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Now That We All Agree Greece Will Default, What Happens As A Result?
Bloomberg reports: Nowotny Signals ECB May Compromise on Greece
European Central Bank council member Ewald Nowotny
suggested the bank may compromise and allow a temporary Greek default
as officials scramble to fix a sovereign debt crisis that’s spreading to
Italy and Spain before a leaders’ summit in two days.
As
Spanish financing costs surged at a 4.45 billion euro ($6.31 billion)
treasury bill auction today, policy makers are trying to ease a split
that’s pushed interest rates on Spanish and Italian 10-year debt above 6
percent for the first time since the euro debuted 12 years ago. The ECB
has until now argued that any Greek default could spark a new financial
crisis, derailing a German push to make investors help foot the bill
for a second bailout of the country.
“Nowotny is well known as someone who talks a lot,” said Nick Kounis,
head of macroeconomic research at ABN Amro Bank NV in Amsterdam. “He
might be revealing that there’s a little bit more flexibility than what
was perhaps assumed. On the other hand, we have to be a bit careful with
Nowotny. I’d be cautious.”
Nowotny, who heads Austria’s
central bank, said there’s “a full range of options and definitions,
from a clear-cut default, selective default, credit event and so on.”
“This
has to be studied in a very serious way,” he told CNBC in an interview
broadcast today. “There are some proposals that deal with a very
short-lived selective default situation that will not have major
negative consequences.”
Over a year and a half ago I made clear that Greece would be the first to fall. The numbers never added up (The Coming Pan-European Sovereign Debt Crisis then I Think It’s Confirmed, Greece Will Be the First Domino to Fall). If you recall, many a statesman, pundit, analyst and economist state viewpoints such as mine were poppycock, reference "Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!.
Well, we see who was most accurate on that account, now. Even in our
(relatively, at least in comparison with popular thought) dire default
scenarios, we were actually grossly overl optimistic. - albeit probably
the most realistic on the Street.
-
The ECB and the Potential Failure of Quantitative Easing, Euro Edition – In the Spotlight!
-
A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina
Now
that it is nearly universally accepted that Greece will default in some
form or fashion, it is time to dispel yet another myth using this
blogoshpere thingy, and that is...
“There
are some proposals that deal with a very short-lived selective default
situation that will not have major negative consequences.”
I have brushed against this topic many times, ex. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?.
My lectures in Amsterdam probably encapsulate it best. European
commercial real estate risks being dead in the water as much of it sits
on the precipice as it is with excess capacity, large and rapidly
growing vacancies, and the threat of an approaching rate volatility
storm. The only debt holding whose collateral is massively overvalued
that could possibly compete with banks' highly overvalued sovereign debt
exposure is their commercial real estate mortgage and lending exposure.
Then again, according to those European experts, "Greek Crisis Is Over, Region Safe" and “There
are some proposals that deal with a very short-lived selective default
situation that will not have major negative consequences.” Shall we compare track records???
Those who wish to download the full article in PDF format can do so here: Reggie Middleton on Stagflation, Sovereign Debt and the Potential for bank Failure at the ING ACADEMY-v2.
The video version -
And last but not least, through my own BoomBustBlog...
Although
the EU refuses to publish the truth, I have done so freely for blog
subscribers and have available a detailed list, currently in its 3rd
rendition, that explicitly walks though what will probably happen as any
combination of the PIIGS group defaults.
Our most recent subscriber document explores the banking side of Greek failure - 
European Bank's Greece exposure,
but I have put a significant amount of info into the public domain as
well. If one were to even come close to marking the EU banks books to
reality, market prices, or anything in between, the Lehman situation
would look tame in compariosn! As excerpted from the subscriber document: The Inevitability of Another Bank Crisis
Then there's the obvious twists from other impetuses:
-
It Should Be Obvious To Many That The Risk Of Defaulting Sovereign Bonds Can Spark A European Banking Crisis
-
For Those Who Failed To Heed My Warnings On Portugal, Visualize The Contagion That Causes European Bank Failure!!!
And in the End, What Does It All Mean?
LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?
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I see bank stocks are soaring today---up 4-5% on the bad news...lol
We're all PIIGS.
On your marks..... get set...... bank run.
Everyone thinks Greece will default.
Perhaps they will, but not if the ECB prints some money and gives it Greece via the back door.
At the moment the ECB can't or won't (depending on your point of view) print some money and give it Greece. But when the Euro project starts to collapse, there's going to be an awful lot of pressure applied to the ECB to 'do something'.
Don't forget the U.S. backed that old French bird for the IMF role, and the U.S. does like its Q.E.
I'm not yet fully convinced that Greece et al will be allowed to default.
One nations debt is often another nations deposits, and wiping out peoples deposits is definitely not a vote winner.
I'm not saying that Greece isn't bust, just that the ECB may yet be pressured into un-busting it.
I see no reason why the US can't be the first domino - unless it spoils the SDR plan.
Greeks default.... but the crooks win. Notice how the 700+ Dow pump that the Greek "fix" triggered is still there (at least 500 of it). Pure manip BS. Look for more of this for the US Debt "fix."
Greece defaults, U.S. debt ceiling agreement reached, both events offset each other. Onward moves the train to SDR's.
Spending floor farce already priced in; no upside there.
On another note.. How's that constantbitching about APPL's earnings compression working out?? There has always been earnings compression. And if it wasn't for Apple there would be no andriod. Like it or not Apple revolutionised the way we receive information via the internet.
Damn it, man. Pick a font already!
Still not sure how this translates into Euro strength and dollah weakness.
China buying the Euro this am?
Know of any good triple leveraged short ETF's on European CRE I could lose some money on? ;-)
Reggie,
Did you close your APPLE short.
yeah we are in an alterante reality ie we can go broke but baks cannot sure accounting
gimmicks and general seperation about the rule of law when it comes to being applied to us and the banks
The shit on the balance sheets of the banks will only surface in the comming years.
"special accounting" remember?
It never goes as fast as it should.
Unless we get some sort of a bankrun. And that's pretty possible.
Money is getting out of the euro pretty fast right now and some banks are raising lending rates because of lack of liquidity.