The Greek debt buyback scandal

More details are now coming out on the Greek debt buyback scheme, agreed to as part of the "deal" worked out last week between Troika and Greece. The purchase price will be different for the various GGB issues (20 outstanding tranches), ranging between 30.2-32.2pc  for long dated paper (maturing February 24, 2042) to 38.1-40.1pc for shorter term paper (maturing February 24, 2023). Final price will be determined through a "dutch" style reverse auction. Greece will buy €10bn of GGBs at those discounts, thus in effect retiring debt with a notional value close to €40bn. Those creditors who participate in the debt buyback will exchange their GGB issues with six month EFSF paper equivalent to the discounted price, issued specifically for this purpose (i.e. that's where Greece is borrowing the €10bn from to buy back it's debt ), and  carrying a zero coupon. Those creditors interested have until December 7 to participate in the auction, with clearing expected to be completed by December 17.

It's all here: http://www.pdma.gr/attachments/article/247/Press%20Release%20-%20December%2003.pdf

This is all part of the optical illusion of Greek debt sustainability (Greek debt to GDP ratio of 124pc by 2022) that the Troika is trying to foist on the markets - that, and a 4.5pc growth starting in 2014 through to 2022, a growth rate exceeded only by China, India and Brazil as per the IMF's own economic growth forecasts. Make up your own mind if this stunning growth is possible in a country in the throws of depression today, and getting worse by the day, with the latest austerity agreed to cuts yet to be implemented. As if an 124pc debt ratio is sustainable in the first place, when it will be the highest debt ratio in the EZ by some margin and an entire 24pc higher than the critical 100pc inflection point. The IMF is bound by its charter to provide bailout funds ONLY in case where debt sustainability can be established, so this whole exercise in supreme obfuscation is to cover the fact that the IMF is violating it's own charter. Do charters, treaties, laws, agreements or anything else that was sacrosanct a few short years ago even matter any more? The simple answer is NO, it's all about saving the banks, nothing else matters.


Also, bear in mind that all the GGBs in play here are the 63bn euro outstanding POST PSI and still in private hands. These bonds are under english law therefore not easily subject to retroactive revisions of collective action clauses. The new bonds they are being exchanged with will also be under english law. There is no DIRECT official sector involvement (there is INDIRECT involvement through quasi nationalized banks like Dexia for example who own about 4bn euro of post psi GGBs and are likely to be tendered but the eurocrats don't like to talk about that) as that has been steadfastly rejected (until today) by the Germans (also Dutch, Austrians and Finns) who don't want to deal with the political fall out from having to tell their electorate that they have to bite the bullet and bear Greek loan losses. This is particularly true in the case of frau Merkel who repeatedly stated to German taxpayers that they will not see losses due to loans to Greece, and she has an election coming up next November.

Reality is, German taxpayers have ALREADY got hit with losses from the first PSI to the tune of 15bn euro, it's just that Merkel hasn't explained it to them yet. The losses came through the partial ownership by their regional governments of failed Landesbanken and their national government's bailout of Commerzbank who gorged on higher yield risky Greek paper and got discounted during the first PSI. It's all smoke and mirrors intended to deceive the public with blatant lies and unnecessary levels of complexity. 

SO, WHO BENEFITS AND WHO LOSES FROM THIS DEBT BUYBACK?

Aside from the IMF pretending that it is not violating its own charter, there are some real winners and losers coming out of this in a big way.

First and foremost, the clear big losers are the Greek people who are being saddled with this ever-growing mountain of debt which is now being literally paid back with their children's blood (there's a shortage of blood in Greek hospitals at the moment because most of their blood bank was sold at greatly discounted prices to Germany, Norway and Finland - who said you can't suck the blood out of someone?), their loss of sovereignty (the new memorandum gives decision making power to the Troika over Greece's national budget and privatization programme), and the loss of an entire generation of young people now forming the second Greek diaspora with their massive exit in search of a job and a future. (The unemployment numbers in Greece are nothing short of national disgrace when you consider that a lot of the unemployed have left Greece and are now looking for work in other EU countries, Australia, Canada and the US and hence are no longer counted in the statistics).

