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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DavosSherman's picture

39 years is the average life expectancy of a Fiat, well overdue.

Matt's picture

Euros have only been in general circulation for 10 years, so a little premature perhaps?

Dead Canary's picture

Yes, but the individual currency's were all fiat before that.

falak pema's picture

39? early menopause! According to that ticket UsD is deep into senile obsolescence. Lost in antioxidant deficiency. Never mix white powder drugs, toxic anabolistic medication and fiat money to prolong life expectancy ! Awesome steroids pump. All it needs is Monsanto GMO and BP oil spills and we will have the supreme Oligarchy cocktail; for the uber-alles HFunder asset levitated financial thrill. Lance Armstrong would head for the moon on that rope-a dope pumped ride!

What's left to the small guy to do with such an awesome battery of botuxed, youth hormoned, silicone titted and butted brigade of 1% celebrity shills; who count their fortune in billions.

O Brigadoon...when we were still sweet n innocent. 

Brigadoon (film, 1954) - Wikipédia

JackT's picture

To the outside world USD Fiat started in 1971.

Doña K's picture

I had an Autobianchi (made by Fiat) when I lived in Europe and lasted only 3 years. It was factory pre-rusted. J/k

ebworthen's picture

Default Greece, please.

Spain, follow their domino, please.  Then Italy, then...

Let's all default and tear these banks and their puppet politicians down.

The sooner the better; the longer the fantasy goes on the more painful the wake up call will be.

slewie the pi-rat's picture

TPTB may wanna keep the checks in the mail tho

RiverRoad's picture

Right.  Either we default or our respective fiats will do it for us.

nickels's picture

So who collects the bonus for making these International sub-prime loans?

cherry picker's picture

Ask Goldman Sachs, they helped cover up the true financial situation didn't they?

Are they not traitors to the people of Greece?

Why aren't they on trial?

jal's picture



<quote>The countries in Europe cannot call it charity because various governments would be thrown out of office and so the “loans;” continue.

... Consequently it will either be debt forgiveness (charity) or Europe refusing to pay any longer and default.</quote>


For those who are really into complex games, you could say the Greeks knew what was going to happen before they joined the E.U.


<B>The Greeks planned all of it.</B>



JackT's picture

Not planned. Just convenient, until the golden goose died

RiverRoad's picture

They were all conning each other and they all deserve each other.

W10321303's picture

"Let 'em Die!"   "Let 'em Die! " (Ways to reduce the 'excess population'.     Austerity Kills....(better than drones)

One aspect of the Eurocrisis that has not gotten the attention it deserves is the way it is destroying not just jobs, but the very underpinnings of society. People who took actions that were prudent at the time are increasingly at the mercy of forces beyond their control. And this isn’t a tsunami-type disaster but a man-made one whose severity is worsened by the callous attitudes of the European elites.

We’ve featured stories from time to time on how Greece is unraveling. Suicides have increased sharply. Garbage is not being picked up. Public transportation is largely a thing of the past. Even though Greece always had a large black market, more people are resorting to barter, which shrinks the tax base.

And in some ways worst of all, the health care system is on the verge of collapse. Critical medicines are not being imported and hospitals are short of basic supplies. Not only are people dying unnecessarily due to their inability to get drugs and operations, but worse, the breakdown of healthcare greatly increases the risk of a public health crisis.

And the targeting of the health care system was no accident:

Greeks have long had to give medical staff cash “gifts” to ensure good treatment. Nevertheless the health system was considered “relatively efficient” before the crisis despite a variety of problems including a fragmented organisation and excess bureaucracy, according to a 2009 report for the Organisation for Economic Cooperation and Development.

But it has been unable to respond to the growing crisis. The European Union and International Monetary Fund, which provided a 130 billion euro lifeline to Greece in March, have demanded big cuts to the system as part of a wider package of austerity measures.

Greece has been told to reduce health care from its current 10% of GDP to below 6%. Imagine what would happen if the US were told to cut its medical expenditures by over 40% in a one or two year period.

cherry picker's picture

It appears the powers that be really do not care, as long as they and their loved ones are isolated and protected.

Throw some of the Euro Beaurocrats and IMF people on the streets for a week to taste what it is like without credit cards or coin and they may have a different attitude when they come back, then again maybe not.

Alpacanio's picture

Que the wars in 3-2-1...

W10321303's picture

Long Live the EMPERPR. I personally believe the next FED Chair should be a black horse!

The Wall Street Journal reports that a key element of Basel III rules, its provisions on liquidity buffers, are about to be watered down   (  6/15/12)

International regulators are poised to ease a core element of new banking rules that were designed to improve the safety of the financial system, with some regulators fearing that plowing ahead with tough new requirements could exacerbate the current European crisis, according to people familiar with the matter.

