Collective Action Clause, Ρῆτρες Συλλογικῆς Δράσης

Collective Action Clauses (CAC’s henceforth) or Majority Action Clause have a long and varied history. According to Buchheit & Gulati[1] they were first introduced in English law by Palmer (1879). Their introduction served and serves a very real purpose and need. That of facilitating the restructuring or the amendment the (T)erms & (C)onditions of a Bond by the majority of Noteholders and to avoid rogue or malevolent holders of bonds holding at ransom both the debtor and other creditors.  What are CAC’s (see Appendix for an example) and what purpose do they serve?  Let me start with an example of how it might work.

Suppose that ACME a company that manufactures futuristic technology gadgets finds itself in the position of having a severe cashflow problem as one of its major clients Mr W.E.Coyote has not paid in time. ACME is unable to pay its bond liabilities at the agreed time. Consider further that most bondholders believe, after careful analysis of ACME’s product range, that the main business is sound and given time and perhaps some reorganization of the company’s management and client focus ACME would thrive and pay in full its bond liabilities. All that it needs is to amend some of the T&C of the bond, perhaps extend the maturity or move some coupons in the future and ACME would survive. One bondholder, Mrs R.Runner for reasons of personal benefit or other, things differently. When ACME got into trouble Mrs Runner bought some of the bonds at discount with a view to either force ACME into liquidation or force a management change or simply to extract more money. Mrs Runner can do so since ACME bonds need the consent of 100% of Noteholders as there are no CAC’s that allow for the will of the majority to prevail. If on the other hand, ACME bonds included right from the start CAC’s specifying that a 75% majority is binding for all bondholders Mrs Runner would have needed at least 25% of the outstanding ACME bonds to see her sinister plans materialize.

Happy Birthday to Mithras

The date of December 25th probably originated with the ancient "birthday" of the son-god, Mithra, a pagan deity whose religious influence became widespread in the Roman Empire during the first few centuries A.D. Mithra was related to the Semitic sun-god, Shamash, and his worship spread throughout Asia to Europe where he was called Deus Sol Invictus Mithras. Rome was well-known for absorbing the pagan religions and rituals of its widespread empire. As such, Rome converted this pagan legacy to a celebration of the god, Saturn, and the rebirth of the sun god during the winter solstice period. The winter holiday became known as Saturnalia and began the week prior to December 25th. The festival was characterized by gift-giving, feasting, singing and downright debauchery, as the priests of Saturn carried wreaths of evergreen boughs in procession throughout the Roman temples.

Εγκαταλείψτε το PSI+

Άρθρο στην Ημερησία.

Η Ελληνική κυβέρνηση φαίνεται ότι έχει ήδη στείλει το γράμμα της στον Αϊ-Βασίλη. Θέλει PSI και τίποτα άλλο. Η αγορά όμως λέει κάτι διαφορετικό. Η αρχική συμφωνία του PSI προέβλεπε ένα «κούρεμα» της τάξεως του 21% στην καθαρή παρούσα αξία. Από την αρχή είχαμε τονίσει πως η συμφωνία δεν ήταν επωφελής για την Ελλάδα («Ημερησία», 30 Ιουλίου του 2011).

