A Novel Approach to Profit

This is pretty rich:

Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greece in a human rights court to make good on its bond payments.

The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.

The tactic has emerged in conversations with lawyers and hedge funds as it became clear that Greece was considering passing legislation to force all private bondholders to take losses, while exempting the European Central Bank, which is the largest institutional holder of Greek bonds with 50 billion euros or so.

So while millions of Greeks wallow in poverty, unemployment, and squalor, a bunch of hedge fund jackasses will be suing them in the European Court of Human Rights, hoping to squeeze a little bit more blood from the stone. It can’t be said enough- the balls on these guys.

What part of risk do these guys not understand? No one guarantees you the right to a profit, it is up to you to do due diligence and make sure your investment is sound. These guys want to turn that on its head and say it is a human right to profit on your gambling. Which, I guess, makes as much sense as a corporation being viewed as a person.

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103 replies
  1. 1
    Zam says:

    You are only guaranteed a return on your investment if you are already rich. Anyone who invested in the market for their retirement needs to suck it up and stop whining, that’s how capitalism works.

  2. 2
    Brian S says:

    I keep hoping that these people will do something so ridiculous that even their government protectors will turn on them, but I’m starting to wonder if that’s even possible.

  3. 3
    fasteddie9318 says:

    It breaks my heart to see those poor, starving hedge funds, so weak with hunger and desperate to survive. Is Human Rights Watch on this tragic story? What about the UN Human Rights Council? Can we start something ourselves? For just fifty million cents or so a day, each one of you could ease the suffering of a hedge fund. You’ll receive a letter from your hedge fund, and a photograph of it, to remind you of the good you’ve done in this world by saving one of these wretched souls. I–I’m sorry, I can’t continue through these waves of tears.

  4. 4
    Steve says:

    I have no sympathy for hedge funds, but if someone defaults on their obligation to you, the normal thing to do is to sue them. You wouldn’t just say “gosh, I guess I should have done more due diligence.”

    If you invest in a company and it declares bankruptcy, you lose. But if it just decides that it won’t be repaying your bonds, without declaring bankruptcy, of course you can sue and get a judgment. Now, they may decide they aren’t going to pay your judgment either, which may or may not leave you out of options.

    Of course it seems weird to say that repaying bondholders has anything to do with “human rights” but I’m not going to assume I can infer the scope of this court’s jurisdiction just from looking at the title. After all, in New York “the Supreme Court” is the lowest court.

  5. 5
    Shinobi says:

    Why do you hate capitalism John? Don’t you think people should be paid for their hard work like taking advantage of collapsing economies and then hiring lawyers when things don’t work out? They’ve worked hard for that money, they deserve it.

  6. 6
    srv says:

    Funds are people too

  7. 7
    Jay in Oregon says:

    I’ve said it before and I’ll say it again.

    I don’t really want to go the torches and pitchforks route to resolve these entrenched socioeconomic issues, but if these assholes want to upgrade their economy seats in the tumbrels to first-class/express check-in, I’m sure we can accommodate them.

  8. 8
    Satanicpanic says:

    Human Rights! Mitt Romney=Ghandi

  9. 9
    srv says:

    I do have to say the Michael Lewis is pretty unsympathetic to the Greeks.

  10. 10
    Amanda in the South Bay says:

    Which, I guess, makes as much sense as a corporation being viewed as a person.

    Watch out, you’re gonna summon our resident SoCal tax attorney complaining you are grossly ignorant of the law.

  11. 11
    kindness says:

    Mitt Romney is killing Greece. Up next in the news….

  12. 12
    ChrisNYC says:

    Might have been a good idea for Greece to collect taxes.

  13. 13
    The Moar You Know says:

    What does losing money have to do with human rights?

    I used to hate the rich but still see them as human beings. I’m fast losing that ability.

  14. 14
    Benjamin Franklin says:

    The surprise collapse last week of the talks in Athens raised the prospect that Greece might not receive a crucial 30 billion euro payment and might miss a make-or-break 14.5 billion euro bond payment on March 20 — throwing the country into default and jeopardizing its membership in the euro zone.

    If I were a conspiracy theorist, I would say the Hedgers are forcing a default.
    Why would Eurozone provide bailout money, if the folks which helped precipitate this disaster get more of their nuts polished?

  15. 15
    fasteddie9318 says:

    @srv: The Greek government doesn’t deserve any sympathy. Getting into bed with Goldman was criminal negligence, but, before that, joining the Eurozone was a sucker’s bet for any country not named “Germany” or “France” (and, really, it’s turned out pretty shitty for France too). Why any government would voluntarily give up the right to control its own currency is beyond me. Godwin aside, if Hitler (or Bismarck or Napoleon before him, if you prefer) had figured out that Europe could be conquered without firing a shot by a bunch of German central bankers suckering idiots into a single currency for the whole continent, recent human history might have played out much differently.

  16. 16
    Elizabelle says:

    OT, but it’s that number again …. or damned close.

