Monday, October 31, 2011

What a beautiful black swan!

Greek PM Calls Referendum On EU Aid Package

Greece's prime minister has called a referendum on the new EU rescue package, as a leading economist tells Sky News a no vote would be a disaster for the eurozone. George Papandreou said if the Greek people do not want the deal that is designed to slash the country's mountain of debt by nearly a third, it will not be adopted. He gave no date or other details on the proposed referendum, which would be the first in Greece since 1974. "This will be the referendum: the citizen will be called upon to say a big 'yes' or a big 'no' to the new loan arrangement," he told Socialist members of parliament.

Posted by general congreve @ 08:36 PM (2132 views)
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20 thoughts on “What a beautiful black swan!

  • general congreve says:

    What a conundrum! Accept the deal and slash Greece’s debt by a third, or don’t accept the deal, default and slash the debt by 100%? Hmmmmmm.

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  • general congreve says:

    Also, in light of Greece’s proposed deal, the president of Portugal has put in a request with Brussels to review the terms of Portugal’s bailout. Oh sweet joy!

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  • As Brussels is skint too, who will get knocked/robbed in the end to pay for it ? – only those with assets, such as senior bankers, the rich, BTL’s, the Chinese, goldbugs etc.

    It won’t be the poor or working class, because they haven’t got any more.

    As an irish customer who couldn’t pay me one said – “ye can’t get feathers off a frog”.

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  • general congreve says:

    @3 – Well, the fact that the deal fall apart, especially if it accompanied by an outright Greek default that sets the CDS derivative mountain into meltdown, then we are looking at the total collapse of the financial system.

    That means bank collapse, loss of deposits etc. So, the options are:

    1. Force Greece to stay in the Euro with German Tanks, to keep the Euro game ticking over a bit longer. Failing that…

    2. They allow default to happen and Greece to leave the Euro but they rip up all the CDS contracts on government debt, which means holders of government debt have no insurance cover on the bond purchases they’ve made, so that means the bond markets go into meltdown, interest rates rocket, debtors default, the banks collapse and global debt ponzi economy collapses, causing massive social unrest. Or they…

    3. Do the above, but instead they print, print, print like crazy and directly recapitalise the banks and pay off debts with funny money and create mass inflation that destroys the value of money and the living standards of the poor, working and middle classes alike…causing massive social unrest.

    You are right that if you’ve got IOU’s (not a real asset) like the Chinese with US Bonds, you’ll take a hit, you are right that if you’re a senior banker, you’ll probably get hammered like you should have been in the first place (i.e. your assets are ill-gotten) by the courts when the social and political landscape changes, you are right that if you are a BTLer with a massive mortgage (a liability, not an asset), you’ll get hammered by interest rates or inflation, but short of direct confiscation, the only party with a real asset you speak of, will not lose, instead they’ll be laughing.

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  • Interesting quotes from the BBC article just posted:

    “…Analysts say the promise of a referendum allows Mr Papandreou’s government, which has born the brunt of public anger over the austerity measures, to pass responsibility for the country’s future to the Greek public. “The new agreement will be submitted to parliament for approval and then submitted to the judgment of the Greek people,” Finance Minister Evangelos Venizelos told the Antenna TV channel. “The Greek people can, of course, say no but must bear in mind the consequences of that decision.”

    Well, will it be yes or no? This should be interesting!!!

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  • little professor says:

    Chances of the Greek people voting for massive cuts and selloffs of public assets are pretty slim, no? Doesn’t this move pretty much ensure a Greek default sooner rather than later?

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  • general congreve says:

    @5 and @6 – This Greek referendum is effectively a vote on whether to stay in the Euro – so amounts to the same question as do you want the Euro as currency. The two countries to hold referendums on having the Euro as currency in the past, Sweden and Denmark, returned a result of ‘no’, and that didn’t include the opportunity to discharge massive debts by voting no. So I wonder how this one will go?

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  • I’m buying more shiny yellow stuff in the morning, if it hasn’t already gone through the roof by then.

    The result of the referendum will be no. The Greek people have been striking and protesting and rioting for the past few months, they can’t wait to shove two fingers to Germany, the EU, the IMF, and the bankers. The irony is that as a less developed economy with a large agricultural sector and a primarily cash-based economy, they could get away with a collapsed banking system far better than we could.

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  • First opinion poll out of Greece shows a negative public attitude to the deal, but not by a landslide – the referendum isn’t expected to take place until the new year, by which time the Greek public may be resigned to it.

    However, calling a referendum, and then not rushing to hold it; really puts the cat among the pigeons for the rest of the eurozone – the one thing they really need now is some semblance of order and settlement – there’s no chance of that happening while the Greek issue is still up in the air..

    And meanwhile, Portugal has wasted little time in asking for it’s own bailout to be sweetened, while Italy’s 10yr debt yield has hit 6.2%.

    If Italy’s GDP moves even slightly toward contraction, the resultant loss of market confidence will kick off a lethal debt spiral

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  • The future of the Euro will probably be decided in the next week or two, well before the referendum which is set for January. The German stock exchange lost 4% in the first 40 minutes of trading this morning.

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  • mark wadsworth says:

    Fair play to the man. This is a very “bold” move.

    @ GC, no of course there won’t be a collapse of “the international banking system”. All people (i.e. banks, pension funds etc) have to do is face up to the fact that they have lent money to people who aren’t going to repay it. Confronting reality does not change it.

