Over half of the bondholders have already announced their agreement.  However, we need 90% acceptance to clearly avoid a default which activates the credit default swaps.

One small advantage to today’s action is that we finally get to see WHO actually owns the bonds.  You would expect that would be public information, but you would be wrong.  I fully expect a good number of hedge funds are holding the bonds and voting against the offer, hoping to force a better deal.

More importantly, this will be a good test of the credit default swap markets.  You’ll recall the credit default swaps are like insurance.  If I buy a bond and am worried the borrower might not be able to repay, I can buy “insurance” that will pay me if the borrower cannot.  That is called a credit default swap.

After the Lehman collapse in 2008, payment on the swaps was chaotic, to be polite.  The credit markets quickly froze up because nobody knew who was liable to pay the swap or “insurance” claim.  Many commentators have worried that a default by Greece would affect the markets like the default by Lehman.

That will not happen!  As noted in this blog several months ago, those swaps “insuring” Greek bonds are now 90% collateralized.  That means we know who will have to pay the swaps, making the bondholders whole.  The credit markets will not freeze up this time . . . whew!

Still the next bailout for Greece will be closed on March 20th, and there will be a problem at the last minute, with commentators fretting the sky is falling.  The stock market will briefly drop sharply, but don’t worry about it!!  This is expected and this too shall pass . . .