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U.S. Fears a European “Lehman Brothers”
U.S. Fears a European “Lehman Brothers”
- European complacency regarding Greek default and exit is high - Tett
- Narrative to reassure investors that markets have already priced in effects of Greek default
- U.S. Council on Economics is alarmed by risk being taken by European elites to bring Greece to heel
- Greek default would cause a new and very “unpredictable” paradigm - huge uncertainty in markets
- U.S. policy makers fear unforeseeable knock-on effects
Gillian Tett, markets and finance commentator and an Assistant Editor and former U.S. Managing Editor of the Financial Times, wrote an important and little noticed article last week questioning complacency on the part of European policy makers regarding a Greek default and potential exit or ‘Grexit’.
Gillian Tett, FT Assistant Editor
Tett wrote that statements out of Germany that Europe could manage a potential Greek exit and that markets had already priced in that eventuality had alarmed certain policy makers in the U.S.
The German stance was a reflection of their frustration with the lack of progress made over three months of talks with Greece and a consequent hardening of tone. However, U.S. officials are alarmed by the risk they see in European complacency to a Greek exit.
Tett is highly respected both in journalism but also in financial and economic circles. In her previous roles, she was U.S. Managing Editor and oversaw global coverage of the financial markets. In March 2009 she was Journalist of the Year at the British Press Awards. In June 2009 her book ‘Fool’s Gold’ won Financial Book of the Year at the inaugural Spear’s Book Awards.
In 2007 she was awarded the Wincott prize, the premier British award for financial journalism, for her capital markets coverage. She was British Business Journalist of the Year in 2008.
Tett quotes Jason Furman of the U.S. Council on Economics as saying that a
“Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right”.
She adds that U.S. officials have privately expressed deeper concerns about the situation. She puts the difference in attitudes down to two main factors.
The first is that Germany, as a 30% stakeholder in Greek debt, has a lot to lose from leniency toward the Greeks while the Americans have first hand experience - with the Lehman Brothers crisis - of how quickly financial contagion can spread causing a crisis to spiral out of control.
Tett makes three key points regarding the Lehman’s crisis which she believes are pertinent to the current attitude towards the Greek situation.
Firstly, it is nigh on impossible for policy makers to predict and protect against every eventuality that crops up in a crisis. Tett reminds readers that in the wake of the Bear Stearns crisis regulators worked “obsessively” to avert a major crisis and yet could not contain Lehman Brothers catastrophe six months later.
This was because they were focussed on risks posed to the derivatives markets whereas it was an overlooked legal issue which precipitated the Lehman’s crisis, “namely that the UK bankruptcy code ringfenced investor assets differently from New York’s.”
Secondly, if Greece were to fail it would likely bring attention to bear on other debt-laden European economies. When the Greek finance minister made the comment that Italy’s debt was also unsustainable, it was met with hostility but not too many were willing to utterly refute it.
Tett argues that a Greek failure would lead, as Lehman’s did to “wider policy uncertainty: when Lehman failed, the entire paradigm for finance suddenly seemed unpredictable”.
The third point is that “political turmoil matters”. She argues that what really sent the markets into free-fall back in 2008 was the unexpected political decision by the U.S. not to bail out Lehman’s. Political uncertainty stemming from a Greek default and possible exit could cause a similar crisis in Europe and then globally.
Tett acknowledges that the economies of vulnerable countries like Ireland and Spain have been improving which may insulate the eurozone somewhat from contagion.
However, she argues that
“the sheer opacity of financial institutions still creates plenty of scope for nasty logistical and legal surprises” and adds that “there is no guarantee that political surprises would end with a Greek exit; as in 2008, it might initially create more policy uncertainty.”
She sums up by writing that while the Europeans may be able to handle the initial effects of a Greek default, the Americans are concerned by secondary knock-on effects
“Not least because there is a fourth lesson from Lehman Brothers: when a crisis hits, the value of afflicted entities tends to shrivel. The hole in Lehman’s balance sheet became much bigger than anyone imagined. And that is a scary thought to contemplate in relation to any Greek exit scenario — not just for Greece but the entire eurozone.”
