Sunday, 25 April 2010


Two of my media heroes, the Greek news blog Troktiko and the american financial blog Zero Hedge, appear to have joined forces in propagating bullshit this week. I seriously did not see that coming.

In brief, Troktiko published a rather hastily written "letter" from an anonymous reader claiming to be a senior Greek government official. ZH reported this as a possible political risk in Greece, alleging that if this stuff were to be proven right it would destabilise the Greek government.

The author of the Troktiko letter alleged that the accelerated involvement of the IMF in our bailout talks was due to our Prime Minister's ultimate allegiance to the US of A.

The author goes on to explain that the Russians were about to offer us a EUR50bn overdraft at 4% fixed, no strings attached, and the Chinese were about to offer to buy our ailing public transport operator, OSE, a joint offer we could not refuse.

The author added that he was about to resign next week over this, to a great gnashing of teeth.

Now, it may well be that such a person exists and is about to resign, and does believe all this crap. But it may also be that somebody is about to be kicked out of the government for failing to get with the programme and accept austerity (a good reason if you ask me) and wants to lay the groundwork for his/her subsequent good name as an uncompromising defender of the little man or some such bullshit.

Or someone unrelated to politics is taking the mick.

I say this because Russia,whose economy shrank by 7.9% in 2009, is not itself rolling in money - it has returned to the bond markets for the first time in years and now appears to be borrowing at 3.8% for 5-yr bonds and 5% for 10-yr bonds. And that's for amounts much smaller than 50bn. Remember, deficit financing is selling, not buying: you don't get a better price if you do it in superbulk.

Of course, Russia also has a Sovereign Wealth Fund of some note. Based on their latest figures, the Russians can tap into EUR67bn of reserves from that - and the Fund is allowed to purchase Government debt, including Euro-denominated debt.

However, as astute readers will note, the list of acceptable countries does not include Greece. It also more generally excludes our bonds because they are junk:
"foreign issuer of debt securities shall have a long-term credit rating AA- or higher according to scale of rating agencies Fitch Ratings and Standard and Poor’s, or Aa3 or higher according to classification of rating agency Moody's Investors Service. In case the issuer has different ratings by mentioned agencies then the lowest of them shall be applied." [Emphasis ours]

Cross-reference with our current ratings from Fitch, S&P and Moody's . No? Didn't think so. Note that the S&P rating is now officially Junk.

That rules out the Russian SWF, although it could have worked if they were in the business of losing Putin's money. I hear it's not a healthy business to be in.

Which means one of two things, if we accept the odd rumours here - either Russia is happy to lend to us at a 1% loss, or they are happy to expose themselves to massive interest rate risk by funding our long-term obligations with their short-term ones, and all of this no strings attached.

Once again, our "Orthodox Axis" zealots are stirring things up and bigging up Putin. I don't like the IMF's involvement either but convincing ourselves that a silver bullet existed all along but was somehow not only hushed up by the Greek government but also ignored by capital markets desperate to rope in a guarantor is a leap too far - into stupidity.

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