Greece is Not Lehman 2.0... As I'll Show, It's Much Much Worse

Phoenix Capital Research's picture

Investors simply do not understand the significance of Greece. Comparisons are being made to Lehman, but these comparisons are mute for the following reason: Greece is a country not a private institution.

This is not a subtle difference. True, Lehman’s derivatives were spread throughout the global financial system just as Greek sovereign debt is. However, investors are missing the point of the fall-out a Greek default would create.

Firstly, let’s think about Lehman. When Lehman went under, half of the other banks that were in trouble had already been merged with larger entities (Bear Stearns, Merrill Lynch). Those banks that were still standing after Lehman went under, changed to bank holding companies (Morgan Stanley, Goldman Sachs) in order to receive special access to Fed lending.

None of these options exist regarding the sovereign crisis in Europe today. If Greece defaults, Portugal can’t merge with Spain. And Italy can’t suddenly change itself to a new form of country that gets special treatment from the ECB (it’s already getting special treatment from the ECB by the way).

This cuts to the core issues for sovereign defaults in the EU. Here are the facts regarding those EU countries on the verge of collapse:

1)   You cannot solve a debt problem with more debt

2)   Austerity measures slow economic growth which in turn makes it harder to meet debt payments

This is simple basic common sense. But these are the policies being promoted by EU leaders: we’ll give you more money if you implement more austerity measures to get your finances in order.

The fact of the matter is that there is simply no way on earth that Greece can get its finances in order (short of a massive default). Greece has terrible age demographics, a lack of economic growth, and cultural issues (e.g. paying taxes is for suckers) that it impossible for the country to solve its financial problems.

In plain terms, Greece racked up too big of a tab and simply doesn’t have the means of paying it. End of story. The world needs to realize this. Because Greece will default and it will default in a big way,

The impact of this will be tremendous. For one thing, pretty much everyone is lying about their exposure to Greece. Consider Germany for instance. According to the Bank of International Settlements German bank exposure to Greece is only $3.9 billion (though they state this is only on an immediate borrower basis).

This is a bit odd as according to The Guardian German banks have nearly 8 billion Euros’ worth of exposure to Greek debt. And they only include 11 German banks in their analysis. However, of those 11 banks, THREE of them have Greek exposure equal to more than 10% of their total outstanding equity.

My own analysis, which I recently shared with my clients, shows even these numbers to be way below the mark (one of the “strongest” banks in Germany alone, by its own admission, has twice the exposure to Greece that the Guardian claims).

So, when Greece defaults, the fall-out will be much, much larger than people expect simply by virtue of the fact that everyone is lying about their exposure to Greece.

Secondly, when Greece defaults, the other PIIGS (Italy, Ireland, Spain, and Portugal) will have to ask themselves… “do we opt for austerity measures and more debt which obviously didn’t work for Greece and will only stifle our economies more? Or do we also default?”

That’s a very tough question to answer. But I’d wager more than one of them will opt for default. And if you think European bank exposure to Greece is understated, you don’t even want to know how bad exposure to Italy and Spain is (to give you an idea, the German bank I referred to earlier, again by its own admission, has total PIIGS exposure equal to 60% of its equity).

Folks, the European banking system is in huge trouble. This won’t be Lehman 2.0. This is going to be something far, far worse. Some of these countries are already sporting unemployment of 20%. What happens when their largest banks go under?

Also, remember that the EU is:

1)   The single largest economy in the world ($16.28 trillion)

2)   China’s largest trade partner

3)   Accounts for 21% of US exports

4)   Accounts for $121 billion worth of exports for South America

It’s clear the EU is already heading into a recession without a banking crisis hitting. What do you think will be the impact when Europe as a whole experiences its own “2008” only on a sovereign level?

We are literally on the eve of a Crisis that will make 2008 look like a picnic.

On that note, if you have not already taken steps to prepare for the next round of the Crisis now is the time to do so while the system is still holding together.

For more of our free daily market commentary, investment strategies, and several FREE reports devoted to help you navigate the coming economic and capital market changes safely swing by

Best Regards,

Graham Summers

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EBR MOD 0's picture

LC55 even Glen Beck gives hat tips to ZH from time to time, survivalblog is a good read, oh I forgot nevermind all these consiracy theorys, move along nothing to read here.

Muc Metals's picture

Greece is not Lehman,

because among other things Lehman wasn't followed by a take over by the military. I would bet one of my Kruegerrands that the Greece military will take over as soon as public unrest and strikes are increasing.

