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Will Predatory Hedge Funds Succeed in Milking Greece for All It's Worth?

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And if so, what are the chances that this effort, to milk Greece dry, will lead to the collapse of the global economy?

 

Hedge funds have long been known to use hardball tactics to make big money.   Now they have come up with a new one:   suing Greece in a human rights court to force it to make good on its bond payments!   What are the implication of this for the rest of us?   Answer:  they are not good, and here's why:

 

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These hedge funds plan to argue in the European Court of Human Rights that Greece has violated bondholder rights.   But that could be a multiyear project with no guarantee of a payoff.   And it would not be likely to produce sympathy for these hedge funds -- which many blame for the lack of progress so far in the negotiations over 'restructuring' Greece's debts (in this case cutting the amount of each of the debts by half).

 

Greece was considering passing legislation to force all private bondholders (like hedge funds) to take losses, yet exempting the European Central Bank, which is the largest institutional holder of Greek bonds (about 50-billion-euros worth).

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Legal experts suggest that the hedge fund investors may have a good case against the Greek government because if Greece changes the terms of its bonds so that investors receive less than they are owed, that can well be viewed as a property rights violation -- and in Europe, property rights are human rights.

 

Problem is, the bond 'restructuring' (halving the value of each of the bonds) is a requirement for Greece to receive its latest bailout from the international community.   As part of that 130-billion euro ($165.5 billion) rescue, Greece is in this way expecting to cut its debt by 100 billion euros through 2014.   It plans to do this by forcing its 'friendly' banksters to accept a 50% loss on the substitute 'new' bonds that they would receive in exchange for their old ones!

 

According to one senior government official involved in the negotiations, Greece will present an offer to creditors (including the hedge fund bond owners) this week that features an interest rate (on the new bonds received, in exchange for the old ones) that is less than the 4% that creditors have been pushing for -- and those creditors will be forced to accept it whether they like it or not.   (No wonder the hedge funds are planning on going to court in response!)

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The surprise collapse last week of these talks in Athens raised the prospect that Greece might not receive a crucial 30-billion euro payment from the EU & IMF and might then miss a make-or-break 14.5-billion euro bond payment on March 20 -- throwing the country into default and jeopardizing its membership in the Eurozone.

 

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)
 

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