Sunday, March 7, 2010

Condition Red: More Hidden Greek Debt Exposure Discovered

According to a report out last week, there is huge off-balance-sheet debt guaranteed by Greece and the other PIIGS, Portugal, Italy, Ireland and Spain. In addition to similar debt guarantees issued by other governments.

Gordon Long, founder of a private venture-capital fund, said in an investor note that there is more than $600 trillion in notational value in the global derivative market, with $437 trillion of it tied to interest rate swaps.

"Any credit event could trigger a cascading event," Long wrote in the report, according to NyPo. "It does not have to be default; it could be a downgrade in swap contracts that would do the trick for a collateral call. Something is going to cause it to topple, whether it's a situation in Dubai, Greece or New Jersey."

"The next 12 months could be very dramatic for the Eurozone," Robert Chapman, publisher of "The International Forecaster," told NyPo.

" I am seeing many sovereign defaults for the PIIGS as well as in Eastern Europe and the former Soviet satellite countries running into 2011," Chapman added.

NyPo provides an example of how and why these nuclear debt bombs were created:
* In 2005, Greece wanted to develop a Mediterranean beachfront location for tourists but didn't want to float infrastructure bonds to pay for the development because its debt load was over the ceiling threshold set by the EU. So it brought in a Wall Street bank, like Goldman Sachs, which suggested it establish a Special Purpose Vehicle.

* This SPV in essence allowed the public development company to finance the infrastructure project with the Greek government guaranteeing the debt. The project moved forward with no impact on Greece's credit rating -- until the housing economy went south and the developer declared bankruptcy. Greece now has to add the debt to its balance sheet.

So when this scenario is played out a thousand times across the Eurozone, the bond ratings of the sovereign countries are lowered, thereby increasing their borrowing costs and eventually leading to a possible default.

This is how the Greek debt has grown 12 times over the initial numbers it had on the books with the European Union.
Bottom line: This was all inflation dependent financing. If the Federal Reserve and the rest of the world continued to inflate, cheap money would have bailed these projects out. With the Fed halting money printing, there are not enough dollars to support this debt structure. It is teetering structure, a bad sneeze could cause the whole thing to come tumbling down.


  1. Get ready for the hedge fund hyenas, "PIIGS" (as the Soros/Goldman boys have callously named you). They're cooking up ways to attack sovereign debt and the bonds of your governments as we speak. America may even be next. I wonder how many sheep of the two party system will still be chanting "down with big government" when the billionaires intentionally collapse our system.

    Greece does not need an austerity program, as the Greek labor movement has eloquently argued in the course of their successful and admirable general strike last week. Greece does not need a bailout from Germany, the sinister International Monetary Fund, or from anyone else. Least of all does Greece need to accept the advice of Austrian school or Chicago schools charlatans who recommend the catharsis of a deflationary crash that would destroy an entire generation through unemployment, poverty, and despair. Greece needs to defend itself with a 1% Tobin tax on all derivatives and other financial transactions. Greece should take the lead in outlawing credit default swaps, which amount to issuing insurance without meeting the capital requirements of being an insurance company. Greece needs to enforce EU and national antitrust laws. If Soros and his gang succeed in breaking up the euro, Greece should make the best of it by immediately imposing heavy-duty exchange controls and capital controls to protect the new drachma, on the model of Malaysia a dozen years ago. Greece should shut down domestic zombie banks and seize its central bank and use it to issue 0% credit for industrial and agricultural hard commodity production. If the Greeks made plain what they intend to do if they are forced to fall back on the drachma, the financiers who fear such an example would have another reason to relent.

    Another obvious expedient is that of a bear squeeze or short squeeze. Soros, Goldman Sachs, and their gang of hedge fund allies have now used derivatives to establish short positions against Greek bonds and the euro, betting that these latter will go down. Political pressure is now being brought to bear on the European Central Bank and the Greek central bank to undertake an unannounced large-scale purchase of Greek bonds and euros in the forward market, causing the Wall Street predators to lose their bets, thus punishing them severely with extravagant losses. This is normal central bank practice, and it will be astounding if the Greeks do not execute such a maneuver very soon.

    The world now faces a stark choice between two alternatives, with Wall Street forcing the issue. The first is that the zombie banks and hedge funds, having been saved and bailed out by national states and their taxpayers, will repay the favor by driving the national states and all forms of state, provincial, and local government into bankruptcy. This will be synonymous with the destruction of modern civilization itself. The second and preferred alternative is that the national states summon the political will to use the inherent powers of government to place the zombie banks, hedge funds, and related purveyors of derivatives into bankruptcy receivership and shut them down once and for all, relying in the future on nationalized central banks for the provision of credit. The second alternative would allow the preservation of modern civilization as we have known it. But in the meantime, the derivatives-based speculative attack on the southern flank of the euro has accelerated the arrival of the second wave of depression, which now appears likely to strike the world before the end of 2010.

  2. The cascading event will be when MERS is finally exposed. There are 50MM mortgages that have seriously muddled titles.

    Imagine spending 30 years paying on a mortgage only to find out you have bought ... nothing. Got MERS on your Mortgage? Best find out.