As usual those Greek military will be "well connected" with the US. With interesting ramifications for the outcome of  the big game "Rescue/Crash the Euro".

swani's picture

FEMA camps are ready to house the discontent.

pmm009's picture

The Irish have been planning on getting out for months, that is why the Queen and Obama were both there right after one another.

YesWeKahn's picture

Based on the market reaction, all problems have been resolved.

steve from virginia's picture

1) You cannot solve a debt problem with more debt

That is incorrect. The only way to solve Europe's finance debt problem is for Europe to start cranking with the new debt already. They have a credit crisis because of Euro-fear of large numbers and not enough debt.

(Or the euro is the instrument of a crime.)

Borrowing is painless, the pain begins when the borrowing stops for any reason. Right now it is agonizing in Europe because the BORROWING HAS SIMPLY SLOWED DOWN.

The Eurocrats believe the LTRO will save them, putting Greek debt on ice. There is too much debt to put on ice, all the EU countries have the same defective borrowing structures as the Greeks. Germany cannot lend to itself but must borrow from its neighbors just like Greece: Germany IS Greece, just larger with need for greater debt-subsidies for its precious (non-remunerative) auto industry.

When Greece fails, its debts will pyramid. If Germany decides to defend the euro, it will find itself liable for all of Greece's debts -- because nobody else in Europe has any money!

The ECB will be (more) insolvent than it is now with negative-capital! Greece likely has over € 1 trillion finance debts. Good luck paying, Germans!

ZH just had article saying next LTRO payout was to be over  € 1 trillion much of which would be Greek debt.

The euro is a kind of Ponzi scheme, last one out is the sucker. Germany will be among the first out the door, otherwise it is totally, utterly ruined.

(UK is already the first out the door. Hungary would have been #2 but was brow-beaten by the IMF. Next is Greece and soon to come afterward is Germany.)

Then, there is the Italian, Irish, French, etc. debts.

Van Halen's picture

May I respectfully offer another view of Phoenix Capital's theory:

PC says that the fallout will be huge because of everyone lying about their true exposure to Greece. What if the Lie IS working? Hear me out for a moment before you argue this one: The Lie HAS worked up to now, hasn't it? And it's been going on for some years. Just look at the US stock market today. Why, it rebounded on Great Economic News! (lie) Things are getting better! (lie) Jobs are coming back! (lie) The economy is turning around (lie). How long have we put up with the Great Lie? How long have we all benefited in the markets knowing all the while they are held up by the Great Lie while we simply play the Lie out to get what profits we can on the Lie.

And what if the Lie can go on... indefinitely? For instance, Greece collapses but things DON'T fall apart and organizations like Phoenix Capital are missing it because they are using... common sense to analyze the future. What if the Lie is being perpetuated to take our rights away in larger increments and shorter amounts of time? What if we wake up one day to realize that the everyone knows about the Lie but it's too late because we're all enslaved by it now?

Finally, before you accuse me of being paranoid or crazy, ask yourself: How much of your rights have you lost over the last fifty years? Who is in control who ISN'T lying to you right now?

Thanks for considering my point.

Buck Johnson's picture

You make a valid point and I believe most of it, if not all.  You know about a Conspiracy of silence, well what is going on is a Conspiracy of Lies.  Everybody is believing the lies and are seeing the lies as positive and the positive as positive.  Everyone has a reason to make sure happy thoughts and pretty unicorns are all there is.  In essence you have described the seed of 1984 where Big Brother tells you what is truth and what is lie.  Big brother essentially is saying without saying it that everything is fine and we are prepared and you will be okay.  You may even believe it false, but you don't want to think about the alternative.  The alternative is bankrupt soverign countries (including the US) not having the money to pay all the entitlements, your money in hyperinflation mode and it's not worth anything to anybody except to burn.  So if the alternative is to sit and wait for a bleak and destroyed country economically and politically and possibly forever done, you would rather believe in the lie.

What I disagree with you about is that it can't last forever or for a long time, it just can't.  Because eventually entropy increases with the introduction of a random variable (lie/made up anything).  It's a measure of uncertainty.  So the more random variables you add to an information system the more uncertainty you will have to the system.  Your not able to properly graph or anticipate what or where something that is a danger to the system will come from or what it will be.  An example could be that people are sick and tired of the stealth inflation that is happening in the grocery store via the smaller packages and lower amounts of food in containers at the same or higher prices.  They could riot or do whatever.  Or maybe healthcare is getting so expensive that people just can't afford it even with insurance and hospitals start to close because they can't stay open, peopel by the millions get angry that they can't get to a hospital or see a doctor.

