REVEALED: Why the Troika’s ‘validation’ of the Greek psi may open up a can of worms

From Hat4UK, MARCH 10, 2012:

ANAYSIS OF A CREDIT EVENT: DIRTY DEEDS AT THE DEBT-SWAP CORRAL

Evidence of public sector bribery raises doubts as Venizelos accused of personal gain

Although the ways and means used to get to 85.8% overall Greek swap participation (0.8% over what ISDA wanted) and 95.7% including CAC enactions (0.7% over what Brussels wanted) are roughly 0.0001% relevant to the now inevitable death of the eurozone, I think it behoves all good bloggers and investigative hacks to raise some doubts about them. I believe this because all those who think 21st century commerce and politics need a major ethics transfusion always require some evidence to go on….if only to shatter the risible arguments put up by the opposing side.

First up, let’s do some forensics on how that magical 85.8% was achieved.Thursday March 9th at 9.18 am, I posted that participation was stalled at around 75%. It had been when I went to bed the night before, too. It still was at noon on Thursday, when Reuters claimed it was ‘slightly above 75%’. But eight hours later when the deal closed, another 10% had piled in.

As closure approaches, one sometimes does find a sudden rush. But by and large, if you’ve had a week to think about stuff – and two weeks before that poring over the paperwork – yet on closure day you still haven’t shown up, it means you’re holding out. This is why, in that morning post, I was fairly confidently expecting 75-80% participation. So were others I spoke to. So were most of the Telegraph staff.

There are three ways you can get that many in such a short time: blackmail, bribes, or ballot-stuffing. My mailbox from Friday contains allegations of all three.

According to the Berlin Finance Ministry source, ‘The Greeks – not anybody else – are responsible for issuing the percentage number of PSI acceptances‘. The German authorities claimed not to have an inside track on progress at all, but a Frankfurt source told me Wednesday evening that, at that stage, Berlin was ‘less than impressed’ with the 74/5% figure. The point is, the PSI count was a totally Athens-run operation.

I’m left wondering why there was no Troika presence at all. Given that thus far the Greeks had deceived them at almost every turn, one would’ve thought they’d be expecting some fiddling of the results. But as the Troikanauts were due to go over the accounts of the process yesterday (Friday) it may well be that they felt it unnecessary. It may also be, of course, that they wanted to distance themselves from it.

Either way, Friday passed without any Troika announcement saying they were satisfied with the results process. This is slightly different to what The Slog’s Berlin FinMin source suggested:

‘Greeks announce a number which the troika has a few hours to check and “validate” before a teleconference of finance ministers’

In fact, I understand officials will spend more time over the weekend on it, and reconvene Monday. So far, 35 bn euros of ‘immediate’ debt relief has been issued. But as yet, I haven’t seen any trumpeted validation.

Meanwhile, it seems that several Greek pension funds came on board during Thursday. And there were also some other irregularities. One thing you need to deliver participation (as with most things in life in these times) are lots and lots of lawyers and civil servants. It is not commonly understood that upwards of 105bn euros of the bonds swapped this week were owned by Greek public sector institutions and pension funds. How strange, then, that on March 7th itself, the Athens government’s Official Gazette announced backdated pay increases for certain folks. Drill down a bit – and here I’ve needed the help of Athenians, for which they get my eternal gratitude -  you find some rather suspiciously specific job functions:

‘The legal advisers appointed in independent authorities, the Capital Market Commission and the Accounting and Auditing Oversight Board (ELTE) will have an additional monthly bonus of 400 euros…’

Note the immediate ‘monthly bonus’. Further research reveals that

‘….the Court of Audit will start with a monthly salary of 1,906 euros. They will also be entitled to family benefits, Christmas, Easter and summer vacation bonuses, as well as, position related bonuses. The salary increases decided will be retroactive from Nov. 1, 2011…’

This second group are largely young gofers recently qualified. So a starting salary of 1,906 euros might not seem much to you and me, but if you’re 23 years old and hungry, that’s a lot of money.

