Hedge funds are not really interested in an actual Greek rescue - only their profit matters

spiegel...

Hedge Funds Bet on Profits from Greek Debt Talks

The negotiations over the Greek debt haircut are becoming increasingly suspenseful, with euro-zone finance ministers and the IMF pushing investors to accept greater losses. Hedge funds, more than any others, stand to profit, and are betting that the voluntary debt rescheduling will fail.

Who will bleed for Greece? For weeks, private creditors like banks and insurers have been trying to negotiate a debt rescheduling with the country without success. Even when they seem close to agreement, it remains unclear if all creditors are on board. In particular, hedge funds that own Greek bonds could have a significant interest in ignoring the results of the negotiations, instead preferring to focus on an official national default.

Bank representatives assume in the meantime that many hedge funds are not really interested in an agreement. With a controversial investment strategy they have assured themselves of profiting with either a low level of Greek bad debts, or a complete Greek bankruptcy.

At issue are Greek bonds with a total volume of about €200 billion. How many are owned by hedge funds is unclear, but the amount is estimated to be about €70 billion (including other funds).

The bondholders are expected to voluntarily give up 50 percent of their claims. Another 15 percent is to be compensated with either cash or secure bonds of the European rescue fund EFSF. The remaining 35 percent should come in the form of new Greek bonds, that will likely reach maturity in 30 years.

The amount of money the creditors will actually have to give up depends on the interest rates on the new bonds. The Institute of International Finance (IIF), which is leading the negotiations with Greece, is insisting on an average of at least four percent. The euro-zone finance ministers and the International Monetary Fund (IMF) have instead insisted on rates lower than four percent, in order to make the burden on Greece more bearable. The banks calculate that this means they would actually lose closer to between 70 and 80 percent of their claims, and they are balking.

'Not Worried About Their Public Image'

For some hedge funds, the fight over interest rates has given them more incentive to push for a breakdown of the proposed plan. Officially, they are in the same boat as the banks and insurance companies. But in reality their interests are vastly opposed. "Hedge funds don't need to worry about their public image," one banker says. Their reputation has already been destroyed. Therefore, they can be relatively cavalier in gambling with the possibility of a Greek bankruptcy.

In an internal analysis of the German Savings Banks Association (DSGV), which represents the public banks, the hedge funds come off fairly badly. Withttp://www.blogger.com/img/blank.gifh the financial investors "only the performance" is most important. There is "hardly a political or economic corrective factor," such as long-term customer or contractual relations, the analysis says. Therefore, "one can conclude that they are not really interested in an actual Greek rescue."

i honestly don't think the hedge funds have EVER been seriously concerned about their reputation... it's always been about money - how much can be grabbed and how fast - and woe to anybody who gets in the way... matt taibbi's metaphor of a giant vampire squid glued firmly to the face of not only humanity but also to the planet is apt... they will suck the life out of anything and everything as long as there is money to be made...

Submit To Propeller
Tweet

[Permalink] 0 comments

Greece headed toward default; Austria and France to be downgraded by S&P

from the ft...

Greek debt restructuring talks collapse

Talks over Greece’s debt restructuring collapsed on Friday, an unexpected breakdown that makes it increasingly likely Athens will become the first government of a developed country in more than 60 years to suffer a full-scale default on its debt.

In a statement, lead negotiators for Greek bondholders said that the latest offer made by Athens “has not produced a constructive consolidated response” from “all parties” – a clear reference to International Monetary Fund conclusions that bondholder losses must be increased significantly or a second Greek bail-out would have to be bigger than the agreed €130bn.

and then there's this, also from the ft...

S&P set to downgrade two eurozone nations

The credit rating agency Standard & Poor's is set to downgrade two triple A-rated eurozone nations, with one government official naming France and Austria. The other triple A-rated nations, including Germany, are expected to escape downgrade.

This has yet to be confirmed by the agency or the governments.

can't we please just get the global financial and economic collapse over with so we can figure out how to move on...?

Submit To Propeller
Tweet

[Permalink] 0 comments

An elevated risk of the collapse of the Euro

a viewpoint you definitely won't see on u.s. news media...

from ireland's tv 3...

