Monday, April 26, 2010

US Taxpayers to give Swiss, French, and German banks $3,417,000,000 for wisely holding toxic Greek debt; More $/€ in the mail!

As if being on the hook for $23.7 Trillion in fascistic government bailouts of domestic and international banks is not enough, US taxpayers will very likely soon be footing the bill to bail out the bondholders of Greek debt through the World Bank(ster) operation known as the International Monetary Fund. US taxpayers will, once again, be the pawns paying for the irresponsible lending of foreign and domestic banks, and the irresponsible borrowing of Greek politicians--thanks to the eternally bankster-run IMF.

On Friday, April 23, Greece's PM George Papandreou officially requested IMF and EU aid to enable the government to cover some €8.5 Billion ($11.4 Billion) of payments on debt coming due May 19. This request is just a bare-bones minimum to meet the most urgent debt service demands which are due in weeks: Greece will need at least €54 Billion to cover its obligations on interest payments alone for this year alone. As would be expected, after the announcement, the market continued its many-weeks long hammering on Greek debt, and intensified the pounding over the weekend, a throttling which resulted in a push higher of yields on 2-yr Greek bonds to over 14% by Monday morning. In the last 24 hours, the situation has only deteriorated more.

Today, S&P downgraded Greek debt yet again--this time three full levels to BB+ junk status. The continued outright pummeling magnified, as Mish covered, and has today resulted in a sky-rocketing, incredible, and staggering yield on the 2-yr of over 18%. Of course, ratings cuts are always a trailing indicator, as the bondholders have long-since figured out the danger of the Greek debt they hold, but along with the ratings downgrade, S&P also assigned a "debt recovery" rating of 4 to Greece. This "debt recovery rating" is S&P's way of saying that the firm predicts bondholders will recover only 30-50% of what they are owed.

As it stands right now with no possibility of changing lest international aid comes to the rescue, Greece doesn't even have the money to front that 30%, and will only avoid an outright default if given EU and IMF help before its payments are due May 19. Greece has accrued a national debt of over €302 Billion ($404 Billion), the importance of which is only recognized when compared to GDP, and according to the ever-increasing and latest revised figures on Greece's debt-to-GPD ratio, that number is a staggering 115%. Simply put, this means that the total debt of the nation is 15% more than the value of all goods and services produced within the country in an entire year. This debt assessment is bad enough, but add in the interest and debt payments, and Greece's situation becomes the unsustainable mess it is today. As stated above, to service its €302 Billion national debt, the Greek government needs €54 Billion this year alone to make debt payments. It, of course, has to borrow to get the money to pay those from whom the government has borrowed previously--and, in most cases, not even to pay them off outright, but instead to simply make coupon payments on the debt still owed.

And to whom is the debt owed--who are these bondholders? Who else--BANKS, including commercial banks and even the ECB. The European Central Bank, which backs the euro, is itself compromised of the 16 member eurozone nations' respective central banks, which themselves print and issue euro. The Greek central bank is the Bank of Greece, and the largest and oldest commercial bank in Greece is the National Bank of Greece. Of course, the central bank is privately owned: in fact, it just announced a shareholder dividend of €2.40/share, and the largest shareholder of the central bank (Bank of Greece) is the National Bank of Greece. National Bank of Greece, in sync with the nation itself, had its credit rating cut today, as the bank-owned central bank and the central bank-owner commercial banks, including National Bank of Greece, are the largest holders of Greek government debt. A ratings cut has to be expected when one of your bank's biggest assets is losing value hourly. As the major debt holders, Greek banks are in big, big trouble, as those assets are no longer being accepted as collateral by other banks. But the Greek banks aren't the only holders of that toxic Greek debt: German, French, and Swiss banks, and the ECB are other significant players holding serious amounts of increasing toxic debt. When the money comes from the IMF and EU bailout--money billed to the taxpayers--it will be given to save the skin of these banks. Here's the a simple picture breakdown, which includes Citigroup data that places the exposure as:

French banks: over 25%
Swiss banks: over 20%
German banks: close to 15%
US banks: just above 5%
UK banks: 3%

Additionally, according to the Wall Street Journal:

"Greek banks aren't the only ones at risk. French banks have nearly $80 billion in exposure to Greece, followed by Germany at $45 billion, according to the Bank for International Settlements. Within Germany, Hypo Real Estate has the largest exposure at €9.1 billion. Commerzbank holds €4.6 billion in Greek bonds, according to Germany's bank regulator, while public-sector banks known as Landesbanken hold billions of euros in Greek bonds."

