Greece — What Matters And What Does Not

Tyler Durden's picture


From Mark Grant, author of Out of the Box

Greece—What matters and What does Not

The bond market is heading East while the equity markets heads West because they have two totally different focuses at present. I have seen this often enough in my almost four decades on Wall Street and I am always amused when this differentiation takes place. It is really just a reaction to what either market is staring at that causes this phenomenon to take place and, eventually, one market proves to be correct while the other gallops along to catch up. The stock markets seem buoyed by the possibility of the more EU friendly government to win this Sunday’s election and they are taking comfort in the hope for support of the world’s major central banks and the possibility of more easing; a new or redefined QE3. The fixed income people are concentrating on the possibility of a systemic financial shock, the recession in Europe that will affect the United States and the plight of the European banks. In my experience the bond markets generally get it right and get there first and I expect nothing different this time.

Let us calmly consider the facts as we can ferret them out and change our focus to reality and not what we are spoon fed by the Europeans. Greece has a total debt of about $1.3 trillion. This is composed of their sovereign debt, which Europe counts, and then their $90 billion in derivatives, their Federally guaranteed regional debt, their sovereign guaranteed bank and corporate debt, their obligations to the EU and finally their loans at the other central banks. It is just simple addition and not my opinion; I am just counting all of the liabilities while Europe does not. Then if you take their GDP and divide it by their total debt you get a debt to GDP ratio of around 453%. You may claim, and somewhat correctly, there is value in some of their assets which would be an off-set in case of actual default but the problem here is that they are a sovereign nation so how one would lay claim to any Greeks assets would be quite problematical.

In any event the amount of money that Greece owes cannot be paid back. They do not have enough assets, they certainly do not have enough cash flow or revenues and the situation was manipulated by Greece and allowed by the European Union as other factors were more important and overshadowed the burgeoning deficit. So now Greece is stuck and Europe is stuck and it matters very little really who will be elected on Sunday as there is no way out of this trap except continuing cash payments from the other European nations. Because the charity that has been given comes with strings attached there is one group that is more friendly to Europe and one that is less friendly and the reality is that Greece will try to soak up as much money as they can from the EU and when the money is stopped then Greece will default because there is no other choice regardless of anyone’s politics. It is then the default that is the real issue, the only important issue really, because the size of the debt will cause ripples and possibly large waves all across the financial landscape. It will hit the ECB, the banks on the other side of the derivatives contracts, all of the Greek banks who are really in default at present and being carried by Europe as well as the nation and the Greek default will spread the infection in many places that we cannot imagine because so much is hidden and tucked away in the European financial system. There is only one way out of this mess and that is if Europe keeps handing Greece money like one does to some aged aunt that cannot support herself but that is a family decision while Greece requires 16 other family members to support here jointly and the politics in many of these nations, including Germany, is making it difficult for the charade to continue.

The countries in Europe cannot call it charity because various governments would be thrown out of office and so the “loans;” continue. Both pending political winners in Greece want to re-negotiate the loans so that a friendly group or a less friendly group is possibly something at the margin but that would be all. The debt cannot be repaid. Then the calculation is made by Europe as to the potential damage and more money may be offered, any changes in terms will make very little difference, as Greece sinks further into its financial sinkhole. Consequently it will either be debt forgiveness (charity) or Europe refusing to pay any longer and default. The bond markets are getting the joke while the equity markets don’t understand the sentence leading to the punch line and hence the different reactions. Again; it is all a matter of focus.

So the Greek elections come and go and someone takes over or there is no government and new elections are called. In the meantime either Europe hands Greece more money or Greece defaults. It is at the point of default where consequences require central bank action and where even the best made plans may careen out of control because so much information has been hidden and not accounted for so that their consequences were not considered. Dealing with incorrect facts leads to incorrect conclusions and this is my greatest fear at present for all of the financial markets; that the pending default, it will most likely come, will not have been assessed in the manner that was needed because Europe did not allow all of the necessary data to be correctly appreciated.

Greek Defaults

  • 366 B.C.
  • 1826 (50% of the time since independence Greece has been in defualt)
  • 1843
  • 1860
  • 1894
  • 1932

So the most likely scenario is not debt forgiveness, which would cure the problem but is not politically feasibly in many European nations but default and default within the Eurozone initially. Then Greece will be forced to return to the Drachma and devalue and the default will cause bank runs and money flowing into Germany and the United States as the only viable safe haven bets. Central bank intervention will help in the short term but will not cure the longer term solvency issues and the European banks, at 300% larger than their sovereign nations that support them, may well overcome the European Union’s capacity including their ability to print money which will become of less and less value given what supports it. It won’t be Doomsday and it won’t happen overnight but there will be more than enough shocks to wake-up the casual observer.