    Steve Benen in Washington Monthly:

    [In recent NYT/CBS poll,] respondents were asked, “How would you mainly describe the policies Barack Obama has pursued as president — as socialist, liberal, moderate, conservative or libertarian?”

    http://www.washingtonmonthly.c.....034851.php

  17. 17
    Comrade Dread says:

    Can we lock these fuckers in a room with some refugees from the Sudan, Burma, or even some Holocaust survivors and force the bond holders to try and explain to these groups exactly how the bond holder’s human rights are being abused?

  18. 18
    jonas says:

    The issue appears to be that Greece wants to selectively default on certain bonds and treat some institutional investors differently than, say, the ECB. If Greece just defaulted, then everybody would be screwed equally and — this is the critical part — the hedge funds collect on the CDSs for their Greek bond portfolios. What they’re upset about is that Greece is trying to negotiate a non-default default, which would leave them high and dry.

  19. 19
    Elizabelle says:

    My comment’s in moderation.

    I forgot the erectile dysfunction rule.

    No linking about social*sm.

  20. 20
    Elizabelle says:

    @Benjamin Franklin:

    A default could take down European economies and put Romney in office as collateral damage.

    And that would benefit … wait for it ….

  21. 21
    Bill in Section 147 says:

    I don’t remember the aristocracy paying the price for folly unless they fell at the hand of other nobles until the revolutionary period beginning in the 1800s. Maybe instead of a trend the rights of the governed is an anomaly.

  22. 22
    Villago Delenda Est says:

    I’m telling you, we are approaching a point where tumbrels will be the only solution to this mess.

  23. 23
    Roger Moore says:

    Litigating this will cost a lot less than they stand to lose on their investments, so it’s a sensible option if it stands even a tiny chance of success. Sure, it will give them the reputation as a bunch of blood sucking parasites, but the hedge funds really don’t give a shit about how people think about them. They just want their money.

  24. 24
    Cermet says:

    @Steve: You are rather confused with spelling. A country (spelled c-o-u-n-t-r-y) is not, and never has been a company (spelled c-o-m-p-a-n-y.) Countries do in fact default and not pay back investors – that is what governments do because they are not run by CEO’s but answer to the people living in the country, not investors in bonds that are issued with risk and paid interest related to the risk (in theory, at least.) Joking aside, that is the way the game has always been played.

  25. 25
    Yevgraf says:

    Hedge fund jackasses would look good lined up on a Greek wall, if you’re peering at them through the sights of something water-cooled.

  26. 26
    Zifnab25 says:

    I think Jonas has the nut of it. The ECB took a risk along side the private firms. Why Greece gets to default on bonds based on the current debt owner makes no sense to me. If my bank went belly up and the FDIC said “Sorry, we can only refund state agencies on their deposits. Your sorry ass gets a 50% haircut”, I’d be suing too. I imagine the Human Rights court is the only court they could find with any jurisdiction.

  27. 27
    Villago Delenda Est says:

    @Bill in Section 147:

    Well, you did have the beheading of Charles I in 1649, but that could be argued to be aristocrats policing their own, even though the middle class also was involved through Parliament.

    The Glorious Revolution of 1688 could likewise be so characterized.

    The French Revolution, OTOH, happened because the middle class did not have a political outlet as they did in England, and the consequences were bloody.

  28. 28
    Benjamin Franklin says:

    @Elizabelle:

    Well, if Europe has no better place for their assets than US gov obs, but suddenly…………it becomes apparent that US can’t keep promise to China on Saudi oil production (to offset Iran oil) and petrodollars go away.

    Voila ! Oil goes to $1000 per drum.

  29. 29
    Mark S. says:

    I found the article about as clear as mud.

    To increase Greece’s leverage, the country’s negotiators have said they could attach collective action clauses to the outstanding bonds, a step that would give them the legal right to saddle all bondholders with a loss. This would particularly be aimed at the so-called free riders — speculators who have said they will not agree to a haircut and are betting that when Greece receives its aid bundle in March, their bonds will be repaid in full.

    How does one “not agree to a haircut”? Is that some agreement they made with the original bondholders? And what the hell is a collective action clause?

    @jonas:

    Ah, our old friends the credit default swaps. Yeah, this shit’s above my pay grade.

  30. 30
    marian says:

    Greek bonds are subject to Greek law and investors knew that when they bought them. Greece has been in default on its debt for 50 out of the last 200 years. The considerable risk involved in purchasing Greek debt was reflected in the substantially higher interest rates the lenders received. They were well compensated for taking risk. They lost the bet–now they want winning a long shot to be declared a human right.

  31. 31
    Steve says:

    @Cermet: So, you believe there’s some rule that a country can just decide whether or not to pay you back and you have no recourse? That’s not true. In fact, years ago my old firm prosecuted a lawsuit against a certain South American country for failing to pay American bondholders.

    There is of course a legitimate risk of default, but that risk is not that they might arbitrarily decide to pay back some of the other bondholders but not you. It’s completely bizarre to suggest that these investors, however unsympathetic they may be, have to just shrug their shoulders and say “oh well, we always knew they might decide not to pay us back.”

