[Russ Winter]

At Zero Hedge there is a very verbose but remarkable post and chart below on the issue of subordination and the motivation of hedge fund holders of non-local bonds to stick up (called blocking) the process and, in fact, go the legal route on debt defaults. “He” cites historical examples of how successful this approach has been.  ZH believes these actors will never agree to a haircut, which helps explain the difficulty of doing a deal. I’ll save you from having to read the whole post. Non-local means issued under UK law. UK law requires certain high participation levels in voluntary restructurings and complicates collective arrangements, which I discussed before.  ZH argues, and I concur, that this will confound the whole process tremendously. Pari passu (equal treatment for same class), including the exclusion of central banks from taking haircuts ( central bank immunity), forces most of the risk on hapless local-issued bond holders. There is no way Europe can reduce its debt load on the backs of a minority of bondholders, and without the ECB, IMF and non-local bondholders participating. You end up with a bizarrely tiered market and inadequate debt reduction.



What really blows my mind though is just how many Italian and Spanish bonds were issued under UK law, nearly 1.2 trillion euros worth. Frankly, if this data is correct, this is my first realization as to just how huge the UK law Italian and Spanish bond market are. Greece is just a warm up to the big prizes. Combined with LTRO privatization schemes [The Coming Privatization Scam] this just throws open the door for crony capitalist kleptocrats to unmercifully game the system. I seems so far I am the lone wolf that is connecting the dots on this?   The short, post-Greece stage II version of the ZH post seems to point to endless “arbitrage” and gaming opportunities coming on the multitude of non-local Spanish and Italian debt. This 1.3 trillion euro senior/ junior market is like playing with turds in sandboxes for the hedge fund boyz. They can short one againt the other, look for the small print, and on and on. The average Joe is going to be butchered in this scheme.

Interestingly there is a little fight back on privitizations in Spain, as the conservative government rejects “fire sale” bids on Barcelona and Madrid airports. The Socialists wanted to sell them. In Italy voters opposed a utility privatization, and the new government is ignoring them.  My theory is that privatizations are motivated by the lefts desire to use them to maintain programs and handouts, and the right  to benefit their kleptocrat buddies. What a perfect partnership.  As far as the sale holdup goes,  it is nothing that a renewed “debt crisis” won’t cure.  Budget Minister Cristobol Montoro has warned that Spain will not meet its target deficit of 4.4% of GDP in 2012. Montoro said that this target was based on an outdated forecast of 2.3% economic growth for Spain in 2012 made by the previous government.





It leads me to this question: Who and what is Zero Hedge? It’s certainly well-read. A traffic check shows ZH is the 854th ranked site in the US and 1,869th globally. From Wikipedia:

“Zero Hedge was founded in January 2009.^[1] Posts are signed “Tyler Durden,” a character in the Chuck Palahniuk book and movie Fight Club,^[2] reflecting the blog’s activist posture.^[1] Despite speculation that “Tyler Durden” is a pseudonym of Daniel Ivandjiiski,^[2][3] Ivandjiiski denies being a founder of Zero Hedge. Rather, he says he is one of several writers contributing to the site under the pseudonym.^[4] In an interview, “Durden” said there were four contributors to Zero Hedge^[1] but another contributor says there are up to 40.^{[note 1][2]} Contributors have experience in various areas of finance and operations, differing from journalists who become experts about finance as they write about it, but have no practical work experience in the sector.^[1] The blog is anonymous to protect the contributors from retaliation for dissident speech.^[1] Durden maintains this protects its integrity, objectivity and independence, as well. Durden cites the First Amendment to the United States Constitution and a 1995 U.S. Supreme Court case, McIntyre v. Ohio Elections Commission,^[1] which upheld anonymity as a right of free speech.^{[5][note 2]“}

Therefore, ZH is only as good as its group of contributors. It tends to throw a lot of things at the wall, hoping something will stick. It has an anti-bankster slant, which I appreciate and is why I track it. On the positive side, ZH has been strong at sniffing things out and finding the trail the leads to answers about how the system works — far better than the MSM. On the negative side, the contributors the ZH comment section has attracted are often morons and oddballs. Once in a while there’s good humor, but little shows up of much value to someone like me. Although some of ZH must be taken with a grain of salt because at times it comes forth with complete bullshit, I consider it a very useful non-conventional source. At times, such as with the discourse on pari passu and this subordination post,  ZH ranks as  remarkable in my book. Given that ZH’s underlying  belief system and agenda is friendly to mine, I rank it pretty damn good considering. The information flow for out-of-the-box thinkers would definitely be tougher without ZH. It can’t just be ignored. It has had, and will continue to have, big scoops. So one of my functions is to try and filter what is important and relevant on ZH and pass it on to you.

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