This page has been archived and commenting is disabled.
The Truth About Greece… and What It Means For Larger Problem Countries
The situation in Greece has very little to do with politics or economics. Instead it is entirely focused on just one thing.
That issue is collateral.
What is collateral?
Collateral is an underlying asset that is pledged when a party enters into a financial arrangement. It is essentially a promise that should things go awry, you have some “thing” that is of value, which the other party can get access to in order to compensate them for their losses.
For large European banks, EU nation soveregin debt (such as Greece) is the collateral backstopping hundreds of trillions of Euros worth of derivative trades.
This story has been completely ignored in the media. But if you read between the lines, you will begin to understand what really happened during the Greek bailouts.
Remember:
1) Before the second Greek bailout, the ECB swapped out all of its Greek sovereign bonds for new bonds that would not take a haircut.
2) Some 80% of the bailout money went to EU banks that were Greek bondholders, not the Greek economy.
Regarding #1, going into the second Greek bailout, the ECB had been allowing European nations and banks to dump sovereign bonds onto its balance sheet in exchange for cash. This occurred via two schemes called LTRO 1 and LTRO 2 which happened in December 2011 and February 2012 respectively. Collectively, these moves resulted in EU financial entities and nations dumping over €1 trillion in sovereign bonds onto the ECB’s balance sheet.
Quite a bit of this was Greek debt as everyone in Europe knew that Greece was totally bankrupt.
So, when the ECB swapped out its Greek bonds for new bonds that would not take a haircut during the second Greek bailout, the ECB was making sure that the Greek bonds on its balance sheet remained untouchable and as a result could still stand as high grade collateral for the banks that had lent them to the ECB.
So the ECB effectively allowed those banks that had dumped Greek sovereign bonds onto its balance sheet to avoid taking a loss… and not have to put up new collateral on their trade portfolios.
Which brings us to the other issue surrounding the second Greek bailout: the fact that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy.
Here again, the issue was about giving money to the banks that were using Greek bonds as collateral, to insure that they had enough capital on hand.
Which brings us to the other issue surrounding the second Greek bailout: the fact that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy.
Here again, the issue was about giving money to the banks that were using Greek bonds as collateral, to insure that they had enough capital on hand.
Piecing this together, it’s clear that the Greek situation actually had nothing to do with helping Greece. Forget about Greece’s debt issues, or protests, or even the political decisions… the real story was that the bailouts were all about insuring that the EU banks that were using Greek bonds as collateral were kept whole by any means possible.
So here we are today and Greece I sback in the headlines. Once again the country is out of money and the ECB and IMF are trying to punish it without hurting the larger EU banks.
Why are they making such a big deal about Greece… a country whose GDP is just 2% of the EU?
Because whatever happens in Greece will be used as a template for much larger problems AKA Spain and Italy.
Spain and Italy, by comparison, have €1.78 trillion and €1.87 trillion in external debt respectively.
That is a heck of a lot of collateral that would be in BIG trouble in the event of a bond crash for either country.
And both countries have bond yields that are spiking...
Here’s Italy:
Smart investors should take note of this now. It is a MAJOR red flag to be watched closely.
If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.
We made 1,000 copies available for FREE the general public.
As we write this, there are less than 50 left.
To pick up yours, swing by….
http://www.phoenixcapitalmarketing.com/roundtwo.html
Best Regards
Phoenix Capital Research
- advertisements -
I understood that the collateral is the labour of the tax-base.
Money is lent on the understanding that taxes will be extorted, to repay the loan with interest.
In a nutshell, that is why debt is slavery.
You should read this while this song plays in the background:
Merle Hazard's hit song - The Great Unwind
https://www.youtube.com/watch?v=hj86YsaoCtw
"... the fact that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy..."
Wait. The Greeck economy ALREADY "got the money", when the bonds were issued ... what's the sense of above remark ?
If you would want to shower with money "the Greek economy", you would need new bonds issued / new lenders.
Now, people were already stupid enough to lend 500 Bllions to 11 Mio people / most of all to their politicians.
They wasted this cash in olimpic games and endless corrouption ? Perfect.
Let them now sell olive oil and pistaches for the next 200 hundred years, to repay all this mess ...