This is just a few and there are many that I can't even fathom, but in essence a lie is like imprisoning yourself.  Because you are locked into what story you told and for you to go out and change could bring down the objects your first lies was being used to prop up.

lakecity55's picture

Great Posts. I would suggest The Lie is aiding the creation of the Stasi State. It's easier to implement Control when there is order. Perhaps TPTB hope they can complete the Stasi before the Greece passes out from too much Uzo and the Drunken Zombie Lurch begins.....

Chump's picture

Then you have nothing to worry about and reality will never intrude, so eat drink and be merry.  Just because it has continued doesn't mean it will.

History covers months and years in a few sentences.  Living it is another story.

The Trade Group's picture

You are exactly right. Pheonix Capital has been saying this type of thing for years now. If anyone has actually traded their advice, they have lost alot of money. While they are correct in alot of their assumptions, it is not necessarily good trading information because their timing has been very wrong.

Chump's picture

Someone made a similar comment about Tyler et al, saying that their hypotheses regarding trading have consistently been wrong.  I challenged them and another to produce a list of these hypotheses or pieces of actual trading advice, showing how they had been losses.

I challenge you to do the same with regard to Phoenix Capital.  Can you tell me actual pieces of trading advice they've given and tell us why they were wrong, and how wrong they were?  Say, "if you placed your stop at 'X' like they said, you would've lost 'X%'.

I'm not a trader so I have no dog in the fight, but yours seems a dishonest critique.  It's one thing to discuss macro and micro fundamentals and another thing entirely to offer specific trading advice, and I think you're confusing the two.

acompletedouche's picture

This will just make ES go up another 50 points,it's all bullish......

When this is all over there will be 3 people left working and eveyone else will be getting a free ride,but the Dow will be at 30k so it's all good.

max2205's picture

Clients?! You still have clients??? Omfg!

Archon7's picture

Here's another myth that needs to be dispelled...  specifically, the myth that austerity damages growth.  This appears to be based on the false assumption that government spending is responsible for growth...  what other person in their right mind would believe that governments grow economies by taxing people, taking out more debt, and spending money?  The truth of the matter is that people working in productive jobs, making things, selling things, and providing serviuces that help people make and build things are responsible for growth.  In other words, productive people and businesses grow the economy, not government spending, and the economy shrinks when productivity declines, not because the government becomes "austere".

Chump's picture

Do you believe that if we stop current government spending, as is much needed, and do it tomorrow, that by Monday we will have a fully functioning, growing, and vibrant economy?

LongBalls's picture

I am assuming here but I want to make sure you understand the big picture. If in the current system a bank loans an economy 100k @ 5% then the economy must pay back 105K. If that economy does not own a printing press then how do they come up with the 5% that does not exist? Answer... You must take out another loan to pay the interest. So on and so forth. We have reached the end of the line in the current system. END THE FED!!! A debt based system is not vibrant and real growth/wealth. It is slavery.

Chump's picture

Lending at interest isn't the problem, whether to sovereigns or individuals.  That capital can and should be used to return a profit.  In the case of a sovereign it's stolen through taxes, but it's still returned.  Fractional reserve lending and borrowing purely to consume is the problem.  Using your example, if you lend me 100K at 5% and I use that to buy groceries, well you and I both have a problem.  If the 100K you lent isn't backed dollar for dollar in your reserves (that is, you lent it fractionally) and you've done that over and over and over and over, then "the economy" gets to share the pain.

Z Beeblebrox's picture

While the FED looks like a clever mechanism for the US to "borrow" money from the future (theoretically worse than slavery, since it's supposedly stealing from future generations), I don't think I've met anyone who actually believes the US will ever pay this debt off. The printing press image is more appropriate. The government prints money (whether on green or pink paper), and distributes it mostly to favored parties. Anyone who is not a favored party loses, because the currency they are forced to use is being constantly diluted. Add to that taxes, which are not to raise revenue, but to punish disfavored parties, and you have a monetary system that is nothing but a violent tool of plunder and oppression. But hey, what would you expect from the psychopathic "ruling" class?

jekyll island's picture

Or you can provide the difference by labor, earning wages that can be used to pay back the debt.  That isn't going to happen in Greece.  

rsnoble's picture

This most certainly has to do with not letting the cds crap initiate.  They won't trigger if Greece isn't declared a default.  So.....Greece could have a negative GDP, 50% unemployment and the entire fucking country up in flames and the JPM overlords will proclaim "It's not a default, recovery is around the corner". They're literally going to let these people die from starvation etc before admitting the truth.

