The weekly: Greece to default/restructure THIS weekend? thread
- Thread starter TGregg
- Start date
MSM's claiming that Greece and the creditors are close to a deal:
http://finance.yahoo.com/news/greece-creditors-move-closer-deal-074432694.html
Here's the money quote:
Their best case scenario has them still borrowing up a storm a decade from now. JFC. All this trouble and they still are not serious. Who's gonna buy their debt after this 70% freaken' haircut?
http://finance.yahoo.com/news/greece-creditors-move-closer-deal-074432694.html
Here's the money quote:
Their best case scenario has them still borrowing up a storm a decade from now. JFC. All this trouble and they still are not serious. Who's gonna buy their debt after this 70% freaken' haircut?
There is no private market for thier debt; and there will be no private market for thier debt even and especially after they do this 'deal.' When the 'haircut' was first proposed by the 'Troika' in a way that would circumvent credit default swaps, it increased the risk on all Southern EU sovereign debt. That caused the EU banks to pull away from buying EU sovereign debt and it caused U.S. money market funds to withdraw from the EU market. The resulting liquidity crises was addressed by the increased soveriegn swap lines arranged by the U.S. Fed, and the extention of 3 year 1% credit by the ECB to EU banks on weak collateral (Southern Sovereign Debt and other junk). Since the expansion of the EU balance sheet from these 1% loans the banks that received the loans have been buying their own domestic sovereign debt...but not other sovereign debt. So, the ECB is giving low cost money to Southern EU banks so that they can buy the roll over debt of their sovereigns. There really is no other public market for this debt. To the extent that the IMF will join and buy this debt then its secured priority will leap infront of all current debt holders. To the extent that the IMF is buying a sovereigns debt, then the private market for that debt is closed. What you are seeing here in all these arrangements is the putting together of governments and their agents to buy, roll over, the EU sovereign debt because there is not going to be an external private market for that debt.
Sure, I will happily respond...
As to the "private" mkt for Greek bonds, there certainly is one and it's pretty lively. Lots and lots of hedge funds involved (the specialized distressed/credit ones). Do you want to see some two-way pricing? GGBs trade in 5 - 10MM clips these days.
Of course there is always a distress market; speculation. I should have been more clear...there is no 'normal public market' to transact at spreads over German rates that Greece can afford to pay. Without ECB, IMF, EFSF or other Government intervention there could not be a successful auction to fund rollovers. Of course the crap out there can be traded in the distress markets for deep, deep discounts... I thought that went without saying.
You don't have to keep telling me you are going to respond...all you have to do is respond.
You don't have to keep telling me you are going to respond...all you have to do is respond.
Hmmmm, not sure about this... Aren't t-bills debt? If that's the case, Greek t-bills are trading out there in the 'normal public mkt' and Greece is still issuing them, without too much of a problem and at somewhat reasonable rates that. They're not trading in the distressed mkt for deep discounts. As to intervention, I am not sure what you're referring to. All policy is intervention, one way or another, so I cannot either agree or disagree with your counterfactual.
Great, everything is fine in Greece. Glad to hear it. Paper is good, every fund and institution is buying it...China's loaden up...no problem raising money there, huh?...I guess we should all go out and by the country ETF. Another case of just listen to Mghoul for the truth. Its so obvious, I just dreamed it was different.
Don't bother to respond on the other issue. I don't need your opinion any more.
Don't bother to respond on the other issue. I don't need your opinion any more.
The author starts off by suggesting that the MF Global client money was somehow "misplaced" or "misused" and re-hypothecation is the culprit. Then the author states that apparently it's not re-hypothecation itself that's the problem, but rather the degree to which a broker can engage in this practice (i.e. if it's 140% of the liability and below, as per US regulation, it's OK; if it's above 140%, as per UK rules, it's very bad). There follows a discussion of precedent and how re-hypothecation had been used by big bad Leh and is used by Jefferies (I guess they're pretty bad as well), as well as other nasties. Finally, the author makes a conclusion that re-hypothecation poses a systemic risk.
Here's my two main issues:
a) Where is the explanation of the claim that it was the UK rules that allow this rampant re-hypothecation that are somehow dangerous? Why is 140% OK and 250% (using the figures in the example) toxic?
b) Where is the actual explanation of how EXACTLY re-hypothecation is to blame for the missing client funds? Is it the last sentence, where the author says that it's 'cause CFTC now prohibits the practice of buying foreign sovereign debt? That's just plain silly.
Re-hypothecation is a generic practice that's widely used, under all sorts of legal frameworks. There is nothing inherently wrong with it (clearly, many other institutions that practice it are viable, as suggested in the article itself). We can certainly argue about whether quantitative limits should be applied and what systemic risk the practice poses. However, there is NOTHING whatsoever in the article that suggests that re-hypothecation had anything to do with missing client funds. Moreover, re-hypothecation doesn't even necessarily imply excessive leverage, which is purely a function of risk management and managerial prudence. IMHO, blaming re-hypothecation for all the MFG issues is akin to blaming any and all sexual intercourse for an occasional outbreak of STDs.
Finally, this is what so annoys me about modern journalism. This article is a typical example of a "financial tabloid", HeroZedge style of writing. A bold statement, but no specific explanation or proof; followed by a general wringing of hands and a bemoaning of how our financial system is oh so terribly fragile and "frighteningly apocalyptic". Not that I am suggesting that it's not, but you ain't gonna fix it by stating the obvious (i.e. the banking system is global and interconnected) and not offering any constructive alternatives.
No need to get all melodramatic... Where did I say that all is well and everyone's buying? You made a blanket categorical statement, which I believe is incorrect. I offered a counterexample, to illustrate that the situation is a bit more nuanced and complicated than you make it appear. There's absolutely no need for extremes.
As to the other issue, I'm afraid it's too late and I have responded before I saw your last post.