  32. 32
    Joel says:

    This will make an awesome sequel to 300.

  33. 33
    burnspbesq says:

    @Amanda in the South Bay:

    No need. You’ve already done it for me. ;-)

  34. 34
    burnspbesq says:

    @The Moar You Know:

    What does losing money have to do with human rights?

    Arguably nothing, but there are all sorts of things in the EU treaties that strike a non-European reader as completely wack. Without doing any research, I am not prepared to say that this would be a frivolous argument.

  35. 35
    J.W. Hamner says:

    Holy slippery slope Batman!

    Is this is what happens when you take the concept of “corporate personhood” to its logical conclusion?

  36. 36
    Benjamin Franklin says:

    Argentina….10 years ago.

    http://en.wikipedia.org/wiki/A.....99–2002)

  37. 37
    Brachiator says:

    No one guarantees you the right to a profit.

    No, I’m pretty sure that it is in the Bible. The Baby Jebus says that there is a right to profit. It’s right next to the story where Jebus raises a corporation from the dead, because, as you know, corporations are people.

  38. 38
    Villago Delenda Est says:

    @Steve:

    When countries default on sovereign debt, there is always a remedy.

    It’s called war.

  39. 39
    burnspbesq says:

    @Roger Moore:

    it will give them the reputation as a bunch of blood sucking parasites

    Oddly enough, I thought they already had that reputation. Silly me.

  40. 40
    chopper says:

    i forgot that profit is a human right.

  41. 41
    The Moar You Know says:

    In fact, years ago my old firm prosecuted a lawsuit against a certain South American country for failing to pay American bondholders.

    @Steve: How’d that wind up for ya?

  42. 42
    Meg says:

    It’s toss up for me. On the one side is the evil hedge fund people. One the other side is the most irresponsible government and people of Greece.
    It is not just a country full of tax dodgers, the government itself refuses to do its job to collect them. Then it went into debt and borrowed more to pay more debt and interest. Then when they asked for a bailout, they refused to either cut spending or to collect the taxes that should be paid according to the tax codes (we are not talking about raising taxes here). They seem to just want a free ride.
    If it is Ireland that we are talking about, I would have a great deal of sympathy for them. But Greece is just not your everyday normal country.

  43. 43
    Interrobang says:

    Sorry, John, this is not a “novel approach to profit,” not at all. The idea that investors are guaranteed the “right to profit” has been in (foundational to) drafts of trade legislation going back to the creation of the WTO, and was certainly present in drafts of the FTAA and MAI.

    There are, as in exist right now, provisions under the WTO for corporations to sue public jurisdictions (everything from municipalities to countries) for “profit-takings” if they pass laws that might infringe on that corporation’s ability to do business (usually in some kind of socially or environmentally destructive way). Asbestos producers in Canada have been using the WTOs “takings” provisions to undermine (or require public jurisdictions to compensate them for) passing anti-asbestos laws all over the world, for example. (I’m so ashamed…)

    Don’t be surprised if this works, because there’s already ample precedent. Welcome to Earth™, a wholly-owned subsidiary of RapeLootPillageandBurn, Inc.

  44. 44
    burnspbesq says:

    It’s extremely tempting to say that any investor who was dumb enough to lend to Greece deserves whatever happens to them.

  45. 45
    Gust Avrakotos says:

    Speaking of balls, you have a lot of balls injecting ANY kind of opinion on financial matters given your track record of fail on that subject……as part of your long list of fail.

  46. 46
    Steve says:

    @Villago Delenda Est: War is far from the only recourse, depending on what treaties you have signed.

  47. 47
    TenguPhule says:

    I’m telling you, we are approaching a point where tumbrels will be the only solution to this mess.

    We passed that point in 2000 when Bush Jr’s Head failed to roll into a basket to be fed to dogs with Rove’s entrails.

  48. 48
    flukebucket says:

    It can’t be said enough- the balls on these guys.

    It’s their world man. We just live in it.

  49. 49
    TenguPhule says:

    On the one side is the evil hedge fund people. One the other side is the most irresponsible government and people of Greece.

    So sell arms to both sides, stand back and enjoy the popcorn?

  50. 50
    dmbeaster says:

    As noted above by Jonas, the back story on this is that the Greeks want to play favorites when it comes to screwing their creditors (who are simply reaping the risk that they knowingly undertook, so screwing them is relative). They hope to walk a thin line that preserves their relationship with the European Central Bank while defaulting as to others.

    In a US bankruptcy proceeding involving a company, that could not happen. But there are no rules, really, for defaults by sovereign nations as to international debt. Hence, the nutty human rights claim by bondholders. Its push back for a situation without rules – only politics.

  51. 51
    wrb says:

    @srv:

    I read that piece last week.

    The Greek behavior depicted is boggling.

  52. 52
    Emma says:

    @Steve: It’s completely bizarre to suggest that these investors, however unsympathetic they may be, have to just shrug their shoulders and say “oh well, we always knew they might decide not to pay us back.”