But don't worry, the US has already printed away the next 1000 years what's another 1000?

NDAA, 30,000 drones etc these bastards aren't getting ready for a picnic.

They know when it's coming and what's going to happen. You and I will wake up 1 morning and the headlines will read "World financial system collapses overnight". There's no doubt in my mind.

kaiserhoff's picture

Contagion to the Moon, Alice!

surf0766's picture

Secondly, when Greece defaults, the other PIIGS (Italy, Ireland, Spain, and Portugal) will have to ask themselves… “do we opt for austerity measures and more debt which obviously didn’t work for Greece and will only stifle our economies more? Or do we also default?”


This is already known. They will all choose default. Default is the easier decision after they have all play it out as long as they can. Default cleans the slate. Fresh start. Fresh corruption fresh  bribes,  etc

machineh's picture

Too bad they can't team up as the 'Gang of PIIGS,' hold a shotgun to the head of Merkel, and chant 'All of your Dmark are belong to us!'

The Reich's picture

It's all priced in, innit?

walküre's picture

Contrary to popular misbelief, it is NOT priced in. Brokers, dealers, bankers and investors are all delusional for the most part and thinking that it can be contained. There are a few screaming and shouting warnings in the wind it seems. They are being ignored or ridiculed for the most part.

Here's how I see it.

You can't solve a debt problem with more debt.

Or simply put.

You can't cheat gravity.

Party On but beware of the day when they're passing the purple koolaid. Remember, that cult that was so delusional that they volunteered to drink the purple koolaid? Yup, they all died. That's how it's getting solved. The same mind mechanics are at work here.

Be a part of their system but always stay on edge and ready to jump off their boat. When you try and swim away from the coming wreckage you will have a better chance of survival than staying on a slowly sinking ship and hoping for a seat on one of their lifeboats.

On that note, I killed a few rats these past few days. They keep coming back. Part of life on a farm. Rats can communicate to each other when they're being poisoned. The same poison works only on one, maybe 2 rats. Then they figured it out. Don't underestimate rats. They've been around longer than we have and they're thriving. I predict, they will be here after we've long exterminated ourselves.

CapitalistRock's picture

Exactly. This problem is a big unknown for financial advisors. They are ignoring it and sticking to selling you asset allocation, which quite honestly, is about the best approach. With the exception that you should error strongly on the side of holding far too much in precious metals.

Bottom line, very few are planning for the inevitable.

Confundido's picture

The whole argument is plain wrong! The deleveraging that took place, the Fed swaps in place and the LTROS that replace USD unsecured debt for Euro debt owed to the ECB will make the default way lighter than Lehman's. It is true, it will not be a once and for all event, because it will trigger contagion and run for deposits across the Eurozone, but then more Fed swaps, LTROs and central bank purchases will follow. Buy gold and sit tight!

mind_imminst's picture

Exactly! People seem to keep forgetting that the Fed will print to infinity to prevent severe contagion and collapse. It will come in stealth forms, but will become ever harder to hide. Germany is the only country trying to prevent massive money printing to solve the problem, but even they will come around. The central planners will always take the easy way out, and that "way" is printing money.

Frozen IcQb's picture

ISDA will NEVER allow a CDS trigger which would collapse all major European and US investment banks.

Everybodys All American's picture

It will be challenged and it will expose the whole CDS market as a fraudulent security type if it is not paid. After all who would buy it going forward and or does it have any value if a default is not a default. Kind of a problem either way don't ya think.

24KGOLD FOIL HAT's picture

Agree.  Jim Sinclair also agrees!

Sudden Debt's picture

My personal retirement savings portfolio is 75% in PIIGS bonds. They tell me not to worry because there's a 0,5% of something bad to happen....
Either way, i can't pull out my money or I'll pay a 50% tax on it and it will take 4 months to do so.

narapoiddyslexia's picture

We thought you were in silver? If the Euro blows up, won't the price of silver in Euros make up for at least part of it?