Στην πραγματικότητα όμως, η λογική του PSI+ ήταν και είναι λανθασμένη. Για το λόγο αυτό εγκαταλείφθηκε από τους Ευρωπαίους. Είναι μυστήριο γιατί επιμένουν στην εφαρμογή του για την Ελλάδα. Ίσως γιατί δεν έχουν το χρόνο να ασχοληθούν μαζί μας και ίσως γιατί και η ελληνική κυβέρνηση δεν ασχολείται με το θέμα σοβαρά. Η καινούρια όμως συμφωνία κατόρθωσε να είναι δυσμενής και για την Ελλάδα αλλά και για τους ομολογιούχους.
Η αναδιάρθρωση χρέους είναι μία εξαιρετικά λεπτή διαδικασία έχοντας και την επιπρόσθετη εμπλοκή της δήθεν εθελοντικής διαδικασίας. Τα ομόλογα διαπραγματεύονται γύρω στο 25%-40% και πάρα πολλές ευρωπαϊκές τράπεζες τα έχουν ήδη εγγράψει κοντά σε αυτές τις τιμές έχοντας απορροφήσει μεγάλο μέρος της ζημιάς. Το PSI, τους καλεί να τα ανταλλάξουν με νέα, που θα έχουν περίπου την ίδια αξία με αυτήν που έχουν τιμολογήσει στο χαρτοφυλάκιό τους. Εάν όμως δεν συμμετάσχουν στο PSI, ενδέχεται να πάρουν 100 σε περίπτωση που αποφευχθεί η χρεοκοπία. Σε περίπτωση που η Ελλάδα χρεοκοπήσει και τυπικά, θα πάρουν πάλι κοντά στο 30% (υπόθεση). Άρα η λογική των τραπεζιτών, λέει ότι είναι καλύτερα εκτός PSI, παρά εντός, παρέα με την ΕΚΤ (45 δισ.).
Το PSI δεν είναι η καλύτερη λύση για την Ελλάδα στις σημερινές συνθήκες της αγοράς. Η αρχική ιδέα των Γερμανών ήταν η τιμωρία των ιδιωτών ομολογιούχων και η μείωση του χρέους. Η τιμωρία όμως των ομολογιούχων από την Ελλάδα δεν πρέπει να είναι ο στόχος και ούτε είναι προς όφελος της Ελλάδας. Η Ελλάδα πρέπει να ενδιαφέρεται μόνο για τρία πράγματα.
1) Επιτόκιο εξόδου. Δηλαδή η απόδοση με την οποία θα διαπραγματεύονται μετά την αναδιάρθρωση.
2) Πιστοληπτική αναβάθμιση μετά την αναδιάρθρωση.
3) Βιωσιμότητα του χρέους μετά την αναδιάρθρωση.
Δυστυχώς, το PSI με τη σημερινή του μορφή δεν πληροί τους τρεις αυτούς στόχους. Και τούτο, διότι οι ομολογιούχοι απαιτούν υψηλά τοκομερίδια καθιστώντας τη βιωσιμότητα και το επιτόκιο εξόδου προβληματικό. Η Ελλάδα θα χρειαστεί να δανειστεί ξανά για να πληρώσει τα νέα τοκομερίδια. Προσθέτοντας την αλλαγή σε αγγλικό δίκαιο και τις εγγυήσεις από το EFSF, τότε έχουμε ένα πραγματικό γόρδιο δεσμό. Το τραγελαφικό στην όλη υπόθεση είναι πως οι Ευρωπαίοι εμπιστεύονται και επιζητούν την προστασία του αγγλικού δικαίου αντί κάποιου άλλου. Μόνη εναλλακτική λύση η «εθελοντική» προσφορά επαναγοράς.
Υπάρχει όμως εναλλακτική λύση στο PSI. Πολύ απλά να δώσουμε 35% (περίπου) και να επαναγοράσουμε τα χρέος μας. Ούτως ή άλλως οι μόνοι που θα συμμετάσχουν στο PSI είναι όσοι πιεστούν από ευρωπαϊκές κυβερνήσεις. Αντί λοιπόν να ανταλλάξουμε τα παλιά με τα καινούρια ομόλογα κάνουμε «εθελοντική» προσφορά στο 35%. Τα προτερήματα αυτής της λύσης είναι:
Το χρέος μειώνεται στο 120% του ΑΕΠ από την πρώτη κιόλας μέρα. (15% αποχή από τη διαδικασία και με την ΕΚΤ να πάρει 70% της ονομαστικής).
Η Ελλάδα δεν πληρώνει τόκους και χρεολύσια για 10 χρόνια που είναι η περίοδος χάριτος των δανείων μας.
Η Ελλάδα δεν θα χρειαστεί να αποδεχθεί το αγγλικό δίκαιο στα ομόλογα. Μόνο στα διμερή δάνεια προς το EFSF (όπως και τώρα).
Οι ομολογιούχοι παίρνουν ρευστό, δεν θα έχουν άλλες ζημίες και ούτε οι τράπεζες θα είναι αναγκασμένες να κάνουν περαιτέρω προβλέψεις ή διαχείριση ρίσκου. «Τιμωρούνται» δε ακόμα πιο αυστηρά αλλά από την αγορά.
Η Ελλάδα καθαρίζει όλο το στοκ των ομολόγων της. Τα καινούρια ομόλογα θα μπορούν να έχουν ρήτρες συλλογικής δράσης και ό,τι άλλο θέλουμε.
Η Ελλάδα θα βελτιώσει κατά πολύ τη βιωσιμότητα του χρέους της αλλά και την πιστοληπτική της ικανότητα άμεσα.
Αγοράζοντας και καταστρέφοντας τα ομόλογα, απομακρύνεται ο κίνδυνος πιστωτικού γεγονότος από ενεργοποίηση των ρητρών που υπάρχει σε πολλά ομόλογα του ΟΣΕ αλλά και της ελληνικής δημοκρατίας.
Η Ελλάδα θα πάει σε επιλεκτική χρεοκοπία όπως και με το PSI για όσο καιρό ισχύει η προσφορά.
Θα ρωτήσετε όμως, πού θα βρούμε τα λεφτά για την υλοποίηση της εν λόγω λύσης. Χρειάζονται περί τα 105 δισ. ευρώ. Αν υπάρξει συμφωνία με τους κατόχους, τότε τα ομόλογα σε βάθος 12 μηνών θα μπορέσει να τα «σηκώσει» το EFSF.
Συμπέρασμα
Το PSI ήταν πάντα μια κακή επιλογή που προωθήθηκε από πολιτικούς. Η αγορά δίνει όμως πάντα καλύτερες λύσεις και αυτήν τη στιγμή λέει ξεκάθαρα μέσω των τιμών ότι η καλύτερη λύση είναι η προσφορά επαναγοράς και όχι η ανταλλαγή με νέα ελληνικά ομόλογα. Χρειάζονται άμεσα πρωτοβουλίες από την ελληνική πλευρά.