This is where I think we are heading and I do not think the arrival date is too far off now!

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Sat, 06/16/2012 - 12:19 | 2532224 veyron
veyron's picture

Why wouldnt they just use GRD?

Sat, 06/16/2012 - 14:55 | 2532471 OttoMBMP
OttoMBMP's picture

"There is only one way out of this mess and that is if Europe keeps handing Greece money ..."

I am sorry?! This is a way out of the mess?

This is can kicking, Mark, can kicking.

Sat, 06/16/2012 - 12:51 | 2532274 Silver Bug
Silver Bug's picture

It is inevitable. Greece will default.


Buy Silver, Protect Yourself.

Sat, 06/16/2012 - 15:03 | 2532483 Sudden Debt
Sudden Debt's picture

Just buy any commodity you can put your hands on. Just don't keep fiat. May it be euro's or dollars.
And the fact that France now might also need a bailout very soon according to the G20 tells me we're running out of time here.

Sat, 06/16/2012 - 11:46 | 2532146 Ancona
Ancona's picture

Jesus H. Christ, let's just get this over with already. We all know they have to default, we all know they will default, so just do it and get it over with already.

Sat, 06/16/2012 - 12:36 | 2532245 THX 1178
THX 1178's picture

When they default, the ECB is bust-- so says Mr. Farage. Didn't the FED loan the ECB a trillion or so?

Sat, 06/16/2012 - 15:05 | 2532487 Sudden Debt
Sudden Debt's picture

If they say 1 they mean 10

Sat, 06/16/2012 - 15:32 | 2532539 Ancona
Ancona's picture

Yeah, that's straight out of the JPM playbook. ; - )

Sat, 06/16/2012 - 13:00 | 2532291 FutureShock
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Kicking the can gives us time to watch what happens make more preparation, food, metals. There will be some kind of interum until full restructure of each country and then the world,  violent and short or long and political. Since everything in life is kind of gradual the domino theory looks like the path. More time means more cash or hard assets, the amounts are so high does it matter? Velocity will matter more than liquidity amounts here, both for Europe.

It also give Bernake, Dimon and the others more time to see how bad the fallout will be. They seem to be making the wrong moves but I bet they will tell you that you don't want to see the other side. They will be steering things to help America and fuck everyone else or lets say fuck americans the least in a way where we keep some military allies, or perhaps are just getting their personal shit in order.  The banks and puppet masters that own the Fed is what I would like to learn more about. It is their and thier subordinate banks interest income to be waved and lifestyle to be saved. If enough people understand we don't need the fed and get honest politicians to go for it we can issue non interest gov loans for the people, then they are over with. They need to play this right as they could be in big trouble for the power they have, for sure money will never be a problem.

America has the ability to get Nat Gas, tech and more local oil to climb out of this, smaller gov. reasonable regulation, and commies out of office is an easy start. I am only worried about banking derivatives so bad we have no idea what to do. I suspect they are bad and that is why the printing, We sit here saying they are so stupid and political will is the problem but it just might be we are ignorant to the real catastrophe. I think the powers that be know what the fallout would be at this point. It is a battle for where the advantages will be after the fallout. Treasure the delay and pray in personal preparation.

Sat, 06/16/2012 - 13:38 | 2532358 Ookspay
Ookspay's picture

Yep, spot on, Future Shock, spot on.

Sat, 06/16/2012 - 19:37 | 2532818 Dugald
Dugald's picture

Get honest politicians, nice idea, just where do you think you will find them,

in America? you must be smoking the good stuff......

Sat, 06/16/2012 - 21:44 | 2532978 Paul Bogdanich
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"Jesus H. Christ, let's just get this over with already."

Really except when they do that the rottness and crony corruption in the banking and political systems in the other nations (including ours) will be exposed and we will have political instability all over.  Which is also inevitable given how badly mismanaged the the banking systems are.  You have to laugh though.  World GDp is like 70 Trillion and they have 1,000 trillion in notional deravitive outstanding.  Simple logic will tell you that there is not enough money or property in the entire world to settle even a fraction of that.  It's merely paper upon paper on paper.  And yet they have everyone conviced that there is something, anything they can do.  A few trillion here and a few trillion there and it will be alright they say and people believe them.  That's what's funny.      


