Soon to be front page news again will be Greece and their insolvency. The question will remain (for a time) whether or not they stay in the Eurozone, leave by choice or get “kicked out”. I am not even sure if being forced out is a legal option, we may see.
The latest pieces of news has been a claim that Greece will be funded with a monthly credit card payment of 5 billion euros by Russia …then denied by Russia. The other news was “federal Greece”, after raiding pension plans is now confiscating local reserves for the “good of the nation”. The populace is getting very antsy as demonstrations and violence have begun to erupt.
Let’s look at the second piece of news first as it was most predictable, as was the reaction. Of course “confiscation” of balances were going to occur sooner or later, this was a given and also a given to spread elsewhere. History is strewn with precedent where bankrupt governments scratch and claw at anything they can get their hands on, did anyone not expect this? Greece is mathematically broke and in the same boat as a homeowner who lost a job. They are digging into retirement balances, the credit cards are all maxed out, they have already borrowed from relatives and are in the process of selling their furniture and anything else not nailed down. They are broke, any monies lent to them might as well have been placed on a bonfire for the heat value because they will not be paid back.
Which leads us to the 5 billion euros Russia allegedly will “forward” or lend to Greece. If this is true, it’s another masterful move by Mr. Putin! NATO sanctions will run out within the next 60 days and must be renewed (voted on) in order to be renewed. NATO participants must vote unanimously to renew the sanctions, Mr. Putin may have pulled a page right out of American politics …just buy a vote and go on down the road? I suspected this would happen, if true, even though it buys a little time (maybe a month or two), it does not change the big picture at all. Greece is broke, they cannot nor will they ever pay back what has been borrowed (especially post 2012 debt). They will default one way or the other and sooner rather than later.
So why does tiny Greece matter to anything in the grand scheme. Going back to my last article “The Mother of All Margin Calls” is at the root of it. Greek debt even to this day when everyone knows Greece will not ever make good on their debt, is carried on the books of bank portfolios at 100%. It doesn’t matter that trades are done at less than 50% of par or much less, Greek debt is used as “tier one” capital …and HERE LIES THE PROBLEM!
Let’s look at this from two different angles. First from a “carrying” standpoint and then from “lending” standpoint. They both arrive at the same ugly destination but via different routes. French and German bank portfolios are stocked full with Greek sovereign debt, if they marked these even close to reality the losses will be staggering. Remember, this is “tier one” capital considered as “good as gold”. How will they replace the holes punched into their collateral structure? I would also remind you, The ECB itself hold 100 billion euros worth of Greek debt, how does the issuer of the currency account for a 50% haircut? Or even a complete wipeout? Where will the new capital come from? Remember, “margins” are already razor thin and in some cases under capitalization exists even WITH this fake accounting!
This will of course hit home with the Greek banks themselves.
Looking at this from another angle, since the Greek debt is tier one capital, banks can, and already have lent amounts up to ten times value …OFF of the Greek debt! The problem is not just the “writedown” and need to raise new capital, much of what has been lent out and levered off of the Greek debt will need to be “called in”. What does this do to the markets and the real economy? Obviously, forced sales of financial instruments will occur as well as real businesses being closed as their funding structure is called in and pulled out from under them. A death spiral is caused both financially and economically which will not be stopped and will only spread like a wildfire!
There is one more angle to look at and that angle is the derivatives created off of the Greek debt. Looking at credit default swaps, there is no doubt “someone” will have to pay when the “insurance” is claimed. CDS in many instances happens to be 10 times or more the underlying debt itself so these 350 billion euros may very well have insurance outstanding of 3.5 trillion euros. Who has this kind of money to pay up? In many cases (think Deutsche bank and others?), banks actually holding Greek debt in their portfolio are also issuers rather than buyers of CDS, this is called a “Texas hedge” with double or more exposure!