Newton's Notebook from Trinity College, Cambrige

I know that this is not a financial post but as a physicist who studied theory or gravity and Newton I found it very interesting (hat tip to Sotiris). It is Isaac Newton's Notebook from Trinity college, Cambridge. Notice the language!
You can see the rest in Cambridge Digital Library

Should Santa bring PSI to the Greeks?

Letter to Santa,

Dear Santa, I am the Greek government and I know that I have not been a very good child lately. I was placed on the naughty step many times this year for not behaving properly. Despite my parent’s good will and encouragement I did not manage to reduce significantly my addiction to the soviet style state, I did not brake relations with my good friends the unions, or increase my rather poor grades in housekeeping. I also failed to share some of my prized toys and possessions with other kids. I know, “If you do not share (sell) you do not play” but I really can’t. I realised that my finance minister behaved rather impolitely to your representative elves, but he has now learnt who is filling his dog bowl with goodies and realigned his allegiance accordingly.  He realised that our benevolent parents assign the top dog position. Although I cannot claim to have repented in full, I did change the Prime Minister as instructed by our well-meaning parents. I reluctantly formed a unity government consisting of some right wing xenophobic fascists, hysterical nationalists and utopian socialists. Although this is not the ideal, it is the absolute best, the crème de la crème, of the Greek political system. So, please, please, please can I have my PSI for Christmas? I promise to be good going forward.

Signed

Greek Government

Christopher Hitchens dies after long battle with cancer

Today is a very sad day for all who think that logic and rational thought should govern our lives. Christopher Hitchens perhaps the most outstanding polemicist for many generations died of lung cancer.

I am one of the lucky people who first met him through his toxic and sharp writings on Mother Teresa, Kissinger, and God. I also had the pleasure of meeting him in person. On hearing that I was Greek, he started speaking to me in Greek. I learned afterwards that his first wife was Greek Cypriot. His knowledge of global politics was unsurpassed and his ability to quote facts and stories legendary. As Richards Dawkins said of him "If you are invited into a debate with Hitchens, DECLINE". He recently locked swords with ex-PM Tony Blair. You can watch this debate for free for a limited amount of time (hat tip to Manos Markakis). He was a delight despite his illness.

He will be missed but not forgotten. In the future he will for sure be called as one of the leading lights of the new enlightenment. He did  plant many seeds. It is for us to help them grow.

My friend Leo Kolivakis paid tribute to Hitch. 

On Mother Teresa: "[Mother Teresa] was not a friend of the poor. She was a friend of poverty. She said that suffering was a gift from God. She spent her life opposing the only known cure for poverty, which is the empowerment of women and the emancipation of them from a livestock version of compulsory reproduction." 
On Bush: “[George W. Bush] is lucky to be governor of Texas. He is unusually incurious, abnormally unintelligent, amazingly inarticulate, fantastically uncultured, extraordinarily uneducated, and apparently quite proud of all these things.”

Obituary by Vanity Fair
"Farewell, great voice. Great voice of reason, of humanity, of humour. Great voice against cant, against hypocrisy, against obscurantism and pretension, against all tyrants including God. Farewell, great warrior. You were in a foxhole, Hitch, and you did not flinch. Farewell, great example to us all."

Obituary by Telegraph


“[O]wners of dogs will have noticed that, if you provide them with food and water and shelter and affection, they will think you are god. Whereas owners of cats are compelled to realise that, if you provide them with food and water and shelter and affection, they draw the conclusion that they are gods.”  

Reply to Prof. Varoufakis on the occasion of his blog post on the 10th December 2011.

