When Fearmongering Goes Bad: Greece Scrambles To Prevent Deposit Run Goldman Warned About In Its "Worst Case"

Tyler Durden's picture

Earlier today we got a classic, if rare, example of what happens when bankers bluff with a 2-7 off suit... and the people call it.

Recall that just over two weeks ago, none other than Greek currency swap expert Goldman (alongside Jean-Claude Juncker who quite explicitly warned Greeks not "to vote wrong") came out with a fire and brimstone worst-case scenario for Greece, which was nothing but an attempt at fearmongering designed to scare Greek MPs into doing Samaras' bidding, in which it said not electing the designated presidential candidate may lead to a worst-case scenario which involves a "Cyprus-style prolonged bank holiday."

For those who have forgotten, these were the salient points from Goldman:

In the event that the parliament fails to elect a president, general elections would be held and market uncertainty/pressures would extend. At this stage it is important to understand that market pressures are not linked to the democratic process of elections nor to a potential government change, whatever the ensuing government formation may be. They are linked to the risk of policy discontinuity and a severe clash between Greece and international lenders. More specifically, we think the room for Greece to meaningfully backtrack from the reforms that have already been implemented is very limited. Any such attempt would lead to an interruption of official financing to Greece.

 

Examining the downside scenario.

 

To be sure, even in the event of a government change, there is room for a cooperative solution between Greece and Europe. Greece has made significant reform progress between 2012 and the gap between what has already been implemented and what remains to be done is not insurmountable.

 

Also, the incentives for a clash are not there. For instance any Greek government would likely want to capitalize on the momentum that the economy is building on the activity front, rather than trigger a disruptive capital flight that would lead Greece to a double–dip recession. In addition, given that more than 80% of Greek debt is held by the official sector and given that any OSI would be feasible only as part of an agreement with the Euro-area, there is an incentive for a Greek government to pursue cooperative solutions.

 

However, the history of the Euro-area crisis has shown that the probability of an “accident” can never be dismissed, when it comes to intra-EMU politics. And it is important for markets to be able to understand and quantify the aspects of a potential downside scenario, where official financing to Greece is interrupted.

 

The Biggest Risk is an Interruption of the Funding of Greek Banks by The ECB.

 

Pressing as the government refinancing schedule may look on the surface, it is unlikely to become a real issue as long as the ECB stands behind the Greek banking system. In fact, refinancing became a lot more pressing between 2011 and 2012. But financing needs were met despite the impasse in negotiations between Greece and international lenders – partly via the issuance of T-bills repoable at the ECB by Greek banks. Such methods can always be revisited at times of extreme need.

 

But herein lies the main risk for Greece. The economy needs the only lender of last resort to the banking system to maintain ample provision of liquidity. And this is not just because banks may require resources to help reduce future refinancing risks for the sovereign. But also because banks are already reliant on government issued or government guaranteed securities to maintain the current levels of liquidity constant.

 

And this risk can become more pressing from a timing perspective. At the heat of the Greek crisis, there was evident deposit and broader capital flight, which Greek banks helped accommodate with ECB’s help via the ELA facility. In the event of a severe Greek government clash with international lenders, interruption of liquidity provision to Greek banks by the ECB could potentially even lead to a Cyprus-style prolonged “bank holiday”. And market fears for potential Euro-exit risks could rise at that point.

Stripping all the political correctness, what Goldman said is that unless Greece quickly folds back in line and does as unelected Brussels eurocrats demand, there may well be a Cyprus-style bank closure coupled with preemptied bank runs.

Oops. Because if that was the doubled-down bluff, then Greece just called it, and the "downside scenario" is now in play.

Which means Greece now has to scramble to avoid precisely what Goldman warned would happen if the Greeks dared to put their (meagre) savings at risk. And, case in point, here is the Greek finance minister rushing to squash the next steps, which - as Goldman so conveniently explained - involve potential bank runs, a potential bank holiday, and potential Cyprusing of the financial system, only this time it is not Russian oligarchs who are most exposed - they have learned their lessons by now - by ordinary Greeks.

Here is Newsbomb.gr with what is sure to be an amusing backtracking on all the fearmongering that had been unleashed previously.

The government has guaranteed that bank accounts are safe and legislated deposit safeguards in the event of a shakeup ahead of Monday's parliamentary election for Greek president, Finance Minister Gikas Hardouvelis said in an interview on Sunday's Vima.

