“Greece fails in attempt to buy-back their bonds” will be the headline in a few weeks following the poorly conceived tender off that will be presented to bondholders. How so?
Many moons ago I enthusiastically agreed with the proposal to reduce Greek debt through outright purchases of bonds on the secondary market. I had expected that the bond purchases would be covert in the sense that the authorities would simply sit in the market and absorb as much or as little of the discount securities as they were offered. Liquidity motivated sellers would have valuable market depth and for every Euro spent, Greece’s outstandings would be reduced by three Euro. The program could have been operated indefinitely therefore placing a floor under the market and ultimately coaxing unwilling lenders back into the Greek bond market.
The latest bailout package announced by the EU/ECB/IMF troika has, as its centrepiece, a buyback program. On the surface this sounded like a major advance but – as with all things Europe – the proposal wreaks of idiocy. Rather than an open ended on-market operation, the plan envisages a single below market tender offer with the threat of compulsion for those who refuse the offer. Here’s what Bozo the Clown, the buy-back’s financial adviser, had to say about the plan he conceived,
“The plan has three key planks designed to ensure 100% participation
1. We will offer bondholders a price lower than current market levels. This will ensure that the hedge funds who have been purchasing Greek bonds do not make a profit
2. In the unlikely event that there are holdouts, we will invoke Article 9 of the EU constitution which allows us to repudiate the contractual terms that we,ourselves, put in place eight months ago in the original PSI restructuring because they are not in the public interest. This allows Greece to ignore the protection of English Law and redesign the Collective Action Clauses to compel acceptance with 0% (or more) participation in the offer. The fact that we invoked Article 9 to force through the PSI in the public interest all those months ago, doesn’t contradict the fact that the PSI turned out to not be in the public interest. We are the government and we know what the public interest is and that it changes all the time.
3. Official institutions are exempt from the buy-back except for the rich Asian and Middle Eastern ones.
I have assured Ms Lagarde that she needn’t worry about not achieving full acceptance of the offer. She is waiting before she agrees to disperse additional funding.
Signed Mr Clown, Bozo T.”
Good luck Bozo! Shine your bright red nose and floppy shoes…we will see you in court