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Dummy's Guide to the Greece Problem
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Dummy's Guide to the Greece Problem

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Dummy's Guide to the Greece Problem

I am largely a dummy when it comes to fundamentals. Thus, I submit the following summary of recent Greek events, in hopes that one of you fundamental wizards will help me out and point out where I'm right and wrong:

------------
The Greek government is out of money, and with such a crappy GDP, has no immediate way to generate money to pay its creditors (holders of Greek sovereign bonds).

On March 20, 14+ billion euros in bonds mature, and payment is due to bondholders.

The IMF and EU have agreed to bail out Greece by giving the government 130+ billion euros so that they can meet the March 20 deadline. However, it comes with strings: these organizations must be convinced that Greece will be more responsible, for example, requiring it to lower its debt-to-GDP ratio to 120% from 160% in the next 8 years.

Greek bondholders have been asked to take a cut on what they will be paid on bond maturity, by doing what's referred to as a credit swap, in that they will swap their current bonds for new bonds worth 46% of the current value.

Several bondholders have agreed to this (some banks for example), but some do not (including pension funds held by police and others). If 66% or more of the bonds are swapped, then legally Greece can force ALL holders of the bonds to participate in the credit swap, even those that do not agree. If this happens, the ISDA will issue a credit event, whereby, I think, the sellers of the CDS's will have to execute their obligation to the purchasers of CDS's based on the Greek bonds (not sure about the result of the credit event being executed here).

However, the deal with the IMF and EU could fall through if all or most of the credit swaps do not take place. I'm unclear as to whether the forcing of the credit swaps would be suitable in this case or if they must all voluntarily agree to the swaps.

Either way, March 20 is the deadline and later this week we should know the level of participation by the private deb holders.

Am I on the right track?

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However, it comes with strings: these organizations must be convinced that Greece will be more responsible, for example, requiring it to lower its debt-to-GDP ratio to 120% from 160% in the next 8 years.

Gotta love that is how we define responsible measures....

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about a quarter of private debt holders are hedge funds who most likely have much more to gain by a CDS trigger

Greece has already defaulted , period

Greed wins again, don't believe the hype

JMO

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I'm no expert on this crisis thing, but I thought this somewhat entertaining interview of Max Keiser where he really got into it explaining and warning about the crisis in Greece could very well happen to the U.S. The interview was not broadcasted and kind of banned.

Max Keiser interviewed by The Irish Times. November 2011 - Max Keiser

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If you listen to the talking heads carefully, the last few weeks has been to convince the herd that

1. The deal will go through come hell or high water

2. the action clauses will kick in but "it's no big deal"

3. Somehow magically the U.S. will decouple from Europe as the entire euro zone slips into recession

4. If you try to go against us, we will change the rules of the game


The end game is the same, but it will all play out in slow motion ... this is how we learn to live with it, twist the screw just enough each day


get used to it........................................



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Just came through the wire:

"Luxembourg finance minister says Greek terms for PSI is good, and an update on Greek debt exchange will be made on Friday"

Umm, I thought the deadline to accept the swap offer was 8pm Athens time tomorrow (or GMT, don't know)...? Will we not know until later?

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Just came through the wire:

"Luxembourg finance minister says Greek terms for PSI is good, and an update on Greek debt exchange will be made on Friday"

Umm, I thought the deadline to accept the swap offer was 8pm Athens time tomorrow (or GMT, don't know)...? Will we not know until later?


Deadline is Thursday evening, teleconference is Friday, we probably won't know anything for days....

they are digging through old laws trying to force pensions to accept deal , hedge funds are not participating as far as I can see

they have about 50% participation + or - , so far

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Reports on the wire are that 84.5% have committed to the debt swap. They only need 66% to trigger CACs, which will force 100% compliance. We will know 1am EST but unless something unexpected happens, it looks like a done deal. The market agrees so far.

from Greece says nearly 80% support debt swap - FT.com


Quoting 
In addition, the status of the 14 per cent of Greek debt not issued as Greek-law bonds, most of which are bonds governed by English law, remained unclear. According to a confidential analysis prepared for eurozone finance minsters last month, 95 per cent of all bondholders must be included in the debt restructuring for Greece debt to reach 120 per cent of economic output by 2020, the target of its new €130bn bailout.

The non-greek-law bondholders could spell spoiler for the IMF loan, yes? But that deadline is not until March 20.

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So 83% or so cooperation, and just now ISDA confirmed a credit event has occurred. Now what? Is it totally unsound logic to expect a selloff here going into the close? Why would someone want to hold a long over the weekend with pretty serious Greek uncertainty looming?

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meeting is 15 th for IMF but they are less inclined to offer much help , the money that they are committing is what is unused from the last bailout for Greece and what is left of the previous allotment that was not yet paid


New Greek bonds are going to plummet come Monday when they start trading


They should of held out and kept their CDS

There is a window now for them to see that they fixed absolutely nothing

Imagine if they decide now not to make up the difference for the bailout or offer them incentive to leave the euro

There would be a Domino effect IMO


UK Preparing For Euro Collapse As Greece Default Officially Declared

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