 

Hardouvelis was speaking ahead of the third and last attempt by this Parliament to elect a Greek president that will held on Monday, December 29. Failure to elect one
"We are preparing to withstand any rolling and pitching. We have already passed laws safeguarding bank deposits, and are in constant touch with our EU fellow-members, while the whole government will be on alert and vigilant," Hardouvelis said.

 

Hardouvelis said that Greece must continue "to the next stage, which will be based on our growth plan, under our own initiative, without coercion by the troika of Greece's lenders."

 

Speaking of "bank deposits, which are safe," he said his ministry had "taken care this past week and legislated the option of the Hellenic Financial Stability Fund's to lend money to the Hellenic Deposit and Investment Guarantee Fund if it needs greater reserves than those available to support depositors."

 

Asked whether he thought that a new government might be elected with a stance hostile to the memorandum, the finance minister replied, "The key to avoid tossing and turning and our economy's future in 2015 and later is held by the European Central Bank... This key can easily and abruptly be used to block funding to banks and therefore strangle the Greek economy in no time at all."

Actually no.

The ECB's hands are tied right now, because the last thing Mario Draghi can do is proceed with open monetization of peripheral bonds (which would have to be purchased in any ECB public QE alongside all other Eurozone bonds) at a time when Greece can pull the rug from under the ECB's already massive holdings of Greek public debt, and enforce a haircut which would impair the ECB's balance sheet, in the process costing Mario Draghi his job and a handing the victory to the "sound money" Bundesbank on a silver platter.

Worse, should Greece decide to default it would means those several hundred billion Greek bonds currently held in official accounts would go from par to worthless overnight, leading to massive unaccounted for impairments on Europe's pristine balance sheets, which also confirms that Greece once again has all the negotiating leverage.

So with the ECB out of the picture, and with the ball in Greece's court, it actually makes the situation that much more unstable, and indeed could be just the precursor to the "Cyprus-style bank holiday" that Goldman warned about.

How credible will this warning be in practical terms over the next month as Greece prepares for a historic election? Keep an eye on those lines in front of ATMs, because unlike Cyprus, at least the Greeks still have access to Euros. The question is will they pull out enough Euros before their only currency option in front of the ATM is New Drachmas?

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Kaiser Sousa's picture

heres how u stop Goldmans fear mongering...

march over to their building...
drag some employees and execs out...
then stomp them the fuck out in front of the cameras...

problem solved.

y3maxx's picture

...The NWO currency will be the Canadian Loonie.

 

No pun intended.

The Loonie will be backed by Wheat, Alberta Tar Sands, Gold, Silver and the RCMP's Dudley Do-right, because "they always get their man."

Dragon HAwk's picture

The Canadians gave up their guns their toast....

Buckaroo Banzai's picture

"Next man moves, and the nigger gets it!"

BaBaBouy's picture

We Reject Keynesianapoulos...

BaBaBouy's picture

We GoldmanSacked A Few Folks...

Manthong's picture

Greece is not Cyprus?

..or what.

yrad's picture

"But financing needs were met despite the impasse in negotiations between Greece and international lenders – partly via the issuance of T-bills repoable at the ECB by Greek banks. Such methods can always be revisited at times of extreme need."

Someone explain this to me please?

Greenskeeper_Carl's picture

It's just a way for them to move collateral around. All these are is issues of debt that are supposedly worth X amount of euros. They are held as good collateral based on the mistaken belief that they will actually be repaid someday. It's a way for the ECB and Greek banks to maintain the illusion of solvency. It's just a thin veneer of debt

WOAR's picture

We owed some folks.

Emphasis on "owed".

NoDecaf's picture

The last piece of furniture in Greek homes will be the mattress.

KnuckleDragger-X's picture

Nope, not Cyprus. The Greeks are very stubborn and trying to threaten them will make it worse and they have a history of doing what they damn well want.

Greenskeeper_Carl's picture

Yep. Threatening them probably won't go well. It's won't go well for the Greeks either, since the banks will get their retribution against the Greek people, one way or another, but since it is inevitable, they might as well get it over with. What this boils down to is that other EU member countries will pay up at the behest of their own countries banks and the ECB, since if Greece defaults those banks will lose billions when their Greek bonds become worthless. And the Eurocrats and the rest of the EU member nations will choose the banks over their people. It will look like a bailout of the overspending Greek govt and their entitled people, and that is part of it. However, it is also, and more importantly, bailing out all other banks who hold Greek bonds on their books, since they would become worthless absent another bailout.

