AuthorTopic: The ECB Opens Pandora's Box  (Read 2907 times)

Offline RE

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The ECB Opens Pandora's Box
« on: February 19, 2012, 09:29:19 PM »
The ECB Has Opened Pandora’s Box   Tyler Durden's pictureSubmitted by Tyler Durden on 02/19/2012 12:45 -0500

  Submitted by Mark Grant, author of "Out of the Box and onto Wall Street"
The ECB has Opened Pandora’s Box
     “I believe that banking institutions are more dangerous to our liberties than standing armies. “
                                -Thomas Jefferson
I am not going to speculate about anything this morning. No guesses about what the Finance Ministers might do on Monday, no simple addition or subtraction that the data used to forecast Greece’s return to a 120% debt to GDP ratio is a falsification of the numbers, no mention that only nineteen cents of any bailout for Greece would actually go to the country; I am not going to discuss anything except what the European Central Bank has actually done and what we now know with a one hundred percent (100%) certainty and the horrifying implications of their actions.
     “There are no necessary evils in government. Its evils exist only in its abuses.”
                                -Andrew Jackson
The ECB, on its own and without judicial or parliamentary review, has swapped their Greek debt for new Greek debt that is not subject to any “collective action clause.” They did this unilaterally and without the consent of any other sovereign debt bond owners of Greek debt. They did this without objection of any nation in Europe. They have retroactively changed the indenture, the contract made by Greece with all of the buyers of their bonds, when the debt was issued. There is no speculation involved in these statements, there is no longer any guesswork on what might be; the ECB swapped their bonds for new Greek bonds with the assent of the Greek government and it is now a done deal. 
Having then done this; the implications must now be considered utilizing the clear light of unadulterated reason. The issue now is no longer a one-off Greek issue but a full on ECB issue. We know now that the ECB can retroactively change the rules, change an indenture, so that if the ECB can do this with Greece then it can certainly do it with any sovereign debt in Europe. If they can exempt themselves from a “collective action clause” then they can exempt themselves from any clause, in any sovereign indenture, for any European country. The fact that they are now clearly senior to any other bond holder, or more aptly put, that any private bond owner is now subordinated to the ECB is one consideration but hardly the most important one. The incredibly grim reality now is that any European and all European sovereign debt can have their indentures changed by the ECB when it is to their advantage. It is the “collective action clause” today but tomorrow it could be the maturity or the coupon or any other terms and conditions in an indenture. It is Greece today but tomorrow it could be France or Portugal or Italy. The “Rule of Law” has been abrogated and tossed aside in the name of political contrivance.
     “Necessity; the tyrant’s plea.”
                               -John Milton
Since the ECB can now retroactively change any bond contract to whatever it likes and with any nation in its dominion then the valuation of European sovereign debt must be re-examined for what it really is which is no longer what anyone previously thought. Starkly put; the bonds issued by the sovereign nations in Europe are no longer pari passu, on equal footing, with the bonds issued in the United States. We have just passed a clearly defined “break point” where the legal rules were changed to the great disadvantage of all the private debt holders. The risk of ownership of European sovereign debt is now infinitely more dangerous in my estimation than it was last week. We still do not know if the IMF will demand and receive the same special treatment but I assert that it no longer matters. The actions of the European Central Bank are all that was necessary to radically alter the value of European sovereign debt and it is just not me but any number of large financial institutions that are in shock given what has happened with one of the largest and most respected bond investors in the world telling me that “financial repression is the softer word for it.”
Leaving anger and hostility aside; European sovereign debt must now be examined with a new set of metrics. How much yield would investors demand if an IBM indenture, as an example, had language that stated “This indenture is subject, at any time during the life of the bond, to any changes mandated by the Federal Reserve Bank.” Stated another way, what yields would be acceptable to bond investors if there was a Federal statute that said “All indentures in the United States may be changed at will by the Federal Reserve Bank upon their sole discretion.” No “Rule of Law,” no judicial appeal and a fait accompli whenever desired. This is, in terrifying fact, exactly what the European Central Bank has done and if we no longer know what we are buying and if the terms and conditions of an investment can be altered retroactively at will without the consent of bond holders and to the advantage of the ECB then either we should not buy these credits, as in Atlas shrugged, or yields should be in the mid-range of junk bonds because European sovereign bond indentures now are worth no more than the paper on which they are printed.
The European Central Bank, in a very misguided attempt to protect itself, has now opened Pandora’s Box. I doubt if they even realize what they have done; but they will, most assuredly they will. The consequences of their horrendous mistake will soon be upon them as institutions not coerced or forced into buying European sovereign debt will be leaving the playing field en masse as the realization dawns upon investors of just what has taken place. You cannot fool all of the people all of the time and the people that manage money for a living are not a forgiving group when governments try to supersede their lawful rights.
     “Unlimited power is apt to corrupt the minds of those who possess it; and this I know, my lords: that where law ends, tyranny begins.”
                         -William Pitt
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Offline RE