Tett is one of the most insightful financial analysts today - she is highly respected and rightly so. She has written favourably on gold due to it being a tangible asset and this tangibility is important in a world where assets and money are increasingly forms of digits on computer screens.
Breaking Gold and Silver News and Research Here.
MARKET UPDATE
Today’s AM LBMA Gold Price was USD 1,187.40, EUR 1,070.94 and GBP 785.59 per ounce.
Friday’s AM LBMA Gold Price was USD 1,179.00, EUR 1,049.24 and GBP 771.04 per ounce.
Markets in London were closed yesterday but gold and silver saw price gains of 0.92 and 1.6 per cent respectively.
Last week, gold was flat and incurred a marginal 0.05 per cent loss but silver rose 2.8 per cent last week.
Gold in U.S. Dollars - 1 Week
In Asia overnight, Singapore gold prices ticked marginally higher but those gains were lost in London trading this morning.
Markets will focus on monthly jobs data on Friday which should give more clues on whether the Federal Reserve will be raising interest rates any time soon. We suspect not given the recent weak data; this should support gold.
A weak jobs number this week should see gold rise above the $1,200 an ounce level again.
The European Commission slashed Greek economic growth and primary surplus projections today. They forecast deeper price falls and a higher public debt as a result of uncertainty that has dogged Athens policy direction since late 2014.
ECB governing council member Christian Noyer said the spike in eurozone government bond yields in recent days was not a cause for concern.
Assets in gold exchange-traded products held near a six-week high. Gold ETFs holdings were at 1,626.81 metric tons on Monday from 1,627.3 tons on Friday, the highest since March 19, according to data compiled by Bloomberg.
In Europe in late morning trading gold bullion was flat at $1,188.44 an ounce. Silver was down 0.15 percent at $16.43 an ounce and platinum fell 0.29 percent at $1,147.49 an ounce.
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Yeah, it is a bigger deal than Lehmann's and there is a lot of uncertainty as to how it will play out - but there no other options - Greece cannot, under any realistic scenario, afford it's debt; more importantly, ultimately it's the Central Banks on the hook in terms of losses - and it has simply ceased to matter how large those losses are. In some respects, a Grexit is not a big enough event to shake out the bad loans, meaning more borrowed money to prop up a mispriced economy. Hyperinflation should be a possible cause for concern.
"A weak jobs number this week should see gold rise above the $1,200 an ounce level again." I'll say there will be weak job number and notice we never hear of "net" jobs because if we did it would reveal the truth. I digress, with the weak job number; the Gold price will go down, not up, to $1150-1165 range...
Quote: "U.S. officials are alarmed by the risk they see in European complacency to a Greek exit." Precisely why the Banking Cabal is working on "back-door" maneuvers to prevent an exit and try to put the leash on Portugal, Italy and Spain...appears the Roman Catholic parts of Europe can't pay their debts while the Vatican sits on piles of pilfered ($$$$) metals, art, drugs, and human trafficking.
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I’m stirring the soup and I notice I can’t see the bottom of the pan.
Is there a bottom of the pan?
With Lehman, there was no bottom.
It was a bottomless pit of leveraged mirages.
Europe is not Lehman.
It is “the city”.
No worries mate!
+100 sarc points!
If most of the market today is algorithm based, wouldn't it be simple enough to just change the algorithms to simply ignore Greece? GIGO
No can do with existing CDS or interest rate swaps
What clap-trap. Not onefact exposed or discussed. What are the facts? Just emotional hand wringing. Useless. If a sky scraper was teetering, the engineers would be studying the facts not the emotional hand wringing and whining back and forth to each other. Oh me o my! What if? What if? How about we never quote such shit again - a huge waste of time. Not 10 cents worth of information.
Most fear about Lehman, since Lehman.
A reminder of the surprises awaiting investors is the default of the Austrian bailout bank, with bonds supposedly guaranteed by one of the Austrian states. It has not been resolved yet as to what any investor will receive or where there are supposed guarantees. The collapse of those bond prices punch more holes in the balance sheets of other banks. The bonds were highly rated and required little in reserves to hold.
