Controlled Demolition of Greek Banks

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machinehead's picture
machinehead
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Controlled Demolition of Greek Banks

The 3-year recession imposed by the IMF/EU austerity plan will wipe out the capital of Geek banks. So their controlled demolition has to be added to the escalating tab:

May 4 (Bloomberg) -- Greece will create a support fund worth as much as 15 billion euros ($19.8 billion) to protect its banks, 50 percent more than initially announced, with money from the bailout loans provided by the euro region and International Monetary Fund, a European Union document shows.

The purpose of the fund “is to maintain the stability of the Greek banking system by providing equity capital in case of a significant decline of capital buffers,” according to a memorandum of understanding between Greece and the euro region that was published by the Greek finance ministry today. “Participation in the fund will be based on a trigger linked to the minimum required level of capital adequacy requirements” established by the central bank.

The risk of losses arising out of the fund’s operations “would lie exclusively with the Greek government, as the primary shareholder in the fund, which would also be obliged to repay the loans granted” in the joint EU-IMF program, the document said.

Standard & Poor’s lowered Greece’s credit rating below investment grade on April 27, and cut Athens-based National Bank of Greece SA, EFG Eurobank Ergasias SA, Alpha Bank and Piraeus Bank SA to junk as well. The rating company said the banks are at risk because of their holdings of government bonds and that their asset quality and profitability will remain under pressure as the economy shrinks and drives up loan losses.

Greek banks hold about 45 billion euros of government bonds, about 10 percent of their total assets, according to an April 30 report by Capital Economics Ltd.

http://www.bloomberg.com/apps/news?pid=20601087&sid=av5kdj6NCM_M&pos=3

Essentially, French and German banks holding Greek debt are to be saved by crashing Greek ones. Markets think this cockamamie plan is nuts:

May 4 (Bloomberg) -- The cost of insuring against default on sovereign bonds rose on concern that the $144 billion aid package for Greece may not solve the nation’s deficit crisis or prevent contagion to Europe’s debt-ridden economies.

Credit-default swaps on Greece surged 34.5 basis points to 681, according to CMA DataVision prices, implying a more than 42 percent probability of default over five years. Swaps on Spain increased 29.5 basis points to 187, Portugal rose 39 to 314, Italy climbed 14.5 to 149 and Ireland increased 27 to 204, CMA prices show.

The cost of insuring against default on corporate and bank bonds also increased, signaling deterioration in perceptions of credit quality. The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 10 basis points to 436, according to JPMorgan Chase & Co. prices.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aTcoJlNSpM1w&pos=6

Evidently, we are back to the bad old days of 'Eurosclerosis.' Like a stegosaurus, the hard-shelled ECB is proving itself to be hopelessly maladapted to its environment. Hopefully an asteroid strike will take it out before it wrecks the world.

Meanwhile, gold is a pretty good place to hide. Smile

 

 

machinehead's picture
machinehead
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Re: Controlled Demolition of Greek Banks

Tuesday, 3 pm (Europe) -- Lisbon, we've got a problem:

LONDON (MarketWatch) -- The cost of insuring Spanish and Portuguese government debt against default soared Tuesday, while the cost of insuring Greek debt also rose. The spread on Spanish credit default swaps rose to 212 basis points from 163 basis points on Monday, according to Markit. That means it would cost $212,000 a year to insure $10 million of Spanish debt against default, compared to $163,000 on Monday.

The Portuguese CDS spread rose to 366 basis points from 284, while the Greek spread jumped to 726 basis points from 698, Markit reported. The Irish CDS spread rose 36 basis points to 225, while Italy was up 16 basis points to 158.

http://www.marketwatch.com/story/spanish-portuguese-default-insurance-co...

Peoples of Europe -- RISE UP! LaughingSurprised

 

docmims's picture
docmims
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Re: Controlled Demolition of Greek Banks

Hopefully Greece will follow Iceland's example and just straight up default.  Otherwise, they will just become debt slaves with a communist plantation foreman.

machinehead's picture
machinehead
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Re: Controlled Demolition of Greek Banks

Sol Palha makes an interesting comparison:

For every 1% rise in interest rates, Greece needs to send an extra 1.2% of GDP abroad to bond holders. Currently, Greece has one of the highest external public debt/GDP ratios in the world. If rates surged to the 9% plus range, they would have to send 10.8% of GDP overseas every year. This aid package will last them roughly 3 years and when the old debt has to be rolled over, the new rates will kick in.

Latin America in the 1980's made overseas payments that amounted to 3.5% of GDP and that proved to be a brutal experience to say the least. Germany was also in a very tough position during the 1925-1932 eras, but their payments make what Greece might have to go through look like child's play. This trend is simply unsustainable.

http://www.safehaven.com/article/16650/the-ulterior-motive-behind-the-gr...