Dear Prof. Varoufakis

Thank you very much for your swift and good natured reply. I am honoured that you took the time to read my critique and the respect you have given it.

Background

About a year ago Prof. Varoufakis and Prof. Holland presented a proposal to solve Europe’s debt crisis. Since then, the so-called Modest Proposal (MP henceforth) has undergone many revisions. The most updated version can be found in here. On the 5^th of December 2011 Andreas Koutras published a Critique of this proposal. Prof. Varoufakis answered these criticisms on the 10^th December 2011 in here. The current paper is the counter answer to Prof. Varoufakis.

 I share Prof. Varoufakis’ view that we need a totally open minded and rational debate about the causes and solutions to Europe’s problems. I would also like to add, that due to the seriousness of the issues, such a debate should be based on facts, evidence and logic rather than beliefs, convictions, political prejudices, groundless assertions or populist commentary. I am the first to admit, that unwittingly, I sometimes fall prey to their attractiveness. Christopher Hitchens, said “What can be asserted without proof can be dismissed without proof” when asked about the existence of God. If we apply this simple principle to every debate we would form a better society and a better future for all of us.

Prof. Varoufakis should be commended for his tireless zeal with which he has undertaken the European cause. I admire his energy and his ability to raise awareness about such important issues. Europe and Greece would be a better place if more people joined this debate and followed his example. Hopefully, this dialogue will show how urgent is the need to find a stable solution to the debt crisis. The EU is our home and it deserves another chance. 

EU Council Decisions. Moving Closer to Feudalism

Europe reminds me, of the famous pregnancy book, “What to Expect when you’re Expecting”.  The book describes eloquently many, if not all, the symptoms that Europe is undergoing; like waddling, drooling, vomiting, forgetfulness, fatigue, nausea, constipation, incontinence plus many others. How else can you describe the path that Europe has taken towards the birth of the new Europe? European Council meetings and Eurogroup or Ecofin gatherings are responsible for most of the credit spread basis points of Italy, Spain Greece and the rest than any hedge fund or trader. Their inability to diagnose the roots of the crisis is only second to their incompetence into finding a solution.  Lets look at latest decisions taken the past couple of days by the EU Council.

ORPHANIDES SAYS ABANDONING PSI IN GREECE MAY RESTORE MKT TRUST

 According to news reports the governor of the Bank of Cyprus and member of the ECB executive council spoke of abandoning PSI. Read the report here

*ORPHANIDES SAYS ABANDONING PSI IN GREECE MAY RESTORE MKT TRUST
2011-12-09 11:06:03.901 GMT

ECB adopts ELA practices, Stealth Quantitative Easing

ECB Decides that it is really a bad bank after all.

The ECB decided on Thursday to:

• Lower the Repo, Marginal and Deposit rate to by 25bp.
• Start a longer-term refinancing operation with a maturity of 36Months putable after 12m. 
• Reduce the reserve ratio from 2% to 1% (Banks would need 100blin less now to cover their regulatory requirements)
• Lowered the collateral rules for ABS (single A, Mortgages and SME’s) and allowing NCB to accept performing loans

Lets look at each of the decisions.

Abandon PSI+. Buyback Instead

This post is also mentioned in Greek (citypress Yannis Paleologos)
 
On the 26^th of October the European leaders pushed the head of the IIF to accept a 50% haircut on the nominal of the Greek bonds. This apparently was done in order to punish the banks that invested carelessly into Greek debt and to reduce the Greek debt burden. The noble aim was to reduce the Greek Debt/GDP to around 120% by 2020.

They also reiterated their resolve in keeping the whole PSI exercise on a voluntary basis. In this note we argue that the size of the haircut may have struck a death blow in the PSI and that now it would be better if Greece was to make a public offer to buy these bonds back at an average of 35% (say) rather than mess with the PSI conundrums.

A Critique on the Modest Proposal of Varoufakis & Holland

About a year ago Prof. Varoufakis and Prof. Holland presented a proposal to solve Europe’s debt crisis. Since then, the so-called Modest Proposal (MP henceforth) has undertaken many revisions. Their claim is that the MP can solve the continents debt woes without any fiscal transfers or treaty changes. The current flavour of their proposal can be found by clicking on the link Varoufakis and has been adopted by the Levy institute. Despite the publicity that the MP has commanded in the press and the relentless marketing efforts of its originators, the MP has not captured the market practitioner’s imagination or the banker’s acceptance. In this note, we analyse parts of the MP and argue that the non-adoption of the proposal may be due to flaws that many would call, detrimental and fatal to the proposal.