The overall announcement – ‘The monthly salaries of legal advisers appointed in the public sector will gradually increase 10-15 per cent within the next three years’ – has been widely reported in the Greek media, and offers a stark contrast to, said Adesmeftos Typos, for example, “times when many households suffer from unemployment and Greece’s biggest social insurance fund IKA recently borrowed another 200 million euro in order to pay pensions”.

Even the normally quite staid Athens News allowed a female reported to add this acidic comment at the end of her column: ‘Romantic and stylish woman seeks marriage with legal adviser in the Greek public sector’.

All up, some 500 people working in the public sector have been exempted from the planned salary cuts, and instead awarded rather generous new pay and emolument contracts. Again, the official gazette describes them quite openly as being located ‘in the ministries of Finance and Administrative Reform [for] civil servants working next to deputy ministers and secretary generals’.

It’s quite possible of course that, like most brotherly, equality-seeking trade unionists when they see an opportunity, the beagles and Sir Humphreys blackmailed their bosses. Either way, it seems likely that they were paid in this extraordinary manner with one purpose in mind: looking the other way – and/or forcing through legal compliance.

The somewhat late decision of the Greek public sector pension funds to buy into the bond-swap has, I’m informed, wiped out 11,370 pensioners entirely. Not just reduced their stipend, but – as Tyler Durden put it at Zero Hedge – ‘vaporized it’. He too quotes a figure of ‘around 11,000′ – and who am I to argue with a bareknuckle pugilist? And when you’re 10% adrift on the participation count, what’s 11,000 citizens compared to the survival of this Great European Project of which we are all so fond, according to Herman van Rompuy?

Now, I am a man with a suspicious mind nurtured by a decade of dealing with EU institutions, pension providers, banks, property developers, local planning authorities, the police, and senior mandarins. Am I besmirching the good name of those who work for IKA (the State Social Security Board) when such is ill-deserved? Am I bigoted against Evangelos Venizelos because he is a toad with piggy eyes that are too close together? Possibly; but on the other hand, here’s a little recent history.

Last week a major fraud by IKA staff was uncovered. IKA officials had managed to siphon off a cool 6 million euros since 2003.  The IKA officers involved were certifying decisions to grant medical care of all kinds. In some cases and in cooperation with insurers, they issued fake hospitalisation orders, gave 20% of the illegal fund to the insurers, and kept the rest for themselves. And here’s the most worrying aspect: the whole thing was done by four (count them) employees. Imagine the graft going on if just 5% of employees in one small section of that Greek DSS were up to one scam or another.

Earlier this week, the German company Siemens agreed to pay 130 million euros compensation and create 700 new jobs in Greece in order to avoid a long-running bribery scandal going to Court. That’s a big price to pay, so the mind boggles at just how smelly the whole process must’ve been. Personally negotiating the compensation was – guess who? – Evangelos Venizelos. The bribery concerned bungs that Siemens gave to Greek politicians and senior civil servants over several decades to secure public contracts.

The ‘over several decades’ emphasis there is to enable us to take a trip down Bribery Lane with Finance Minister Venizelos. For a while, he played a major role in the Olympic Games construction projects. Later he was instrumental in taking procurement decisions for weaponry in his role as Defence Minister. The Games went badly over budget, and both in that portfolio and Defence, clouds regularly followed him around. As Culture Minister, he was directly involved in some of the Siemens projects; here too there were allegations of graft and corruption…now seen to have been true.

In order to protect himself and others against the growing evidence of wrongdoing, Venizelos – he being a Doctor of Law and Constitutional Expert – in 2006 wrote and and pushed through an amnesty law for Government MinistersOn the Responsibilities of Ministers, as a result of which all senior politicians are practically immune to public prosecution for cases of political corruption. It was described in a recent magazine article in Greece as ‘the most hated Law in our history’. Given that would include some pretty unpleasant ones passed by the Ottoman Empire in its time, that’s saying quite a lot.

