No, Hedge Funds Can't Foreclose On The Acropolis

Originally published on May 7, 2012 12:12 pm

Greece is broke. But there's no blueprint for a country to declare bankruptcy, so Greece's creditors are sort of making things up as they go along.

"You're taking some sort of loss," Hans Humes of Greylock Capital Management told me. "But it's like, how much of a loss do you take? There's this thing called sovereign immunity. You can't go in and take the Acropolis."

Greylock Capital Management is a hedge fund company that holds Greek bonds. So Humes is sitting across the table from Greece. There are lots of other creditors — people sitting alongside Humes — and they all want different things.

Hedge funds want as much money as they can get back. European banks want their money back, too, but they also want the euro to stay strong. Greek banks just want to make sure the Greek government doesn't implode (but they also need some money back).

And the European Central Bank wants all of its money back, so far, and doesn't want to take a loss at all. All of these people are on the same side of the table, but they have vastly different motivations.

The Greek side is just as diverse. It's the European Commission, it's Germany, it's the IMF — it's a whole slew of people, way beyond the Greek government that did the original borrowing.

"I've had the feeling a couple times," Humes says, "when you'll be making progress, really tangible progress, and something will come out from somewhere, and you sort of have to go back to the drawing board, you know, we have to check with so-and-so."

This happens on both sides of the table.

Humes' side did come to a consensus, as announced Monday night. They put a 50 percent loss on the table. They agreed to accept 50 percent of the money they are owed — to be paid out over a period of time.

The other side of the table? The Greek side? They sent it back. Discuss. Start over.

The stakes are huge. If they resolve this amicably, then business might be able to continue as usual in Europe: countries borrowing money, people showing up to lend it to them.

But if they don't, Greece will have a hard, chaotic default. The kind of default that could mean a halt to business all across Europe.

Greece only has enough money to make it until March 20. It needs the next round of bailout money. But in order to get that money, Greece has to cut a deal.

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Now to a different story of two sides pitted against each other. We know Greece is broke. It's been surviving on bailouts since last May. But Greece still owes money, lots of it. And those who lent Greece that money haven't forgotten. For weeks now, both sides have been seated across the table from each other, trying to figure out how a country that is broke can pay people back. But with so many different voices at the table, making a deal is nearly impossible. Here's Joanna Kakissis in Athens and Zoe Chace with NPR's Planet Money in New York.

ZOE CHACE, BYLINE: First: the lenders. Who in the world would loan Greece money, a country with a known proclivity to spend more than they have? I went to find that person, a person who knows he's not getting paid back in full.

HANS HUMES: Well, I mean, you're taking some sort of loss. But it's, like, how much of a loss do you take.

CHACE: This is Hans Humes. He runs a hedge fund in New York City. He won't tell me how much the Greeks owe him. But he says everything about this deal, it's like the lenders are making it up as they go along.

HUMES: It's like anything else. If someone defaults on a mortgage and the bank takes a loss, should they get zero?

CHACE: They get the house.

HUMES: There's this thing called sovereign immunity. You can't go and take the Acropolis, right? You know, what do you get back?

JOANNA KAKISSIS, BYLINE: They won't get the Acropolis, and they won't get Mikonos, either.

CHACE: Hey, Joanna. What's the scene on the Greek side of the table?

KAKISSIS: In Athens, ordinary people are worried, of course. But the Greek government won't tell us anything about the talks, knowing full well how sensitive they are.

CHACE: Well, the stakes are huge, right? If they resolve this amicably, then business might be able to continue as usual in Europe; countries borrowing money, people showing up to lend it to them.

KAKISSIS: But if they don't, Greece will default. It only has enough money to make until March 20th. They really need another loan.

CHACE: Then they better work this out. Here's the problem in New York: this side of the table is just not on point.

KAKISSIS: Well who's over there? All of you guys are pretty much the same, right?

CHACE: Not, at all. You have hedge funds; they like risky investments, but they need some kind of payment in order to want to lend money to other European countries again. You also have European banks. They want their money back too, but they also want the euro to stay strong, so they don't want to take too hard a line.

KAKISSIS: Same goes for Greek banks. They loaned the most money to the government but they're the most forgiving because they want the Greek government to be OK more than they want to make their money back.

CHACE: So who's on the Greek side of the table - a bunch of Greeks?

KAKISSIS: I talked to economist Michael Masourakis in downtown Athens. He says it's more than just the Greeks.

MICHAEL MASOURAKIS, CHIEF ECONOMIST, ALPHA BANK: Well, obviously it's the Greek government and anybody who finances the Greek government - the IMF, Germany, the European Commission. So it goes all the way to the top.

CHACE: Hey, Athens. All these different voices on the Greek side are making it hard on investors in New York.

HUMES: I've had a feeling a couple times where you're making progress, really tangible progress, and something will come out from somewhere and they say, up, OK, we need have to check with so-and-so. All right, let's hold on, we may need a few days to get this together. And it's like, ugh.

KAKISSIS: I thought Athens would be frustrated about this New York attitude. Like, why can't the lenders just take the hit for the sake of the global economy? Here's my Greek economist, Masourakis again.

BANK: The Greek side cannot say to the bondholders you made a bad decision. When you issue debt obviously you intend to repay the debt.

CHACE: Greece is willing to pay something. The lenders are willing to give a bit, too. And if they don't get a deal and there's a messy Greece default, then it opens the door for more countries to possibly default.

KAKISSIS: Lending in Europe could freeze up entirely.

CHACE: So the New York side did come to a consensus, offering to take something like a 50 percent loss. They would get paid back 50 percent of the money that they are owed over a period of time.

HUMES: This is OK enough. We don't love it.


HUMES: But it's OK enough and it's worse than the alternative.

CHACE: Better.

HUMES: Huh? Oh, sorry. It's better than the alternative. Sorry, Freudian.

KAKISSIS: Bad news: The Greek side, or whoever's in charge here, sent that proposal back. Both sides are back at the drawing board.

CHACE: The risks of failure at the negotiating table are enormous. And everyone at the table knows that. But that doesn't mean they can agree.

KAKISSIS: For NPR News, I'm Joanna Kakissis in Athens.

CHACE: And I'm Zoe Chace, in New York.


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