Question on Greek Financial Crisis

[snapper]

They are going to go broke sooner or later. It is a non viable economy on Euro rates. Why throw more good money after bad? Yes the French and German and probably British banks will have trouble but if they fail then to wall with them too and no more bailing out. New banks will grow and while it may painful short time we shall at least have the money we didn't send to a bankrupt country. I really wanted yesterdays no confidence vote in Greece to pass but sadly we shall now have to pay more.
PS Don't go thinking Makedonijia will get off light either! When you join this political non entity of beaurocrats they will make you pay.

[RollingWave]

You may be on to something when Greece privatizes her services. Who will be the first in line to buy these assets at the extreme detriment of the average Greek in the long term. I have yet to see a situation where privatization on a large scale has ever benefited the country or people.

I had to think about this statement for a minute. About privatization never benefiting the people. Because I am a capitalist, and my inclination would be to say just the opposite. I seldom see GOVERNMENT ever benefiting the people.

It's really a question of scale, in short, if the particular industry can support at least several competitors then it's probably better to go private, but that's not always the case, espeically not in smaller countries.

If your country's electricity is entirely controlled by one private company, it doesn't take a rocket scientist to see what might go wrong. Public company's problem is generally lack of efficency, but a monopoly by private company often result in said companies ripping off the public for their own profit, that makes them more efficent per say, but obviously it's probably worse for the entire picture.

For example, in Taiwan there's no realistic way to argue that it can support multiple rail / water / power companies on an island smaller than Massachusettes (with a huge mountain range in the middle no less)

Utilities and transportation / communication are generally the two bigger questions when in comes to such arguments. For example, for a private company it would be completely unprofitable to wire electricity and phone lines to certain remote villages, but would it make sense for a country to have remote communities without electricity and phone lines? Such industires... where entrance level is very very high (building phonelines across a wide area etc.. ) and the service provided is basic neccessities are typically the subject of Public companies.

Such is the case in Taiwan where there use to be a major bus company controlled by the state, but as bus became more common and other private bus companies are more competitive, they also eventually privatized the state bus companies, but that also meant that they ended many unprofitable routes to remote settlements, and those settlements are now entirely on their own. if they don't have cars they're screwed.

Conclusion wise, if your pretty confident that the industry won't turn into a monopoly / oligopoly then it's usually better to have it as a private company then a public one, but a normally operated state company is almost surely better than a monopoly / oligopoly situation.

Also, some smaller states espeically in the developing nation there's no realistic way for private companies to develope certain basic infrastructure related industries, in such cases state operations are almost always the only viable solution.

[Doktor]

They are going to go broke sooner or later. It is a non viable economy on Euro rates. Why throw more good money after bad? Yes the French and German and probably British banks will have trouble but if they fail then to wall with them too and no more bailing out. New banks will grow and while it may painful short time we shall at least have the money we didn't send to a bankrupt country. I really wanted yesterdays no confidence vote in Greece to pass but sadly we shall now have to pay more.
PS Don't go thinking Makedonijia will get off light either! When you join this political non entity of beaurocrats they will make you pay.

They are going to broke for almost 200 years, but they still haven't filed for bankruptcy, so I wouldn't bet on that card. Especially since if they go down, they will get many more with them.

The problem I think many people have (including me) is Greeks are not willing to accept the reality and say "OK we had it good for 50 years let's fasten the belt for 10 and have it good for another 50".

Greece still spends a lot for military. Those still working get 14 cheques in one fiscal year and they go in retirement youngest in EU with highest pensions as % of the average salary they earned while working.

As for us paying the bill if/when we enter the non entity, I have no problem. If we want so bad to join the club we have to pay membership. I am more in favor of haveing Swiss-like policy rather then joining, but the majority here are overwhelmed by the idea to get member card.

P.S. FYI The correct name of my country in English is Macedonia (Republic of). We also accepted to be called by that stupid reference Former Yugoslav Republic of Macedonia for those having issues with our constitutional name, but never as Makedonijia. For the record.

[snapper]

It seems more and more as if we are insisting on these Greek cuts and privatisation (Pireaus port is up for sale!) not to help Greece but to help our banks that hold Greek debt:

Greece: French banks ready to roll over loans, Sarkozy
President Nicolas Sarkozy Nicolas Sarkozy is trying to forge a plan for French banks to give Greece longer to repay
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Greece crisis

In pictures: Protest over cuts
Lessons from Argentina crisis
Peston: Is France's plan flawed?
Scenarios: From bad to worst

French President Nicolas Sarkozy says his country's banks would help Greece by giving it 30 years to repay.

France's Figaro newspaper said banks are ready to relend - or roll over - 70% of loans they hold.