One final twist. As a young lawyer, Evangelo Venizelos got his start in politics by defending former Prime Minister George Papandreou….against corruption charges. In a Slogpost last year, you may recall I covered some of the odder dealings of Papandreou and others in the removal of public funds to the account of a Swiss wealth management firm via the juxtaposition of CDSs. The Papandreou family is deeply implicated in the scam…..but thanks to his one-time saviour Venizelos, Papandreou can rest assured that he is immune from prosecution in any Greek court. This is a shame, as the total embezzled is an eye-watering 27 billion euros.

Greek readers of The Slog (who now number quite a few I’m glad to say) should not take these accusations as a slur on their people. The German press is fond of portraying the average Greek as bone idle, but the EU’s own stats give the lie to this: the average Greek worker puts in 1.2 hours per day more than his Teutonic counterpart. Rather, I am saying that the worst kind of corruption is endemic in Greek Government – it often involves, I must add, German suppliers – and that the pols have effectively indemnified themselves against any comeback on every front. No man in Greece is more up to his neck in that cover-up than Evangelo Venizelos.

So these are not people you’d want to leave alone with an unguarded ballot box, to do a vital multi-billion dollar audit crucial to the country’s survival. Yet that’s exactly what the Troika – so keen just three weeks ago to put its own Kommissars into Athens – did. How very odd that is coming from people whose most telling feature is an inability to stop ordering people around.

And finally my Greek friends, I must acquaint you with a very serious allegation. I have no evidence to support it, but if you do, please get in touch with me at Jawslog@gmail.com. I assure you that you can do so in confidence of complete anonymity.

I understand that, as the country’s leading consitutional expert, Evangelo Venizelos has taken personal control of the trickiest poison pill put into the Brussels Accord: that of changing the speed at which Constitutional changes can be enacted in order to satisfy the control freaks in Brussels, Washington and Berlin. (Under current Law, the changes demanded by the Troika are impossible in the time frame of the bailout).

It is alleged that Mr Venizelos has extracted an extremely high price from the EU, for his personal use, in order to be a dutiful servant and good European in getting the legislation changed. This may of course be entirely scurrilous and completely untrue. But anyone who has intelligence to offer me on that one, send it to the email address above.

«Μαζί μπορούμε να κερδίσουμε!”

As Europe shoots more "easy money," blanks at the Depression, Americans "reach for real bullets"

From  CapitalAccount Mar 9, 2012:

 

Welcome to Capital Account. US unemployment, which remains unchanged at 8.3 percent, is being touted as "sturdy" by the mainstream media. Yet more than half of those jobs are deemed "low paying work" by analysts, and more than half of professional services jobs added are "temporary." Analyst david Ader of CRT quoted by ZeroHedge notes that about 160 thousand of those private sector jobs are low paying work. And per the BLS, of the 82,000 professional and business services jobs added, more than half - 45,000 - were temporary. Is this so--called recovery built on McDonald's big mac's and piecemeal work? Maybe, but there is at least one industry in america that is raking in the dough: Guns. Gun-maker Smith and Wesson's stock was up 23 percent this morning near three-year highs. This is after the gun maker reportedly hiked its full-yaer sales forecast on a higher order backlog, stron demand for guns and rifles. Are temporary workers preparing of the worst: the zombie apocalypse?


Meahwhile, the US deficit is expected to have hit a "record" all--time high in February. That's a record high as in all--time, in the history of the US. Does that phase you? What kind of a recovery runs record fiscal deficits? We'll take a break from the eurozone crisis and talk about the US with our first guest, Karl Denninger of Market Ticker. But not a break entirely. After all, the fictional Greek bailout continues, and with it the latest wranglings on the PSI (private sector involvement). Greece gets more than 85 percent of private sector bondholders go along voluntarily with the deal, and will use CAC's (collective action clauses) in order to push that number up to 95 percent for the recalcitrants. And what about the ECB and the european taxpayer. What do they lose? Well, we know that the european central bank's balance sheet has positively exploded in recent months due to LTRO 1 and 2. Take this expansion on top of all the money printing that has gone on since the onset of the 2008 financial crisis, and you are looking at the most bloated balance sheet in the world as a percentage of GDP. The ECB's balance sheet equals one-third of eurozone GDP, a bigger share than the Federal Reserve's balance sheet, which makes up 19% of US GDP and the Bank of England's, which makes up 21% of UK GDP. It's even bigger than the Bank of Japan's (BOJ)! We will speak with best selling author of "Tragedy of the Euro," Philipp Bagus, who thinks that what europe suffers from is a tragedy of the commons, and that this is what is contributing to the bloating of the ECB's balance sheet, as eurocrats refuse to recognize losses and liquidate malinvestment. 