Ireland's Financial Expert Eddie Hobbs advising people to get out of the Euro as it is going to collapse.

it's time to stock up on popcorn...

Submit To Propeller
Tweet

[Permalink] 0 comments

Italy is TBTF Too Big to Fail but it is also TBTS Too Big To Save [UPDATE] [UPDATE II]

nouriel roubini...

The worst case scenario for Italy is inevitable

Clearly unsustainable.

and thus spake dr.doom...

[UPDATE and BUMPED]

from the financial times...

Nouriel Roubini: Why Italy’s days in the eurozone may be numbered

With interest rates on its sovereign debt surging well above seven per cent, there is a rising risk that Italy may soon lose market access. Given that it is too-big-to-fail but also too-big-to-save, this could lead to a forced restructuring of its public debt of €1,900bn.

That would partially address its “stock” problem of large and unsustainable debt but it would not resolve its “flow” problem, a large current account deficit, lack of external competitiveness and a worsening plunge in gross domestic product and economic activity.

i don't know about you, but i'm getting the distinct feeling that something really, really big is about to happen...

[UPDATE II and BUMPED]

the collapse of the euro zone appears to be getting closer and closer... accordingly, i've added two more popcorn-eating icons to graphically demo just how interesting this whole thing is getting...



from the ft...

Market spikes eurozone’s guns

This week’s market upheaval in Europe has made it difficult to increase the firepower of the eurozone’s €440bn rescue fund to the €1,000bn that the bloc’s leaders had hoped for, the fund’s chief executive said on Thursday.

Investors have fled from bonds issued by highly indebted countries. Luring them back by offering insurance on losses – the centrepiece of a plan agreed in Brussels on October 26 – would now probably use up more of the fund’s resources, Klaus Regling, head of the European financial stability facility, said.

His concerns underline Europe’s difficulties in putting in place mechanisms to contain the sovereign debt crisis and, if necessary, help Italy cope with soaring refinancing costs.

pull up a chair... get comfy... we just might be about to witness an historic economic collapse which, if it does happen, is going to have a domino effect that we can't even imagine...

Submit To Propeller
Tweet

[Permalink] 0 comments

Let's get on with the economic melt-down and the financial collapse

a follow-on from the previous post about the dow jones free-fall...

So much for that second-half rebound.

Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal.

It ain't gonna happen. Not this summer. Not this fall. Not even next winter.

This thing's going down, fast and hard. Corporate bankruptcies, bond defaults, bank failures, hedge fund meltdowns and 6 percent unemployment. We're caught in one of those vicious, downward spirals that, once it gets going, is very hard to pull out of.

Only this will be a different kind of recession -- a recession with an overlay of inflation. That combo puts the Federal Reserve in a Catch-22 -- whatever it does to solve one problem only makes the other worse. Emerging from a two-day meeting this week, Fed officials signaled that further recession-fighting rate cuts are unlikely and that their next move will be to raise rates to contain inflationary expectations.

and then there's that $142 a barrel oil...

Oil leapt to a new record high above $142 a barrel on Friday, extending gains after surging nearly 4 percent in the previous session, as tumbling global stock markets helped to trigger a wider commodities rally.

U.S. light crude for August delivery was $1.70 up at $141.34 a barrel by 8:12 a.m. EDT, off a record high of $142.26.

London Brent crude was $1.39 up at $141.22, off a record high of $142.13.

World stocks fell to a three-month low as a fast deteriorating global inflation picture intensified concerns over the outlook for corporate profits, hastening the rush of investors' funds into commodities.

i don't wish anyone any pain, but, c'mon... the house of cards is tumbling down and i'm sick and tired of watching those who continue to profit the most scrambling to preserve their super-rich, elite status at the expense of the peasantry...

Submit To Propeller
Tweet

[Permalink] 0 comments

Sovereign debt default, inflation and denial - a long overdue update on Argentina

i've posted extensively on argentina in general and particularly its $95B 2001 bond default (see here)... over seventy percent of the bondholders opted for a 2004 swap deal that offered them 30 cents on the dollar, leaving about $20B outstanding... the remaining bondholders, mostly in the u.s., refused the swap, and continued to hold out past the 25 february 2005 expiration date... they're still trying to get all of their money...

