We had promised that we would reveal how Greece ended up being sold for a pittance to the International Monetary Fund. And we have already said that the information is already publicly available. What we do here is freshen up the memory of the Greek citizens and, through our translation project, provide this information to everyone else outside Greece as well. You see, the Greek people were systematically slandered by the media – the Greeks were described as lazy, good-for-nothing bums, parasites, living at the expense of the other peoples of the European Union. The German media (mainly the highly influential right-wing rags Bild and Focus) dubbed Greeks -collectively- thieves and spewed endless hatred towards Greeks in the German society; hate that was almost equal to the anti-Semitic rage of the NSDAP.
Greece was sold out with the infamous “Memorandum” to the International Monetary Fund (IMF for short), the World Bank and the various corporations (banks and “development” companies) represented by these two organisations. In order to do this, however, the ground had to be prepared for it. But how could this be done? The best way to force a country to be sold is to completely destroy its credibility and financial solvency. This process had already begun by George Alogoskoufis, who put the country under fiscal watch for the “creative logistics” of the Simitis government. We will not deny in any way that the Simitis government was guilty – quite the contrary. It was absolutely guilty as hell and, as was correctly stated by the economist Max Keiser in a TV debate (turned into a viral video clip in Greece) with two Greek colleagues of his, there were suspicious transactions with Goldman Sachs.
Alogoskoufis put Greece in fiscal watch by the European Union to deliver a “purified” country to the next government. When the watch ended for Greece, the new government of George Papandreou rose to power and surrendered the country to the International Monetary Fund. But how? How did we get from the “there is money” motto of his election campaign and the promises that no more burden would fall on the economically weak and the disenfranchised to the rapidly rising unemployment, to the overnight abolishment of labor rights that were earned with decades of bloody struggles, and, finally, to the dramatic reduction of the already unacceptably low wages and pensions?
Just remember what happened right after George Papandreou was elected. Immediately, the whole Government, starting with George Papaconstantinou, began slamming Greece as an unreliable country . Is it ever possible for a government official of any country to state that his country is unreliable and that it should not be taken seriously? If a government official talks about his country like that, what should we expect others to say? So, George Papandreou and George Papakonstantinou methodically created a completely hostile climate for Greece in the international financial markets. What was the outcome? Greek bond spreads went through the roof.
And as if this was not enough, the Bank of Greece provided special opportunities for “naked short selling” of Greek government bonds, resulting in an overnight skyrocketing of the spreads from 150 to 450 basis points, as revealed by the newspaper “Eleftheros Typos (Free Press)” (link to original newspaper article in Greek).
But how did all this happen? What are the “spreads”; What is “short selling”? What is “naked short selling”? Techiechan explains it very nicely in a related article (link to original blog article in Greek) and so we republish:
Repo: John has a 10-year Greek government bond purchased in 2008 and plans to use it as an education fund for his children. Mr Knowitall agrees with John to borrow his bond for a month and promises to return the bond, and compensate John for the trouble with a small pre-arranged amount of money (say 20 euros). John agrees and so the bond is in the hands of Knowitall who, for a month, can do whatever he wants with it, as long as he returns it at the end of the month, along with the pre-arranged amount . This is what we know as a repo.
Spread: Bonds, much like the term deposits, have an interest rate, determined at the time of issue. When we talk about a 5-year bond of 1000 euro with a 5% interest, it means that the one who will buy it will make 50 euros per year, for the next 5 years. The spread is the difference of the interest rates paid by a country in relation to the rate paid by another country which we consider as a basis. So, if Germany currently pays 3% for 5-year bond and Greece pays 5%, then the spread is 2% or 200 basis points.
I will skip the explanation about the following, not because it is difficult to explain, but for simplicity’s sake and to avoid making things TL;DR: The price of a(n) (old) bond falls as the current interest rate rises in the same class of bonds. In short, when spreads of the 5-year bonds go up, everyone who owns older bonds of the same class (ie 5 years), are the first to lose. The state is indirectly harmed in two ways: (a) By its reduced reliability (those who buy its bonds lose) and (b) When new bonds are issued, these bonds will have a higher rate.
Short Selling: Mr Knowitall, who has John’s borrowed bond, sells it in the market for 1000 Euros. He waits a few days, and the price of the bond falls. Then he buys a similar bond (10 year bond, issued in 2008) for just 900 Euros. So, Knowitall sold a borrowed bond for 1000 Euros , he bought the same bond a few days later for 900 euros, and now has a bond which is the same as the bond he borrowed, plus 100 euros (1000-900 = 100). At the end of month he returns the bond to John, and gives him the agreed 20 euros of the 100 that he won and keeps the 80 euros for himself.
From the above process, we understand that John, who still has the bond, gets the shaft and the Knowitall , who has profited by the bond’s price fall, makes a pretty penny.
Naked Short Selling: Because Knowitall is a greedy bastard and wants to make more than the 100 euros the above process helped him make, he does this next: While he has only borrowed from John one 10-year bond worth 1000 euros, he sells in the market 10 bonds worth 1000 euros each. In fact, 9 of these bonds sold there do not exist; they are bare (naked). This is a very dangerous practice of short selling, as there is no limit as to how much bare bonds can one sell. In the simple short selling, the limit is the bonds available in repo loans.