For whatever reason, the Journal article fails to mention the other major category of Greek bondholders: Swiss banks. According to the BIS (data which differs slightly from the above Citigroup data), Swiss banks share a near equal exposure with France of $79 Billion, and Switzerland is neither a part of the eurozone nor the EU. In fact, Switzerland is not even offering any contribution whatsoever to bailout efforts---none. The EU and even the IMF are stepping in, but the Swiss? No where to be seen until the check start getting stamped. Perhaps that's one of the perks of hosting the Basel headquarters.

Besides these Greek, French, Swiss, and German banks and their owners and shareholders who will get bailed out, the other big piece of the bankster pie is the central bank of Europe itself, the ECB. Since 2008, the ECB has been under "relaxed" collateral conditions that have allowed Greek banks to convert some of the Greek bonds they hold as collateral for loans from the ECB. The reason why the Greek banks would do this is simple: they can get a better rate from the ECB on loans than they can selling the bonds on the market, and this condition has only been exaggerated in the last six months. Greek banks have taken up the ECB on this generous offer, and Mr Trichet's ECB is now sitting on at least €68 Billion in Greek-bond backed loans extended to Greek banks. And here's the rub: like all loan collateral, the Greek debt is subject to margin calls when its value declines, which require the debtors to post more collateral, and thus only further increase the pressure on the Greek banks--including National Bank of Greece--as well as the ECB itself, because unlike the Federal Reserve's allocation of loan collateral to a secret off-balance sheet location, the ECB holds collateral on its balance sheet. As the value of that minimum €68 Billion in Greek bank loans/Greek bond collateral declines, it will impact that ECB directly. Additionally, this figure does not include the Greek debt that could have been offered up as collateral by those other than Greek banks, as the ECB and Mr Trichet will not comment on that total.

Therefore, though Mr Trichet knows, we don't know how much Greek debt has been offered by non-Greek banks as collateral to the ECB which the ECB has accepted for loans, but we do know how much Greek debt is out there ($404 Billion), and that only shorter-term debt is eligible. Based on this information, a Reuters article posted by the London Stock Exchange on December 16, 2009 speculated that:

"If Greece's debt were no longer accepted as collateral by the ECB, this would also leave banks in other European countries holding $235 billion of assets that they can no longer swap for an ECB funding injection should they need to."

Uh-oh: nearly a quarter trillion in assets that are suddenly a no-go? Perhaps all those zero's are why Mr Trichet recently said that a Greek default was "out of the question." What does a default do to a quarter trillion in collateral?

So, it looks like the French banks are quite lucky to have their man, former central bank governor of Banque de France and current BIS director, Mr Trichet, and his vehement assurances to protect them from the consequences of their irresponsible $80 Billion Greek debt bets. Indeed, Mr Trichet's got their backs, yo--even if it means, in classic bankster fashion, stealing from German taxpayers! Of course, the German banks, like Commerzbank and Deutsche Bank, are likewise getting the benefits of any bailout, and the Swiss banks--having contributed nothing--will be just rolling in it! When the bailout comes, those are the banks to whom the taxpayers' money will go--even after these same banks have already been given billions.

Americans might see this Greek thing as a far away, European problem that will have little or no impact on our nation, but unfortunately, such an assumption is wrong on both conclusions. Of the currently proposed €60 Billion Greek bailout, at least €15 Billion ($20.1 Billion) stands to come to the IMF. The IMF is, of course, headquartered in Washington, D.C. and majority owned by the United States: the US (read: "US Treasury which is under the total control of the FRS") "owns" over 17% of the fund's assets (or $56.7 Billion) and controls a veto-power 16.7% voting share. For perspective, the next closest nation is Japan, with just 6% share. Therefore, from just the initial bailout package likely to come within weeks, the US taxpayers will be transferring $3,417,000,000 to the coffers of European commercial and central banks. And that will likely only be the beginning. Bundesbank head Axel Weber said last week that Greece may need $112 Billion over the next couple of years. Other economists estimate the number even higher--€150 Billion or $200 Billion. We know how this goes: the bailout machine is just getting started.

