Beware of Greeks bearing debt

(9 am. – promoted by ek hornbeck)

  The news started today with S&P downgrading Greek bonds to junk. It wasn’t just the sovereign debt that became junk, but also the debt of many of the major Greek banks as well.

  This dramatically increases the risk of default because junk rated bonds cannot be swapped for Euro-backed bonds, and this has markets very worried.

 Investors in Greek bonds may get back between 30 percent and 50 percent of the value of their holdings should the government default or restructure its debt, S&P said.

 The yield on a two year Greek note is nearly 19%, a completely unaffordable level that effectively locks Greece out of the global debt markets. The only alternatives left for Greece are bailout or default.

 The race to get money out of Greece has become a self-fulfilling crisis. The Greek stock market has dropped 22.7% y-t-d and crashed 7% just today.

 Like most financial crisis, it spills over borders.

Portugal’s debt was also downgraded today from A plus to A minus. In response, the spread between German bonds and Portugal’s bonds reached 5.51%, this highest since the creation of the Euro.

 Lisbon’s stock market plunged 5% today and is down more than 15% y-t-d.

 The contagion is already being felt in Spain, where the stock market dropped 4% today, and is down 12% y-t-d.

 A senior Lisbon banker said: “The problem is not Portugal itself, which is in a much better fiscal position than Greece, but the possibility that the Greek crisis could spread by contagion to Portugal and then, much more seriously, to Spain.”

 Spain has a much larger economy than Greece or Portugal. If Spain were to collapse the entire Euro monetary system would probably collapse with it.

 Concerns about the future of the Euro caused it to fall against the dollar today after Germany’s FDP hinted that Greece might have to temporarily leave the Euro.

  The words “sovereign crisis”, once only whispered, are now being spoken openly.

 “The biggest risk now is that the market speculates against every single indebted peripheral country, and that could lead to a sovereign debt crisis,” Botte said in an interview. “The contagion risk is real. It’s much easier to bail out a bank than to bail out a country.”

 Of course bailing out those banks is what got us to this point.

 The big winners from this all this turmoil are treasuries and gold, which is increasingly viewed as an alternative currency.

Is the Pony/Pie/Hide rating system too cutsie?

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    • gjohnsit on April 27, 2010 at 9:19 pm
  1. Euro collapse.

    Good thing or not?

  2. Is this any way to create a one world currency when you cant hold the Euro Zone together?

    Interesting enough … what is the difference between a state in the Euro Zone and a state in the United States?  

    • banger on April 28, 2010 at 6:19 am

    My guess is they will bailout Greece and try to structure an easy landing for Greece in the short term but make it hurt in the medium to long term. The general trend in the world is to postpone crisis. The strategy seems to be to gradually accustom people to austerity measures; if you institute them immediately you risk a possible political/social/economic collapse.

    Once the various media throughout the world using all their excellent mind control techniques and we are well underway in a “recovery” then the harness will begin to bite a little bit more each year but people will be focused on celebrity gossip and Dancing with the Stars–or whatever is the equivalent across the pond.

  3. I can’t understand the relatively tiny amounts of money involved in this “crisis,” which “threatens” to discombobulate the entire Eurozone, with an economy on roughly the same scale as the United States.

    A $45 billion bailout?

    This is chump change, when an enormous economic structure like the EU is ‘threatened!”

    WTF are they thinking? The German GDP alone is $3.5 trillion!

  4. that the Drachma is coming back either, but it could I guess.  

    The USD is more likely to collapse than the Euro.  

  5. was talking about?  I have enough problems wrapping my head around our own looted and assaulted economy so my comprehension of the EU’s woes is limited. Aren’t the markets all connected via the banks? Weren’t the Greeks fleeced by GS in some nasty ass fraud? So now if were connected to global financial Visigoth overlord’s why are we not affected? Why doesn’t Greece press charges of fraud against GS? Why don’t We bust these Three Card Monty games up? How absurd these hearings are and how absurd is the ‘reform’ were getting once again.    

    ‘While you slept, there was a fundamental repricing of risk in financial markets around Europe – we’ll see shortly about the rest of the world.  You may see this called a “panic” and the term conveys the emotions involved, but do not be misled – this is not a flash in a pan; financial markets have taken a long hard view at the fiscal and banking realities in Europe.  They have also looked long and hard into the eyes – and, they think, the souls – of politicians and policymakers, including in Washington this weekend.

    The conclusion: large parts of Europe are no longer “investment grade” – they are more like “emerging markets”, meaning higher yield, more risky, and in the descriptive if overly evocative term: “junk”.’

  6. gjohnsit.

    It is this comment that I found-

    Well, “European” statecraft centered on the Brussels-Paris axis has met my personal expectations perfectly. They have again fallen exactly in the center between two stools. They neither ejected Greece from the euro in time or provided timely aid. They instead did nothing and supinely presided over the exponential growth of a first class crisis.

    I think Simon Johnson has caught the right theme: “Wake The President”. Also wake the National Security Advisor, the Secretary of State, the Chairman of the Fed and (unfortunately) wittle Timmy next door to the White House.

    There are two premier issues.

    1. First and foremost is the shape of Germany’s future relations with Russia post-Euro. Our two practical options are to either severely limit these or get into extremely tight alliance with an emerging “Russmany”.

    The most disastrous outcome for the USA would be a hostile Russmany aligned with China. This must be avoided at all costs.

    If in all the circumstances our elites wish to prevent “Russmany”, now is the time. That means sustaining the EU in essentially its present form. Another $2-$3 trillion on the national debt will be a small price to pay compared to other possible bills later. Alternately we have to become the midwives and godparents for “Russmany” and bring it about in a way that’s correlated to our own interests.

    What is not an option is copying the Quai d’Orsay’s usual method of doing nothing, loudly announcing everything and failing at both strategies. Events are taking place now that will determine the USA’s destiny into the 22d Century.

    2. Of secondary importance is preventing another outbreak in the Balkans. Only mere hundreds of thousands of lives are at stake here, rather than many millions as in #1. However, the possible disease vectors have expanded to include Greece.

    The commenter has some street-cred, not some boffo.  Another commenter(andy–in colorado?) offered this link;

    this comment seems to be spot-on

    So goes one of the triple AAA. No wonder the Germans are

    barking again for the birth of a European rating agency. Now, who’s next at the speed they are going ? In any case, whatever happens before that date, imho, I predict UK’s downgrade in the week following the May 6 th general elections, as rating agencies said they were ‘waiting’ for the outcome, though none of the candidates has the slightest proposal on how to cut the UK’s deficit ? Belgian elections are now scheduled for June, maybe the surprise will hit them before ?

    This is what I think, too.  GS helped Greece cook its books, then sold Greek debt to its clients, then bought CDS on that.  All that info can be found at nakedcapitalism.  It still remains to be seen if Greece defaults or the EU and Germany step in, but time is short.

    The Eurpean elections coming up make alot of sense as to the timing of a Greek Bailout.

    I have a question-  Who pays for the Greek Bailout?  Germany mostly, as I understood it.  How much do the IMF play in it?  What about the US-as in how much US taxpayer money would go to a Greek bailout?


  7. USD is falling vs Yen, and is forecast to fall more.  

    The Euro falling apart is ludicrous, when the USD is also falling.  

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