Greek Finance Minister Evangelos Venizelos
Portions of the following appeared in The Future Tense on 3-10-2012.
It seems like months and months and months have gone by with headlines proclaiming a new Greek bailout and the world is saved. Month after month all is good, unemployment down, economy growing, hope, change, green shoots.
But what is the real story that they are hiding?
Greece is a tiny spec in terms of the global economy. It is even a minute spec in terms of the European economy. The issue at hand here in these endless hours of Greece bailout negotiations is not regarding the quantity of money needed to keep Greece alive;
It is the terms of the deal that will then be used as a precedent for every domino down the line in the coming European bailouts.
That is why policy makers are walking on eggshells. A mistake with this Greece/”Bear Stearns” bailout may set the stage for the Portugal/”Lehman” moment that is right around corner.
Right now Greece is bankrupt. On March 20, they have bonds that will need to be rolled over, which they cannot finance. Without the bailout that took place on March 9, 2012, that roll over would not have happened and a Greek default would begin on March 21.
The financial leaders around the world desperately do not want a formal default to occur. They have been in negotiations for weeks trying to come up with a way to keep Greece alive for just a little longer. Why are they so concerned about insignificant Greece? This story has a very interesting twist.
To the elites its all numbers, to the people it is very real
Think of saving Greece as trying to disarm a bomb. If you make the wrong move the bomb will explode, possibly setting off other bombs that cannot currently be seen. These “off balance sheet” bombs are called Credit Default Swaps. CDS in simple terms are an insurance contract that is triggered if Greece is considered in formal “default.”
The key word here is “formal” default. If the European Union can avert a “formal” default they can prolong the inevitable collapse.
So, not only do the financial leaders have to come up with a way to give Greece money and write down a large portion of their debt, but they must do it without triggering the bomb. It is like an episode of “24″ with Jack Bauer only the story at times is even more unrealistic.
To keep the bomb from going off, Greece bond holders must “agree” unanimously to take a write down. The bailout March 9 said that private debt holders should agree to write down 107 billion Euros. The easy part was to put a number on the page. The more difficult part will now be getting every private Greek debt holder to agree to take a loss.
Generations of people all over the world have been indoctrinated by government schools that capitalism is evil, but government produces nothing and central bankers produce worthless paper. Facts that will never be taught to children.
Here is the first problem.
Many of the investors who bought Greek bonds also simultaneously purchased insurance (CDS) on the debt to hedge their position. If Greek debt went up in value then they keep the profits. If Greek debt defaults then they have the insurance payment to help cover losses. Greece’s plan is to show up at their office and ask them to “accept” a 50% haircut on their investment, which would then cause their insurance payment not to come in the mail.
What do you think their answer will be?
It will obviously be no. The hedge funds and investment bankers purchasing Greece debt are killers backed by financial algorithms. They care very little about the man starving on the streets of Greece.
There is a way Greece can avert this issue. They can issue a “collective action clause” which means that an agreement by a majority of bondholders would create a write down for all bond holders.
As of this moment triggering the CAC would trigger the “formal default” bomb.
How this will be handled over the coming weeks is the crucial portion of the debt negotiations. If the bomb is triggered for Greece then it sets the precedent that it will be triggered for
While Greece can easily be contained, Spain and Italy are impossible. The size of both the bailout funds needed and their bomb explosion are like Lehman x 1,000.
This is what all communist want, economic illiteracy, hunger, and violence
The second problem;
No one can see where the losses will be taking place in the banking system, which means no one will trust anyone. Money stops moving and freezes.
Its like a scene out of the 1981 movie “Body Heat” where the ex convict Teddy Lewis (Mickey O’Rourke) is asking Attorney Ned Racine (William Hurt), who is contemplating committing murder;
“You got fifty ways you’re gonna f… up. If you think of twenty-five of them, then you’re a genius… and you ain’t no genius. You remember who told me that?”
And that is where Federal Reserve Chairman Ben Bernanke and European Central Bank President Mario Draghi are today, desperately trying to keep the illusion of normal for Main Street after the murder has been committed.
Where we go from here is impossible to know. We are so far over the edge of the cliff and into the abyss that it is truly staggering. The average person has no idea how thin the thread is that our entire financial system hangs on today.
The stock market, just as in the fall of 2007, is completely oblivious to the danger ahead.
The global debt crisis will not be contained.
We have one more deflationary downdraft ahead of us before the next major re-inflation upward.
The process could take years to unfold, or it could begin tomorrow.
Capital will flee Europe to America and it will take weeks, months, before investors realize America is just as bad off or worse than Europe. Federal, state, and local debt is 120% of GDP, the same as Italy. All debt, public and private is debt is $54 trillion; the GDP is $15.3 trillion. Can Americans afford to pay $180,000 per man, woman, child, elderly person?
The best option is to arrest the politicians and bankers who ran up the impossible debt, declare bankruptcy, and get on with life.
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