The plan is being worked out by the French government and bankers.

Greece, which has not yet exhausted all its first 110bn-euro (£98bn, $158bn) bail-out, is already standing by for further rescue loans expected to be up to 120bn euros.
Losses

However, the German government and others have been pressing for banks and other private-sector lenders to Greece to be involved this time round.

German banks are reported to be very interested in the French model being discussed.

A group of international bankers are currently meeting eurozone officials in Rome to discuss the crisis.

The matter is fraught because credit rating agencies, who determine the credit-worthiness of borrowers, have already said they will view any roll-over of loans by banks as a technical default, something that is tantamount to bankruptcy.

The head of the eurozone's rescue fund, Klaus Regling, is talking to the ratings agencies to explore ways to avoid a default rating.

European policymakers - notably the European Central Bank - are also concerned that the move could force Europan banks to recognise billions of euros in losses on Greek debts they currently hold, and could also trigger payouts on credit derivative contracts.
'Restart the system'

Meanwhile, in earlier comments, Axel Weber, the former president of Germany's central bank, said the piecemeal approach to Greece's debt problems would not work.
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There all manner of flaws and uncertainties in the scheme, according to bankers to whom I've spoken ”

image of Robert Peston Robert Peston Business editor, BBC News

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Mr Weber said EU governments should accept that at some point they would need to "restart the system".

The ex-Bundesbank chief said the current options for Greece were either a default with debt writedowns, or for Europe to guarantee all Greece's debts.

He said that repeatedly offering aid would only work for a limited time.

In an interview with the Wall Street Journal, Mr Weber - who was once seen as a likely candidate to run the European Central Bank - said: "There are, unfortunately, only very limited options: Either a default or partial haircuts or a guarantee for the outstanding amount of Greek debt."

He added that "the current piecemeal approach of repeated aid programmes inevitably leads to the latter solution. At some point you've got to cut your losses and restart the system."
Opposition

This week is another crucial one for the indebted country.

The Greek parliament will discuss a new range of austerity measures, which include introducing income tax on earnings of 8,000 euros (£7,142, $11,600).

The ruling party has 155 seats in a 300-seat parliament and polls suggest the proposals are opposed by three quarters of Greece's 11 million population.

On Monday evening Greek Prime Minister George Papandreou urged parliament to vote through the austerity measures in a "unique opportunity to keep the country on its feet".

With the Athens government on the verge of bankruptcy, and a 48-hour general strike about to start, Mr Papandreou said the new budgetary plan would give Greece "a fresh start towards a productive economy".

The austerity measures must be agreed before Greece can get its hands on the latest slice of the 110bn euro support package.

The country cannot stay financially afloat without that.
Contamination

Meanwhile, two major investors have warned of the gravity of the situation facing Europe.

The joint head of the world's biggest bond fund manager, Pimco, has said Greece's sovereign debt restructuring is inevitable.

And leading investor George Soros, who reportedly made £1bn when the pound crashed out of the euro's forerunner, the ERM, said the world was on the brink of another disaster.

"Let's face it: we are on the verge of an economic collapse which starts, let's say, in Greece but could easily spread," he said.

Mr Soros said it was almost inevitable that one or more eurozone country would exit the single currency.

Britain's "big four" banks - Lloyds , Barclays, Royal Bank of Scotland and HSBC - have a relatively small exposure to Greece.

They have a larger exposure to other struggling eurozone economies, particularly Ireland and Spain.

France's banks hold around 15bn euros in Greek government debt.

BBC News - Greece: French banks ready to roll over loans, Sarkozy

Why not pay the banks and not the Greeks?

As for FYOM as you so rightly refer to your nation I was using the colloquial terminology. Certainly it would be nice if we could insist the Greeks withdraw their opposition to FYOM membership as part of this deal. I very much hope Macedonia does join the EU at some point as I have money invested in property there for the day it does! It would be wise for you opt out of the Schengen Agreement though (as the UK does) or you'll be overwhelmed by Albanians.

[Doktor]

Top Economist on the Euro Crisis

'The German Government Will Pay Up'

In a SPIEGEL interview, leading German economist Stefan Homburg argues that euro-zone members should not bail out Greece, discusses who is making a profit from the crisis and explains why he himself is buying Greek bonds. "I believe in the boundless stupidity of the German government," he says.

SPIEGEL: The European Union and the International Monetary Fund are planning a new bailout package for Greece involving the voluntary participation of banks. What's your take on this?

Homburg: Banks cannot participate voluntarily. An executive board is committed to its company's welfare, and not the public interest. If it waives outstanding debts at the expense of its own company, this is a breach of trust and punishable by law.
SPIEGEL: Banks can only do business if the financial markets function properly. If the banks help make this happen, it certainly can't be a punishable offense.

