Friday, March 9, 2012

Unless It’s a Typo, Greece is Going to Default on Its Default!

Buried amidst the details of today’s Financial Times account of the Greek default was  a sensational figure. If I understand it correctly, it said that the “new” Greek bonds are trading in grey markets at 28 to 40 cents to the Euro. Following this was the remarkable statement that, in effect, said that  markets anticipate that Greece will default on its default.

Banks that exchanged “old” for “new” Greek bonds got about 47 cents on the Euro. If they were to turn around and sell them on the market at 40 cents on the Euro, they would get about 18 cents per Euro on their “old” bonds. Or did I miss something?

I also believe that the European Central Bank has agreed to accept the “new” Greek debt as collateral at their full face value. If so, the European Central Bank will be holding collateral assets that are overvalued by 60 percent.

Maybe I am missing something, but if I am right, this sounds sort of crazy to me. Can someone help me out on this?

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