‘Well, it is official. The restructuring
The "restructuring deal"
was approved by approximately 84 percent of all Greek bondholders, but the key
to triggering the payouts on the credit-default swaps was the fact that
A recent article by Ambrose Evans-Pritchard explained why so many people were upset about these "collective action clauses"....
The Greek parliament's retroactive law last month to insert collective action clauses (CACs) into its bonds to coerce creditor hold-outs has added a fresh twist. These CAC's are likely to be activated over coming days. Use of retroactive laws to change contracts is anathema in credit markets.
If a government can go in and retroactively change the terms of a bond just before it is ready to default, then why should private investors invest in them?
That is a very good question.
But for now the buck has been passed on to those that issued the credit-default swaps. As mentioned above, the ISDA says that there are approximately $3.2 billion in Greek credit-default swaps that will need to be paid out.
However, that number assumes that a lot of hedges and offsetting swaps cancel each other out. When you just look at the raw total of swaps outstanding, the number is much, much higher. The following is from a recent article in The Huffington Post....
you remove all hedges and offsetting swaps, there's about $70 billion in default-insurance
Yes, indeed. We will find out very soon.
If some counterparties are unable to pay we could soon see some big problems cascade through the financial system.
But even with this new restructuring
deal with private investors,
German Finance Minister Wolfgang Schaeuble told reporters recently that it "would be a big mistake to think we are out of the woods".
Even with this new deal, Greek debt is still projected to be only reduced to 120 percent of GDP by the year 2020. And that number relies on projections that are almost unbelievably optimistic.
In addition, there are still a whole host of very strict conditions that the Greek government must meet in order to continue getting bailout money.
Also, the upcoming Greek elections in just a few weeks could bring this entire process to an end in just a single day.
So the crisis in
The Greek economy has been in recession for five years in a row and it continues to shrink at a frightening pace. Greek GDP was 7.5 percent smaller during the 4th quarter of 2011 than it was during the 4th quarter of 2010.
Young people are getting hit the
hardest. The youth unemployment rate in
The suicide rate in
Unfortunately, there is no light at
the end of the tunnel for
Sadly, several other countries in
Europe are going down the exact same road that
Investors all over the globe are
wondering which one will be the "next
Some believe that it will be
rule of law has been treated with contempt," said Marc Ostwald from
Monument Securities. "This will lead to litigation for the next ten years.
It has become a massive impediment for long-term investors, and people will now
be very wary about
Right now, the combination of all
public and private debt in
expects the economy to contract by 5.7pc this year, warning that bondholders
may face a 50pc haircut by the end of the year.
So why should anyone invest in Portuguese debt at this point?
Or Italian debt?
Or Spanish debt?
Or any European debt at all?
The truth is that the European financial system is a house of cards that could come crashing down at any time.
German economist Hans-Werner Sinn is even convinced that the European Central Bank itself could collapse.
There is a Der Spiegel article that everyone out there should read. It is entitled "Euro-Zone Central Bank System Massively Imbalanced". It is quite technical, but if this German economist is correct, the implications are staggering.
The following is from the first paragraph of the article....
than a year ago, German economist Hans-Werner Sinn discovered a gigantic risk
on the balance sheets of
So no, the European debt crisis is not over.
It is just getting warmed up.
Get ready for a wild ride.’