    Any competent company would have steered away from buying another company if said prospect was continually in the economic crapper. Greece has been lurching from disaster to disaster for decades. Anyone who put money into it should have known they were likely to take a bath.

  53. 53
    Villago Delenda Est says:

    @Steve:

    War gets the job done without having to wait for lawyers to dicker over details.

    On a slightly related note, the idea of guaranteed profit that the WTO embraces will be the death of capitalism. These assholes go too far.

  54. 54
    Paul in KY says:

    What the Hedge Funders want would be to be able to tour the acropolis & just point to stuff the Greeks have to bag up & ship to their estate to pay them off.

  55. 55
    Benjamin Franklin says:

    @Joel:

    Awesome synchronicity with Persia’s legacy and the cross-cultural interplay between Greece and the ME.

  56. 56
    Villago Delenda Est says:

    @Emma:

    Yeah, but the thing is, the Germans need to keep selling the shit they’re making, and so the customers need to have money to buy the shit, so they loan to the customers to buy their shit.

    Then the customers can’t pay back the loans because they’re buying German shit that doesn’t generate economic activity in the customer’s country, and then we have a fucking problem.

  57. 57
    jpe says:

    FWIW, the EU human rights treaty declares that “natural and legal persons” have property rights. Steve is right: the nub here will be whether the ECB can be treated differently than other investors.

  58. 58
    Villago Delenda Est says:

    @TenguPhule:

    I must object to the maltreatment of dogs by feeding them Rove’s entrails. We don’t want to cause the dogs to become total assholes like Rove.

  59. 59
    fasteddie9318 says:

    @dmbeaster:

    Hence, the nutty human rights claim by bondholders. Its push back for a situation without rules – only politics.

    And, obviously, nothing makes better politics than some wealthy hedge fund managers casting themselves as victims of human rights abuses.

  60. 60
    wrb says:

    @Emma:

    Any competent company would have steered away from buying another company if said prospect was continually in the economic crapper.

    That Michael Lewis article srv linked to does make it sound a lot like fraud. The Greeks hid the reality, if he’s accurate.

    In addition to its roughly $400 billion (and growing) of outstanding government debt, the Greek number crunchers had just figured out that their government owed another $800 billion or more in pensions. Add it all up and you got about $1.2 trillion, or more than a quarter-million dollars for every working Greek. Against $1.2 trillion in debts, a $145 billion bailout was clearly more of a gesture than a solution. And those were just the official numbers; the truth is surely worse. “Our people went in and couldn’t believe what they found,” a senior I.M.F. official told me, not long after he’d returned from the I.M.F.’s first Greek mission. “The way they were keeping track of their finances—they knew how much they had agreed to spend, but no one was keeping track of what he had actually spent. It wasn’t even what you would call an emerging economy. It was a Third World country.”
    __
    As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it to me. “And yet there isn’t a single private company in Greece with that kind of average pay.” The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland’s. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something. There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses. The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. The Greek public health-care system spends far more on supplies than the European average—and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.
    __
    Where waste ends and theft begins almost doesn’t matter; the one masks and thus enables the other. It’s simply assumed, for instance, that anyone who is working for the government is meant to be bribed. People who go to public health clinics assume they will need to bribe doctors to actually take care of them. Government ministers who have spent their lives in public service emerge from office able to afford multi-million-dollar mansions and two or three country homes.

    When Papaconstantinou arrived here, last October, the Greek government had estimated its 2009 budget deficit at 3.7 percent. Two weeks later that number was revised upward to 12.5 percent and actually turned out to be nearly 14 percent. He was the man whose job it had been to figure out and explain to the world why. “The second day on the job I had to call a meeting to look at the budget,” he says. “I gathered everyone from the general accounting office, and we started this, like, discovery process.” Each day they discovered some incredible omission. A pension debt of a billion dollars every year somehow remained off the government’s books, where everyone pretended it did not exist, even though the government paid it; the hole in the pension plan for the self-employed was not the 300 million they had assumed but 1.1 billion euros; and so on. “At the end of each day I would say, ‘O.K., guys, is this all?’ And they would say ‘Yeah.’ The next morning there would be this little hand rising in the back of the room: ‘Actually, Minister, there’s this other 100-to-200-million-euro gap.’ ”
    __
    This went on for a week. Among other things turned up were a great number of off-the-books phony job-creation programs. “The Ministry of Agriculture had created an off-the-books unit employing 270 people to digitize the photographs of Greek public lands,” the finance minister tells me. “The trouble was that none of the 270 people had any experience with digital photography. The actual professions of these people were, like, hairdressers.”
    __
    By the final day of discovery, after the last little hand had gone up in the back of the room, a projected deficit of roughly 7 billion euros was actually more than 30 billion. The natural question—How is this possible?—is easily answered: until that moment, no one had bothered to count it all up. “We had no Congressional Budget Office,” explains the finance minister. “There was no independent statistical service.” The party in power simply gins up whatever numbers it likes, for its own purposes.
    __
    Once the finance minister had the numbers, he went off to his regularly scheduled monthly meetings with ministers of finance from all the European countries. As the new guy, he was given the floor. “When I told them the number, there were gasps,” he said. “How could this happen? I was like, You guys should have picked up that the numbers weren’t right. But the problem was I sat behind a sign that said GREECE, not a sign that said, THE NEW GREEK GOVERNMENT.” After the meeting the Dutch guy came up to him and said, “George, we know it’s not your fault, but shouldn’t someone go to jail?”

