Those that follow me know that I've been saying Greece was a guaranteed default as far back as the 1st quarter of 2010 (February 8 2010 to be exact). That was actually quite contrarian call back then. Well, fastforward exactly two years later and you get headlines such as Fitch (& S&P) Says Greece Will Default By March 20 Bond Payment, Greece Running Out of Time as Debt Talks Stumble and Europe ’Plays With Fire’ as Greek Rescue Hits Barrier, to wit:
Greece said that Europe’s wealthier countries are “playing with fire” by toying with the idea of expelling it from the 17-nation euro area as talks over a second aid program ran into new obstacles.
Finance Minister Evangelos Venizelos leveled the accusation after a decision slated for tonight on aid totaling 130 billion euros ($171 billion) was postponed until at least Feb. 20 and possibly until after a full-time Greek government emerges from elections later in the year.
“We are continually faced with new terms,” Venizelos told reporters in Athens today. “In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”
Two years after pledging to pull Greece back from the brink, European leaders are torn between pouring more aid into the struggling economy or risking an unprecedented national bankruptcy that might force the country out of the euro and prompt renewed market tumult.
I agree that the EU crew is playing with fire, and I have shown how badly said fire can burn over two years ago, yet ratings agencies and bank analysts still aren't sounding the alarm loud enough. As a matter of fact, even today, I doubt many understand that these REALLY are playing with F.I.R.E...
Reggie Middleton Sets CNBC on F.I.R.E.!!! - Reggie Middleton preaching the travails of commercial real estate in 2012/13 on CNBC
Even two years later after I have been proven right beyond a shadow of a doubt regarding the prospects of a Greek default, investors, analysts and pundits still do not seem to fully appreciate the gravity of the situation. If one peruses the BoomBustBlog archives, you will find the post What Country is Next in the Comingsa Pan-European Sovereign Debt Crisis? dated February 9th, 2010, and no I don't have a time machine...
Now, let's put this into perspective.
- The amount of debt offered in the past will pail in quantity and scope with the amount of debt that needs to be offered now, amid historically record high deficits and dwindling revenues, high unemployment and global uncertainty.
The weaker Eurozone countries will start flooding the market with sovereign debt rollovers starting THIS MONTH. It remains to be seen whether Germany will backstop Greece, but if they do how can they avoid backstopping Spain, Portugal and Italy. The Spanish and Italian backstops will be particularly tricky since there are bank NPAs hidden in their whose extent has been purposely kept a big mystery. Reference the NPA as a percetn of GDP chart above. If Germany doesn't backstop these countries then it's left up to the IMF and their goes the credibility of the Euro. If Germany does backstop the countries, then their goes those Bund rates! An interesting conundrum, indeed.
Yes, there are massive amounts of debt coming on to the market, and if Greece defaults, there is no way contagion can be prevented from spreading to Spain, Italy and Portugal, then to France. Why not? Because these countries have essentially the same problem that Greece has, and that is massive amounts of highly leveraged capital that has been destroyed, leaving debt service in its wake supported by weak and weakening economies - All made worse by austerity measures which are anti-stimulative, the actual antithesis of economic stimulative measures which will be the only thing that will stimulate said economies. As the excerpt above mentions, "The Spanish and Italian backstops will be particularly tricky since there are bank NPAs hidden in their whose extent has been purposely kept a big mystery." Here are some links and charts to clue you in on said mystery....
There are broad indications hinting that Italy and Greece are not the only countries that have used SWAP agreements to manipulate its budget and deficit figures. France and Portugal may be two other European economies which have resorted to similar manipulations in the past in order to qualify as part of single currency member nations (Euro Zone). Below is a small subset of the research that I have been gathering as I construct a global sovereign default model. This model is very comprehensive and thus far has indicated that quite a few (as in more than two or three) nations of significance have an 90% probability of defaulting on their debt in the near to medium term. More on this later, now let's dig into what we have found that looks like gross
manipulation of the numbers in order to hide debt in several European countries. Here's a quick quiz. What well known (in name only) Italian American has a significant chunk of the European Union Sovereign nations apparently modeled their financial engineering from?
