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Hedge Funds Making Big Profits On Greek Bonds


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HOLA441

That's a bit of a switch - I never said the hedgies were being immoral. You claimed the other side of the deal were being immoral.

Let's look at the sequence:

  1. Government issues bonds

  2. Bonds get priced down due to likelyhood of Greece defaulting

  3. Hedgies, knowing why price has been reduced, buy bonds at reduced price

  4. Hegies then demand full price of bonds (which they know they would never have been able to buy at that price if full return could have been reasonably expected).

There is an element of discount due to the likelyhood that they won't be repaid, and the expected haircut.

Say f.ex the price is 40% of face value - due to a 90% likelyhood of them being written down to 30% face value. Someone might buy the bonds because they think they're less likely to default, or if they think the haircut might be less if they do default. Either way, it's a chance, and good luck to anyone prepared to take it as far as i'm concerned.

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HOLA442

If I were a defaulting Greek government I'd base the haircut on how long you've held the bond. Held for the full term, get paid 100%. Held for half the term, get paid 50%. Bought your bond yesterday and expect to get paid full whack today? Get paid 0.00001%.

That would stick it to the "gnomes of Zurich" (who mainly live in NYC these days.)

Edited by Nationalist
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HOLA443

and those suggesting that assets should be sold off...just what collateral IS at stake with a Sovereign Bond...Id say...none at all, as the loan is based on the tax take the issuer expects to collect.....

No collateral. Any country that defaults on it's bonds is going to have to promise a higher yield next time they want to issue some.

That's all.

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HOLA444

I still don't get it. If you offer to give me £1 in exchange for 50p, then if I accept I am somehow being immoral?

Given you know full well that 50p of the £1 was pickpocketed from your next door neighbour then yes, you are immoral. Naked opportunism to exploit others should occasionally result in a thumping, time for the grasping hedgies to be told to stop shafting others or get some of their own medicine...

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HOLA445

If I were a defaulting Greek government I'd base the haircut on how long you've held the bond. Held for the full term, get paid 100%. Held for half the term, get paid 50%. Bought your bond yesterday and expect to get paid full whack today? Get paid 0.00001%.

That would stick it to the "gnomes of Zurich" (who mainly live in NYC these days.)

Sounds good to me :D

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HOLA446

http://www.zerohedge.com/news/guest-post-greek-cds-shennanigans

Not sure that those hedge funds are exactly onto easy money there.

Edit: key bits for lazy people:

"over 90% of Greek debt is governed by the terms of Greek law"

What follows is a quick comparison, with thanks to Choi, Gulati and Posner of the Law School at the University of Chicago.

1. Negative pledge

English law-Greek bonds restrict Greece from giving more security to new borrowers without offering the same to earlier borrowers

Greek law-Greek bonds have no such clause

2. Pari passu

English law-Greek bonds say that all bondholders will be paid with equal priority in case of insolvency

Greek law-Greek bonds have no such clause

3. Collective Action Clause (CAC)

English law-Greek bonds can have changes imposed on all bondholders, if a majority agrees

Greek law-Greek bonds have no such clause

4. Cross-default

English law-Greek bonds will have accelerated repayment if Greece defaults on any bond it has issued, whatsoever

Greek law-Greek bonds–well, you guessed it.

:lol:

Those hedgies better hope they bought the 10% of Greek bonds that are issued under UK law!

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HOLA447
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HOLA449

No collateral. Any country that defaults on it's bonds is going to have to promise a higher yield next time they want to issue some.

That's all.

so why all the noise about EU police collecting Greek Tax and the Sell off of public assetts.

If it was me, Id default and have done with it.

Save billions in legal fees alone.

And Id probably have a landslide at the next election.

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HOLA4410

so why all the noise about EU police collecting Greek Tax and the Sell off of public assetts.

If it was me, Id default and have done with it.

Save billions in legal fees alone.

And Id probably have a landslide at the next election.

Greece can quite easily default.

The only loser (other than bondholders) is the entire EU fantasy, hence France/Germany/Everyone running round in circles trying to save Greece the Euro.

Greece holds all the cards and can do as they like.

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HOLA4411

the morons and criminals here are the politicians - EU and Greek. The hedge funds can lose - at least they are putting their own money where their mouth is - the politicians aren't - they are using ours.

I don't blame the Hedgies.... if the governments and the EU are so fckuing stupid and let them do this..., why wouldn't you take the money ?

Because it could be going into schools to help kids.

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HOLA4412

Because it could be going into schools to help kids.

Then it's up to the governments to legislate effectively. Personally, I prefer my capitalism restrained by law rather than the innate high moral standards of the capitalists. The 'moral' capitalists generally turn out to be just as greedy as the mercenary ones and far more fvcking irritating...