Come on! Evererbody is doing it.
I certainly agree there is a definite problem with collateral. Not only is extreme leverage a problem, the collateral used to back up "loans" is suspect at best. A problem we are not allowed to see is what they do with derivatives. Is there any collateral required for the hundreds of trillions of these instruments? And why is it a good idea to consider soveriegn debt an excellent source of collateral? If the big banks (the owners of these banks) are not allowed to lose money, this entire system guarantees more bailouts. I can see a situation where the mother of all bailouts will be required.
What could possibly go wrong with blind leading cripple off a cliff
It's the "Euro parasites feeding off of the smaller Greek parasite" strategy. For now. They will then successively turn to the next weakest parasite after the other until only the biggest parasite is left whence it will starve to death.
If you're going to do "Remember", should add the Root, something only known by the usual tiny group...Remember...pastes below from quick search:
Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its True Debt www.spiegel.de › English Site › Europe › Euro Crisis 2010 Der SpiegelFeb 8, 2010 - Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal...At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit.
Corruption, EuroStyle: ECB Chief Draghi Fudged Italy's ... www.nakedcapitalism.com/.../corruption-eurostyle-mar... Naked CapitalismJun 26, 2013 - Goldman continued to help Greece dress up its books and offered to intervene in ... not merely because Goldman had helped Greece fudge its accounts and ... A new story by Financial Times shows that Draghi and the ECB had far more to hide than the Greece scandal. It appears Draghi was directly involved in arranging similar, much larger transactions for Italy while Draghi was the director general of the Bank of Italy, in 1999.
==========
and then there's the Corzine Fiasco x2
Greece and Corzine - Huffington Post www.huffingtonpost.com/.../greece-and-corzine-fixi... The Huffington PostNov 9, 2011 - Imagine a former Goldman Sachs CEO, placing massive bets on a small, distant nation. It's not that he thinks that this small country, whose ...
Those IT & ES 10Y yield graphs say it all. Buckle-up time - it must be close. Reminds me again of that Hemingway quote:
“How did you go bankrupt?""Two ways. Gradually, then suddenly.”
So what would happen, if for the time being, Greece allowed say American physical dollars to be legal tender (no electronic dollars), then slowly reintroduced the drachma pegged to the dollar to phase in stability?
I don't think this can happen while Greece is in the EU though, but Greece isn't going to repair itself while in the EU anyway, and that applies to all EU member Nations. They remain broken until exit.
At some point, probably very soon, the truly dire state that German finances are in, is going to become crystal clear to everybody, and at that point, the pedal hits all manner of metal.
You are confusing European Union (EU) with the EuroZone (EMU).
These are two different entities.
Greece will leave the EuroZone and create the GyroZone.
Yes it was about saving the banks over a population and the Greek people DO NOT WANT TO BELIEVE THIS! Mugs them.
The first bailout WAS NOT IN THE INTEREST OF THE GREEK PEOPLE their path was already chosen YOU WILL BE BUST AT SOME POINT JUST WHEN and all about foreign banks. Now what is an odious debt? They were already bankrupt and lending them more when the likes of the IMF knew full well it could never be repaid and only done to preserve foreign banks ... that has to be odious in any shape or form., if not then odious debt is as common as rocking horse shit = non existant.
Those points are trivial compared to this though ...
All sovereigns around the world, using the Keynes mechanism to sustain itself and without the collateral to support the level of debt will all have serious long term problems and you cannot CTRL-P collateral.In a Keynesian economy using the population level as collateral loses value as you inflate ever higher because a man in say China can do the same thing for pennies. So if you buy other governments bonds likely they do not have the collateral to support the value neither.
All sovereigns are trying to preserve their own asses and rule one! DO NOT GIVE UP YOUR CURRENCY it is the only solution when their is no other way even Zimbabwe is still going LOL but oh no not Greece because it is an EZ / EU country!
The issue is SOVEREIGNTY.
A SOVEREIGN is someone whom noone can order around. A sovereign does not HAVE to repay anyone. If someone loans money to a sovereign, that someone is taking a risk, because if the SOVEREIGN, even though he might have intended to repay the debt, becomes unable to repay the debt, then noone can order a SOVEREIGN to pay a debt, because noone can order a SOVEREIGN to do anything.