Good points, Augustus.
Under EU rules, bonds with sovereign guarantees are zero-risk rated, but the Hypo Adria bank bonds with their guarantee by the Austrian province of Carinthia are turning out to be worth less than face value.
This is earth-shaking in the EU financial world, as well, because senior bank bonds have not suffered any haircut recently (before this Austrian blow-up). Echoes of Kredit Anstalt.
The banks of Germany are suffering in this. Bayern LB was suckered into buying Hypo and putting in Billions of Euros before it collapsed and was sold to Austria's federal government for One Euro. Bayern remains on the hook as owing several hundred million Euros on Hypo. Contagion from Hypo is ongoing in German banking circles.
See Banking Group HGAA stokes conflict between Vienna and Munich, http:s//www.wsws.org/en/articles/2015/04/18/hgaa-a18.html
Meanwhile, the news is all about Greece and Draghi's QE, and the snowballing Austrian default problem is being ignored. (More whistling past the graveyard?)
Except one must remember that everyone knew of the state sponsored fraud and instability in the system before 2008. The money class needed an abrupt panick-inducing event to give political cover to open monetization, global sovereign bond fraud, Anglo-American led international recapitalization, and currency war. In addition, the little people-depositors-savers were cleared out of the pool with the added bonus of swift market gains by short and put holders who looted large and small outsiders. Then, again following the inside cabal script, they restarted the global money pump and rejoined themselves with the equity market on long. Absolute plunder through financial instruments.
It's time again for a panic. Equities are so intensely overvalued as to have no semblance of pricing derived from assets, cash flow, entrepreneurial additions. All bond and equity markets are an open farce. What thinking person could ever believe it could continue a generation, let alone a decade?
(Although, as an aside, prompting Japan mired in a ZIRP environment to make currency swaps and thrust head-over-fist into ZIRP-mired treasuries was brilliant. After the 40%+ adjustment in USD/JPY, a massive secret wealth transfer and life saver for that nation was pulled off.) Enough to completely rebuild a large modern city or several cities...or keep paying pensions for a few more months.
Fake prosperity directed to a new feudal order can be squeezed from another savage slump. Then additional global hyper pumping of funny money. Once real collapse comes, all the productive enterprises and worthy assets can be further transfered to the political/banking class. The Bretton Woods erected money institutions which are still governing the world couldn't have been happier with Lehman. It gave them sweeping powers (above any review or restraint) and enriched its charter constituents beyond belief.
The Creature is losing fuel and must feed!
It knows where to find it.
Lehman failed because the Gubberment would not send good money after bad, and the private sector would not send good money after bad either. If BIG Gubberment, and the private sector, won't spend a dime to prop up a failing bank, who will, Ms. Tett? Lehman failed because Richard 'the dickhead' Fuld was overleveraged on McAllister Ranch in Bakersfield CA. Furthermore, risk assessment advisors warned 'the dickhead' and he let it go in one ear and out the other!!!
Do'nt worry too much it'll soon be over.
Hahahhahaaaaaaaaaaaaa.
Created by the Wall Street whores. Of course it will happen , just as planned.
and so..."The stress fatigue in the entire world economy is obvious to everyone but them..." refuted.
The Grand Master knew, and planned.
So US officials want Germanand Eurozone taxpayers to bailout deadbeat and Goldman Sach to prevent a disaster on the home front. Beahahaha...Germany will probably do it.
One opinion, which adds NOTHING.
I Like GT but I think she is blinded with that remark
“Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right”.
CDS deluge
Europe Fears a US “Lehman Brothers”
Fixed it.
Who else, on seeing that face, scrolled down just to see if she was topless?
It's not what you see coming that'll kill you, it's what you don't see coming. All over the world the super-genius elite has decided that they can bend the system however they want to get whatever they want, but they don't understand that if you beat on something with a big hammer, it will eventually break. The stress fatigue in the entire world economy is obvious to everyone but them...
Exactly. From elsewhere in the article:
"She adds that U.S. officials have privately expressed deeper concerns about the situation."
I fear a Japenese Leman Brothers. Or China. Or {__________}.