Sunday, December 23, 2012

Scamming the Eurozone

Landon Thomas, writing in the NYT, tells the story of how the hedge funds once again outmaneuvered the Eurozone and scarfed up big profits in the process. Makes me suspect once again that the whole bailout farce is mostly a scam to reward the already rich.

When the results were tallied on Dec. 12, Greece had reached its target of buying back enough bonds at a discount to retire 21 billion euros, or about $27 billion, of its debt. The bigger winners, though, were hedge funds, which pocketed higher profits than many had expected, in yet another Greek bailout financed by European taxpayers.

To some experts, this latest chapter in the long-running Greek drama is another reminder of how private investors have outmaneuvered European officials at various stages of the debt crisis. And they caution that each time it happens, future debt workouts in the euro zone will become even more costly.

“I just don’t understand why they did this,” said Mitu Gulati, a sovereign debt specialist at Duke University School of Law, who argues that Europe could have saved up to 2 billion euros. “This would have been an easy transaction to do, and still the hedge funds would have come out with a hefty profit.”

Opportunistic hedge funds have profited handsomely from the euro zone crisis, be it by speculating in Greek bonds or by buying up the senior debt of failed Spanish banks. They have successfully bet that Europe, ever fearful of Greek-style contagion, will prefer taxpayer-financed bailouts to forcing concessions from the private sector.

One reason they can keep on playing this game is that Europe is not nation and certainly not a democracy. The bankers figure they have the continent over a barrel and keep on rolling the loaded dice.