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When Fearmongering Goes Bad: Greece Scrambles To Prevent Deposit Run Goldman Warned About In Its "Worst Case"
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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Well, I see London woke up and hammered PMs as usual.
You can set your watch by it.
Geez.
i dear them to do better. amateurs!
http://newamerica-now.blogspot.com/2014/02/beyond-collapse.html
The real question is, where is Greece's gold?
It is in Athens?
Or is it allegedly in New York and/or London? Because to actually introduce the new Drachma, you may need the gold, otherwise it will become worthless in 1 week.
If they do locate their physical it would probably be best to scrape the bars and see if they are grey underneath.
Dear Greece - Get the fuck out of the EU and Eurozone, repudiate all foreign debt, and fire everyone at your central bank.
Then do a world tour of the BRICS.
SPARTA!
"and fire everyone at your central bank."
I strongly disagree
Only Prison if not Mr Kchrisc's Guillotine will do.
Thanks.
Goldman Sachs delivered Greece to the Troika. If it had not been for them hiding the true conditions of the country's finances Greece would not have been admitted. Goldman Sachs has also hidden things for Italian banks so their regulators would not actually see what was going on. Why is Goldman hiding things- for a nice fee of course. In what universe should this be allowed? Greece should leave the Eurozone. That abomination was created for one purpose only- concentrate power. Decentralize and keep power hunger psychopaths separated. Draw a million lines over the world- power needs to be difused.
Not only that but GS alumni spread out like diseased vampire bats to infect the world's key 'regulatory' institutions. Draghi and Carney being prime examples.
Counterpunch,
Spot on!!! This would give back to the Greeks their self-pride which has been shattered.... I like it, I like it a lot!!!!...
"should Greece decide to default"
I will not hold my breath while waiting.
Bank Holidays and Bank Runs -- makes it pretty clear why the US Treasury bought all those survival kits to store in US banks...
I'd rather keep my money with Mr. Panos than keep it in a Greek bank subject to Brussels theft. Governments everywhere are in panic mode because the Ponzi scheme of fiat fractional reserve banking coupled with central planning isn't working and must eventually collapse. "Hey Greeks, got gold and/or silver?"
www.traderzoo.mobi
"Elections shouldn't matter." - Nancy Pelosi
That's the only instance when she spoke and I actually agreed with her, although not in the just-let-the-government-decide-everything context that she meant it.
Maybe it's time for the Greeks to demand that Frau Merckel and the Krauts pay the massive war reparations debt they owe Greece. Maybe Vlad and the Russian army would be willing to go to Berlin and Brussels to collect on behalf of the Greeks.
http://www.truth-out.org/news/item/27261-germany-s-unpaid-debt-to-greece-albrecht-ritschl-on-germany-s-war-debts-and-reparations
War reparations have to be payed.
I expect the payment from UK, who initiated both wars; another matter is, that Hittler opened fire as the first party.
For over half a century the unfortunate Germans have been shaken down for every dime by anyone who had event the remotest claim. I now see that the children of Holocau$t survivors - all 10 million of them - are getting on the act because of 'inherited trauma' or some such wheeze.
Historical or genetic war reparations can go anyway that you want. For example all Americans who can trace their ancestry to a slave owner could demand reparations from the US government for the value of their ancestors slave stolen, plus interest for the last hundred and 50 years. Or a slave ancestery person could demand the slave traders reimburse them for their ancestors pain and severing. War reparations are endlessly convenient to fit to the free grab for money by delusional parasites.
Frau Merckel and her NWO bankster pimps at the Goldman-Sucks and the IMF must love ya'll. Germany , which is the biggest peice of the NWO bankster's EU project, has been doing the bankster's dirty work for the last couple of decades putting ever more austerity squeeze on the EU's debt-enslaved poorer countries while relentlessly expanding the NWO Fourth Reich's EU empire with the banksters in the background in the middle of all of the financial transactions. If there is a next EU bailout for Greece, it will come with even more austerity, per Germany's usual austerity demands, which means the vulture banksters make even more scratch from privatizing the country's assets. If this charade continues, Germany and the EU will probably eventually demand that the Parthenon be privatized and sold at bargain basement prices to a front resort company for the banksters.
Hell, ironically enough Hitler was in fact the bankster's favorite useful idiot and it looks like Frau Merckel is now filling the role. Hitler destroyed old Europe which allowed the NWO banksters to set up their EU Fourth Reich which they now run via Frau Merckel's metrosexual militarily-neutered Germany.