Following months of intense industry pressure, regulators say they now plan to make it easier for banks to comply with a key provision of new international banking rules that will require lenders to maintain sufficiently deep pools of safe, liquid assets—like cash and government bonds—that can survive market meltdowns and other intense crises.

Now, changes to the rules will allow a wider variety of assets—such as gold and equities—to count toward banks’ liquidity buffers, among other changes envisioned to soften the rules, according to people involved in the talks.

Equities? Gold? This is deranged. Remember the S&P at 666? How gold would swoon with no proximate cause on bad market days? Volatile assets are to be treated as liquidity buffers? A liquidity buffer doesn’t just mean you can sell it in a pinch, it also means you can sell it and have a fair degree of certainty as to what price it will fetch.

As traders put it, in stress times, all correlations move to one. And we see a tendency toward that even now, with global markets exhibiting a “risk-on, risk-off” propensity. During the crisis, you see markets seemingly unrelated to whatever the bad news of the day was take sudden nose dives. Why? It looked to be hedge fund margin calls


Translation: Because central banks will now do whatever it takes to prevent banks from falling over, why do they need to worry about liquidity? Of course, we’ll put aside the fact that the ongoing “prop up the banks rather than fix them” is leading to a rerun of Japan, zombification of the underlying economies. And unlike the Japanese, the West lacks the social cohesion to share costs and take diminished living standards gracefully.

King may think he’s saying that Basel III should not be implemented now but he is smoking something very strong if he believes that. According to banks, there is never a good time to make life tough for them. When times are bad, like now, they claim it will hurt their ability to operate (the regulators also seem unwilling to accept that we need a smaller financial sector, and inflicting some pain on them while applying offsetting fiscal stimulus would be a much better approach). And when times are good, there’s no problem, so why should they be asked to change behavior? The banks have learned that the trick when things bad is to engage in delaying tactics so that media and public attention move on. For instance, they managed to forestall regulation in the wake of a 1994 derivatives crisis that destroyed more value than the 1987 crash by running the clock out.

The endgame has been clear. The banks learned that all they have to do is mutter darkly about armageddon when financial markets are rocky and the authorities will fold, pronto.

Emperor Jamie says "I want some dead old ladies in the gutter, NOW!"

Jack Sheet's picture

A huge, veritable orgasm of default

MsCreant's picture

Yeah, then I'll feel so much better afterwards, all snuggly and stuff. But then, one is not always enough... 

eddiebe's picture

The banksters are gaming this like they do everything alse and in fact planned it. Pretty simple for them really:

You create a bunch of money and lend it out ( while collecting interest even ) liberally to anyone with a pulse while people improve any assets that the worthless paper was was issued for. Or pledge property or assets to get the loans.  Then you create economic shocks by tightening the money supply and take away the real assets that were purchased and or improved with the play money lent by the banksters.  A favorite play now is for the banksters to lend money to gold rich sovereigns and then taking their gold when the polititians bankrupt the countries involved ( mostly by giving peoples money to the banksters ). They have ways of fucking us we can't even think of til after the fact.

 Amazing and impressive in a diabolical way. You could say true capitalism: Money grubbing by any and all means regardless of consequences to anything or anyone. Same old shit really. This kind of thing has ruined civilizations since the beginning. Here we go again.

ThirdWorldDude's picture

Speaking of observers:

...Once the sleepwalking, wide load, expando-pants, shit for brains, consumer zombies can really, absolutely, no longer put “food on their families” and the ones who haven't yet been matriculated to another world, by their murderous and insane progeny, or the temporary berserker status of the head of the household, or some relative come back from foreign killing fields, who can't live with themselves or you anymore; once it finally dawns on them that they have to go live in their car and they can't afford the gas to run the heater in their car, when winter comes, in order to take a nice carbon monoxide nap, prior to a morning that never arrives, when they meant, with all good intentions, to head down to the Slurpee factory, to see if they were taking on part time, day laborers, it's possible... it's possible that enough of them will get together and storm their houses of government and drag the toads, lampreys and pigs from their paneled offices and dispense the justice they should have gotten a long time before but... there's no telling how it will all sort out. It won't sort out well in most places, that's pretty much a given...

eddiebe's picture

Ok., TWDude, I'm envious, because you said it more eloquently than I could and besides that it's even spot on.

ThirdWorldDude's picture

I am not the author Dog Poet, a.k.a. Les Visible, but I know we are many who resonate with his words. To quote him:


"There are good men and bad men ...and there are, low to the ground, weasel creatures, who do what creatures like that do to the rest of you. They went into Libya and murdered the waters of the desert, like it was midnight up in your anus; put your camel to bed. They killed a man who could have been better... (You could have done better?) but there had been peace among the tribes ...and the miracle of water ...and learning for the children without rival around. Oh yeah, uh huh... oh yeah... they put the motherfucker in the ground. Listen up son, don't you go messing with that Rothschild banking cartel... oh no, my brutha... they will put you down. They will put you down...

