Financial Times
October 2, 2011
Intra-Europe capital flight that has taken place over the past couple of months has made the prospective Greek workout (debt rescheduling) plan so ludicrously profitable for speculators and outrageously expensive for euro-area taxpayers, that I believe a justified fear of public anger will force its reworking. At the same time, the prospect of further capital flight if no Greek deal is reached by the end of the year has become so dangerous that a reworked plan will have to be agreed within a short window of time.
The current problems were created by the eurocrats having only a sketchy understanding of how “Brady bond” exchange offers work, and how they have to mesh with market dynamics. The eurocrats could have delegated the work to people with experience at rescheduling sovereign debt, but wanted to keep the control and credit for themselves. Bad call.
For several weeks now, I’ve been hearing hedge fund people talk about how “private sector involvement”, or the proposed exchange offer for Greek state bonds, is a “no brainer”. As they saw it, an investor should buy Greek government bonds, say a 10-year issue, at current market prices, wait the month or two for the exchange offer to be fully documented and formally proposed, and then exchange the bonds for the new paper.
The deal is a “no brainer”, the hedgie will say, because the zero coupon bond that is offered as collateral for the deal will more than cover the cost of buying the bond. So you are getting a bond for free. Well, not free for the euro-area taxpayers who are guaranteeing the European Financial Stability Facility that is putting up the cash to buy the zeros.
More
No comments:
Post a Comment