That way, one can create a virtual oversupply of bonds in the market, resulting in the bond prices sinking faster than the MS Estonia. Practically, the devaluation of the bonds becomes a self-fulfilling prophecy and all the person who made the naked selling has to do – taking advantage of the panic he created – is to buy these 10 bonds back at significantly lower prices.
The Bank of Greece, after a TL;DR and deliberately cryptic letter acknowledged that the above practice (the naked short) was tolerated because of an existing loophole, and we will immediately elaborate.
When someone sells a bond in the market (Electronic Secondary Securities Market owned by the Bank of Greece), he is required to deliver it to the negotiators within 3 days so the bond reaches the hands of the buyer. This is known as T +3. So there is the possibility to sell a bond you don’t currently have. So you owe the negotiator a bond and you have to deliver it in 3 days. If you re-buy it after two days from the same negotiator, then the negotiator connives and practically cancels your debt (because you sold one bond, bought one, the sum in bonds is zero).
This is practically an act of naked short selling as at the time you sold the bond, you were not required to actually possess it (or to have borrowed it, as described in the repo).
Since 3 days is usually too short a timeframe for the bond prices to change, no one normally does naked short selling this way. For any naked short seller to profit from a situation like this, there has to be a ridiculously steep price drop in only 3 days.
The backdoor of the Bank of Greece
This is the normal procedure. But in this process there was a backdoor that the BoG had deliberately left open. And this loophole was failed orders. So, when someone sells a bond, he has to deliver it within 3 days. If he doesn’t, then the transaction is ‘failed’. Failure doesn’t mean that the transaction is void, because the sale has been made, and there is a buyer waiting for his bond. If the seller delays the process, it can go on for even 10 days. But if he carries it too far, then the negotiator has to buy a bond himself, give it to the buyer and send the bill to the seller. But this is unlikely to happen, because the seller knows what he can get away with.
In this manner, a Greek bond seller could keep his position open for 10 days, without possessing the bond he had sold. He could practically have a naked short order, with no one holding him accountable.
In October 2009, the Bank of Greece took a decision to further simplify this process by facilitating anyone who wanted to play this loophole. We explained above what a dangerous game and practically illegal naked short orders are. Combined with the backdoor opened by the Bank of Greece and the constant flow of “made-to-order” articles on the Greek crisis, it is clear that what we had here was a recipe that allowed anyone to run naked short orders for at least 10 consecutive days.
This went on for quite a while, until April 8, when things got out of hand. The committee that controls the Electronic Secondary Securities Market decided to close the loophole of failed orders with the following way: For every ‘sell’ order, the seller must provide a repo (a borrowed bond of one day) until he could provide an actual bond.
The Bank of Greece had opened a dangerous backdoor n the bond market. Whether done in October or earlier, this loophole was able to create, in a crisis environment, a situation of undervaluing speculation in the Greek bonds market. Therefore, Mr. Provopoulos is absolutely responsible for this loophole and should resign.
If he could not understand the consequences of this loophole, he is incompetent. If he knew, he is an accomplice and shouldbe prosecuted.
And frankly, when talking about high-ranking execs like him, and such simple concepts such as those we just explained, it seems highly unlikely Mr. Provopoulos didn’t understand what was going on.
It is easy to see whether the further facilitation in October 2009 had a real impact in undervaluing speculation. We only need to examine, day by day, the transactions and the volume of bonds since the beginning of 2009 until today. At the same time we should consider the actions and volumes of failed orders used by everyone who wanted to engage in naked short selling. If it appears that a sufficient volume of transactions was failed, then the DA must intervene again.
For the plight of this country, we are all liable as a society, as businesses and civil personnel. For our huge debt we do not blame anyone other than ourselves. So this text was not written to show that some evil people conspired against the innocent and isolated Greece. What the above texts shows is that Greece, already the weakest link in the eurozone, became the target of devaluing pressures and the decisions of the Bank of Greece contributed in this, along with other ‘players’ that are not the subject matter of this presentation.
There is no reason for anyone in this country possessing even something small to want to play with the devaluation of the Greek bonds. Things are being said that are absurd. Not because it is impossible for some people to want the country to go to the IMF, but because playing with the government bonds in order to achieve it equals to dropping a nuclear bomb on the nearby house because the neighbor has the music too loud (translator’s note: we happen, however, to personally know stock market gamblers that get almost sexually aroused by the idea that they can make a huge profit by overblowing and then sinking a country’s economy – we’re talking about utterly, terminally sick people).
We have been hearing all these years about many scandals and many “bubbles” around the world. Nevertheless, there is no bigger “bubble” and a greater scandal than gambling with the government bonds of a country. Even the case of the bonds of the insurance funds which was huge , it seems minor in comparison to the consequences of the collapsing bonds of a country. This is utterly “game over”.
We had it coming.
What do you think? Depressing? Unacceptable? Yet this is exactly what the Bank of Greece did, with the blessing of the government. Add all the alarmism – which was directed mainly towards the outside the country – from all the members of the government and you can pretty much understand what happened. We plan to rescue those issues from the memory hole. The Greek people have every right to know how and why they were sold to the IMF. And foreign readers have every right to know what game was played against a people and why this people was demonized and slandered so much. The unscrupulous speculators from the IMF will not hesitate to do the exactly same to other countries as well, European or not; it doesn’t matter. They’ve proven that they have the will and the determination to do it.
We are Legion.
We do not Forgive.
We do not forget.