Tuesday, June 12, 2012

The Luck of The Irish

Wait a Minute!

The market went all positive yesterday on the news of the Spanish bailout. Well, it lasted at least 30 minutes in that mode then quickly resumed it's dive into oblivion.

Seems the world's market-makers realised the gravity of the situation in Spain and that the 'bailout' would increase the Spanish debt load. Up went 10 year bonds over 6.5% again. Soon Spain will need more bailout cash as no one will lend to them if rates go even a tiny bit higher.

Then the Irish woke up as well. Like gilted friends who are lied to, they realised they had been hoodwinked in 2008. At the time, I was in Dublin and remember looking at one of the Banks after hearing the news and thinking, "What's it like to have all your assets owned by the Europeans? You really going to accept this?"

Back then, the Irish Government guaranteed Irish Banks with European money in exchange for austerity measures. Well, Spain gets off scott free with their loan. The Irish, expectedly and retroactively want the same deal. And don't believe those Irish jokes, it's not easy to hoodwink an Irishman. They tend to have a fairly realistic view on life forged from centuries of being underdogs. Just ask the current Irish rugby team here in New Zealand. Brave, but not ever going to beat the All Black rugby team.

Here's the report. According to Zero Hedge, "We learned that Ireland, as speculated, will demand a comparable retroactive bailout renegotiation."

Then comes the clincher which has all bond holders squirming. As with the Greek bailout, bond holders have had the rules changed overnight. The contracts they signed, by being bond holders, are now worthless. What point is a financial system where contract law can be rewritten in a micro-second. Does nothing for bond market confidence. Spanish bond holders; welcome to the new Europe.

Here's the line from Zero hedge."We got definitive confirmation that the Spanish loan, coming at ~3% or half Spanish GGBs, is a priming loan, subordinating existing creditors.

If this wasn't so serious it would make a great Monty Python episode.

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