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HOLA4413
What it is though, is blackmail. Politicians are terrified of causing a 'credit event', and fear of that happening is the weapon that the hedge funds are using here.

The fact is that these people are happy to throw more sand into the already failing machine in the hope that they will profit by doing so.

You could argue that the machine is doomed anyway and they are just exposing the flaws already in place- but their role here is not a passive one- they are choosing to force a credit event that might be avoided otherwise.

If such an event is the out come I sincerely hope that they are personally targeted for the blame- if they are doing nothing wrong then they will not object to their names and addresses being published.

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HOLA4414

the morons and criminals here are the politicians - EU and Greek. The hedge funds can lose - at least they are putting their own money where their mouth is - the politicians aren't - they are using ours.

I don't blame the Hedgies.... if the governments and the EU are so fckuing stupid and let them do this..., why wouldn't you take the money ?

The hedgies are taking genuine risks. Who knows how much they'll get back in reality?

The regular banks selling to them can't be seen to accept the 50% haircut, but they can sell at a premium to it thus taking a clean profit on the book value.

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HOLA4415

What it is though, is blackmail. Politicians are terrified of causing a 'credit event', and fear of that happening is the weapon that the hedge funds are using here.

Politicians ought to be able to fix that.

Just legislate to make CDOs unenforceable. Unless issued by a proper insurance company, and subject to the full rigour of the regulation on that industry (like, the level of reserves backing a risk).

Perhaps make them unenforceable even against a proper insurer where you have no legitimate interest in the credit event. I.e. if you bet on a greek default, you can only enforce the bet to the value of money you actually lose on greek bonds, not profit Soros-style from nonexistent losses.

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HOLA4416
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HOLA4417

Blackmail, extortion, exactly. The parasitical behaviour that got us into this mess, when private debt was taken onto the public balance sheet.

A complete default on Greek debt would be a perfect outcome, leaving the bondholders with nothing.

+1

Caveat emptor comes to mind.

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HOLA4418
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HOLA4419
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HOLA4420
Guest tbatst2000

What's immoral about buying a bond and expecting the people who issued it to honour their promises?

I think you're getting confused about who the bad guys are here.

Quite. In any case, I would think most HPCers would consider this a good thing if they thought about it: the more people buy the bonds and demand full payment, the greater the chance of an undeniable credit even occurring and therefore the greater the chance of the whole euro 'bail out the debtors' scam crashing and burning.

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HOLA4421
Guest tbatst2000

Politicians ought to be able to fix that.

Just legislate to make CDOs unenforceable. Unless issued by a proper insurance company, and subject to the full rigour of the regulation on that industry (like, the level of reserves backing a risk).

Perhaps make them unenforceable even against a proper insurer where you have no legitimate interest in the credit event. I.e. if you bet on a greek default, you can only enforce the bet to the value of money you actually lose on greek bonds, not profit Soros-style from nonexistent losses.

You mean CDSs I assume? Well, you could go around passing a load of retrospective legislation of this sort, something tells me the law of unintended consequences would mean that it wouldn't end well. Far better to let nature take its course and for the Greeks to default I say. That way the hedge funds would lose and, in the end, the Greek economy would recover, which seems like the right outcome to me...

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HOLA4422

You mean CDSs I assume? Well, you could go around passing a load of retrospective legislation of this sort, something tells me the law of unintended consequences would mean that it wouldn't end well. Far better to let nature take its course and for the Greeks to default I say. That way the hedge funds would lose and, in the end, the Greek economy would recover, which seems like the right outcome to me...

I think that the point about CDS is that there enforceability is likely to depend under which legal system they were made. The EU have absolutely no power to void CDS written outside their area even if it relates to European debt. Even the ISDA can not guarantee that its rulings on these contracts will hold as they have no power to bind courts in the US or elsewhere Great news for lawyers everywhere as they might expect a bonanza as this unravels

Edited by stormymonday_2011
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HOLA4423
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HOLA4424
Guest tbatst2000

I think that the point about CDS is that there enforceability is likely to depend under which legal system they were made. The EU have absolutely no power to void CDS written outside their area even if it relates to European debt. Even the ISDA can not guarantee that its rulings on these contracts will hold as they have no power to bind courts in the US or elsewhere Great news for lawyers everywhere as they might expect a bonanza as this unravels

Yes, yet more unintended consequences - differential legal risk depening on jurisdiction. Like I said, CDSs should stand, Greece (and maybe one or more of Italy, Spain, Ireland & Portugal) should default and get it over with.

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HOLA4425
Guest tbatst2000

Referendum in Greece- I would love to see these hedge fund parasites get burned here. :lol:

Except for the hedge funds that went short on Greek debt betting on a default, they'd make a killing if that happened.

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