Homburg: A bank can waive a portion of a debt with the aim of saving the remainder. This occurs in all bankruptcy proceedings. But things are different here, precisely because of the bailout package: If the bank refuses to make its own contribution, taxpayers alone will pick up the tab. This is exactly what a board of directors has to strive to achieve to avoid being accused of criminal breach of trust.

SPIEGEL: So the voluntary participation of private creditors, which German Chancellor Angela Merkel and French President Nicolas Sarkozy have agreed on, will achieve little or nothing?

Homburg: It was all just a big show which was mainly intended to calm the German public. Merkel wanted mandatory participation, Sarkozy wanted none at all. In effect, Sarkozy has prevailed.

SPIEGEL: Do you prefer Merkel's original proposal?

Homburg: That proposal also fell short of the mark. In a market economy, even in the case of a plumber whose customers don't pay their bills, it's never a question of getting creditors "involved" (in helping to deal with a bankruptcy). Instead, when push comes to shove, it is creditors, and creditors alone, who have to write off their loans. Only then do they have an incentive to carefully choose who they lend money to. A market economy with no personal liability cannot function. The government bailout initiatives create misdirected incentives that continuously exacerbate the problems on the financial markets.

SPIEGEL: But the plumber is not, as they say, too big to fail -- his or her bankruptcy wouldn't cause entire banks to collapse. The European Central Bank has warned of a massive new financial crisis if it comes to the compulsory involvement of private creditors or even a restructuring of Greece's debt.

Homburg: The alleged risk of contagion is a myth that doesn't stand up to closer scrutiny. If you share my conviction that all this talk of Greece being too big to fail is simply nonsense, then there is no reason for bailouts …

SPIEGEL: … yes, but only if you're right.

Homburg: No, it also holds true in the reverse situation. If the bankruptcy of little Greece were actually to trigger a global financial crisis, new bailout programs couldn't solve the problem: They would actually exacerbate it. If no more states or banks are allowed to go bankrupt because this might precipitate a financial crisis, then we're finished. Then the problem continuously escalates and leads to a much greater crisis.

SPIEGEL: Europe wants to use the bailouts to buy time. The idea is that during this period the banks can recover and countries like Portugal, Ireland and Spain can get back on an even keel, so the risk of contagion is not so great when the inevitable restructuring takes place in the distant future. That is the strategy.

Homburg: I wouldn't call it a strategy. First, states bailed out their banks, now states themselves are being bailed out. But there is no next level to fall back on beyond this bailout. The bailout packages have merely exacerbated the crisis. Last year, if we had adhered to the Lisbon Treaty, which prohibits assistance payments, Greece would have restructured its debt, just as Uruguay, Argentina, Russia and other countries have done over the past 15 years ...

SPIEGEL: … but none of these countries were members of a monetary union.

Homburg: There is no economic argument that supports the idea that national defaults are worse when they occur in a monetary union. Of greater importance is the size of the country in question, and in this respect there is a clear difference between Greece and Russia.

SPIEGEL: In a monetary union, isn't there a much greater danger that the crisis will spread from one weak member country to another?

Homburg: No. The contagion spreads in precisely the opposite direction, because many banks and hedge funds benefit from the following business model. Step one: They sell the bonds of the country concerned. Step two: They spread negative rumors about the country. Step three: After bond prices have fallen, they buy them back cheaply. And, finally, they take governments for a ride with this nonsense that a default would have devastating consequences. In a zero-sum game, there are not only losers, like us taxpayers, but also winners.

SPIEGEL: And what is the risk of contagion now?

Homburg: After the Greek bonds have been paid back at full value, the gamblers will turn to the next candidate, such as Portugal. If creditors suffered losses in Greece, however, they would renounce this business model. In this sense, the rescue measures are exacerbating the problem.

SPIEGEL: If there were such a business model, a lot of people would be buying Greek government bonds now.

Homburg: In recent days, I myself have invested a considerable sum in Greek bonds. They will mature in one year's time and, if all goes well, produce a 25 percent return on investment. I sleep very soundly at night because I believe in the boundless stupidity of the German government. They will pay up.

SPIEGEL: You are not troubled by moral scruples?

Homburg: Since I involuntarily help finance the rescue packages through my taxes, I have no problem with also receiving a portion of the profits. Why should it only be banks and hedge funds that benefit?

SPIEGEL: You are apparently very confident that Greece will also be bailed out if it fails to implement, or insufficiently implements, the austerity measures that are being demanded.