For too long we have all been afraid of you, the power you had and what you could do but now you fucked your system and it can't be fixed and the world's eyes are opening, that's just how it is. It came slowly forever, now it's faster than light. It's the eye of the moment. It's on you. That's right. You couldn't stay in the shadows. You might have gotten away... for thousands of years it's been coming... "

from - the new piece published this weekend.


If you're active on jootube, search for snordelhans, he's made some excellent videos out of Les Visible's rants.

mendigo's picture

The comments made by obama, hollande and juncker sound like veiled threats. I hope the Greeks can perceive what is being done to them. They stand at the threshold of liberation will they return to the hopeless servitude. They should revel in the cries of anguish from the puppets of the overlords.

jmcadg's picture

Want the defaults to happen quicker, get your money out now, put it under your mattress, or better still buy food, water, silver etc etc.

mjk0259's picture

1.3 trillion is a quarter million per Greek. Doesn't seem possible.

css1971's picture

Some day you'll have little copper coins in your pocket worth quarter of a million each.

aleph0's picture


..." 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. "...

@Mark Grant 

Do you have a detailed breakdown of this please ?

I was under the impression that the "total" Default Risk across the EU  - as in "chain reaction" -  was 1 Trio. EUR and NOT the actual Greek Debt itself.


robertocarlos's picture

What happens if Greece beats Russia?

ThirdWorldDude's picture

They'll most probably play against Deutchland in the quarterfinals.  :)

Isn't life ironic?

LeisureSmith's picture

And if they win over Germany playing dull defensive football germans will riot and Greece will become a even nonner non country.

No more soup for you!!!!! 

LeisureSmith's picture

But hey, i can't think of anybody in europe who needs that little moodbooster more right now, so congrats Greece. I bet there is more than one furious vodka fueled bender in the works as i type.

XRAYD's picture

“Some people believe football is a matter of life and death,” said the Scottish player Bill Shankly, who died in 1981. “I can assure you it is much, much more important than that.”


THERE is hope for Greece and the Euro.  They just advanced to the next round of Euro 2012 by defeating Russia 1-0  (despite a Swedish ref. not giving them a penalty they deserved).


They will go to the polls tomorrow in a happier frame of mind. (Had a German refereed the game, and they had lost, the outcome of the vote would have been completely anti-Euro, no doubt.) 


They will almost certainly meet Germany in their next game which is the knock out stage quarter final.

sharky2003's picture

So...what time does voting end tomorrow? I want to make sure to have my popcorn ready in time.

The Navigator's picture

Check the listings on Al Jizeera, RT, and ZH - certainly none of the alphabet soup channels will carry it, or even mention it.

junkyardjack's picture

Does it matter that Greece won its soccer game? Bullish/Bearish?

Olympia's picture

A country in the outmost Southeastern part of the EU has grasped the headlines for quite some time. With only 2% of the EU's economy and just 2.5% of its debt it became the "Witch" that is haunted by puritan Northern Europeans. It is claimed as the epicenter of laziness, lust and unproductively for the whole of the Continent, a bad example that pious Northerns should be feared and loath at the same time. 

This country is Greece and it must be punished! But is it really the witch hunt that has started in 2009 the most stupid move ever made in the entire European history? Is it worth to blame Greeks for the lonely dark winters up in the North and for the depression syndrome that cripples the lives of dozens of millions northern Europeans, as if Greece makes the weather?

In reality the Northern Europeans risk of pushing Greece into the broader global community where it is going to be free from investing heavily in its defense of the Eastern gates of Europe and it will bring about the greatest change in the balance of powers that Europe has felt since the collapse of the Berlin war. This time Germany will not be re-united, rather it will has to pay a dear price for its energy security. Netherlands will not become richer; rather it will have to pay from its own pocket in order to save itself from the flood of narcotics and Asian immigrants.

Austria will not be greater, rather it will have to deal with powder-keg named "Balkans" that has markets Vienna's history.


How Northern Europe shoot its leg, in order to satisfy the populist sentiments of an electorate being used to the fairy tales of "bad witches and pious farmers".


Panagiotis Traianou answers to many of the aforementioned questions and gives a proper solution on his article entitled “GREECE RANKS AMONG THE WITCHES OF SALEM”


The Age of Useful Idiots's picture

It seems four decades on Wall Street have shrunk Mark's brain considerably. Calling a stelath bailout of German and French banks 'charity' to the Greek people is totally ridiculous, and even though some people could have bought his classic creditor propaganda a few years back, one has to live on a different planet to believe it today. So here are the facts, not that they will have any impact on a good story for braindead 'analysts':

1) Bloomberg editors' article explaining:

"Would it surprise you to know that Europe’s taxpayers have provided as much financial support to Germany as they have to Greece? An examination of European money flows and central-bank balance sheets suggests this is so.

