Unbelievable Sign of the Times

I just read that Greek bonds, which only 5 short months ago recorded a new record high yield of 100%, are now at 920%, very close to a 1000% yield!

The S&P's rating action (from CC to Selective Default) and the subsequent ECB decision not to accept Greek bonds as collateral in light of the S&P rating's action has reduced these bonds to virtual scrap paper. The yield rises as the bond price falls, so to get where it is at, there has been immense dumping of these bonds.

Furthermore, as I understand it, the retroactive collective action clauses Greece passed (which almost certainly led to the S&P downgrade) are not a true 75% of all bond holders to pass the PSI, they need only 50% of bondholders to respond and of that, 75% to respond favorably.

In addition, yesterday I addressed the problem of the bailout as the money allocated to recapitalize the Greek banking system is now most likely severely insufficient since Greek banks holding mostly Greek debt were not able to use that as collateral in this week's LTRO and to make matters worse, there's been a huge bank run by the citizen's of Greece which has prompted the Finance Minister to plead with the ordinary people to put their money back in the banks.

Furthermore...

I don't understand how austerity measures which will cause even worse unemployment will help Greece grow its economy when the very measures are tearing it apart. However, we need not wait for the effect of austerity to do its damage, details are emerging today of the collapse or further collapse in the Greek economy.

From Reuters:

Greek manufacturing shrank at its fastest rate in at least thirteen years in February as production and new orders declined at record rates, driving the sector deeper into recession and forcing firms to shed more jobs, a survey showed on Thursday.


The Markit Manufacturing Purchasing Managers' Index (PMI) for Greece fell to a survey low of 37.7 points in February from 41.0 in January, staying below the 50 mark that divides growth in activity from contraction for each of the past 30 months.

Production and new order volumes fell at the sharpest pace in the near 13 year history of the survey as austerity sapped demand. New export orders fell for a sixth straight month and at the steepest rate since May 2010.

Greece's 215 billion euro economy shrank by an estimated 6.8 percent in 2011, its fourth straight year of recession. It is seen contracting this year as well.

Greece's unemployment rate hit 20.9 percent in November, the latest available data, highlighting the pain of higher taxes and cuts in public sector pay and pensions which suppress economic activity.


And these are only a few excerpts, you should read the entire article. These are the hard facts that were released in the top secret "Greek Sustainability Report" that was leaked showing that even with the next bailout (if they get it), Greece will be nowhere near sustainability as envisioned in the bailout and bailout terms. As usual, EU plans make conditions worse not better, but as most recognize, the bailout isn't for Greece, it is for all of Greece's creditors.