A nation is defined as a SOVEREIGNTY. No SOVEREIGNTY, no nation.
Of course, history is full of examples of other nations militarily invading SOVEREIGNS in attempts to collect debts from them.
The question is how important to Greeks is their SOVEREIGNTY.
Is their SOVEREIGNTY important enough to Greeks for them to risk being militarily invaded? What defenses do they have?
Or, indeed, have Greeks already decided that their SOVEREIGNTY is less important than the financial benefits the Euro brings or might bring them?
all eurozone countries gived up their sovereignty to print money, didn't you get the memo?
Jony, I NEVER seem to get your memos. :-)
No more France, Italy, Spain, Switzerland, Poland, Luxembourg, Macedonia, etc.
Just "Europe". Just a boring monoculture. With one set of rules, which always reduces experimentation in everything from art to science. Imagine a planet that was a monoculture. BORING! Monoculture is death. Diversity is life. The Founding Fathers tried to create a Republic, in order to prevent such a monoculture. What is wrong with bankers, that makes them always work to replace diversity with monoculture? Do they come from a monoculture planet in which there is only one flower, one song, one book, one way to make a living? I pity them.
To Great Recovery:
Absolutely right. The genius and uniqueness of each culture and race must at all cost be protected.
+100
Banks are the reason for needing inflation --paying off loans in the future with cheaper money. Problem is that a prolonged recession means that the money gets spent on other living expenses and there isn't enough left to service the p&i when the time comes down to the end of the loan.
The "extend and pretend" doctrine is now an essential part of government finance in Southern Europe.
"Central Banks" maybe but not real banks.
No, real banks do not borrow from the Government then loan it back to same said Government for 2%.
Folks on Wall Street have high expectations when money printers monetize the debt. 6, 8, 12% is more like it unfortunately.
There the question is to me "where is the cash" not where the gold is. There is no problem with the private sector producing dollars.
Why there is no return on those dollars is simply beyond my pay grade. This energy boom alone should be producing economic growth in the 6-8% range.
Instead it's producing bankruptcies and a mid cycle correction...economically speaking.
"As with gold so it is with dollars" would appear.
Because whatever happens in Greece will be used as a template for much larger problems AKA Spain and Italy."
The troika and the EU KNOW there is nothing they can do...except shut up...and continue to bailout Greece. Bonds, schmonds...that doesn't matter. It's all entries on many balance sheets, and calamity is unavoidable.
A great many will be hurt; and many will lose more than that.
What DOES matter are the sociopolitical ramifications of major economic collapse. The world hasn't been anywhere close to this kind of chaotic potential since the Great Depression, and the height of World War II. And this is worse. We are a much bigger, much more interdependent, considerably more powerful world than we used to be.
We are also very spoiled, selfish, and entitlement-minded. Single individuals today can wield significantly more power than ever before.
The fact is, even a dysfunctional Greece works in a pre-outsourced western world. It doesn't anymore, because middle class wealth creation is gone. The reverb from the profit-sick western corporate shortsightedness painfully lingers on, and it cannot be undone, no matter what crafty underhanded schemes the ECB, the Fed, or any other entity, conjure.
Crash is imminent.
Either the powers-that-be KNEW who the PIIGS are economically when their EU membership began, or they SHOULD'VE known, and are therefore, guilty of negligence. In either case, a lot of heads at the top need to roll, and the rest of the globe should take steps now to isolate and contain as much of the EU's unfolding disaster as possible.
Brussels didn't give a shit about Greece (or any of the other PIIGS) when the "good times" rolled. Now, the EU and the troika economically terrorize the fat guy on the football team because he can't run like the rest of them-- and never could.
Who's fault is THAT?
Conceptually, the EU is as uncecessary as it is unworkable. In practice, it's a sociopolitical disaster, and the western corporate-inflicted damage outsourcing caused, makes this all the more glaring. The EU's cobbled and pointless nightmare only works when those fundamental social differences are masked by fast times, and easy money...
They (the EU) can well stew in their own shit.
As far as I'm concerned, any bastard that EVER accepted a sovereign bond from any of the PIIGS, for collateral, of all things, is looney, incompetent, and likely, guilty of malfeasance.