I pulled mine out last year and ate the taxes, and then bought rental houses very near a major national university, and some productive farm land I also rent. So I have solid rental properties and PMs. Hopefullty, the universities will survive whatever happens.


aerojet's picture

You can't do anything about it, anyways--when 2008 came, I was cashed out of stocks and into T's and MM funds and even those have proven unsafe.  MM funds are full of junk debt, there are no pure T funds anymore and they all pay 0%, so everything is badly exposed.  My 401K is in some kind of PIMPCO stable value fund--yeah, no such thing as stable value where PIMPCO is involved--that will probably be the next MF Global!  Every freaking "investment" has problems now because everything was coupled behind the scenes.  So forget it.  I just pretend like the money is not even there because I know one day, that is what will happen to it.  As far as cashing out, what would you do with the cash?  Buy metals?  I cashed out a bunch of stuff and paid off a big chunk of my house even though that is also a folly because basically all mortgages involved fraud and should be null and void at this point.  Home values are plummeting.  The only reason I did it is because I hope to keep the house if it is paid off, I can work at just about any measly job and pay the bills, at least until the hyperinflation really hits, and then I figure I'll have other things to worry about like where to get food and who I have to kill next. 

The worst thing for me right now is pretending like everything is normal.  My company has those investment seminars "how to make the most out of your 401K."  Give me a freaking break, already!  It's funny how money means one thing to oligarchs and quiet another to little people me.  A "life savings" is nothing but a screaming joke to those whom I will hunt down and kill if anything bad happens to my family.

spinone's picture

Now it all becomes clear how deflation destroys value.

lakecity55's picture

Fuck it. I paid the IRS Extortion Bill, took 1/2 of the 401 and stashed PMs, along with a couple of thousands of pounds of various diameter lead ball thingys.

HellFish's picture

Same here but in my case it was the Roth IRA and I already had plenty of ammo.

Dugald's picture

The two chinks in your armour are, you may just not get "any freaking job" and two, you may well get killed first....

walküre's picture

If cashing out is an option, you can still convert Fiat to Gold.

Because, my friend that is exactly what the smart money is doing at this very moment behind the scenes.

Your logic is sound and sane and it applies to all people who have investments.

Everyone knows that nothing is safe, that the spider web of international finance will pull all assets into a black hole except for anything that is tangible and not traceable.

Why do you think the wealthy families have been able to secure and build their wealth for centuries? The debt problem today is nothing new to them. It's part of their wealth building cycle. The great flush out will occur and it will wipe out everyone who is not prepared.

*He who has not prepared shall perish and his family shall not have the wealth their father and his father once had*

Chump's picture

Imagine compressing your experience into a couple weeks.  That's what's coming for Joe Six-Pack, and that's why this country is going to burn when the gig is up.

ElvisDog's picture

Graham makes an important point - austerity only works if a substantial portion of the debt is written off at the same time. Austerity will eventually bring the finances into balance but in the short term it makes it more difficult if not impossible to service the current debt load.

Don Birnam's picture

"[T]hese comparisons are mute..."

And no doubt deaf and blind as well.

Type the following one thousand times, Graham:


Joebloinvestor's picture

Greece is not a "cornerstone" of the EU, nor is it the "lynch-pin" for the world financial system,.

If in it's default, Greece does manage to pull down either, WE DESERVE IT.

aerojet's picture

Greek default could trigger a CDS tidal wave.  That's the underlying issue--everything is too tighly coupled now, any wave one place becomes a magnified wave someplace else because of leverage.

Joebloinvestor's picture

My point exactly.

The banksters have convinced some that the "end of the world" happens when CDS are triggered.


Tying the world's econonic survival to some POS country that lies it's way into the EU is PURE CRAP.

SwingForce's picture

The more appropriate comparison would be to AIG; Greece is merely a CONDUIT connecting Banksterz to the Bailout MONEY.

Count de Money's picture

"Austerity measures slow economic growth which in turn makes it harder to meet debt payments"

Not necessarily. I give the example of the hospital in Athens that had 45 gardeners on the payroll but had no garden. You could stop paying these people who tend these non-existent gardens and have no loss of economic activity because there wasn't any to begin with.

Uchtdorf's picture

You could stop paying these people who tend these non-existent gardens and have no loss of economic activity


Well, those 45 souls may not agree with you, nor their landlords, nor their grocers, nor their loan sharks.