The banks’ legal trick to bypass Trichet

By using a legal trick to circumvent the stringent directives of the European Central Bank (ECB), Greek banks will try to help the Greek state today, Tuesday, in the auction of state bonds at a total of 1,25 billion euros.

Until now, according to the instructions of the ECB, Greek banks were not allowed to buy state bonds during the regular auctions by the Greek state using the liquidity that derived from ECB.

But today, Greek banks will participate properly in the auction, as otherwise there is little doubt that the auction will not achieve significant results for the Greek government, whose funds are nearly empty.  

And exactly because they will "enter" this auction, they will use their valuable liquidity, while being aware that they can not give these bonds to the ECB to obtain cash for 3 months.

According to information, in order to regain liquidity they have reached an agreement with major foreign banks (Citigroup, Credit Suisse, Societe Generale, etc.) who own Greek bonds. So the Greek banks will give the state bonds to foreigners who will give back to the banks of 3-month bonds of equal nominal value (ie 100). This will actually work in favor of the foreign banks because they give the bond at 100 when its current market price is 50 (mark to market).

Then the Greek banks will give these bonds to the ECB to regain the precious liquidity they used to enter the auction of the Greek state bonds. This whole process will be reversed within 3 months, which is when these bonds will end.