Simon Johnson

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Less Than Two Months Ahead Of The Greek D-Day, Rogoff Says "Europe Is Clearly Not Ready For A Greek Default"

It is less than two months until the Greek March 20 D-Day past which there is no more can-kicking? Check. Creditor negotiations which are going "so well" they may collapse at any given moment, have had their deadline extended indefinitely just because, and in which hedge funds now have every option to put the country into bankruptcy? Check. You would think Europe is prepared for this contingency right? Wrong. Per Ken Rogoff (who together with Simon Johnson are two former IMF chief economists who have become some of the biggest bears in the world - what is it about not being shackled to one's salary, that allows one to speak the truth), Europe is "clearly unprepared for a Greek default", less than two months from the day when it very well may finally occur. He adds: "there's going to be an endgame to this and it's not going to be pretty.... If you are just printing money and you are not making fundamental change you either lose money and you will have to recapitalize with the ECB or you will get inflation." And it gets worse: "it's not just Greece. You are going to see other restructurings before this is over." He ends with what we have been saying since mid-2011: "Once you set the precedent then say Portugal are going to say 'hey, look how much you gave Greece. How come we don't get the same?'." Unfortunately, the fact that Portuguese bondholders are far more protected than Greek ones will make an in kind restructuring virtually impossible. Which is something else for Europe to ponder as it prepares for the only key catalyst event between now and March 20 - the February 29 LTRO, which as Credit Suisse already suggested could be up to a ridiculous €10 trillion to firewall not only Greece and Portugal, but all the other PIIGS. Intuitively, this does make a lot of sense.

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"Dreams Versus Reality" - Former IMF Chief Economist On Europe's Last Stand

Successive plans to restore confidence in the euro area have failed. Proposals currently on the table also seem likely to fail. The market cost of borrowing is at unsustainable levels for many banks and a significant number of governments that share the euro. In three short sentences, the Peterson Institute for International Economics' (PIIE) Simon Johnson introduces the clear and present danger that Europe has become in a comprehensive article on the deepening European crisis. The circular nature of the realization of sovereign credit risk realities and the subsequent effective insolvency of banks exacerbates a credit crunch and exaggerates problems in the real economy - most specifically in the periphery. Johnson outlines five measures that are needed to enable the euro area to survive but the big bazooka of up to EUR5tn just for the PIIGS is what the PIIE senior fellow fears as the ECB is pushed down a dangerous path. The coordination of 17 disaparate nations leaves the former IMF man greatly concerned as the unique nature of this crisis leaves "four economic, social, and political events as possible causes of systemic collapse with each at risk of occurring in the next weeks, months, or years and these risks will not disappear quickly." As European sovereign bonds are now deeply subordinated claims on recessionary economies, it is no surprise that Johnson ends by noting that Europe's economy remains in a dangerous state.

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Simon Johnson On Where The TBTF Cutoff Line Is And Other Observations On Dodd-Frank's One Year Birthday

"CIT Group, which is the largest institution we let fail since the class of Lehman and since those really crazy days of before 2008. That was about an $80 billion bank in terms of assets, 8-0. Goldman Sachs fluctuates between $800 billion and $1 trillion. And I don’t think we’d let Goldman Sachs fail. So somewhere between $80 and $800 billion. Where exactly is that line? Great question. I hope we don’t have to find out. But we should know and we should know how to handle it."

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Simon Johnson: "If John Paulson Avoids Charges, It Shows How Broken Our System Is"

"[Goldman] designed something intentionally complex that's basically a mechanism of transferring money from you to John Paulson. John Paulson, it is true, has not been charged with anything. But he was involved in designing the security. For all we know right now it was probably his idea and if he walks away without being charged, it shows how broken our system is." This is Simon Johnson discussing the Goldman fraud charges on Friday night with Bill Maher. Could the public's attention now be shifting ever more toward those top performing hedge fund managers who year after year made billions, and instead of praising them for their acumen, are now seeing a sentiment shift toward one of wealth merely as a result of massive criminal collusion between the hedge funds and the big banks... well big bank, cause Goldman is really all that's left of the traditional broker/dealer complex. Which once again invokes our long-standing point: the DOJ should immediately break up Goldman Sachs into many smaller entities, due to the firm's unquestionable (allegedly) criminal monopolistic impact on the marketplace. Christine Varney - wake the #&$* up! And whatever happened to that FBI investigation into SAC? Will Stevie Cohen be next as the mid-term elections approach and the public demands blood from someone?

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Simon Johnson: "We Now Have A Financial System That Is Completely Based On Moral Hazard"

"We now have a financial system that is completely based on moral hazard...Crazy things happen when you have financial system like that... The conventional wisdom is you can't have back to back major financial crises. I think we're going to push that, we're going to have a look and see whether that's true. The next 12 months could really be exciting... But we are setting ourselves up for an enormous catastrophe." - Simon Johnson

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