Sat, 06/16/2012 - 22:08 | 2533001 RiverRoad
RiverRoad's picture

Right .  And pretty soon you're talkin' real fiat too.

Sat, 06/16/2012 - 22:07 | 2533000 RiverRoad
RiverRoad's picture

Why don't they just pull out the old post WW2 plans? Karma is exacting a redo here, so just redo it already.

Sun, 06/17/2012 - 05:02 | 2533378 The Reich
The Reich's picture

Step two: concrete shoes

Step three: boat tour


Sat, 06/16/2012 - 11:53 | 2532169 valley chick
valley chick's picture

I would have fully agreed, except for the fact that the contagion has spread.  There is no mention of Spain, Italy, etc in the article.  What would if any be the daisy chain reaction once Greece defaults?

Sat, 06/16/2012 - 16:44 | 2532640 valley chick
valley chick's picture

Been waiting for Italy!  :)  Oooh and France as a bonus! 

Sun, 06/17/2012 - 07:11 | 2533455 Xanthias
Xanthias's picture

Exactly.  "When you owe a trillion dollars, you own the bank."

The cycle of foreclosure/forebearance may be traced back even further in Greek history to Solon's 6th c. BCE debt relief, the seisachtheia:

Sat, 06/16/2012 - 11:55 | 2532173 lolmao500
lolmao500's picture

Greece has a total debt of about $1.3 trillion.

And Lehman had a bank debt of $613 billion, $155 billion in bond debt, and assets worth $639 billion... so half of Greece and even less than that since Lehman had assets... Greece assets cannot be seized like Lehman. This is gonna be fun.

Sat, 06/16/2012 - 15:07 | 2532492 Sudden Debt
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And 11 million "employees" who don't just clean out their desk and leave...

Sat, 06/16/2012 - 12:08 | 2532194 wandstrasse
wandstrasse's picture

I can think of 3 scenarios after the Greek elections:

scenario 1) major milestone in the Euro ponzi collapse

scenario 2) major milestone in the Euro ponzi collapse

scenario 3) major milestone in the Euro ponzi collapse

there are also other scenarios, but these three are the most probable ones.

Sat, 06/16/2012 - 15:09 | 2532496 Sudden Debt
Sudden Debt's picture

1... 2... 3.... 2... 3... 1....

Sat, 06/16/2012 - 12:11 | 2532206 ruffian
ruffian's picture

Mr. Grant states "In any event the amount of money that Greece owes cannot be paid back. They do not have enough assets"

this is false. Greece has a liquid asset that revalued sufficently would extingush it's debts.

Break the glass now, release the global debt extinguisher............sovereign physical gold reserves

Sun, 06/17/2012 - 01:40 | 2533239 The Navigator
The Navigator's picture

Release Physical Gold Reserves?

Hell no! Every sovereign (state and individual) knows you hang on to PHYSICAL gold and let unsecured debts fly in the wind with the lousy paper they were written on.

Kick over the money lenders table.

Fuck JPM & GS - may they rot in hell for 10,000 years - that ought to be long enough for the peons and peasants to get off planet and be rid of banks and their partners in crime, governments, for another 10,000 years.

Sun, 06/17/2012 - 04:05 | 2533348 Idiocracy
Idiocracy's picture

I'll bet most of the top executives at JPM, GS and the other TBTF's own gold / silver and lots of it.  I'll bet most top officials at the big central banks and the IMF, etc. also are big holders.  After their ponzi collapses, they are going to do gangbusters and will be first in line to buy up all the world's assets on fire sale.  Motherfuckers.

Sat, 06/16/2012 - 12:17 | 2532216 Cursive
Cursive's picture

453%?  Sheesh.  What would Reinhardt and Rogoff say about that?

Sat, 06/16/2012 - 13:54 | 2532389 JackT
JackT's picture

Greece +/- = Ohio

Sat, 06/16/2012 - 12:21 | 2532228 Gromit
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366 BC !  So after Greece abandoned the failed democracy experiment and returned to city state warlords no defaults for 2000 years?

Sat, 06/16/2012 - 12:49 | 2532266 Oracle of Kypseli
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Warloards, dictators, kings and other potentates thrive since they overtax the natives and steal their country's natural recourses. In addition to the above, Ancient Greek wanaxes, Archons and warloards enslaved all those who attacked their city state and were captured.

