This is where we string together quotes and then make conclusions. The Wall St Journal Reports.
Greece’s debt restructuring is becoming reality—and the reality of a sovereign-debt restructuring is that sovereigns have powers that other debtors don’t. Friday’s news that Athens has agreed to swap the European Central Bank’s holdings of Greek bonds acquired for monetary-policy purposes for new bonds that won’t be involved in any restructuring is a vivid demonstration of those powers.
The ECB bond swap may anger other bondholders. The ECB’s new bonds have identical terms and conditions to its old bonds, but different international securities identification numbers. That means that if Greece subsequently inserts so-called collective-action clauses into privately held bonds in order to force holders to participate in a restructuring, the ECB bonds can be excluded. Thus, the ECB is spared from being forced to take a loss. But the ECB’s differential treatment is also a violation of the usual principle that holders of the same bond rank equally.
The Tyler Durden that is not from Fight Club comments.
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.
If you are not currently in Europe and being paid in Euros. you should drop to your knees and praise the Almighty. Because we still have the rule of law. We still have civil courts, and we need to read our Swift and not let the Eurocrats into our jurisdictions to drag us down as well
The Run Upon the Bankers
The bold encroachers on the deep
Gain by degrees huge tracts of land,
Till Neptune, with one general sweep,
Turns all again to barren strand.The multitude’s capricious pranks
Are said to represent the seas,
Breaking the bankers and the banks,
Resume their own whene’er they please.Money, the life-blood of the nation,
Corrupts and stagnates in the veins,
Unless a proper circulation
Its motion and its heat maintains.Because ’tis lordly not to pay,
Quakers and aldermen in state,
Like peers, have levees every day
Of duns attending at their gate.We want our money on the nail;
The banker’s ruin’d if he pays:
They seem to act an ancient tale;
The birds are met to strip the jays.“Riches,” the wisest monarch sings,
“Make pinions for themselves to fly;”[2]
They fly like bats on parchment wings,
And geese their silver plumes supply.No money left for squandering heirs!
Bills turn the lenders into debtors:
The wish of Nero[3] now is theirs,
“That they had never known their letters.”Conceive the works of midnight hags,
Tormenting fools behind their backs:
Thus bankers, o’er their bills and bags,
Sit squeezing images of wax.Conceive the whole enchantment broke;
The witches left in open air,
With power no more than other folk,
Exposed with all their magic ware.So powerful are a banker’s bills,
Where creditors demand their due;
They break up counters, doors, and tills,
And leave the empty chests in view.Thus when an earthquake lets in light
Upon the god of gold and hell,
Unable to endure the sight,
He hides within his darkest cell.As when a conjurer takes a lease
From Satan for a term of years,
The tenant’s in a dismal case,
Whene’er the bloody bond appears.A baited banker thus desponds,
From his own hand foresees his fall,
They have his soul, who have his bonds;
‘Tis like the writing on the wall.How will the caitiff wretch be scared,
When first he finds himself awake
At the last trumpet, unprepared,
And all his grand account to make!For in that universal call,
Few bankers will to heaven be mounters;
They’ll cry, “Ye shops, upon us fall!
Conceal and cover us, ye counters!”When other hands the scales shall hold,
And they, in men’s and angels’ sight
Produced with all their bills and gold,
“Weigh’d in the balance and found light!“
If Swift condemned the bankers to hades, a deeper circle awaits those who betray trust, as Dante described (sorry, the Hill’s Notes version, cannot find a decent version of the epic online). And the Eurocrats have excelled in breaking the bounds and limits of democratic rule. Their time has come. The run is upon their bank. And, by bringing their own defeat, they could drag the lot of us back into depression. And that is more frightening than mere linkage.