Going full circle, we looked at the Fed’s reverse repo agreements spiking in volume, this can only be explained by the need for “collateral” for the financial system. What will a Greek default do? It will create the need for even more collateral, and LOTS OF IT to keep the façade of solvency intact. Though Greece is not a big player, think of them as a minor repair for the car of the couple who have maxed out all avenues of credit. Even a small hiccup is enough to upset this margined cart because of insufficient capital, Greece fits the description! They are by no means all by themselves, the entire financial system is Greece to one extent or another. Greece is only the canary that will expose and impose margin calls across the globe. I would like to mention one more canary in this coal mine, bookies are no longer taking bets on Greece’s default and exit from the Eurozone …it is now that obvious!
History has shown us that there are great risks in challenging the need for the FED.
Mr. Schectman spoke on this today.
I am a distant relative to a US president that attempted such a fate and paid a significant price in so doing.
But everything must eventually reach its expiry date and many believe that the arrogance of the system has allowed itself to bring itself to that TIME.
Holding gold and silver may be your only insurance from what is to come soon.
My point of the previous post was simply to state that there is always resistance to change.
The Fed as some of us interpret seems to have lived out its purpose but it may simply just re-invent itself.
History also has shown us that FIAT must re-invent itself..as in reset, replace or re-structure.
Interesting and scary times ahead.
over and over again.
Hi Bill,
Many thanks for article. Question: why would FED expose themselves by posting RR data? Why not to manipulate it too.?
because the data has come out for years and years, can they manipulate it? I am sure they can.
My dad was a “bookie”, so I learned that even THEY need a “counter party” to the risk, otherwise, there is no bet. TPTB are running out of “suckers”. Unfortunately, as we sometimes found out at home, the next step is generally FORCE!
they cannot lay of risk ie no takers on the other side.
Greece is a slow motion, global financial train wreck, that must be controlled at ALL costs by TPTB. Control is the name of the game and is now the main theme, as they are slowly losing control. All the while becoming much more dangerous.
Consider JP Morgan Chase prohibiting storage of cash and coins, except those coins FOUND to be of collectible value, in safety deposit boxes. Also prohibiting cash payments for credit cards, mortgages, equity lines and auto loans. More control.
Your signature is no longer valid to gain access to your safety deposit box. You must now have two pieces of photo ID and a four digit PIN. More control. Plus, just who “finds” the perceived value of those coins “found” to have collectible value?
Sounds to me that you must submit those coins to the bank, so they may ascertain their “collectible value” before your allowed to put them in your safety deposit box! More control.
Your tattooed bar code on your forearm (visions of NAZISM) or your micro chip injected under your skin is coming. There already exists an army of “volunteers” for this. The “free shit army”! Want food and shelter? You require this chip. Won’t hurt a bit, just a little sting. There you go, now get back in line dirt bag!
the mark of the devil.
Hi Bill,
Just by curiosity, CDS settlement on Greek bonds, is it cash settlement or physical settlement?
Kind regards,
Daniel
if more are written than exist, it must be cash settle? Besides, who would accept Greek bonds as insurance on Greek bonds?
Bill: all of your power points on Greece and Eurobanks are just as applicable to the US and our TBTFs. Bankrupt; Tier 1 capital as ephemeral and worthless as unicorn dung.
…which is why I titled it Greecing “the world”.
Bill,
Couldn’t the ECB paper over this 3-5T loss with a little digital button called QE, which they recently got authorization to do? Or maybe the Feb will covertly do another secret 16-17 Trillion handout to take care of their cronies.
Regards
COL Mike
credibility?
Do you think this is our black swan event? FYI my daughters roomate in Chicago got swindled out of $500 from a Chase ATM machine 4 months ago. It debtited her account but no cash came out. She’s working all avenues for it’s return, but no credit yet. Police say “no crime committed”. Anyway I think we all need to isolate the banks, get out of the system. All of those leveraged bonds, bets, collateralized by more bonds and fiat paper is just biomass.
all they have to do is “roll the video tape” to see she did not get her money.
So the question is: which snowball will hit the bottom first?
pretty much.
No one is denying that she didn’t get her money. They don’t seem to want to pay it back. This is not an isolated incident. Maybe Greece will claim war reparations for what they owe.
they already have!
If Greece takes money from Russia, they’ll be denied a vote on the sanctions.
Which will retain the unanimity.