IMO the Greeks creating some turmoil for the NWO's Fourth Reich Euoweeine project is the best thing that could happen for small abused European countries in the long run and may inspire more of them to say "Fuck the EU". If it takes things as absurd as the Greeks electing naive free-spending Socialists into power and demanding WW2 debt reparation payment to create some "discomfort" for the NWO's EU Fourth Reich, so be it. All is fair in love and war.
It is now the question: which country will be saved?
Greece or Ukraina?
Which one will be dropped?
I'm astounded that they couldn't 'encourage' the requisite number of MPs by way of modest lodgements to the tax free accounts for which Greeks are famous.
If you are a Greek reading this , the only sensible thing to do is get to the bank and withdraw 10 % of the balance and do it each day the bank opens .
Text at least 6 friends and warn them too and ask they text 6 friends .
Not all will do it but at 6 texts it should start a chain reaction.
Don't text your friends for 5 days at least!
Greece is finally waking up and bringing the democracy back! For them it took 2+ millenniums, how about us? Another 2 millenniums to go?
There are already newer news: The IMF has stopped all payments to Greece.
So the worst case is getting worse.
http://www.focus.de/finanzen/news/zahlungsstopp-iwf-setzt-hilfsgelder-fu...
Those ole' Bail-in Blues.......
Will they, won't they?
Choose the preferred choice...
Bankers win.
Elites win.
People lose as the economy is slowly strangled to support the debt. (That's a loss!)
Choose the non preferred choice ...
Bankers lose!
Elites lose!
People lose but you were going to in the other choice anyway although in total collapse as opposed to a continual strangulation the people will FAST adopt a black market style economy. Go back 40+ years ago the black market economy (the real economy for ordinary people) paying in cash was a healthy and thriving society and it...
Minimised how much governments could tax take.
Minimising the amount government could rack up in debt in YOUR name.
Minimised the inflation rate of many economies where in 12 months a multi selection box of biscuits used to have 5-6 of each type, by last year was down to 3 and this year ... wait for it 2.
So maybe an all out collapse is preferable in the long run as opposed to in 5 years time REMEMBER ALL THE PROMISES WHERE THE GREEK DEBT WAS GOING TO BE REFERENCE TO GDP by 2020? All lies ... not going to happen just more debt slavery.
Nothing has improved so 5 years of suffering were for absolutely nothing!
In the immortal words of Victoria Nuland, Fuck the EU!
If I've understood Paul Krugman's most recent screed, all Greece has to do is spend more and hire more government workers.... once they begin doing so, it's gonna be all sunshine, puppy dogs, and free ice cream, forever and ever.
Amen.
Issue everyone a bank card that gives out $10k of Dracmas and problem solved. Tell ECB F.U.
10K Dracmas = 1 gyro sandwich
Well, Hungary is not stepping in line with E.U./U.S. masters either.
Cue a sudden surge of US/Soros funded "protests" in Hungary, and MSM news articles re eeeevil Hungarian politicians... actually, that has already commenced.
So far, the Hungarians are not buying this...
Fire !! Please move calm to the exit.
The Shysters have made enough money off the Greek public, now it is time to tell them to f*** off. Time to default and wipe the slate clean.
New motto "withdraw first and vote correctly"
this is more than fear tactics, its Colonial raping, pilaging and tyranny.and now the cronies are pissed cause theres no blood left to suck out of their children.
what happens if greece discovers that it doesn't need the IMF the ECB or other peoples laws?
i guess the sun will come out, crops will grow, it will still have borders and people can cross them to trade.
perhaps no miltary, no government and no central bank would work much better than a thousand years of debt servitude to other european taxpayers, i mean really "cui bono" from the mess greece is being asked to work its way out of?
why does greece have to spend millenia talking to people whose only interest is in the repayment of the debt accumulated via a corrupt military and political system combined with the vendor financing for "stuff" it could never afford to pay back?
odious debt indeed when the accumulated debt is the result of corruption and trade malpractice by foreigners. i would think the evidence of this is obvious with 60% of under 30's unemployed. under 30's can hardly be to blame for the economic cess pit that greece has been turned into.
"perhaps no miltary, no government and no central bank would work much better than a thousand years of debt servitude to other european taxpayers"
first, those thousand years... up to now, Greece had a few months of painful primary surplus
second, why is everybody here always expecting foreigners to somehow manage to prove that "no mil, no gov and no cb" even works?
projection. chances are high you are an American. which would mean the highest military spending of the world, the biggest government of the world and the biggest, bad-ass central bank of the world
with the biggest "odious debt" load of the world: US student debt
Wow Ghordius, didn't you just properly shoot the messenger there? What are you projecting I wonder? Fear for your beloved EU project methinks.