All systems and hegemonies fail sooner or later, including the US, which is failing in front of our eyes, not only financially but also morally and intellectually as phylargyry is the de rigueur desease.

Sat, 06/16/2012 - 19:45 | 2532830 Dugald
Dugald's picture

Do you mean PHYLOGENY?

Sat, 06/16/2012 - 21:24 | 2532952 Oracle of Kypseli
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Sat, 06/16/2012 - 12:57 | 2532277 falak pema
falak pema's picture

When Thebes took out the Spartan Hoplites, masters of Greece after Athen's defeat; when the sacred band of Thebes lovers and warriors invented the echelon, oblique attack, like coming from behind in true anti-hoplite sodomy. Brothers in arms they resisted as Thebes became uber-alles until a Macedonian barbarian invented his salad. Man, was that a default of Thebian brotherhood and of Athenian commerce. 

The Defeat of Sparta: Epaminondas and The Battle of Leuctra |

Ancient coinage of Attica

Apparently the coinage of Greece (Athens) evolved from Silver to bronze around this 366 BC period.

As for Greek democracry in those times read this : Demosthenes - Wikipedia, the free encyclopedia

Sat, 06/16/2012 - 14:49 | 2532457 ThirdWorldDude
ThirdWorldDude's picture

It wasn't the salad, but the spices that made a key difference. A small correction, they defaulted before the League of Corinth was created. After Chaeronea, neither Thebes nor Athens had any economic problems.

In fact, history shows that Greeks need a custodian, because everytime they're independent they end up as broke as Diogenes...

Sat, 06/16/2012 - 15:01 | 2532480 falak pema
falak pema's picture

the problem as stated in the post was in 366 BC, whence my research. Yes it was prior to League of Corinth. In fact at that time, 366 BC,  Philip was prisoner of Thebes.

Salade macédoine : salade macédoine - Recherche Google

Sat, 06/16/2012 - 15:32 | 2532541 ThirdWorldDude
ThirdWorldDude's picture

"The word macedonia was popularised at the end of the 18th century to refer to mixed fruit salad, alluding to the diverse origin of the people of Alexander's Macedonian Empire."

Legend has it that the salad got it's name after the Versailles Peace Treaty of 1919 when Macedonia was treated like the fruits.

Sat, 06/16/2012 - 15:59 | 2532573 falak pema
falak pema's picture

at least they got that right at Versailes treaty! 

Sun, 06/17/2012 - 01:51 | 2533259 The Navigator
The Navigator's picture

This is the history never taught in our schools - public education

Like Carlin said "just keep them smart enough to know how to run the machines, but not smart enough to know how badly they're getting fucked"

Sat, 06/16/2012 - 12:56 | 2532283 Matt
Matt's picture

Does Democracy inevitably lead to bankruptcy?

Sat, 06/16/2012 - 13:17 | 2532322 Gromit
Gromit's picture

Sooner or later

Sat, 06/16/2012 - 13:49 | 2532370 Ookspay
Ookspay's picture

“A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury.” - Alexander Tytler

The United States of America reached that point in November 2008.

Sat, 06/16/2012 - 14:33 | 2532442 shovelhead
shovelhead's picture

Fake money= fake prosperity+ real wealth killing debt.

Real money= real prosperity+ sensible (profitable) investment debt.

It all comes back to real money. The rest is fiction.

A balanced budget amendment and real money would solve almost everything.

Hard to sell saving bankers and killing folks overseas if you got to collect for it up front.

Sat, 06/16/2012 - 15:22 | 2532525 tiger
tiger's picture

Does Kleptocracy inevitably lead to bankruptcy?

Sat, 06/16/2012 - 17:45 | 2532706 DosZap
DosZap's picture

Does Democracy inevitably lead to bankruptcy?



Yes, no way out.

Pure Democracy is Mobacracy,without a Republican form of governance applied,they all FALL.

Sat, 06/16/2012 - 19:11 | 2532767 bigwavedave
bigwavedave's picture

Matt. If your elected for 4 (or 5) years but can borrow out 7, 10, 30 then the answer is obviously YES

Sat, 06/16/2012 - 12:37 | 2532248 Newsboy
Newsboy's picture

High Explosive (global finance), Meet Low Explosive (Greek default)

....Three, two, one

Sat, 06/16/2012 - 12:38 | 2532250 PSEUDOLOGOI

Fight club mantioned in this BBC production:

+/- a few minutes @ 23 mins

Do NOT follow this link or you will be banned from the site!