Real Estate Geek's picture

The EU screwed up. First order of business should have been to fluoridate the water so the Greeks would be more cooperative, like Merkans.

CoonT's picture

What??  It doesn't matter that I can't get my Tavor to accept my 100 rd drum-mag....NFA will see AR15's non-restricted soon enough. Then maybe I'll be taking it to the range in my $500.00 Norinco AR; maybe I'll bring along my 1911 and one of my $400.00  m-305's, or $200.00 SKS's....

 

 

NFA,  Bitchez!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

garypaul's picture

No Dragon HAwk, we Canadians are fine. Amerians have lots of guns...they're toast

Bananamerican's picture

no Gary, Canadians are docile...big difference

Metalredneck's picture

You dumbass Yanks always get that wrong.  We all have guns, we just don't shoot each other.

BobPaulson's picture

The loonie is just part of the dollar. CSEC and CSIS are NSA/CIA branch offices. Nuff said. As domestic unrest in the US spreads Canada cannot escape it due to 9000 km of shared border.

Joe Trader's picture

you'd be surprised how passive canadians are & how much they trust the gov. no looting during a flood event that covered downtown areas...in fact the gov looted guns from evacuated homes yet there was still order & still people trust the gov despite this

oh...and usd/cad proves you otherwise.....glad i sold all my cad for usd each time it crossed the 50sma..

Monty Burns's picture

"Canadians" might be passive and law-abiding but your millions of recently-introduced cultural enrichers from Africa and Pakistan are unlikely to be so accommodating.

Joe Trader's picture

true - the ones i've met are ruthless. but that's why europe had "relocations" after wwii to solve these kinds of problems.

angel_of_joy's picture

Over 20% of Canadians are foreign born 1st generation immigrants. They are FAR from passive and don't trust ANY governments (Canadian one included...)

robertocarlos's picture

Don't joke about my POS country. We're toast.

Bananamerican's picture

wish i could up arrow and down arrow comments at the same time cuz i don't know which country you're talking about

;)

BlindMonkey's picture

Yeah. I can see the Greeks now moving their money to the safety of the Ruble. 

 

More boomerangs for Europe.  

gadzooks's picture

Sure! we`re gonna need a nuclear arsenal, our gold reserves back,and some legal national control over our own natural resources! its good not to be the enemy!

McCormick No. 9's picture

Bond contagion pressures mount. 30 yr Treasury yields up 2 BP, while 10 yrs bonds fall. Syriza promises skittles for everyone, and no doubt they will be swept into power, proving democracy is not a good form of government for lemmings.

With low oil prices putting pressure on the HY sector, and the Fed toying with rate hikes, do we expect Greek bonds to skyrocket in isolation? Everone thinks, "Who cares? Isn't Greece in Level 4 isolation, and attended by Dr. Goldman?"

 

Jstanley011's picture

"Dr. Goldman, Dr. Goldman. You are needed in Emergency Proctology immediately."

"Here, nurse. Hold my pants. I've got work to do!"

tarsubil's picture

Would this really work? My guess is that they would sick their private armies on you pretty quick and sick their personal media companies on you too. They end up murdering your family while making them seem like martyred saints to the public.

Better to just get rid of all debt and take delivery on gold and silver (final elimination of last debt when holding dollars). Honestly, the movement against the great vampire squid will have to be something like the Fremen on Arrakis. Slowly but surely.

cro_maat's picture

Fremen = ISIS = CIA

The Spice must flow.

Buckaroo Banzai's picture

Fremen weren't a suicide death cult like Islam. That's where your analogy breaks down.

But, the Spice must indeed flow.

Luckhasit's picture

Nice to know someone read the novels.   However Islam is no suicide death cult.  They're extremists.

zorba THE GREEK's picture

You would think that the ECB would have learned by now not to play poker with Greeks,

especially if you are playing with their deck.