At some point--the gamblers (especially derivative players)--must face loss.
I guarantee you, a crashed, sociopolitcal state of calamity will inspire the settling of a lot of scores.
I'll be elsewhere, set up with hard assets, useful to make things needed for getting by.
Greek bonds, be damned; you can't fix this.
m
A "political template" perhaps.
Banksters: "Give us a lot of your shit for the shit we printed and loaned you."
Liberty is a demand. Tyranny is submission.
Spain plus Italy carry 33% bailout cost for "Greece", Germany 29%.......the dominoes fall
The bailout cost resets to zero if Greece is forced to print drachmas.
The rest of the euro zone would buy up "Greece" for pennies on the dollar.
Noble energy remains an interesting play because they are a major gas driller for Cyprus.
Cyprus could become extremely wealthy if they are "spun off" from Greece.
Doesn't get much better than British pensioners.
DUH! Why would you think it was about anything other than saving banksters asses? Thanks Captain Obvious
We all know the argument. The EU is worried about political “moral hazard”, about what Podemos might achieve in Spain, or the eurosceptics in Italy, or the Front National in France, if Syriza is seen to buck the system and get away with it.
But do the proponents of this establishment view – and one hears it a lot – really think that Podemos can be defeated by crushing Syriza, or that they can discourage Marine Le Pen by violating the sovereignty and sensibilities of a nation?
Do they think that the EU’s ever-declining hold on the loyalty of Europe’s youth can be reversed by creating a martyr state on the Left? Do they not realize that this is their own Guatemala, the radical experiment of Jacobo Arbenz that was extinguished by the CIA in 1954, only to set off the Cuban revolution and thirty years of guerrilla warfare across Latin America? Don’t these lawyers – and yes they are almost all lawyers - ever look beyond their noses?
http://www.telegraph.co.uk/finance/economics/11687229/Greek-debt-crisis-...
nice try wiser. what hold did the EU EVER have on euro youth let alone their parents who may well hv voted against the EU? (however, to your point; ask Ukrainian youth)
the answer is Yes, the lawyers do look beyond their noses and what do they see? people like you staring up from the abyss
rearview romantic leftist fantasy is just that.
we all disparage banksters, even I, but it is facile to blame them and their avarice, the EU and its ineptitude when it is the entire system, which we all sustain, depend upon, 'bank' on (sorry), contribute even, that is to blame.
"the lawyers do look beyond their noses and what do they see? people like you staring up from the abyss"
if you looked beyond your nose you would clearly see that we are all in the abyss looking up already.....
The Euro is founded primarily on wishful thinking. It is fair to say that this has turned out to be a stronger foundation than might have been expected. But the political convergence that is required for a currency union is missing. There is no sense of being “in this together”. On the contrary, there is political and social divergence; a sense of superiority from those countries that – for now – are doing well, and growing anger among the populations of those countries that are introducing painful and damaging austerity measures to create the illusion of economic convergence.
Economic convergence is an impossible dream while there is no political or fiscal union. It cannot be achieved through wholesale economic destruction in weaker countries in the name of “structural reform” while stronger ones benefit in the form of lower borrowing costs, capital inflows and immigration of skilled workers. This creates economic DIVERGENCE, not convergence.
The combination of a common currency with national politics is poisonous. Without closer political and fiscal union, including a proper banking union, pooling of debt and sharing of risk, the benefits of currency union are a chimera. The reality will be debt deflation and depression without end.
The tragedy is that the "European identity" does not exist. True, it could develop - after all, America managed to forge a common identity from a warring collection of disparate states. But Europe has 3,000 years of conflict and bloodshed to overcome, including the two most terrible wars in the history of the planet and some of the greatest atrocities. Fear of another war is not sufficient to overcome the deeply rooted differences of culture, custom and identity between - and indeed within - the countries of Europe. And locking into an artificial currency that has no foundation in history or custom is not going to create a European identity. As we have seen all too frequently in recent years, when a crisis hits, European solidarity vanishes like the morning mist. European identity is a fair-weather friend.
http://coppolacomment.blogspot.gr/2015/06/mario-draghi-and-holy-grail.html