Why the Greek rescue package wont work

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Subprime JD's picture
Subprime JD
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Why the Greek rescue package wont work

From the telegraph:

Markets view the EU-IMF package for Greece as a politically-shaped response that cannot work because it shuts off the twin cures of debt restructuring and devaluation, leaving the burden of adjustment on the Greek people. If Greeks come to view the plan as a rescue for foreign banks and funds – as many already do – there is no chance of carrying the nation through five years of harsh austerity

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7683271...

The reason for all the protests is this statement, that "Greeks come to view the plan as a rescue for foreign banks and funds". No restructuring, no default, no devaluation. The plan is essentially forcing the greek people to share the entire burden of the debt load. Granted the loans were taken by the gov, and people spent the money they were lent, but there is a risk that the lenders wouldnt be repaid. I hope the greek people raise enough hell, bring down the current Papadrenou government, and straight out default. The US, UK, and Japan have printed trillions of notes in their own currencies to prop up their economies while greece is stuck in the euro hard currency. This wont last long. People out there that I have spoken to are sick of the euro currency madness and want to go back to the drachma. Unlike other nations, the gov is scared of the people. Notice how many demonstrators were right outside the parliament. The more the information comes out that this is a lender bailout the rescue will fail and the current gov will fall. Greece is the wildcard in this international ponzi scheme because the people are fierce and will not be run by the international banking cartel.

Yes, mistakes were made, corruption was rampant and the greeks will pay the price of the past decade of decadence. But better to suffer with their own independence as opposed to IMF thugs telling them what to do.

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ashvinp
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Re: Why the Greek rescue package wont work

I agree with this completely, and I think this a huge tipping point that could lead us down two very different paths depending on what happens. If the Greeks and Germans give in and let this ridiculous package go through, then I'm not sure how much hope there is for the rest of the Western World. That will clearly indicate that noone has learned any lessons about who is running the show and that we have unconditionally capitulated to the greedy, destructive forces of the international banking cartel.

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Travlin
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Re: Why the Greek rescue package wont work

Bearmarkettrader

You made some good points that offer a different perspective on this issue.  The reports I have seen have portrayed the Greeks as indulgent people who don't have any financial restraint. (That pretty well describes the US too.)  Hairdressers retire with a pension at age 55, all benefits are overly generous, etc.  In other words these are not responsible people.

I like the picture of fiercely independent people who won't be personally victimized to bailout rich bankers, and are not afraid to directly challenge their government.  Yet it is because of the descipline of a currency that their politicians can't manipulate that this crises has happened.  Most of us think of a sound currency as a good thing.  Yet it has lead to these people rioting when the bill come due for the benefits they demanded, or at least enjoyed, from a government that is afraid to displease them.

Seems to be some contradictions and food for thought here.

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Nacci
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Re: Why the Greek rescue package wont work

If we agree that the entire World financial system is ultimately unsustainable then what expectation can we have that the "Greek rescue package" will be successful?  Stop gap measure.

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machinehead
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Re: Why the Greek rescue package wont work

No question that the Greek state needs to implement some reforms.

But the failure of the bailout ('failure' because interest rates are higher now than when it was announced on May 2nd) reflects the market's judgment that cranking Greece's debt ratio from 115% to 150% of GDP will only cause a bigger, uglier default three years from now.

Better to grasp the nettle now: bail out the French and German banks which will be damaged by a restructuring of Greek debt. Then all parties will be back on a sustainable path.

The larger message from Greece's plight is that rich countries whose unfunded obligations (public debt plus social insurance promises) amount to years worth of GDP have passed the point of no return. The conventional answer of 'more debt' doesn't work anymore. Next!

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ashvinp
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Re: Why the Greek rescue package wont work
machinehead wrote:

No question that the Greek state needs to implement some reforms.

But the failure of the bailout ('failure' because interest rates are higher now than when it was announced on May 2nd) reflects the market's judgment that cranking Greece's debt ratio from 115% to 150% of GDP will only cause a bigger, uglier default three years from now.

Better to grasp the nettle now: bail out the French and German banks which will be damaged by a restructuring of Greek debt. Then all parties will be back on a sustainable path.

I'm not sure how the first part of your post leads to that bolded part. Bailing out the banks is exactly what should not be done. No parties in the western world are on a "sustainable" path, and I imagine a lot of people are going to really wake up to that fact soon.

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machinehead
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Re: Why the Greek rescue package wont work

French and German banks are the largest external holders of Greek sovereign debt. A default or restructuring by Greece would erode the capital of French and German banks, causing them to need bailouts or capital injections.

This is not to make a case for bailing out banks. But to the extent that France is not prepared to let its largest bank, Credit Agricole, go under because of busted Greek loans, then bailing out Agricole and other big banks would be a necessary condition of Greek restructuring.

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ashvinp
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Re: Why the Greek rescue package wont work
machinehead wrote:

French and German banks are the largest external holders of Greek sovereign debt. A default or restructuring by Greece would erode the capital of French and German banks, causing them to need bailouts or capital injections.

This is not to make a case for bailing out banks. But to the extent that France is not prepared to let its largest bank, Credit Agricole, go under because of busted Greek loans, then bailing out Agricole and other big banks would be a necessary condition of Greek restructuring.

I understand that a lot of banks will be in trouble if Greek defaults, including US banks eventually, but I don't really care about that. The finanial sector is going to blow up eventually no matter what politicians do, and I would rather try to have some managed liquiditation process right now than continue to funnel them taxpayer money until all hell breaks loose later. We cannot keep swapping out bad private debt for public debt, the ponzi scheme has to be stopped and everyone has to delever. It will be painful, but its about time we all wake up to reality and face it in a somewhat reasonable way.

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