  61. 61
    Yutsano says:

    @burnspbesq:

    It’s extremely tempting to say that any investor who was dumb enough to lend to Greece deserves whatever happens to them.

    It’s like they had no idea why the interest rate for Greek debt is so high or something. Of course I could teach the Greeks a thing or two about tax enforcement. :)

  62. 62
    GregB says:

    Let them eat souvlaki.

  63. 63
    Bill in Section 147 says:

    @Villago Delenda Est: As you infer the Glorious Revolution like many de-thronings of tyrants and petty tyrants was more about which oligarchs would pilot the yacht.

    It did redistribute power and wealth downward which was good for English and gave them enough freedom to create their Empire.

    The lasting value of the French Revolution may very well be mostly the cleansing effect of the Terror.

    Off topic. I find it amusing that the English behead their King and brutally purge his pals and get to call it glorious while the “other” gets historically written down as the Terror. The aristocracy didn’t track the number of violent deaths suffered by the 99% under the Ancien Régime so the Terror gets all the attention.

    Also too with the English writers of history, ever notice how all the monarchs, foreign and domestic, who wouldn’t play cricket were “mad” (e.g., Peter III, Paul I, Wilhelm II). But King Geo. III… now that was acute intermittent porphyria.

  64. 64
    ornery_curmudgeon says:

    How much IS the debt owed to deregulated ‘hedge funds?’

    Demand an answer to that question and this silly/tragic/stupid ‘derivative’ game will be over.

  65. 65
    Martin says:

    @Elizabelle: The ‘soçialist’ attack was never about economics. It was always about race.

    In places like South Carolina, calls for racial equality are effectively calls for ‘redistribution of merit’ in their minds. When they scream about soçialism, they’re really screaming about the end of white privilege, which they even trusted white Democrats to preserve. It’s not a coincidence that Clinton was never called a soçialist. You can even see the anti-christ attack there in the same photo. It’s 1958 all over again.

  66. 66
    daveNYC says:

    We should be rooting for the hedgies in this instance. You really want someone in power to get the idea that it’s OK to selectively default based on who the bondholder is? I’ll give you one guess where most of Social Security’s money is invested.

  67. 67
    Marc says:

    I think folks need to recognize the distinction between an equity investment (eg, stock) where there is no contractual right to a profit and you fully bear the risk of loss or gain. With a bond, on the other hand, the issuer contractually promises a rate of return (interest) for an upfront payment. So it’s really no different than a loan. Of course there’s risk you can lose your shirt and that’s built into the interest rate. But it’s also the fact that a unilateral refusal to honor the note is a breach of contract and actionable. Yes, hedge funds are greedy bastards, but this isn’t the case of saying on has a “right” to profit but that parties be held to their agreements. If this were a private company that had issued the bonds, it would file for bankruptcy and the noteholders would get in line with everyone else. Things get messy when the debtor is a sovereign.

  68. 68
    burnspbesq says:

    @Bill in Section 147:

    “I find it amusing that the English behead their King and brutally purge his pals and get to call it glorious while the “other” gets historically written down as the Terror.”

    History is written by the winners.

  69. 69
    PeakVT says:

    @marian: Actually, Greek bonds bought from 2003-2008 didn’t command a much of risk premium, which is a big reason why we’re having this conversation. But most of the people holding them now bought them at a discount with clear knowledge of the risk implied.

  70. 70
    jonas says:

    @Yutsano: The problem was that Greek debt wasn’t that much more expensive relative to the rest of the eurozone until fairly recently. One of the things the euro did was distort risk — investors figured that because Greece was in the eurozone, its debt was now close to risk-free. Could a euro country ever go broke? Perish the thought! What they didn’t notice was that the Greeks were using euros, but still running their government like the corrupt, inefficient boondoggle that its always been. I’ve been to Greece over the years and love the country and the people, but always thought they had just about the most f-ed up government this side of sub-Saharan Africa. I mean, Italy and Spain are run like Switzerland in comparison.

  71. 71
    Brachiator says:

    @Bill in Section 147:

    Off topic. I find it amusing that the English behead their King and brutally purge his pals and get to call it glorious while the “other” gets historically written down as the Terror.

    If you’re talking about the Glorious Revolution, James II skeedaddled to France. He wasn’t beheaded.

    One thing I find interesting about the Glorious Revolution, and I am not sure that it is adequately dealt with in most histories, is that by luring William of Orange to come over to England, the decline of their rival, the Dutch Republic, was probably accelerated. Now, that was a sweet Chess move.

