Greek bonds for the new bonds, no write dwon, no CAC clauses. In essence, the 50 year old concept of eqaul treatment for creditors was just thrown out the window as PSI (Private Sector Involvement) will (if Greece gets the deal don on the terms that have been proposed) will take a 50-70% loss on their swap of old Greek bonds for new ones (depending on the coupon). What happened today is the ECB set a new precedent of two classes of band holders, senior and subordinated and with that, the concept of equal treatment of creditors went the window. What may end up being the unintended consequence and come back around to bite the ECB is the fact that this was what bond holders were afraid of. Now any private bond holders (and we're not talking about grandpa and grandma, we're talking about hedge funds, banks, sovereign wealth funds, etc) know that the more bonds the ECB hold of any one of the PIIGS, the bigger their losses will be when Portugal renegotiates their debt, followed by Italy and Spain. This will almost certainly cause bond buyers to think twice about buying bonds that they now know they are likely to take huge losses on, which will leave the ECB as the only incremental buyer of debt in the Euro-zone and they may have trouble doing that on new issues unless the buyers receive explicit guarantees that the ECB will in effect conduct QE 2 and promise to buy the bonds from the private sector as the ECB can only mop up what is out there on the secondary markets, they can't buy new issuance just as the F_E_D is prohibited from buying at Treasury auctions.
The second scandal in the bond market today is that of US fake bonds, $6 trillion dollars worth exactly which were seized in Zurich, as Bloomberg noted, that is almost 1/2 of US public debt! It gets weirder, the bonds were dated 1934 with a value of $1 billion each. And stranger, the people arrested in the operation were said to have plans to buy Nigerian Plutonium with them. From the Bloomberg article:
"The fraud posed “severe threats” to international financial stability, the prosecutors said in the statement."
As the story unfolds, it gets even stranger!
From the BBC we get these pictures of the seized bonds:
This certainly isn't the first time US bonds have been faked, it is by far the largest, the article says the Secret Service gets about 100 cases a year. However, for the keen eye, the question floating around the blogosphere for a story that hasn't really been picked up by the major media, is why would someone go through the extra trouble of faking the "Mother Box" clearly marked as "Property of the Chicago Federal Reserve System"?
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