commenced as investors derisked out of stocks, VTI, VT, VSS, NYC, IWM, and delevered out of commodities, USCI, DBC, specifically DBB, CUT, JJA, The world’s major currencies, DBV, and the world’s emerging market currencies, CEW, traded lower, stimulating arise in the US Dollar, $USD, UUP. Sovereign exhaustion, that is exhaustion of the world central banks’ monetary policies, and fears of Greek sovereign default, have resulted in debt deflation, that is currency deflation. The Swedish Krona, FXS, led the currencies FXE, FXM, FXC, FXB, SZR, FXF, BZF, FXA, ICN, seen in this Finviz Screener lower.

Total Bonds, BND, rose, while Junk Bonds, JNK, traded lower. The global government finance bubble, BWX, and EMB, traded lower on falling lower currencies. Systemic stability simply is not possible in a world of failed and insolvent sovereigns, BWX, and insolvent financial institutions, IXG. Soveign insolvency and banking insolvency, as well as trade imbalances, both regional and intra-regional, are the issues that is turning inflationism into destruction, and is moving the world from US and EU UK hegemony into regionalization.

Many steps towards a One Euro Government have already be taken, ie the August 2011 Merkel Sarkozy Comminique for a true European Economic Government, the Fiscal Compact with its Golden Rule of Debt Brakes, the subordination of sovereign debt to the ECB by executive fiat, and the regionalization of European Fianancial Institutions into the ECB via LTRO 1 and 2.

There is no human action, and there are no sovereign individuals. There are only God’s appointed things, Acts 17:26, and God alone alone is sovereign, Psalm 2:4-5. He acted sovereignly by destroying fiat money, and destroying the Banker Regime that came via Milton Free To Choose script, which underwrote capitalism. Yes, both fiat money, and banking institutions, died March 6, 2012, on exhaustion of the world central banks’ monetary policies, and fear of Greek debt contagion. Now the Beast Regime, as foretold in Bible prophecy of Revelation 13:1-4, is rising to rule mankind’s economic endeavors.

Today, the major currencies, DBV, and Emerging Market Currencies, CEW, seen in this Finviz Screener
traded up, with the Mexico Peso, FXM, rising the most, but global competitive currency deflation is underway with the result that commodities, although trading up, have broken down: debt deflation is now underway in commodities.

Lowe’s Companies, LOW, traded higher, taking home builders, ITB, higher. Consumer stocks, IYC, traded higher on MAT, TPX, LZB, FBN, FBHS, and FUN rising. Design build, PKB, traded higher on URS, MAS, EXP, BECN, DY, trading higher.  Gaming, BJK, Leveraged Buyouts, PSP, Emerging Markets Small Caps, EWX, Copper Miners, Small Cap Pure Value, RZV, Biotechnology, XBI, and Greece, GREK, were among those rising..

4) … In today’s news
Are you looking for real estate property in San Francisco, CA?  If so, I suggest one consider the newly listed property at 416 28th St, Noe Valley, CA, 94131 Realtor CLazar relates its “A very charming 2-bed, 1.5-bath, 1,064 square foot single family home in Noe Valley just landed on the market with an asking price of $1,059,000, or $995 per square foot, the neighborhood average. The home last sold in 2007 for $975,000. We should point out that in addition to the two proper bedrooms, there’s also a smallish bonus room that the listing suggests be used for an office or nursery. We think this place’s adorable, but the real property highlight is the terraced backyard, which is perfect for entertaining.”

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