  72. 72
    PeakVT says:

    @jonas: Don’t forget Poland Portugal!

  73. 73
    wrb says:

    @Brachiator:

    If you’re talking about the Glorious Revolution, James II skeedaddled to France. He wasn’t beheaded.

    In my family the other revolution is considered more glorious though because my 11th great grand daddy was responsible for the whacking off of King Chuck’s head.
    Some boot-licking Brits disagreed though which has something to do with why we landed in this country.

  74. 74
    Emma says:

    @wrb: Oh, I know. But that’s the thing, you see. Everyone and their maiden aunt knew the Greek government(s) was(were) crooked. And they still decided to lend them money, because they knew that Germany and France would protect their own bankers no matter what and thought they could go along for the ride. The hedge funds didn’t make decisions based on economic information; they made their decisions based on the shenanigans they had seen before.

  75. 75
    artem1s says:

    interesting article in Der Spiegel on the Tobin Tax

    http://www.spiegel.de/internat.....92,00.html

  76. 76
    Steve says:

    @Emma: I don’t disagree that Greece is a risky investment. But there are risks you assume as an investor, and there are risks you don’t assume. At the risk of having another person explain to me how “company” is spelled, here is an analogy for you: an investor assumes the risk that Enron’s business will fail or that the economy will tank its stock price. An investor doesn’t assume the risk that Enron is actually perpetrating a massive fraud.

    To complete the analogy, Greek bondholders assume the risk that Greece’s finances will be too messed up to repay its bonds. But they don’t assume the risk that Greece will decide, for political reasons, to pay back certain bondholders while stiffing others.

    If Greece were going bankrupt and not paying anything to anyone, there’d be a much better argument that the hedge funds should just eat their losses.

  77. 77
    Bill in Section 147 says:

    @Brachiator: I was loose with the writing, Charles I lost his head 40 years before James II lost his throne. I sit corrected.

  78. 78
    ET says:

    For me this approach mocks what that court is supposed to be. But can’t say that I am at all surprised the hedge fund assholes would use whatever they could to their advantage even if it is a stretch.

    Honestly have hedge funds brought anything good to the table? Sure they lend money to governments but they do it for a HUGE return. They took the risk on a country like Greece and now they are whining. Boo fucking hoo.

  79. 79
    Villago Delenda Est says:

    @Bill in Section 147:

    Um, the Glorious Revolution didn’t behead anyone. It was “Glorious” because it was close to bloodshed free, and some have argued it was a successful Dutch Invasion of England aided and abetted by opponents of the current regime.

    Now, Charles I got beheaded for high treason. That was in 1649. But in 1688, the soon to be William III was invited to come in and take over the place, by a whole bunch of Englishmen eager to get that Papist asshole off the throne.

  80. 80

    Yeah, put me on the side of the evil hedge funds on this one. If the Germans want to force a default, then they need to take the haircut, too.

  81. 81

    @Emma: Right. The thing is, no one is proposing that the shenanigans stop. All that is happening here is that the Germans and, to a lesser extent, the French are saying, “We get to play shenanigans, and you get to take the losses.” If the proposal was that everyone get treated equally, for the obvious reason that they are holding exactly the same bonds, and everyone gets to take a big loss, then I’d have zero sympathy for the hedge funds. But that’s not the story.

  82. 82
    Brachiator says:

    @Villago Delenda Est:

    Um, the Glorious Revolution didn’t behead anyone. It was “Glorious” because it was close to bloodshed free, and some have argued it was a successful Dutch Invasion of England aided and abetted by opponents of the current regime.

    Yep. And as I noted, I think it was more a successful subversion of the Dutch Republic, which accelerated its decline after William of Orange came over to the English side. A summary from the Wiki:

    Wars to contain the expansionist policies of France in various coalitions after the Glorious Revolution, mostly including England, burdened the republic with huge debts, although little of the fighting after 1673 took place on its own territory. The necessity to maintain a vast army against France meant that less money could be spent on the navy, weakening the Republic’s power against England. After William III’s death in 1702 the Second Stadtholderless Period was inaugurated. The end of the War of Spanish Succession in 1713 marked the end of the republic as a major military power.

    An interesting historical counterfactual would be to consider what might have happened had Willy stayed and fought harder for Dutch interests.

    The English were good at this. Although there is a lot of hoopla going around about Scottish independence, I wonder what would have happened had James I sought a way to absorb England into Scotland, instead of retaining England as the center of his monarchy.

  83. 83
    Villago Delenda Est says:

    @Brachiator:

    One thing I find interesting about the Glorious Revolution, and I am not sure that it is adequately dealt with in most histories, is that by luring William of Orange to come over to England, the decline of their rival, the Dutch Republic, was probably accelerated. Now, that was a sweet Chess move.

    In retrospect, it certainly seems that way.

    But at the time, it was get this pain in the ass Papist off our throne. I’m not sure that accelerating the decline of the rival Dutch was a motivation at the time…there were bigger fish to fry.

    Having the Dutch as allies was helpful in some further conflicts with the Dons and the perfidious Frogs, such as the War of the Spanish Succession.

