Sunday, March 4, 2012

Who's the greediest of them all?

Previously, I talked about the coming Greek bailout and the fact that bondholders would take it on the chin:
The bondholders are like a credit card company, in a way, that is trying to collect from a delinquent customer, one that doesn't have any other assets to go after, but could possibly get back on their feet if they had some money (and really needs some money to eat, as well). But the reality is that the credit card company knows it will be lucky to see any money, whatsoever. Thus, it is willing to engage in negotiations to hopefully cut its losses. The alternative is to watch the customer go bankrupt and never see a dime of what it is owed.  
So, the Greek government has negotiated with its bondholders (some of them, at any rate) to make huge cuts on what it owes them, thus allowing for the possibility that it can pay some portion of what it originally owed. By the way, the bondholders unwilling to cut the debt will be dragged kicking and screaming into the deal, but that's neither here nor there.
The day for the bondholders to sign off on this deal is approaching. In fact, it's this Thursday. And most people feel it's going to happen, to "get done." Why? Because as I noted, Greece will--supposedly--be able to force most of the bondholders to accept the plan, given that a good chunk has already agreed to it:
Analysts now believe that the deal will get done as more than 65 percent of holders — Greek banks and pension funds as well as large European banks — are likely to switch their old bonds for a package of new English law Greek bonds and securities issued by Europe’s rescue fund.  
And, as Greece and its financial backers have insisted on a near universal participation, it is expected that Greece will deploy its new collective action clauses to compel those who decline the offer to take a loss as well.
But there are a few potential flies in this ointment. Some entities--hedge funds and other investment groups--have been actively seeking and buying Greek bonds that may fall outside the authority of the Greek government, with regard to this universal participation clause.

The idea--for these folks--is to hold out, to not participate in the debt exchange, then attempt to get much more for the bonds they hold from the Greek government, bonds they purchased at a steep discount, due to this impending deal.

Personally, I'm all for capitalism. I have no problem with someone seeing value where others see naught. But this is something else. Greece--by virtue of its government's greed and its citizenry's ignorance--is a wreck. If the second bailout goes through, the Greek economy will remain in a shambles and people will continue to suffer. Yet, to even make that happen, investors who bought Greek bonds in good faith will be forced to lose most of their investments' value. And that sucks. It's wrong because the Greek government was lying about a number of things, was less then forthcoming with regard to its real debts and liabilities.

But this move by some groups to find profit in the process is equally wrong. It's not predicated on finding unknown or unrealized value, or even on investing  based on potential; it's predicated on extortion, plain and simple. And it not much different than lawyers who make their money by filing nuisance lawsuits, who hope companies will pay them off--even though there are no real damages--to avoid the cost and publicity of litigation.

The Greek government was greedy, yes. But this crowd--the ones that just bought in, looking for a payoff--is much worse.

Cheers, all.

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