Charles Ponzi (March 3, 1882 - January 18, 1949) was an Italian swindler, who is considered one of the greatest swindlers in American history. His aliases include Charles Ponei, Charles P. Bianchi, Carl and Carlo. The term "Ponzi scheme"....
Click the link above to read more on Pan-European Sovereign Ponzis, then go on to reference Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest? and Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!, to wit and as excerpted:
... We have finished our review of the Italian "Austerity" plans to whip its debt load into shape. As with Greece (see "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!), we have found it wanting. Believe it or not, the biggest issue is the credibility of the government. They stretch the facts, assumptions and gray areas to the point where you tend to doubt everything else. It is almost as if they believe no one will actually read what they have written, which very well may have been partially true in the past. Alas, that was the past and this is the present. Information, and to a lesser extent, knowledge travels through the web at the speed of atomic particles. On that note, I release to my subscribers the Italy public finances projection 2010-03-22 10:47:41 588.19 Kb.
For those that don't subscribe, I would like to make clear that my assertions of flagrant and unsubstantiated optimism on the part of European governments stem from how quicly they feel their economies will grow despite the fact that they failed to see this maelstrom coming in the first place.
This is Italy's presumption of economic growth used in their fiscal projections:
Hey, there's more where that came from..
So, you ask, "What in the hell does this have to do with the French?" Well, as I stated in my previous analysis of the big French banks, the French are heavily levered into Italy. How goes Italy, so goes many of the big French banks. Reference:
- Italy’s Woes Spell ‘Nightmare’ for BNP - Just As I Predicted But Everybody Is Missing The Point!!!
- BNP, the Fastest Running Bank In Europe? Banque BNP Exécuter
- When French bankers gorge on roasting PIIGS - OR - Can You Fool Everybody All Of The Time?
So, does BNP have a funding problem, or is it at risk of the same?
BoomBustBlog subscribers know full well the answer to this question. I'm also going to be unusually generous this morning being that our prime French bank run candidate has approached my "crisis" scenario valuation band. So, as to answer the question as to BNP, let's reference Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers, and otherwise known as BNP Paribas, First Thoughts...
The WSJ article excerpted above quotes BNP management as saying: "The bank has €135 billion in "unencumbered assets after haircuts" that are eligible to central banks."
OK, I'll bite. Excactly how did BNP get to this €135 billion figure? Was it by using Lehman math? Methinks so, as clearly delineated in my resarch report on the very first page:
The following two pages of this report go on to reveal the games being played to potentially come up with a figure such as the 135 billion quoted above. Boys and girls, I fear those may be Lehman bucks!
So, let's assume that the Italians can be infected by the Greeks, and then can in turn infect the French. France has not pulled the finnacial engineering gimmicks that Greece did, so they shoul be able to whether storm after bailing out their top 3 overleveraged global banks with asset bases that are multiples of France's GDP, right???
Answers are in the links...
Hey, despite the banking sector 5x the size of the bailing socialist country, and liquidity problems (oh yeah, forgot about that one - check out the Anatomy of a Bank Run), the French can still handle their business better than the French because they didn't cheat with Financial Engineering Parlor Tricks to get into the EU like the Greeks did, right??? Sure. Just read Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware again...
In 1997, the French government received an upfront payment of £4.7 billion ($7.1 billion) for assuming the pension liabilities for France Telecom workers in return. This quick cash injection helped bring down France's deficit, helping the country to meet the pre-condition to join the Euro zone. You may reference the Laurent_Paul_and Christophe_Schalck_study for a background on the deal. I don't necessarily concur with their conclusions, but it does provide some info
You're probably saying to yourself, "Wow, those guys over in Europe are Fuc2ed. Yeah, well basically... But no need to worry, because Germany, the next export nation who's major export/trading partners are either going into recession, depression, economic hard landing or have struggling economies and whose mortgage banking sector is about to have its ass handed to it is about to save the day by rescuing all of these profligate nations by flushing the all with cash, so it can continue trading with them. You see, you silly pessimistic speculator you... It all over and everything is find.
Hey, on that note I can probably run for POTUS now, eh? Except for one thing...
I will continue this train of thought as I go over actual defaults and paths of contagion in my next post on this topic. As is usual, you can reach me via BoomBustBlog or by the following means...