  84. 84
    Villago Delenda Est says:

    @Brachiator:

    To discuss further, William III probably thought that this will be very very helpful to The Netherlands in our fight against that Sun King dude.

    He may have indeed outthunk himself in the process, as the wiki article indicates.

    We tend, as 21st century Americans, to also downplay the degree to which religion played in all this. The Stuarts managed to really, really, really piss off a lot of Englishmen with all this “let’s be more Catholic in our tastes” stuff. William III’s religion was closer to Cromwell’s than Charles I’s was, and this certainly played a role in all this. The Stuarts rather upset a lot of their subjects by keeping England out of all the nasty messiness of the 30 Years’ War due to their Catholic sympathies.

  85. 85
    Mnemosyne says:

    @Bill in Section 147:

    The aristocracy didn’t track the number of violent deaths suffered by the 99% under the Ancien Régime so the Terror gets all the attention.

    It’s not called “the Terror” because of the number of aristocrats who were beheaded. It’s called the Terror because the revolutionaries turned on each other and started beheading pretty much anyone who opposed them, aristocrat or not:

    Robespierre believed that the Terror was a time of discovering and revealing the enemy within Paris, within France, the enemy that hid in the safety of apparent patriotism. Because he believed that the Revolution was still in progress, and in danger of being sabotaged, he made every attempt to instill in the populace and Convention the urgency of carrying out the Terror.

  86. 86
    dmbeaster says:

    @Steve:

    To complete the analogy, Greek bondholders assume the risk that Greece’s finances will be too messed up to repay its bonds. But they don’t assume the risk that Greece will decide, for political reasons, to pay back certain bondholders while stiffing others.

    Actually, this is not true. Anyone making large loans to sovereign nations knows that there are no hard and fast rules when the sovereign cannot repay its debt. You assume the risk that for political reasons, the sovereign will not repay its debt. Crap, the US government sells sovereign risk insurance to US companies for this sort of thing.

    Greece is trying to moderate the political consequences of default by selecting who will take the haircut. The same thing can be done by commercial businesses in the US, unless the creditors get sick of it and initiate an involuntary bankruptcy, and preferences put an end to that game by the debtor. But there are no rules in the international arena – just traditions and political clout.

  87. 87
    Emma says:

    @Steve: To complete the analogy, Greek bondholders assume the risk that Greece’s finances will be too messed up to repay its bonds. But they don’t assume the risk that Greece will decide, for political reasons, to pay back certain bondholders while stiffing others.

    Because they thought the Greeks would knuckle under to the Germans and the French and pony up. But as the misery this whole thing has visited on the Greeks transforms into social unrest, the government has decided that it can make hard choices (read, grow a pair) and screw some people out of their money. Considering whom they were dealing with, the hedges should have expected it.

  88. 88
    Emma says:

    @Tissue Thin Pseudonym (JMN): Any company with a decent research department would have dug up information on the Greek government’s lack of financial honesty that would curl your hair. Why are you doing doing business with crooks?

  89. 89
    Wiesman says:

    No one guarantees you the right to a profit, it is up to you to do due diligence and make sure your investment is sound.

    Heh. You said doo doo.

  90. 90
    Waynski says:

    @Elizabelle: That poll adds up to 101%.

  91. 91
    jonas says:

    @Steve: That’s the thing, though. A lot of the hedge funds *want* Greece to default in an orderly way because then their CDSs will pay out. What they *don’t* want is a half-assed default where some creditors are made whole and others are not. Basically the discussion now is how other Euro governments are going to have to bail out the banks and insurance companies that are counterparties to all these CDSs.

  92. 92
    Villago Delenda Est says:

    @Emma:

    The situations in Greece and Italy are similar; there’s a culture of tax avoidance that undercuts attempts to repay all those bonds, and in Greece there are problems with the government being a very generous employer and subsidizer of the last resort…which is, it seems, the first resort.

    The Germans can turn up their noses at those lazy Mediterraneans lolling about on their beaches in between siestas and not making sure their trains run on time, but the Germans got themselves into this mess by loaning the money to keep their own economy running, as in having a balance of trade in their favor through extending credit to customers to avoid their own economic pain.

  93. 93
    Brachiator says:

    @Villago Delenda Est:

    We tend, as 21st century Americans, to also downplay the degree to which religion played in all this. The Stuarts managed to really, really, really piss off a lot of Englishmen with all this “let’s be more Catholic in our tastes” stuff. William III’s religion was closer to Cromwell’s than Charles I’s was, and this certainly played a role in all this. The Stuarts rather upset a lot of their subjects by keeping England out of all the nasty messiness of the 30 Years’ War due to their Catholic sympathies.

    Don’t disagree, but I also recall that Charles II was doiong the typical saber rattling against Catholic France even as he entered into a secret treaty with France. One of the targets: The Dutch Republic. The Republic also had a progressive government compared to others of the time and even encouraged, gasp, religious diversity.

    Also, the Dutch and English navies had tangled, and the English and Dutch competed furiously over maritime trade.