As the ECB's contribution to the rescue will be larger than the IMF's, EU taxpayers will be hit even harder than us Americans, particularly the Germans. The notion of bailing out Greece is fantastically unpopular in Germany, where 85% of the populus oppose supporting Greece and are outraged at the idea that Germans should be paying for the profligacy of Greek politicians and their extensive public spending, spending which includes a fully-pensioned government retirement at age 50 for some 580 categories of jobs labelled "hazardous." These jobs include hairdressers (due to exposure to dyes), wind musicians (due to blowing in the wind instruments), and radio and television presenters (due to exposure to bacteria living in microphones, and no, I'm not making this up), among other legitimately hazardous occupations like mining. (Click here for more comparisions between Greek and German retirement, including the Greek "14-month year.") The retirement age in Germany, meanwhile, is 67, yet the German taxpayers are likely to front €8.4 Billion this year, and €16.8 Billion by 2012 to bail out the bankster Greek bondholders who financed the Greek spending spree. And please, note, that that figure excludes the additional contribution from Germany that would come through its 5.87% share in the IMF.

Mr Trichet's France, of course, is pushing Merkel and the Germans to agree to the bailout, which isn't surprising when you consider that French commercial banks are, again, on the hook for $80 Billion in toxic Greek debt. Currently, the French contribution would be €6 Billion ($8 Billion), or 28% less than Germany's, despite the exposure of French banks being 65% greater. Of course, it doesn't matter whether its German, Greek, Swiss, French, or American, the EU-IMF bailout will be yet another transfer of wealth to banks on the backs of taxpayers through this insane fraud called debt-based money.

The proper resolution of this mess is what the market is screaming for right now--with that Greek 2-yr at 18%--and that resolution is that the bondholders will have to take a loss. S&P's statement of 30-50% recovery of money owed might even be optismitic if the market is left to settle this, and no one should have any sympathy for reckless lenders who irresponsibly give money in return for interest to obviously and habitually irresponsible borrowers like Greece. Or the United States, for that matter. The bondholders need to be taught a lesson, as do central-bank-boot-lickin' politicians who believe they can think up "entitlements," print up "money," tax the people to pay off "interest" to the banks, and spend away until their re-election. Lending is risky, and should be coupled with premium on both sides that reflects that fact--and discourages and punishes irresponsibilty.

The bondholders absolutely must take a haircut, even if there is an outrageous wealth-transferring bailout. As Matthew Lynn aptly puts it (emphasis mine):

"First, it takes two sides to create a bond crisis. For every reckless borrower there is a reckless lender. The Greek government might have lied about its budget deficit and been needlessly extravagant during the boom years. But nobody was forced to lend the Greek government any money. Investors should have asked themselves where the money was going, and how sustainable Greek economic growth would be. They didn’t. Instead they just saw that yields were higher than on German or French debt, and jumped onto what looked like a gravy train."

Lynn advocates that the bondholders should take at least a 50% haircut as part of any bailout, and as he stated this before the S&P downgrade and assigment of a debt recovery rating of 4, I would guess that he would now agree with S&P's expectation of a 50- 70% haircut. Lynn further argues against bailouts in the first place, as they cause these very circumstances of "reckless lenders" lending to "reckless borrowers" by introducing implicit taxpayer-backed guarantees of risky debt purchases. The free market has little sympathy for the purchasers of debt, and no sympathy when those purchasers are the fiat counterfeiters who created the "money" in the first place, "sold" to the debtor, and the repurchased it at interest, as is the case in all central bank-backed currencies, including the dollar and the euro.

Tomorrow is another day closer the May 19 deadline, and somehow, I don't think the bondholders are sweatin' it.


  1. Nice post Keri. I wonder if the head-line wouldn't be better as "Greece's Grace is You". lol

  2. Robertbc,

    Oh man, I know. Its just so messed up, you have to laugh about it!

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