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  • I propose a windwall tax on gold profits

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  • general congreve says:

    @11 – When I say collapse MW, I mean a collapse as things stand, a changing of the landscape if you will. Creditors, bondholders, pensioners and savers get nothing. Reality confronted, big loses all round, the loss of many banks, and life changing financial losses for many ordinary people. I’m sure the actual means of conducting international banking will still exist, it’s just that many institutions and the accounts of customers using those institutions will not be part of it. Which is what they are trying in vain to fight. Would you agree?

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  • general congreve says:

    Why Greece’s exit will change the financial landscape (collapse it – if you will) is this:

    Greece leaves the EU and defaults, tiny country, so what? The ECB et al, just print up enough money to keep their respective banks solvent, we get some more inflation, chiefly in the Eurozone and everything is ok again, right?

    But there’s a bigger problem. Credit Default Swaps, i.e. insurance taken out by bondholders and other entities against a country or institution defaulting on its debts. Apparently there is around $200 Trillion of these contracts issued by the banking sector globally (but chiefly by US banks) currently outstanding, almost 4 times global yearly GDP and only a small percentage of which (the ones covering Greece alone is enough) to make the issuing institutions insolvent if obligated to pay out on them. This is part of the reason there is such opposition to Greece defaulting, it is a massive financial hand grenade for the US banks and consequently the global financial system.

    So, if Greece walks away it would trigger a chain reaction of CDS’s going off, as other countries like Portugal, Ireland and maybe even Spain and Italy probably decide to walk from the Euro too. Even if they don’t Greece’s, CDS’s alone are large enough to make many major US banks insolvent. The only option would be either a massive bailout of insane proportions, or some sort of presidential executive order making CDS contracts null and void. The first option would be too costly, both financially and politically, the second option would not only lead to a tidal wave of legal challenges, but would cause bondholders, who use CDS’s to mitigate risk on holding bonds, to dump bonds to lower bond exposure and mitigate risk the old-fashioned way. Paradoxically, this would cause interest rates to sky rocket (good news for HCPers!), thereby driving many over-indebted companies, states and countries, and therefore banks, towards or into default too.

    The most palatable solution when push comes to shove is widespread nationalisation of banks and pensions funds, with debts written off and protection/ring-fencing for public savings and pension accounts. However, all that means is the government will print up the cash to honour those accounts, which is inflationary and will cause significant devaluation of those holdings anyway. In the case of the UK such a move would also lower the UK credit rating, pushing up our interest rates along with pressure from bond sales, caused by a necessary CDS moratorium, thereby devaluing sterling further and driving the UK rapidly towards default itself.

    It’s a tinderbox.

    Even if Greece doesn’t leave, a chain of similar events would likely be kicked off because already Portugal and Ireland are trying to renegotiate their bailout arrangements, in light of preferential treatment for Greece. If they refuse to honour current austerity conditions, it means either more bailout money (from where exactly?!) and more possible defaults/exits from the Euro with all accompanying explosions. So, it’s either debt induced collapse, or print the way out into an inflationary collapse.

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  • GC,

    Don’t get too fussed about CDS’s – the numbers headlined are a bit like totting up all the life insurance policies and saying ‘what happens if everyone drops dead tomorrow?’

    There could well be a domino of sovereign debt defaults in the not too distant future, at which point it will be realised that those who issued the CDS’s can’t pay out in full. This will probably result in some small fry going down, while the big boys have probably got their backs covered.

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  • UT – “First opinion poll out of Greece shows a negative public attitude to the deal, but not by a landslide – the referendum isn’t expected to take place until the new year, by which time the Greek public may be resigned to it.”
    I think the turn-out might be critical – it’s always those with the strong opinion that definitely vote and I think it’s fair to say that most with a strong opinion will be against it.

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  • general congreve says:

    I’m not so sure UT. With the low levels of capital and phoney stress tests lying about solvency of institutions (see Dexia), it is a widely held assumption that the situation is like life insurance companies saying ‘Christ, we’re miscalculated this so badly and are now so broke that if that little old Greek guy dies, and only him, we’re finished! Nobody must be allowed to die!’.

    It is estimated the Us banks are on the hook for around a net exposure of $35bn to $40Bn dollars for a Greek default. OK, not a huge amount by past bailout standards (more of which will need to be forthcoming to cover this – probably secretly via the FED back door), but if tiny Greece default (who only make up around 2% of CDS’s), it won’t be long before others follow, thereby causing bigger CDS headaches.

    As for the big American banks surviving. Why did Bank of America recently have to go to Warren Buffett to negotiate a $5Bn loan and usurious rates if they are in such rude health?

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  • general congreve says:

    @15 – I think, having taken so much global ponzi shilling during his career, G-Pap has probably called the referendum as a parting shot to try and bring the public on his side in his final months as Prime Minister, as he no doubt wants to enjoy his coming retirement without fear of mob lynching. I doubt the IMF, EU and the FED are so keen on his decision though, so he might want to keep a keen check over his shoulder and under his ministerial cars in case anything unfortunate kills him and derails his decision.

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  • general congreve says:

    @8 – No sign of it going through the roof, on average prices more or less steady across the major currencies. Still, prices rising isn’t your major concern, it’s getting some at the current price, where many more wish to buy than sell. Just marvel at that free market price discovery in action! Don’t believe me, just look at the inventory of this popular UK dealer’s stocks of gold and silver at today’s prices:

    Image and video hosting by TinyPic

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  • general congreve says:

    Seems the German press approve of the Greek referendum, even if the German government is “irritated” by the development (Senior figure in Merkel’s cabinet stated this):

    Spiegel Online – Bravo, Herr Papandreou!

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