Will No One Think Of The Tourists In Mykonos?!

This is a story about the real victims of Greece's financial crisis.
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Athens is getting its ass ripped open on a daily basis, sure, but what's a little rioting/bank closures/mass layoffs/Hades on earth compared to agony of ordering a bottle of Château Rayas and being informed only [whispers] Spyros Hatziyiannis Santorini is available?

At Nammos, the hottest daytime restaurant/club in Mykonos, the champagne was flowing, house beats were thumping and 20-somethings danced on table tops in bikinis and swim shorts. Prices were steep – about 15-20 euros ($16-21) for a cocktail. But that didn't stop tourists from trying their luck at getting a reservation. The average waiting time for lunch was 2 hours last Friday. "Mykonos is in its own bubble. Tourists continue to vacation here…despite concerns over Greece's financial state," said Jacopo Janniello Ravagna, owner of Caravana Montacristo, a boutique that specializes in bohemian chic clothes and leather tasselled handbags...but that doesn't mean business hasn't been affected....[a] beachside restaurant in Mykonos said they haven't been able to serve French and Italians wines to guests for the last three weeks. "We've been trying to aggressively market Greek wine and liquor…but that doesn't always go down well with customers who have a refined palette."

Are you listening Angela Merkel? Show some mercy for Christ's sake!

What Greek crisis? In Mykonos, the party doesn’t stop [CNBC]

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One Last Greek CDS Post Before It All Goes Poof

One of the side benefits of Greece taking whatever somewhat irreversible steps it is now taking is that something will happen to CDS written on existing Greek debt and that will mean that we can stop talking about what will happen to CDS written on existing Greek debt and start talking about more interesting things like quasi-CDS written by the EFSF on shaky Eurozone government debt. For now, though, we've got at least a few more weeks of surprisingly and unsurprisingly ill-informed fretting that triggering the $4bn of Greek CDS will Bring Down The Entire Global Financial System. That seems sort of silly because notionals aren't that big, mark-to-market collateral is mostly being posted, and at this point the marks are pretty close to what you'll get from Greece so it doesn't look like there's tons of unknown unrecognized losses lurking out there. On the other hand, we're mostly through with the speculation that not triggering Greek CDS will Prove That CDS Is Worthless and thereby Bring Down The Entire Global Financial System, so that's nice. The reason that's mostly over is that it sure looks like Greek CDS will in fact trigger, as Athens has moved to adopt a collective action clause that will flip the Greek restructuring from "voluntary, heh heh heh" to "involuntary" and thus trigger the ISDA restructuring event definition. You can argue that the mechanics of the cash settlement auction will mildly screw CDS holders but I'm not so sure, and in any case this is pretty solidly in the category of derivatives nerdery rather than Bring Down The etc.

Greek Debt Management Guy Thought His Partners In Obscuring The National Debt Would Be The Last People To Rip Him Off

Bloomberg's story about the Greece-Goldman swap-debt-whatever kaboodle, so let's talk about the philosophy of derivatives for a minute. First the story: Greece’s secret loan from Goldman Sachs Group Inc. (GS) was a costly mistake from the start. On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said. There are at least three reasons to use derivatives. First you could be into some actual informed shifting of risks from those who want to pay to get rid of them to those willing to be paid to bear them, or from those who have Risk X and want Risk Y to those who etc. Boy are there a lot of textbooks that talk about this. And I suppose it even happens sometimes. You could imagine that a vanilla interest rate swap entered into by a corporation on its bonds or credit facility could qualify as this. I guess people who trade listed options to do covered-write strategies or speculate on takeovers or whatever fall in this category, maybe modulo the "informed." (Sometimes!) Then there's tax and regulatory arbitrage. This is time-honored and much of it, particularly the stuff with the best names, is focused on tax dodging, but there are also various other regimes - securities laws, accounting, whatever - that you might want to get around with derivatives. Paying $10 for CDS with a maximum payout of $10 purely to lower your capital requirements is a recent amusing/egregious example. The thing that wasn't mentioned in the CFA Level I derivatives primer is principal-agent arbitrage. This is ... first of all, let's say this isn't a derivatives issue, or a financial-industry issue, it's like a life issue. (Some would say it's why there's an M&A business, for instance.*) But it's also a derivatives issue! And you can see why if you're as baffled as I am by the Bloomberg story. So this:

This Is Really Only The "Second" Greek Bailout?

If you're into Greece you've probably already read all about it and if you're not I can't make you. But in brief: Greece is fixed and we will NEVER HEAR ABOUT ANY PROBLEMS EVER AGAIN. In less brief: (1) Some folks stayed up all night and produced a statement. (2) Greece's private creditors will be offered the long-anticipated opportunity to voluntarily exchange their old bonds for new bonds, which will for the most part be the same as the old bonds except for minor differences including but not limited to a greatly extended maturity (to 2042), a 53.5% reduced face amount, and a 3.6% blended interest rate. (3) If they don't voluntarily exchange, which they will because - hilariously - they've already taken accounting writedowns (and also because I guess it's better than a disorderly default), private holders will get CAC'ed, which may or may not be as bad as it sounds, but in any case at least CDS will pay out, unless it doesn't. (4) Also the public sector will do various helpful, confusing things. (5) In exchange for this, Greece will enact horrible austerity, and because no one believes that Greece will actually do that, there will be escrow accounts and what Reuters ominously calls "permanent surveillance by an increased European presence on the ground." (6) Everyone is pretty sure we'll be doing this again in six months and, look, just fair warning, I will not be writing about it then, because feh. We haven't had a serious international bankruptcy, which this pretty much is, since I started paying attention to the financial markets, two months ago, so I mostly think about insolvency from a US bankruptcy law perspective. One thing that happens in bankruptcy is that, like, really really roughly speaking, the creditors stop being creditors and become the owners. This isn't always the case but the basic playbook of US bankruptcy law is: