One of our core operating principles around here is that when pressed by circumstances, the authorities will simply change the rules. And by “circumstances” we mean anything that could destroy the markets, or perhaps be just politically convenient, or anything in between.
Examples include the NYSE unilaterally and without precedent breaking trades following the flash crash of 2010, the mysterious inability to enforce the rules in the case of the “missing” MF Global client funds, and the avoidance of any and all criminal action against banks and mortgage companies caught red-handed in falsifying documents.
To this list, we need to add the recent actions of the European Central Bank (ECB):
The ECB, on its own and without judicial or parliamentary review, has swapped their Greek debt for new Greek debt that is not subject to any “collective action clause.” They did this unilaterally and without the consent of any other sovereign debt bond owners of Greek debt.
They did this without objection of any nation in Europe. They have retroactively changed the indenture, the contract made by Greece with all of the buyers of their bonds, when the debt was issued.
Having then done this; the implications must now be considered utilizing the clear light of unadulterated reason. The issue now is no longer a one-off Greek issue but a full on ECB issue.
We know now that the ECB can retroactively change the rules, change an indenture, so that if the ECB can do this with Greece then it can certainly do it with any sovereign debt in Europe. If they can exempt themselves from a “collective action clause” then they can exempt themselves from any clause, in any sovereign indenture, for any European country.
The fact that they are now clearly senior to any other bond holder, or more aptly put, that any private bond owner is now subordinated to the ECB is one consideration but hardly the most important one.
by arthur-robey-2 