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Re: The ECB Opens Pandora's Box
« Reply #1 on: February 19, 2012, 10:15:22 PM »
It doth appear that the ECB and the Clowns running the EuroPonzi have gone off the deep end here.

In order to go ahead and buy still more Worthless Greek Debt, the ECB is now subordinating ALL the prior debt issued by Greece.  Mark Grant states the problem very well here as far as Private Buyers of Greek Debt are concerned, they have no protections here whatsoever.  No Legal recourse, nada.

However, in reality there no longer ARE any buyers of Greek Debt other than the ECB through the TBTF Banks, who then immediately turn the trash over to the ECB as "collateral" for more Euro Toilet Paper.

No individual investor in his or her right mind is going to buy Greek Debt at this point, and in fact even huge Bond Funds like PIMPCO won't either.  The ECB does not need such investors to buy this debt anyhow, they are doing so through the LTRO facility which offers Cash for Trash to all the TBTF Banks.

Now, why does the ECB buy the debt?  Simple, it provides a means to issue more Euros to the Euro Banks who are desperately in need of Toilet Paper to wipe their collective asses with, that is why.  The Greek Peoples here see less than 20% of the Bailout Money, the rest goes to service the debt which the ECB itself now holds as collateral!  They are issuing money to pay themselves back for what they loaned out to begin with!  Can you spell CIRCLE JERK?  Of course you can, and so can everyone else.

How long can this go on?  If it was just Greece here, probably a pretty long time because Greece is just Chump Change overall really.  Hell, Warren Buffett could buy all of Greece Lock, Stock and Barrel all by himself!  Would the Oracle of Omaha WANT to buy Greece?  Of course not!  WTF wants to Own a Country that does not even produce enough food to feed itself?

The problem is of course the Contagion and the fact that the "Private" market for Sovereign Debt which does not include the CBs is going to shrink into nothingness, with the only "bidders" on these bonds being the TBTF Banks who immediately hand off the Toxic Waste to the ECB.  Pretty soon, the ECB will have to start buying up all the PIIGS debt here, and all these countries will descend into the kind of chaos Greece is already engulfed in.  The mathematical game here of ever increasing the debt and buying it back can go on for quite some time, although certainly the Banksters gotta Thank God for Computers or they would neve be able to keep track of all the Zeros.  What cannot go on in perpetuity is the political consequences and Blowback from all of this.

The Peoples of these countries are RAPIDLY becoming more impoverished, to such a point that large segments of their societies have Nothing Left to Lose anymore.  The economic system simply is not WORKING for them to be able to find a job and live with even a pittance of dignity.  They will ALL REVOLT and there will be no "tax collection" whatsoever, because little commerce goes on in a War Zone, and that which does is mainly Black Market.

The ECB and the Eurocrat Clowns who set up this system are trapped inside Pandora's Box, and they HAD to open it up otherwise they would be snuffed out immediately.  This buys them a little more time, but does not stop the inevitable unwind of the Euro Ponzi.

Its not gonna be pretty over there for the Eurotrash, and their Pain will likely make it possible for the Dollar Ponzi to go on a bit longer here.  However, much the same nonsense is going on here simultaneously, so once the Euro does finally crash, all eyes will be back on the Dollar and finally down it goes as well.

Make no mistake though, this game can be extended and pretended quite a while on the mathematical level.  Its on the Political level that you will reach the Tipping Points first.  There is no precise way to figure when in aggregate J6P SNAPS and the Riots and Revolution starts.  Its coming down the pipe though everywhere, inexorably.

Coming Soon to a Theatre Near You.

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Offline Jb

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Re: The ECB Opens Pandora's Box
« Reply #2 on: February 20, 2012, 06:17:05 AM »
RE said: "How long can this go on?" If TPTB are now in total control, then I guess we have to wait for social unrest to bring things to an end. Beginning to think the party in the US is going to continue for a while yet.

Must not panic, must not panic.....

Been sick for a week, then dealing with backlog and a leaky pipe...


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