Gotta love the comparison to the ruinous Versailles peace imposed on Germany after World War I. The explicit intention of the Allies was to drive Germany back into agricultural pastoralism with crushing reparations. US prez Woody Wilson, acting as a shill for JP Morgan, wanted to extract every penny of debt repayment from Germany's ruined economy.

Maynard Keynes made his reputation with his 1919 bestseller, The Economic Consequences of the Peace. He predicted, quite correctly, that the vindictive spirit of the Versailles treaty would blow up in the faces of its oblivious authors:

"In Germany the total expenditure of the Empire, the Federal States, and the Communes in 1919-20 is estimated at 25 milliards of marks, of which not above 10 milliards are covered by previously existing taxation. This is without allowing anything for the payment of the indemnity."

"Thus the menace of inflationism described above is not merely a product of the war, of which peace begins the cure. It is a continuing phenomenon of which the end is not yet in sight."

http://en.wikipedia.org/wiki/The_Economic_Consequences_of_the_Peace

What historical irony, that the French (reportedly the most exposed to Greek debt) want to impose another utopian, self-serving Versailles indemnity on Greece. This one will blow up just like the last one did.

Touche pas à mon pote, usureurs! Undecided

 

 

agitating prop's picture
agitating prop
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Re: Controlled Demolition of Greek Banks

What does Ambrose have to say. His performance as euro- Cassandra is second to none.  Now with the euro tanking, we can all believe him. His questionable forecast for the European fiasco was a stronger American dollar, and a return to a kind of American currency hegemony. Dunno. You'd think with all that is happening, gold should be the currency of choice, globally. Or, it could rise in tandem with the U.S. dollar. Interesting times. Here is the latest from Pritchard:

Monetary Union--A German Europe:

Let us be clear what has happened. This is a one-off rescue. The money is in the form of bilateral loans, not an EU bond. Mrs Merkel has refused to be bounced into an EU debt union or into acceptance of fiscal federalism.

By defending German sovereignty – as she must under the 1993 Maastricht ruling of her consititutional court – Mrs Merkel has left the eurozone in exactly the same dysfunctional state as it was when the Greek crisis first erupted, and therefore equally ill-equipped to cope with the next tremor.

The damage already done to EMU credibility is huge.

"The crisis has shown to the whole world that Europe is unable to manage a monetary union: it has had to call in the IMF," said Wim Kosters, Monet Professor of European Economics at the Rhine-Westphalia Institute.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/766944...

machinehead's picture
machinehead
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Re: Controlled Demolition of Greek Banks

Speaking of the estimable Ms. Merkel, today she admitted the glaringly obvious: you can't squeeze blood from a stone -- as Germany itself proved during the war reparations fiasco of the 1920s:

May 4 (Bloomberg) -- German Chancellor Angela Merkel’s coalition stepped up calls for allowing the “orderly” default of euro-region member states burdened with debt to avoid a repeat of the Greek fiscal crisis.

Floor leaders of the three coalition parties agreed in Berlin today to put a resolution to parliament alongside the bill on Greek aid calling for the European Union to revise rules for the euro to put pressure on countries that run deficits.

Merkel, who faces elections in Germany’s most populous state on May 9, is seeking to shift focus from the Greek bailout to drawing lessons from the euro’s biggest crisis. An “orderly insolvency” process would ensure that creditors participate in any future rescue, she said on ARD television yesterday.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQdqR8poZMoo&pos=9

The main difference today is that Greece, unable to devalue its external obligations away as Germany did in the 1920s, would simply slide into Depression with a capital 'D' as the EU's Carthaginian debt reparations throttle the life out of the Greek economy.

In 1947, President Truman went before Congress, requesting aid to save Greece and Turkey from the communists. Who knew that the capitalists, peddling their deadly elixirs of debt and paper money, were a far more insidious threat?

 

RogerA's picture
RogerA
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Re: Controlled Demolition of Greek Banks

Broke? Buy a few warships, France tells Greece

In a bizarre twist to the Greek debt crisis, France and Germany are pressing Greece to buy their gunboats and warplanes, even as they urge it to cut public spending and curb its deficit.

 

docmims's picture
docmims
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Re: Controlled Demolition of Greek Banks
RogerA wrote:

Broke? Buy a few warships, France tells Greece

In a bizarre twist to the Greek debt crisis, France and Germany are pressing Greece to buy their gunboats and warplanes, even as they urge it to cut public spending and curb its deficit.

 

Actually, if the warplanes have the range to hit Davos, Switzerland, they may be a good investment.

Davos's picture
Davos
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Re: Controlled Demolition of Greek Banks
machinehead wrote:

 

Meanwhile, gold is a pretty good place to hide. Smile

 

 

0 argument there. This really p*sses me off, 30% of the "bailout" comes from the IMF, 40% of IMF funding comes from the USA. Common sense ain't all that common.

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