Homburg: Absolutely. Greece is neither economically nor politically capable of sorting out its finances. It will never be in a position to repay the money that it has borrowed up to now. The German government will pay up all the same.
SPIEGEL: And what will happen next?

Homburg: Many politicians have also come to the realization that the path that we are on ultimately leads to national defaults and currency reforms. This process is already irreversible, but nobody wants to say it out loud and go down in history as the one who triggered the explosion. So we leave the bankruptcy to subsequent German governments and, in the meantime, throw good money after bad. Sooner or later, this much is certain, the system will be blown apart by political and economic factors. And, unfortunately, there is a great danger that, when this happens, it is not only the euro that will fall apart, but also the entire EU.

Interview conducted by Armin Mahler

[Doktor]

As for FYOM as you so rightly refer to your nation I was using the colloquial terminology. Certainly it would be nice if we could insist the Greeks withdraw their opposition to FYOM membership as part of this deal. I very much hope Macedonia does join the EU at some point as I have money invested in property there for the day it does! It would be wise for you opt out of the Schengen Agreement though (as the UK does) or you'll be overwhelmed by Albanians.

FYROM as an acronym refers to my country not for my nation (we are Macedonians since anyone remember, plus there are documents);) I only reacted to the word "Makedonijia" because very often the Greeks come up with such deviations just to piss people.

I think you can see I have no problem with FYROM for those having issues using solely Macedonia as our stupid politicians agreed to it and signed that people can call us that way.

Unfortunately, at the moment the politic elites in Greece have bigger issues to solve and I don't think anyone can force Mr. Papandreou to commit political suicide by solving this issue under pressure. And it wouldn't be right.

As for your investment, the land was given for 1 eur/1m2 last year and I don't see the property prices rising anytime soon. Especially if we don't reach agreement with the Greeks.

We are not in the Schengen Agreement. We can only travel to Schengen countries without visas. As for the Albanians, we have 20-25% of Albanians from the total population at the moment, plus on 2 born Macedonian babies there is 1 Albanian.

[Laser]

I really like this Homburg guy. He is smart enough to know that Politicians, Governments and Central Banks, will never be able to control Economics, no mater how much they try. In fact, the more they try, the worse it gets. The laws of Economics are like the laws of Nature, or the laws of Physics. Just because you can understand them, even anticipate them, does not mean you can, or should, control them. Their level of incompetence is only matched by their arrogance.
However, he,s also smart enough to place his bet on the stupidity of Govt.( all of them) to ignore the inevitable. IMHO

[DOR]

Time to get real liquid, folks.
The risks are very rapidly rising, and the rewards are simply not worth it.

Even if Greece doesn't fall over, the US Congress Battle of the Budget is likely to go on until the financial markets call a halt, at which point there will be a temporary band-aid applied.

Take the Summer off, give it 6-8 weeks, then check again.


(Please note I am not a certified financial markets analyst.)

[GVChamp]

Time to get real liquid, folks.
The risks are very rapidly rising, and the rewards are simply not worth it.

Even if Greece doesn't fall over, the US Congress Battle of the Budget is likely to go on until the financial markets call a halt, at which point there will be a temporary band-aid applied.

Take the Summer off, give it 6-8 weeks, then check again.


(Please note I am not a certified financial markets analyst.)

The TED Spread is still pretty low, so the markets aren't panicking quite yet. It's possible that this crisis really won't be that bad. The Citi stress tests of "what happens if these countries start restructuring" shows Spain as the big problem, and even with a 20% price knock-off, the only banks that will need additional capital are Spanish banks. Of course, kinda assumes the stress test is accurate, and people can still whip up into a panic and run on the banks.

But there's no real evidence of immediate panic yet.

[snapper]

I think the French and German bankers may need to give the Greek police and army a pay rise soon.

[RollingWave]

So time to stock up on gold? :( the price of it is still crazy high though.

[Laser]

My main fear of buying more Gold is, 1-I can't eat it. And 2- with all these nations having to settle their pending sovereign debt issues, there may be a sell off coming. I have been invested in Agriculture commodities, up until recently. Yesterday I learned that, this year, the U.S. has planted the largest corn crop, since 1940.( That's a lot of corn) So now I'm on the sidelines, don't really know where to go. Maybe short commodities. Any better ideas?

[Mihais]

I'm long on training.I'll soon be,when the twisted law will allow,long on AK derivates,HK,CZ and Sellier Bellot.

Really guys,why do you bother with the market,gold(which ain't really gold,but paper said to represent gold)?Buy some arable land.It can only go up,until the Earth's population declines.

[Doktor]

I was thinking the same. There are two finite sources: time and land. Since you can't buy time, buy land.

[Laser]

May be move to Montana, and raise a crop of dental floss-Frank Zappa