Ghordius's picture

the Squid is as usual full of lies. subtle lies. take this part:

"The Biggest Risk is an Interruption of the Funding of Greek Banks by The ECB. Pressing as the government refinancing schedule may look on the surface, it is unlikely to become a real issue as long as the ECB stands behind the Greek banking system. In fact, refinancing became a lot more pressing between 2011 and 2012. But financing needs were met despite the impasse in negotiations between Greece and international lenders – partly via the issuance of T-bills repoable at the ECB by Greek banks. Such methods can always be revisited at times of extreme need."

that's a wonderful conflation of the financing/refinancing needs of the Greek sovereign and the liquidity that the ECB provides to the Greek national banking system

trust a damn Squid Banker to take such terms and twist them like a bretzel in a sentence full of doom for those it wants to go down

MsCreant's picture

Thanks for putting words on that. I saw it and thought, "But they are bankrupt and propped up anyway, what is special about now except for playing the blackmail game?"

Nothing new here, they are just threatening to turn off the music for musical chairs if they don't get their way. Time to claim as many chairs as you can before others start trying to sit down. Past time. I got mine as best as I can.

Ghordius's picture

the strangest thing about this business is that the Squid sounds... butthurt. and I really don't think it really cares about the long-term game, only about doing some short-term games with the CDSs on Greek debt, which are it's best handle on the Greek banks that issued them. meanwhile I'm told Europe seems to be bombarded with old news about the IMF and Greece, repackaged as new

Eirik Magnus Larssen's picture

The current so-called rescue policies are exclusively focused on short-term interests, primarily those of the banks.

Calmyourself's picture

Hey Half-man ot but care to comment on Malmos police station being bombed and layed seige too... Thats all a lie too right...

Meat Hammer's picture

Each one of their warnings is a billboard advertisement of the perils of central banking. Unfortunately, the sheeple are too stupid to see it.

MEFOBILLS's picture

The central banks are private entities for privately created money.  This privately created money has usury and rents imbedded in it, in order to profit at the expense of everybody else.

Note words like SWAPS and EXCHANGES are a method of rent taking.  Swapping two  unlike items is usually at the root of private banker magic. 

Draghi is also a Goldman - so their method is to insert their puppets.  The real power is the system design, and said system design is money that is not sovereign.  

The Federal Reserve note is a debt instrument from a private central bank, sanctioned by government - and I would say coerced into this sanction if one does a fair reading of history. 

The idea is to have the entire world hypothecated and subjected to debt instruments.  These instruments recall their credit and direct humanity.

scrappy's picture

There are two types of currency in circulation. US Notes, and Federal Reserve Notes.

Lawful Money = United States Notes; Not “Federal Reserve Notes”

Title 12 USC §411 :

http://www.law.cornell.edu/uscode/uscode12/usc_sec_12_00000411—-000-.html

Read:

“Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank. “

This proves that “Lawful Money” and “Legal Tender” are not the same.

Read the whole article here:

http://stormthunder.com/federal-reserve-act/

PTR's picture

Ok. Cornell link: "Lost and Found

Looks like something has moved -- sorry! Use the search form below to continue searching, access the advanced search, or contact us directly."

Augustus's picture

Kaiser Sousa:  

"march over to their building...
drag some employees and execs out...
then stomp them the fuck out in front of the cameras...

problem solved."

+++++++++++

 

Extreme nonsense as suggestion to combat investor fear.  Those UP votes demonstrate how many other morons read ZH articles.

Killing some bankers does nothing to increase confidence in government ability to guarantee bank deposits.

Goldman did not vote for the policies that, over the last 30 years, have indebted the population and the country.

Tsipras and Syriza party promise to restore the policies that created the present debt crisis, and expect to get the ECB bailout funds while giving current bond holders another haircut.  Is there any problem with that logic?

paddyirishman's picture

fuck you you kike hasbara troll, you and your tribe will rot in hell for the misfortune you have brought upon the earth.

strateshooter's picture

thoroughly excellent suggestion

 

alexmark2013's picture
2015 Forecast-Manipulation, Depression and War- Gerald Celente - Very Serious Economic & Geopolitical Game Changer Coming in 2015 http://investmentwatchblog.com/2015-forecast-manipulation-depression-and-war-gerald-celente-very-serious-economic-geopolitical-game-changer-coming-in-2015/
401K of Dooom's picture

Wait, what?  Greece still has a government?  I thought they sold it on Ebay?

Bryan's picture

I bid $1 but someone sniped me.

MsCreant's picture

It's okay, you can pretend to have it, that's what they are doing.