    So, yeah, maybe no overt plan to undermine the Dutch, but William coming over removed him as a competitor and made him a partner. A damn deft move.

    And obviously, one of the whole points of marriage among the nobility was to secure religious and political alliances, but the marriage of William and Mary was notably successful. Oh,yeah, and Charles II had approved of the marriage because he thought that it would give him leverage over the Dutch. Funny how things work out.

    Anyhoo, some of this stuff is fun to me since I consider the nasty political fighting we have going on now something like the wars of Political Relgion, with Democrat and Republican substituting for Protestant and Catholic.

  94. 94
    liberal says:

    @srv:
    By “Michael Lewis,” you mean the blithering, drooling moron who wrote this in 2007?

    But the most striking thing about the growing derivatives markets is the stability that has come with them.

  95. 95
    liberal says:

    @Steve:

    An investor doesn’t assume the risk that Enron is actually perpetrating a massive fraud.

    That’s utter nonsense. Fraud is always a risk.

    What investors may hope is that government (and perhaps short sellers et al.) are on the beat, and that fraud is unlikely. And certain other “investors” (e.g. depositors covered by the FDIC) are given government guarantees.

    But the claim that investors aren’t assuming the risk of fraud is bizarre.

    Capital is always at risk.

  96. 96
    liberal says:

    @dmbeaster:

    Anyone making large loans to sovereign nations knows that there are no hard and fast rules when the sovereign cannot repay its debt.

    IIRC there are situations governed by treaty, like you can’t treat foreign depositors differently from native ones. But then of course the sovereign could breach the treaty (though it would probably have to put up with some consequences).

  97. 97
    ericblair says:

    @jonas:

    That’s the thing, though. A lot of the hedge funds want Greece to default in an orderly way because then their CDSs will pay out.

    Maybe it would be better to say they want the CDSs to trigger. Given that there aren’t any reserve requirements for writing CDSs and this was considered free money by ibanks and their ilk, how many of these CDSs consist of a piece of paper saying “IOU 6.5 billion Euros XOXOXO” and not much in the way of actual cash to back them up?

    That was the problem that the hedgies had in 2008 with the mortgage meltdown: “Yay, CDS triggered! Bear Stearns owes us $600 million! Oh, shit, waitaminnit, BEAR STEARNS owes us $600 million!”

  98. 98
    jpe says:

    That was the problem that the hedgies had in 2008 with the mortgage meltdown: “Yay, CDS triggered! Bear Stearns owes us $600 million! Oh, shit, waitaminnit, BEAR STEARNS owes us $600 million!”

    A different entity, not Bear, would pay the CDS on Bear debt. You wouldn’t buy Bear CDS protection from Bear.

  99. 99
    Steve says:

    @liberal:

    But the claim that investors aren’t assuming the risk of fraud is bizarre.

    Assuming the risk means that if the risk occurs, you bear the consequences. For example, when you go to a baseball game you assume the risk that you might get hit by a foul ball.

    When an investor gets defrauded, on the other hand, the investor has the legal right to sue and recover their losses. Your argument basically proclaims the exact opposite of what the securities laws actually say, which is that someone selling an investment has to tell the truth.

    If you get ripped off you might say to yourself, “Gee, I should have known better.” And maybe you should have. But if you sue the person who ripped you off, they don’t get to defend themselves by saying “you should have known I couldn’t be trusted.” If Greece is party to a treaty that permits investors to sue in situations like this one, I wish them luck with the “you should have known we might not feel like paying you back” defense.

  100. 100
    Coupon the Movie says:

    Mr. Show predicted this years ago.

    http://www.youtube.com/watch?v=EPBIDPIo92Q

  101. 101
    libarbarian says:

    This whole issue is a farce.

    The Human Rights Court has no real power. Even if the Hedge Funds win they will have bought nothing more than a good finger-wagging at Greece. I’m sure the Greeks are trembling in fear.

  102. 102
    mai naem says:

    I hope these hedge funds spend decades in the courts and then get like one cent on the dollar with no interest penalty charges. Sorry, cannot feel sorry for these arrsholes who are happy to go offshore with their earnings, want no interest carryback on their earnings, want capital gains rates on their earnings but not they want the protection of the courts that they aren’t willing to pay for in the first place???? Oh, really, here’s a quarter prepaid cell phone call someone who cares. Kinda like what they do with foreclosures and the Exxon Mobil Valdez oil spill court case.

  103. 103
    ericblair says:

    @jpe:

    A different entity, not Bear, would pay the CDS on Bear debt. You wouldn’t buy Bear CDS protection from Bear.

    Not what I meant: Bear wrote the CDS for some other risk. Sure, you can get a CDS to cover Bear. Of course, there’s a risk that the entity that covers Bear will go bust, so better get another CDS to cover that risk. How many of these do you have to do before you end up in a loop? Probably not very many, and you probably won’t realize when it happens anyways. There’s no reserve requirements and fuck-all transparency, so you’re really better off with the local sports book taking your bets.

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