Let’s begin with the observation that irresponsible borrowers can’t exist without irresponsible lenders. Germany’s banks were Greece’s enablers. Thanks partly to lax regulation, German banks built up precarious exposures to Europe’s peripheral countries in the years before the crisis. By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks’ aggregate capital. In other words, they lent more than they could afford.

When the European Union and the European Central Bank stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home. As a result, they bailed out Germany’s banks as well as the taxpayers who might otherwise have had to support those banks if the loans weren’t repaid. Unlike much of the aid provided to Greece, the support to Germany’s banks happened automatically, as a function of the currency union’s structure.

How It Worked

Here’s how it worked. When German banks pulled money out of Greece, the other national central banks of the euro area collectively offset the outflow with loans to the Greek central bank. These loans appeared on the balance sheet of the Bundesbank, Germany’s central bank, as claims on the rest of the euro area. This mechanism, designed to keep the currency area’s accounts in balance, made it easier for the German banks to exit their positions.

Now for the tricky part: As opposed to the claims of the private banks, the Bundesbank’s claims were only partly the responsibility of Germany. If Greece reneged on its debt, the losses would be shared among all euro-area countries, according to their shareholding in the ECB. Germany’s stake would be about 28 percent. In short, over the last couple of years, much of the risk sitting on German banks’ balance sheets shifted to the taxpayers of the entire currency union.

It’s hard to quantify exactly how much Germany has benefited from its European bailout. One indicator would be the amount German banks pulled out of other euro-area countries since the crisis began. According to the BIS, they yanked $353 billion from December 2009 to the end of 2011 (the latest data available). Another would be the increase in the Bundesbank’s claims on other euro-area central banks. That amounts to 466 billion euros ($590 billion) from December 2009 through April 2012, though it would also reflect non-German depositors moving their money into German banks.

By comparison, Greece has received a total of about 340 billion euros in official loans to recapitalize its banks, replace fleeing capital, restructure its debts and help its government make ends meet. Only about 15 billion euros of that has come directly from Germany. The rest is all from the ECB, the EU and the International Monetary Fund." 


2) So Bloomberg claims in the above article that Germany has only given about 15 billion directly to Greece. Sure enough, according to James Mackintosh of the Financial Times, JP Morgan produced some figures today that showed where the money provided to Greece in its much-publicised bailouts actually went. Here's what James said on twitter:

"JP Morgan estimates only €15bn of €410bn total "aid" to Greece went into economy - rest to creditors. No wonder they are cross"

 We really live in bizarro world if this is what respected analysts call "charity".


Olympia's picture

Germans are proved to be the easy solution to breach Europe’s door. Whoever wishes to “set foot” on Europe and demolish it, the only thing he has to do is to “fool” the Germans. For a second time in less than fifty years, Europe’s idiots become the victims of foreigners and they serve their interests at the expense of Europe...



The German traitors of Europe along with the Phoenicians from Asia may have forced Europe to get down from the "back” of the Greek “bull”, but it remains to be seen how they shall pull it through with the “bull”.



AnAnonymous's picture

The German traitors of Europe along with the Phoenicians from Asia


No. Germans are not Europeans. They are Indo Europeans. They are from Asia. Just like the Phoenicians.

Ghordius's picture

And you are mixing up Indo-Germanic, which is a family of languages (separate from the Turkic, for example) and the group of tribes that composed the Gothic Invasion.

To put it in context, you are talking of the traces of an invasion that is now 6000 years old and mixing them up with the genetic makeup of one that began 2500 years ago and had it's climax 1500 years ago.

Europe and Asia used to be the names of what now are Greece and Turkey, anyway, something Alexander the Great was able to use for propaganda reasons as he cut the Gordian Knot and therefore raised a claim on all Asia.

and the Dorian invaders of Greece (aka later Spartans) were a Proto-Germanic tribe, same as some of the tribes that formed Rome. we can divide as much as we want, Europe and Asia are one landmass. genetic "extremes" can be held on the extremities, in the middle ground a bit less.

a bit of history makes proud, the right amount makes humble, too much of it makes depressive

The Age of Useful Idiots's picture

And by the way, Greece's total debt is nothing compared to the rest of the Eurozone countries, not to mention safe-havens like the UK! Take a look at this:

Guess Which Country Has Debt Of Nearly 1000% Of GDP...
css1971's picture

The UK can print pounds. It's already got the default process underway.

Olympia's picture

it's time for a DEXIT...DEXIT is the new GREXIT

michaelsmith_9's picture

The EURUSD will end the year much lower than current levels. Price action is setting up for a big move lower in the short-term. Greece may or may not be the catalyst, but there are several European union nations that could fit that roll. It is only a matter a time. Here is a look at the chart