A United States judge granted on Wednesday a request by bondholders suing Argentina to extend a freeze on as much as 16 billion US dollars in sovereign bonds issued by the country and which now held by the Depository Trust Co. in New York.

Argentina claims it no longer has any interest in the bonds and that they are worth only 2 billion US dollars. The order stems from a class-action, or group lawsuit brought by bond holders who claim Argentina wrongly failed to pay interest or principal on its 11 percent global notes due in October 2006. The plaintiffs, who claim the bonds are worth as much 16 billion, are seeking more than a billion US dollars in damages.

[...]


Argentina defaulted on 95 billion in debt in late 2001. In 2005, then-President Nestor Kirchner offered holders of defaulted debt 30 cents on the dollar. Holders of about 20 billion in bonds rejected that deal. Argentina has since refused to re-open negotiations, preventing the country from being able to directly tap international credit markets. The country has also been the subject of lawsuits by individual bondholders.

imho, these primarily u.s. based bondholders are throwing away their attorney fees... argentina, while it would like to get back in the good graces of the international credit markets doesn't feel any great pressure to do so... for one thing, the country's economy has been pushing forward at an amazing 9% since the default... for another, much of latin america, including argentina, has banded together under the financial assistance umbrella of venezuela and hugo chávez (banco del sur) at considerably more favorable, less restrictive and much less ideological terms than offered by the world bank, the imf or the big transnational banks...

besides, argentina has other things to worry about at the moment...

Inflation has become the main concern of a majority of Argentines, leaving aside other issues such as insecurity and poverty according to the latest public opinion polls from Ibarometro and Hugo Haime & Associates, released this week in Buenos Aires and which refers to the second half of April.

According to Ibarometro, 36.9% of respondents consider their main concern “the hike in prices”, while for Haime 50% of Argentines feel that “inflation is what most impacts daily life”. This suggests a radical change from last January.

At the beginning of 2008, for Ibarometro the main issues were insecurity, education, poverty and fourth rated inflation. But in three months inflation climbed to top of the list. Similarly with Haime, the April 50% was only 31% last January.

To make things even more worrisome, last January 37% believed inflation in 2008 was to be higher than in 2007, but in the latest poll the percentage jumped to 71%. That is 71% believe the current Argentine administration is not considered capable of keeping prices at a reasonable level.

Food, clothing and personal hygiene goods were the most volatile according to the opinion polls.

“Inflation, newspaper headlines almost daily and the discredited image of Indec (the office responsible for calculating consumer price indexes) is fueling the negative perception of the economic situation. We also believe that the camp conflict increases that negative perception”, pointed out Ibarometro.

More specifically compared with January “the inflation issue has jumped 200% from 11% to 36.9%, while insecurity falls ten percentage points. Clearly the increase in prices shadows all other concerns. The education issue also virtually has disappeared from the list of ratings”, added Ibarometro.

As to the overall economic situation, a majority of Argentines have a negative view: 56.8% describe it as “bad” or “very bad”. Only 30% considers it “very good” or “reasonably good”. However in spite of these percentages four out of ten respondents considered positive the sacking of the Economy minister Martin Lousteau.

the argentine government officially claims inflation at just under 10%... my finger in the air calculation is closer to 20%, and, if you're a foreign tourist, it's pushing 30%... it's that inflation, not a suit by disgruntled bondholders, that's going to bite cristina in her expensively-clad tush...

S&P said it had downgraded Argentine bonds’ risk rate precisely because the Kirchner administration refuses point blank to apply any cooling policies and insists that inflation is under control. In spite of the fact that the overall consensus is that inflation contrary to the “official” statistics of just below two digits is in the range of 18 to 24%.

as much as i have a very soft spot in my heart for argentina, it's difficult to let the argentine government off the hook when it's still led by those who think denial is a river in egypt...

Submit To Propeller
Tweet

[Permalink] 0 comments