Reuters, 3 May 2010:
Markets reacted skeptically on Monday to a record 110 billion euro ($145 billion) bailout for Greece, with investors doubting it would offer more than temporary relief to a euro zone shaken by divisions and saddled with high debt.
Despite Sunday's agreement by European finance ministers on an unprecedented three-year loan package, the euro fell as markets questioned the ability of the Greek government to push through new austerity measures pledged in exchange for aid and worried other euro states may be vulnerable.
FT, 22 November 2010:
Jens Larsen, chief European economist at RBC Capital Markets, said: “The market reaction [to the Irish bail out] tells us that the eurozone debt crisis is far from over. The market is unsure of how events will unfold, which explains the muted reaction today.”
... Using Greece as an example again, the omens are not good. Greek bond yields fell from a peak of 12.45 per cent to 7.24 per cent within days of the shock and awe announcement. But they have steadily risen since and are now trading near their peak, at 11.69 per cent.
Of course, we don't know what interest rate Greece would be paying in the absence of a bail-out, the Big Unknown being whether they would have left the Euro-zone or not, but hey.
Forbidden Bible Verses — Genesis 42:1-17
8 hours ago
12 comments:
Have the Irish just announced a land value tax? [from the BBC]
"Finance minister Brian Lenihan said the government would also introduce a property tax, called a site value tax, which will cost most homeowners up to 200 euros by 2014."
M, yup, The FT says it will raise €530 million a year, so pro rata to population, it's a tad more than the TV licence fee in the UK and about a quarter as much as Council Tax (which they don't appear to have in Ireland).
This putative 'bail out' is no such thing. It's just lots more funny money already going into a global money system already awash with too much funny money. None of these 'Euro's' have any value whatsoever. Those people that have 'wealth' and have loaned that 'wealth' (demoninated in worthless Euros) to the likes of Greece and Eire are beginning to realise that what they are offered back is more worthless Euros.
This is going to end in tears. Hopefully.
Yes but the bondholder bike only has to get far enough to offload its problems at Taxpayer Junction.
All the air in the world will be blown until the politically connected can escape.
ACO - re yr last para - absolutely right. Now then, where's that piano wire....
L, hopefully.
AC1, probably, but in the end they'll abandon the bike as well before escaping.
And meanwhile ACTA is going through and no one's saying boo.
JH, do you mean the 'Anti-Counterfeiting Trade Agreement'?
Can't say I have strong opinions one way or another.
Am I right in thinking that in a debt-for-equity swap, the creditors or bondholders swap their debt for shares and are left holding depreciating shares and in a bailout, the government buys the shares instead and the bank gives the money to the bondholders?
B, it's a bit more subtle than that.
1. In a D4E, the business has some positive value, call it 'enterprise value'. This is usually less than the total value of outstanding bonds (or else problem does not arise), so let's assume company starts off with £100 shares and £900 bonds = £1,000, but loses £300 so "enterprise value" is £700.
2. At this stage, the shares are worth +/- nothing and the bonds are worth £700 (with face value £900).
3. To tidy up the books, the deficit on shareholders' funds (£100 - £300 = £200) is cancelled, and a corresponding amount deducted from bonds.
4. Then new share capital is invented out of thin air (say £50) and this is deducted from bonds as well.
5. So the new balance sheet/financed by side is share capital £50 (with shares issued to bondholders pro rata) and bonds £650 = £700. The former bondholders now still have investments worth £700 in total. The enterprise value is still £700.
6. The simple fact of doing a D4E (aka 'debt restructuring') is a tidying up thing, it crystallises pre-existing losses.
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With bail outs, you just make it up as you go along until all the taxpayers' money or patience is exchausted.
Ok, with a bank bailout, does the government always buy shares in the bank, or do they just buy debt or lend money?
I take it that when a state is bailed out, it is lent money by the EU/IMF/WB etc, presumably because no-one wants to buy its debt any more. Didn't something like this happen to the UK in the 70's?
B, the bank bail outs were a mixture of everything - subscribe for shares at overvalue, reimburse depositors, low interest loans, soft loans, guarantees, paying them huge fees for nothing in particular, the QE shuffle which saw banks make a profit of a few hundred million a week, tax breaks, you name it.
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