“A sleight of hand is not magic; just a trick. It is amazing to me these days how proficient the EU and the ECB have become in turning tricks.”
Another Greek bailout has been put together. Whether the countries in the European Union will approve it or not is another question that will be answered in the upcoming week. The stock markets see this announcement as positive news and are responding accordingly. The following assessment is not complete but it does give highlights that even respectable financial news outlets are ignoring (or are complicit in this “sleight of hand”).
We are constantly distracted with different triggers: elections, economy, war, immigration, energy, etc. Right now, we need to concentrate on only two triggers: Greece and Iran. Are they related? Greece is the key to worldwide economic collapse which very few people understand. What will be the world’s response to this scenario? The great equalizer: war.
Greece will shortly be placed into “Default” by S&P and Fitch which will trigger default language in all kinds of securitizations including Greece’s $90Bn in derivatives and may cause disgorgement from accounts that are forbidden to hold defaulted bonds.
After the country has been placed into “Default” the banks will soon follow and once again there will be all kinds of consequences in interbank lending, securitizations, collateral agreements et al from all of this.
The CDS contracts for Greece may or may not function as they stand but, as I am quite certain will happen, not enough bond holders tender their bonds for the new debt so that Greece will pass the “Collective Action Clause” which will certainly trigger CDS in my opinion and if not will show the fallacy of that market.
The structure of the deal puts the IMF/EU/ECB clearly in control of the finances of Greece so they have replaced some sort of Czar with the bureaucrats of the Troika and the country no longer will control its own finances as they traded away their sovereignty for cash. In fact, an escrow account will be set up for Greece which will be controlled by the Troika and Greece is being forced to change their Constitution pledging to pay their creditors before providing any money for the country. A quick study of the math reveals that Greece will get about 19 cents on the Dollar and the rest of the money is the sovereign nations of Europe paying back their banks with the money they have supposedly lent to Greece. Greece is now nothing more than a conduit for the nations of Europe to pay back their own financial institutions.
Now we will see if the Parliaments in Europe will go along with this plan as many still have to approve it and a careful reading of the math involved here may be troubling for some governments especially Finland and the Netherlands.
We will also see, with Greek elections looming, how the citizens react to all of this either in the polling booths or in the streets as an additional $4Bn of spending cuts have been mandated by the Troika and they state that the money will not be paid to Greece until they are implemented which must be by the end of February.
The total outstanding debt for Greece will now rise to $1.270Tn as new debt pays off old debt in a country with substantial negative growth so that the real situation, regardless of what we are told, worsens.
In early May Greece faces its next bond payments so there may be a re-do for all of this in several months’ time.
If Greece is actually going to get the next round of the bailout then the other side of the coin is the increased debt being taken on by the other countries in Europe which could cause more downgrades as the new debt to GDP numbers are assessed.