I don’t think so.
“What does this do to the markets and the real economy?”
LOL, who knows? Few of us have actually seen a REAL economy with free markets and true price discovery via competitive bidding for assets. The next one that pops its head up will likely be the first for many of us.
Of course, older folks, like me, well remember how the markets WERE in the 1970s and 1980s but beginning with the Clinton era, radical changes were implemented and phased in over time. This created the bubble machine inside the Fed and its desire to control EVERYTHING that has anything to do with money and economics. Today’s market and economy looks NOTHING like the markets that came before it. Real? Hardly.
I remember them Ed, but my memory is fading as I am 55 years old.
Im increasingly envious of your generation Bill…
its increasingly seem to me the x-ers are the last fortunate generation
riding on the back of the bull
the future for anyone after is bleak to say the obvious
or downright back to slavery…
I cant even say china is flipping
the ultra-rich china is outta this world
but the 99% peasants are still doom to die in a shoe box
nevertheless you are young at heart
and caring enough to keep writing
and sharing your thoughts and wisdom
and keep your hat on!
much appreciated and good read
thank you Nd60
Looking in from lil old NZ I agree with your take Bill.
Greece is the Canary in the mine and it is on its last legs.They will leave the EU and many other countries will follow.
The EU was a bad model from day one and a con job spawned to foster centralized control
yes, but a dead one.
Bill
Be sure to read the comments to the rick ackerman interview, as rick responds to many of our comments, on USA WATCHDOG.
I’m almost afraid to as I might not be able to restrain myself!!
OK, I replied to one comment >gold is not money”, when I read “I am very bullish long term Treasuries” I clicked the page off because very real long term damage was about to occur. Better to remain silent…
Bill I think they need some Greece Lightning and a whole lot of it to get this mess cleaned up. You said Greecing the world. I think grease makes things slippery and this one will cause an accident of detrimental proportions. One thing for sure, it is a hard thing to clean up also, so those who are dealing with it better be prepared for the work that comes with dealing with Greece! lol
Holy batshit Batman ” One slip on Greece and the entire economy is gone, along with everything else financially”. Aye Aye Robin “Better bring out the Greece Lightning, and my GOLDEN Bathooks just in case I have to save my self”.
Greece will expose the fact that sovereign debt is not risk free.
It is Bill, it is…
Greg is doing his best with Harry and Rick! Fair and Balanced more like F’ing Bull*^#T.
Keep Up the Good Work
PS. Whats your take on Jade Helm down in the big TX?
hopefully it is what they say it is, I fear it is in place for what they know is coming.
Mario Draghi probably sought the 1T+ QU in advance of the Grexit knowing he would need it to prop up everything else in the EU just like the FED is doing in your excellent piece The Mother of All Margin Calls! Since these syndicates can paper over all the crimes with an infinite supply of fiat wallpaper? When is it going to end?
but QE exacerbates the lack of collateral problem…
Bill, I get it. Thanks Its even worse than I thought. Dave
10-4
Reminds me of the story of the old Chinese laundry Service.
A man comes in looking to pick up his laundry but he has misplaced his claim ticket.
Chinese man insists that the policy stands. NO TICKET NO LAUNDRY.
Is this what is in our future. The East takes over control because the West has lost control due to short term thinking and GREED.
Here is what we need to realize.
He who adapts shall survive. He who fails to prepare shall perish.
Simple rule of Mother Nature.
It is still my position that ….we have arrived at this point by design.
If that is not the case then Arrogance and Hubris is taking us down.
our “tickets” are dollars, the question is whether they will even be accepted?
At this point Bill it would seem that based on what we can ascertain that a)our tickets(dollars)may loose substantial value both here and abroad. b)our tickets(dollars) may simply be replaced by another fiat as has been done many times in history.
Debt does not disappear easily. You can inflate it away. You can default on it or you can pay it out.
As I see it the lack of collateral on debt is what will cause this to unravel almost overnight.
Having said all that…it is still my belief that we have been brought here by design. A design to extend control.
Conspiracy….possibly. What is not a conspiracy is the lack of collateral left.