Barclays Explains Why A 50% Greek Haircut "Would Be Considered A Credit Event, Consequently Triggering CDS Contracts"Barclays, a voting dealer of the ISDA determinations committee, two short days ago made the following statement: "In our view, there is little doubt that a large notional haircut of c. 50-60% would be considered a credit event, consequently triggering CDS contracts." Since the entire Greek bailout now centers around ISDA refuting what one of its members has said on the public record, and effectively making any form of sovereign hedging via CDS null and void, we can't wait to hear just what excuse the International Swaps and Derivatives Association will use to justify the transfer of billions of monetary ones and zeroes equivalents into its electronic pocket in the process making a complete mockery of its mission statement, presented as follows: "ISDA fosters safe and efficient derivatives markets to facilitate effective risk management for all users of derivative products." We expect ISDA to release a statement imminently, as CDS traders will have to know how to treat existing protection before the US CDS market opens around 5:30 am. And since we already know what the release will say, (though we are very curious as to how ISDA will deny what is glaringly obvious), we urge readers to address all their concerns, furious anger and profanities at this grotesque sacrifice of a self-professed responsibility for "effective risk management" at the altar of the almighty dollar, to the following address...
360 Madison Avenue, 16th Floor
New York, NY 10017
Phone: 212 901 6000
Fax: 212 901 6001
and even better, here is who is Deputy CEO ISDA Europe: George Handjinicolaou
What do you know: a Greek!
We have noted again and again that the seemingly single-minded effort to avoid a credit-event or involuntary restructuring is yet another one of the actions of an ignorant and ill-informed elite who simply do not understand the unintended consequences of any and everything they do to calm a desperate banking system. Today saw Willem Buiter, of Citigroup, agree with our perspective in terms of both the realistic lack of impact from a CDS event on Greece (per se) and moreover his perspective that the lack of a credit event could throw bond markets into a chaotic state as seemingly worthless CDS contracts and CTD bonds are tossed like hot potatoes from one smart banker to another smart hedge fund. Peter Tchir notes this evening that this is NOT a credit event and the only thing we know for sure is the sense of panic in the hearts of those holding the CDS-Cash basis package heading into tomorrow's illiquidity fest.
Just the math, something Europe is unable to do:
- Greece has €350 billion in total debt including about €70 billion in Troika "post-petition" loans; these are untouched.
- Of the €280 billion, roughly €75 billion is held by the ECB: this, like the Troika loans, will be untouched.
- This leaves just ~€200 billion in actual debt to undergo a haircut.
- Apply a 50% haircut to this debt (ignoring the fact that of this about €35 billion is held by Greek pension funds, and once the realization that Greek pensions have been cut in half dawns upon the population, the result will be the biggest riots ever seen in Athens yet).
- Total debt to be cut: just about €100 billion.
- Hence, of the total €350 billion, just €100 billion is eliminated, most of it used to backstop and service Greek pension and retirement obligations
- €250, or the residual, of €350, the original, means 72%, or a 28% haircut.
- Greek GDP was €230 billion on December 31, 2010 and declining fast.
- And that is how a 50% haircut is "cut" almost in half
The most important news of the night is not that the Greek haircut will be 50%, which is still insufficient as it excludes ECB Greek debt holdings, plus as the IMF noted, a 60% NPV haircut on all bonds is needed for Greece to return to viability, but that the EFSF will be just €1 trillion. Unfortunately, the EU Council and its advisor, JPM, refused to read the Zero Hedge analysis on why anything less than €2.4 trillion is insufficient (not to mention assumes no French AAA-downgrade... ever). Which is why we repost it for whatever sentient carbon-based life forms are left to realize why tonight's Euro TARP should be promptly faded until it is at least doubled to well €2 trillion, which, alas is impossible: absent Uncle Sam footing €250 billion solely to bailout French banks, this will not work!
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In a few short minutes, at 4 am local time, Herman Van Rompuy will hold a press conference to formally announce the 50% haircut agreement and to release the captive reporters. Watch it live.
Gold & Fraudulent Traps
By: Jim Willie CB
Rick Rule: "Bet against the dollar as a store of value"
By: Rick Rule
Hands Off Germany's Gold!!!
