7 JUN 2011
By Tyler Durden | Zero Hedge (Greek Bailout #2 Is Dead On Arrival: A Few Good Hedge Funds May Have Called The ECB's Bluff, And Hold The Future Of The EUR Hostage
Even as the general market, dumb as a doorknob, had been following every headline out of Europe, soaking up the BS that Greece may after all end up being bailed out in some miraculous way, there were those who wondered about the legal basis of the Greek bailout #2, also known as a redux of the "Vienna initiative."
The problem with the second "Deux Ex Machina" bailout is that there is absolutely nothing Deus about it, no Ex, and most certainly no Machina. In fact, as it now clearly appears, the whole rescue package is flimsier than a house of cards and a quick read through the indenture makes it all too clear.
The key reason why the voluntary Vienna Initiative worked back in 2009 is that the alternative was the end of the world, and nobody would profit from not going along with the herd. This time things are diametrically different.
The key phrase (or two) in the proposed package: "Voluntary" and "Collective Action Clauses"... Well as the following excerpt from Citi explains, both of these critical (as in binary: without them, Greece is dunzo) assumptions are unworkable, and explains why every single Greek bond in recent weeks has been purchased by hedge funds who have remembered that the economics of "nuisance value" when the upside of bluffing the EUR printer is virtually unlimited. Which means that not only is Bailout #2 in jeopardy of not passing the Greek parliament, but that we may suddenly find ourselves in the biggest "activist" investor drama, in which voluntary restructuring "hold out" hedge funds will settle for Cheapest to Delivery or else demand a trillion pounds of flesh from the ECB in order to keep the eurozone afloat.
In other words, the drama is about to get very, very real. And, most ironically, a tiny David is about to flip the scales on the mammoth Goliath of the ECB and hold the entire European experiment hostage...
The smoking gun courtesy of Citigroup:
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