New Meaning for 'Voluntary' and Bond Buyback Balancing Act
It is a deep stretch of the imagination to twist arms and appeal to "patriotic duty" in an effort to coerce someone to do something they really do not want to, then call the action "voluntary."
It is yet another thing to claim something is voluntary yet tell them it is "required." The latter has happened (again), when it comes to Greek debt.
The Financial Times reports Athens banks told of debt buyback 'duty':
Yiannis Stournaras made clear the country's four largest banks, which together hold about €17bn of government bonds, would be required to sell their entire holdings even though the buyback is billed as "voluntary".
It was the "patriotic duty" of Greek bankers to ensure the success of the buyback, due to be launched next week by the country's debt management agency with up to €14bn of additional European funding, Mr Stournaras said on Wednesday.
Yet Athens bankers appeared reluctant to be forced into a sale that would weaken their balance sheets and discourage local investors from participating in rights issues expected early next year as part of a €24bn recapitalisation of the sector.
"The banks stand to lose some €4bn by having to sell their bonds at around 33 cents on the euro," said one Athens banker.
About half the €62bn of bonds issued in a partial restructuring of Greek debt last February are held Greek banks, pension funds, state entities and individual investors.
The debt management agency is set to announce details next week of the buyback scheme, which would be completed by December 12, the day before eurozone finance ministers are due to give the green light for disbursing the Greek aid payment.
Whereas Greek banks may be "voluntarily forced" (as if such a ludicrous idea even exists) into steep losses, anyone else holding such debt sure will not be.
Once again this whole notion of "voluntary" rests on arbitrary decisions as to what will trigger credit default swaps.
In that regard, please recall that in October 2011, the labeling of 50% haircuts on Greek debt as "voluntary" proved many "Standard" Credit Default Swaps on Greece Are a Sham.
Thus, nothing really "new" is happening here. "Voluntary" means whatever the biggest players want it to mean (always to their advantage, of course).
Bond Buyback Balancing Act
Bloomberg discusses this setup in Greek Bond Buyback Hostage to Below-Market Prices.
Greek efforts to ease indebtedness by repurchasing its own bonds at less than their face value depend on investors accepting below-market prices rather than holding out for an improved offer.
The new bonds have collective action clauses, which in a second restructuring would allow a preset majority -- typically at least 66 percent -- to force holdouts to take part, according to Gabriel Sterne, an economist at Exotix Ltd. in London. Still, enforcing the CACs risks triggering credit-default swaps and being put into default by the ratings firms to deal with a rump of bondholders, he said.
"Would it be worth the fight with the hedge funds?" he said. "I just don't think they would want to go there yet again."
"If the buyback price is forced up too high, it will be unpalatable to Greece and the European authorities, and the buyback will fail," Sterne said. "The incentive not to participate is likely to be strong. The average value of the bonds for those that do not participate could rise sharply if there is very high participation."
Sterne, a former IMF official, estimates that the strip might go as high as 50 cents on the euro assuming there is broad participation, compared with 24 cents if the buyback fails.
Bondholders probably will call the finance ministers' bluff, said Peter Tchir, the founder of New York-based TF Market Advisors.
"Now that the Eurogroup has made a condition out of the bond repurchase, it is almost the obligation of the bondholders to hold their feet to the fire," he said. "I can't see bondholders accepting last week's prices without trying for more."
CACs and the Balancing Act
Got that? No one wants to trigger Collective-Action-Clauses thereby "forcing participation" because it would trigger CDS contracts. Yet participation must be high enough so the Troika can pretend the results help Greece.
Given the incentive to not participate in the offer is huge, Greek banks were told their participation in the voluntary offer was required.
Thus, we see these preposterous games yet again as to what is "voluntary" and what isn't. Moreover, forcing Greek banks to take more losses means they will again need to raise capital (a perpetual state of affairs for Greek banks).
Of course, any sensible person realizes none of this will actually help Greece. Instead, it will enable huge pretending games go on a bit longer, perhaps long enough to get German Chancellor Merkel re-elected, which seems to be the real issue in play, not the well being of Greece.
Mike "Mish" Shedlock, a registered investment advisor representative at SitkaPacific, blogs at globaleconomicanalysis.com.
Posted by ode2ayn on 12/01/12 07:35 AM
I was just listening to Peter Schiff discussing this analyst on his radio show (11/30/12). Wow! You should be ashamed of yourself Mr. Mish. You have lost all credibility with me after that latest blog on the RT interview.
Posted by amanfromMars on 12/01/12 02:28 AM
"What Is Money?" ….. Posted by 1776 on 11/30/12 11:01 AM
A convenient exchange of a perceived valuable, but actually virtually worthless accumulation of practically worthless enslaving debt as payment/reward for more sophisticated and mature intellectual property, organised labour and materials products/programs, which make better use of the simple facility ... ... which is, surely none would argue against, a very convenient trick to be honed to perfection.
However, whenever the system is not smart enough to make better use of the simple facility does it collapse as its modi operandi and vivendi are more widely realised and understood and used by others ... .. [in the anonymous and invisible wild, and which may, or may not be, in opposition and/or competition with established practices and banking systems which are just a bunch of administrative duffers who think they have it made with all bases covered to control human actions.
Which is where the system is now, is it not?
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." …. Henry Ford
Posted by Danny B on 11/30/12 09:48 PM
It seems the FED is backing the ECB
Click to view link
Germany says that they will cough up 14 billion more.
Click to view link
The loss has to be voluntary because "mandatory" triggers CDS default.
"Concerns arose earlier this month that CDS were no longer reliable after an ISDA panel ruled that a Greek credit event hadn't occurred, even though bondholders were accepting more than 50 percent reductions in value. But when Greece invoked a legal clause making the reductions mandatory for all private bondholders, the ISDA panel immediately moved to trigger the swaps. "
Click to view link
The ISDA has to make the determination of default or no default. They already assert a fair amount of independence.
Click to view link
Hard to say if they'll swallow more losses on Greek debt.
Posted by Just John on 11/30/12 03:24 PM
Posted by 1776 on 11/30/12 11:01 AM
What Is Money?
Click to view link