By: Adrian Ash, BullionVault
Nine blows against the gold price suppression scheme
By: Chris Powell, Secretary/Treasurer, GATA
When watching politicians on TV, consistently peddling the agenda of their biggest bidder and never, unfortunately, that of the electorate, one often wonders: why do these people not wear the logos and decals indicating who their sponsor is, and how much money changes hands. After all it works for sports personalities of all shapes and sizes: why should politicians be exempt. Granted, the quid pro quo is to influence behind the scenes, and as such an overt act of advertising would be largely counterproductive, but campaign financing is without doubt one of the greatest weaknesses of modern society, and among (or at least should be) the main grievances of the Occupy Something crowd. And while a radical proposal like that would certainly never catch on due to concerns of constant exposure of the sell out nature of America's public representatives (who really merely represent corporations), here is an informative clip from Reuters, with observations on "if presidential hopefuls wore their sponsors on their sleeves, what logos would your contender wear?" The result is quite entertaining.
Stunned. That probably best describes the mood of China's vast pool of property owners. For the last few years, anyone with as much as a taxi driver's salary has been speculating in the real estate market, scooping up off-plan properties at terms that would make a Countrywide mortgage broker blush. And why not? Chinese culture has almost universally adopted the attitude that property prices never go down. Minor fluctuations and corrections over the last several months have been written off as statistical error. Well, reality has now uncomfortably set in. Recent reports from the National Bureau of Statistics show that home prices have fallen up to 50% in many parts of the country in the period from July to September. But who gives a damn about government reports? The real evidence is on the ground. Here in Shanghai, nearly 300 angry customers stormed a sales office of Longfor Properties Co Ltd after finding out that the developer had slashed prices on one of its projects by nearly 25%... practically overnight.
Here are the EBA's latest stress test results, or, more specifically, the worthless exercise of how much capital European banks need to get to both 9% Tier 1 as well as to build a "temporary capital buffer against sovereign debt exposures to reflect current market prices." Let's not forget that in the last two stress tests, the EBA found something like a grand total of €5 billion in capital deficiency. This time, the joke is again on the EURUSD traders, as the number for Tier 1 at 9% satisfaction is €106 billion, below the €200 billion projected by the IMF, the €400 billion projected by Credit Suisse, and €1 trillion calculated by Goldman Sachs. Granted the number excludes a further €40.6 billion in sovereign capital buffer, so altogether the number is about €147 billion. Furthermore, if you live in Ireland, you are in luck: none of your nationalized, insolvent banks need additional capital. Neither do banks in Hungary, which is about to be downgraded by the rating agencies, Finland or the Netherlands. Stunningly, Dexia which 5 months ago, sailed through the EBA's farce of a test with flying colors now needs a whopping... €4.1 billion. This is a bank which a few weeks ago had around €47 billion in collateral calls. As for banks that need the most capital to reach their targeted capital buffer of 9% Tier 1, Greece needs €30 billion, Spain needs €26 billion, and Italy needs €14.8 billion. Oh yes, France, which contrary to previous media reports of needing to liquidate hundreds of billions, apparently somehow only needs €8.8 billion. Here is our napkin math: take whatever the EBA estimates, and multiply it by 10. You will then be only 25% less than what the final capital shortfall is. Unfortunately for the EBA, the number of idiots who will fall for this "third time is the charm" farce can be counted on one finger (at best).
Americans may be fleeing from stocks in droves, but they sure aren't shy about rotating the resulting meager liquidation proceeds into weaponry. According to Gallup, "Forty-seven percent of American adults currently report that they have a gun in their home or elsewhere on their property. This is up from 41% a year ago and is the highest Gallup has recorded since 1993, albeit marginally above the 44% and 45% highs seen during that period." Considering the social situation "out there", and the fact that the world is one badly phrased or translated headline away from a complete HFT-facilitated market collapse, this is hardly all that suprising.
A Dysfunctional System That Bankrupts A Generation
Analyzing the Popular Proposals for Mortgage Principal Writedowns, Part I