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Friday, July 10, 2015 8:16 PM

"Bold Proposal" to Screw European Taxpayers Again

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Proposal to Screw European Taxpayers

You never know who's reading your blog, until you receive emails. I received a pair of them this week from Father Joseph Fessio, S.J., Founder and Editor of Ignatius Press.

While I am quite certain we disagree on many issues, Father Fessio is dead on accurate in his analysis of the New York Times DealBook article A Bold Proposal to Offer Greece Some Financial Relief.

The DealBook article was written by written by Landon Thomas Jr.

Thomas trumps up a plan written by Mitu Gulati and Lee C. Buchheit, two debt lawyers who played a central role in the restructuring of Greece’s debt in 2012.

The Proposal

A few snips from DealBook shows the master plan to be nothing but a gift to hedge funds and vultures at the expense of eurozone taxpayers and Greece.

European governments do not want to lend Greece any more money, nor do they want to have their debts written down, Mr. Gulati said. So the trick, he argued, is devising a mechanism that can persuade private sector investors to pick up the slack.

They say, private-sector bond investors should be granted a powerful incentive to load up on risky Greek debt by being awarded seniority over public sector debt holders.

That means these nongovernment lenders would jump to the head of the line of creditors in terms of who gets paid first if, in the future, Greece does not have enough money to pay all of its lenders.

“This is not a substitute for debt relief,” Mr. Buchheit said. Nor, he added, should it be seen as a way for Greece to escape the tough reforms it needs to put in place to make the economy more functional and efficient.
Father Fessio Analysis

Father Fessio writes ....
Hello Mish,

Please blast these people. The same people who helped shaped the 2012 Greek bailout now have a new proposal: that private investors loan money to Greece in return for senior debt position!

So the private investors who unloaded all their debt (at huge profits) onto European taxpayers are now going to offer more debt financing, but senior, so they can make more money off the deal when Greece defaults.
Bold Ripoff

I responded to Father Fessio that I did not have to blast anyone out of the water because he just did.

Granting hedge funds and vulture capitalists senior rights is precisely the wrong thing to do. Moreover, the results speak for themselves.

Lars sent me his analysis a few days ago and it fits right into this article.

Lars writes ...
Hello Mish

The 2010/2012 rescue package was €240 billion of which something like €206 billion has been paid out. The key element here is that 77% of the funds went to German/French banks in order to save them from collapse.

Simply put, the eurozone used the Greek taxpayers to save itself and the banks.

The ECB entered the scene also in 2010 and by summer 2011 the Target2 imbalance (for Greece) was a little over €100 billion. We then got the "whatever it takes" pronouncement by ECB president Mario Draghi in July 2012 and deposits started to flow back into Greece. By autumn of 2014 the imbalance was down to €30 billion.

In November 2014, capital flight from Greece started again and since then the Target2 imbalance has grown by €75 billion.

The total Eurozone/ECB exposure is now at least €326 billion. In addition, private creditors are owed €70 billion.

Then there are guarantees by the government on short term debt and debt owed by GSEs.

Europeans seem blind to rescue facts.

Rescue Facts

  1. The 2010 rescue package was not for Greece but for the eurozone itself. Eurozone and Greek taxpayers were used to save the euro system. This was a despicable act.
  2. The ECB has kept things going by providing liquidity from the “beer drinking” part of the eurozone to the "wine drinking part".
  3. Huge imbalances within the eurozone are now a fact, and they are growing thanks to Draghi's QE.

I watched a debate on Greece on French TV yesterday. They are all clueless as to what is really happening. I also spoke to a Dutchman yesterday and he said he was not concerned about Greece because Dutch exposure was only €5 billion. He almost fell over when I told him it's more like €50 billion. Dutch exposure to the whole eurozone is €120 billion. I did not tell him that as I did not want to provoke a heart attack.

Best regards,

Generous Terms

German chancellor Angela Merkel has stated many times recently that Greeks got generous terms on its alleged bailout.

Merkel is either a blatant liar or dumb as a rock. I believe the former. It is the bailed out banks in Germany and France that got generous terms.

To save French and German banks of €60 billion or so in losses on Greek bonds they never should have purchased in the first place, eurozone taxpayers are now on the hook for at least €326 billion.

Draghi's famous "whatever it takes"  speech should have been suffixed with "to save the banks".

Greek and eurozone taxpayers got the shaft and remain at risk. And now Landon Thomas Jr., Mitu Gulati, and Lee C. Buchheit have a plan to further screw Greece, putting eurozone taxpayers further at risk in the process.

All three of them can take their "bold proposal" and shove it where it belongs.

Mike "Mish" Shedlock

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