Also on the losing end are the Greek social security and pension funds (thus the Greek people again) who suffered 75pc losses in the first PSI and who BY LAW (77pc of any surplus cash, the difference between cash inflows and outflows in the funds, must be invested in GGBs) were forced to continue to buy GGBs POST PSI (7bn euro worth) and are now about to be decimated again with a additional loses. Universities and Hospitals who got swindled during the first PSI are about to get clipped again. These two groups had two separate cash deposit accounts with the Bank of Greece (they were pooling a lot of their purchasing activities to leverage better deals - the money was allocated separately to each University or Hospital but were pooled at the Bank of Greece to get a better return through a higher interest rates). The Greek government asked the Bank of Greece to CONVERT the cash deposits to GGBs virtually at the last hour before the first PSI, therefore subjecting those deposits to a 75pc loss on money those institutions thought they had just sitting in the bank.

All legal of course because the small print said that the Bank of Greece could reinvest their money in whatever instrument they pleased to produce higher returns. This underhanded maneuver by the government was done in order to reach the minimum participation level required to enact the retroactive CACs. The Universities and Hospitals who have been swindled have filed a motion through the Greek courts suing the government but I wouldn't count on this case being heard for many years by which time Mr Venizelos (Finance Minister at the time and the architect of this grand theft) is fully protected by the statute of limitations and living somewhere in south France, and all the money from the privatization programme has long left the country leaving nothing but a bankrupt skeleton behind. Besides, it was their "national duty" to take a haircut, wasn't it?

The thoroughly insolvent Greek banks will also participate but they will be recapitalized to again cover the gaping holes. The money for the recapitalization will have to come from loans from the EU, again with the Greek people reduced to debt slaves for ever to try and pay those loans back. In fact, in an unprecedented show of audacity, the Greek banks are asking for concessions from the Greek government in recognizing deferred tax assets as a condition for participating (it reduces their capital needs to meet legal minimum capital ratios) and indemnity from shareholder lawsuits. One set of rules and laws for the public, an entirely different set of rules and laws for the bankers, although it's the public's money who ensures that they are still doing business today.

The clear winners are foreign banks and hedge funds who were tipped by their politician friends that a debt buyback would be part of the "deal", when Troika and the Greek government themselves previously had rejected such an ill conceived approach. If  a debt buyback is to be effective it has to be planned in a clandestine manner and executed with lightning speed otherwise the effects are negated by speculators profiting in the market.

Hedge funds now own about 22bn euro worth of Greek paper, up by about 7bn euro from a short two months ago. They started buying distressed Greek paper at around 19 cents, just when they were tipped by the likes of Schauble and Juncker that a debt buyout may be coming. The Germans while initially took the public position that no further haircuts (either OSI or PSI) would be allowed beyond the "one-off, special circumstances" first PSI, which is what lead to the GGB price collapse that allowed the hedge funds to buy at 19 cents, did a complete about face and supported another round of haircuts on bonds in private hands. Merkel is now shamelessly even saying an OSI is not out of the question in the future given the "right conditions". The buyback was then supposedly capped at 35 cents (last Friday's close) according to the EU statement on the deal, although today we heard that the Greek government will exceed that, clearly making the "cap" a blatant lie and the easy profit by the hedge funds even better. Easy money, free money at the expense of the people. In essence, a significant part of the benefit derived from a debt buyback has been negated and handed over to insider hedge funds as easy profits. Who lobbied to Merkel and Juncker to change their position and got their way? But of course, those who are the true power brokers in europe. I'll let you decide who that is.

But always when it comes to the corrupt actions of the Greek government we are accustomed in seeing more, way more. The Greek government has hired, surprise, surprise, Deutsche Bank to manage the reverse auction process, selecting the German bank over many others who would have been equally qualified to handle the buyback, without a competitive bid process and without public disclosure of their fees. And in a real show of power by the bankers, Morgan Stanley was also selected to advise the Greek government on the debt buyback, while at the same time a Greek government prosecutor (DA Ioannis Doyiakos), after a two month long investigation, has filed an action (currently going through the Greek court system) against Morgan Stanley for the bungled merger between National Bank and Ethniki Bank that resulted in billions in losses to investors, the Bank of Greece and the Greek Government. We are way beyond moral hazard here and well into scandal territory when one considers it was precisely those two financial institutions that were approaching hedge funds with the idea of investing in distressed Greek paper a short six weeks ago. Who knew what and when?

It's a crime perpetrated against an entire society, unfolding in front of us live and in colour……….and no one is uttering a word, not the Greek government, not the eurocrats, not the ECB, not the IMF and certainly not main street media. Shameful.