And finally, Lauren gives us a reality check on MF Global and the absurd and outrageous payment of bonuses to its executives despite the fact that it has gone bankrupt. This reminds us of Joe Cassano getting paid 1 million dollars a month on retainer from AIG after the firm went bankrupt and his division, which was chiefly responsible for writing all that fake insurance (CDS contracts on subprime debt) that blew up the mother company, made 450 million in bonuses. How on earth can these bankers continue to make millions and billions of dollars at the expense of the rest of us? Are we suckers?

All of Europe's a stage...

From Humble Student of the Markets:

By Cam Hui

Bloomberg had a good summary of Mario Draghi's comments from the ECB press conference on March 8, 2012 in an article entitled Draghi Lays Groundwork for ECB Stimulus Exit as Inflation Takes Spotlight [emphasis added]:

Declaring that the environment “has improved enormously” and there are “many signs of returning confidence in the euro,” Draghi yesterday turned the spotlight on “upside risks” to inflation, which is now forecast to remain above the ECB’s 2 percent limit this year. That suggests policy makers don’t plan to cut rates further or add to their 1 trillion euros ($1.32 trillion) of long-term loans to banks, economists said.... 

The Frankfurt-based ECB must “go back to normal, classical central bank policy,” he said.

Draghi's message to the politicians was, "We've done our part, it's time for you to do yours" as he hinted that not only would there be no further LTROs, but the next ECB step would be some form of tightening.

How much of that is to be believed?

The Theatre in Europe
I wrote about how Draghi revealed the Grand Plan in a WSJ interview, which consisted of:

• "Good" government austerity, in the form of lower taxes and less spending; and
• Structural reform, in the form of the elimination of the European social model.

For the that Grand Plan to work, you need a compliant central bank to print money so that the system doesn't seize up. So how much of what Draghi said is bluster and how much is real?

I interpret what Draghi said as being totally consistent with the message of: We will print more money if necessary, but on the condition that the politicians move forward with the Grand Plan's reforms. Otherwise, be prepared for tightening.

It seems to me that even the Germans are on board with the Grand Plan. Despite the German cultural aversion to money printing, notice that there wasn't a single complaint from either the Bundesbank or any of the German hardliners about LTRO, which has been documented to enormously expand the ECB balance sheet? Instead, we got a letter from Weidmann of the Bundesbank complaining about a technical point with LTRO, i.e. the quality of collateral.

Is this complaint about collateral quality just theatre? If so, then is Draghi's comment about going "back to normal, classical central bank policy" also part of that theatre?

I interpret all these statements as part of the "show" that's been going on in Europe as the elites proceed with the Grand Plan. The German complaint is part of the chorus of doubt that accompanies the main show and so is the ECB response, but they are not likely to be significant. No doubt, the ECB has the power to derail everything should any government step out of line, but my guess is that everyone pretty much knows the score. If needed, don't be surprised if the ECB stepped up with further LTRO or LTRO-like programs. Recall that I wrote thatanalysis reveals that the European banking systems may need up to four LTROs in order to fund their liquidity needs to 2013.

I recognize that the ECB doesn't want the banks to get addicted to LTRO, but do you expect the Draghi to allow European banks to fail as long as the Grand Plan is proceeding smoothly?

Expect more drama, but also expect a happy ending as long as all the players know their lines.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.