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Wednesday, April 28, 2010

Beware of the Greek obligor

The obligor - it does sound a bit like a mythical Greek monster.
One credit rating agency changes its opinion and all of a sudden... the world markets are on the slide.
The recession has weakened institutions and weakened confidence in those institutions to such an extent that - in this interconnected and enmeshed system - one small post wobbling in the barn is enough to frighten the horses into a stampede.

Business Week: from the S&P statement -With Germany refusing to issue blank cheques to the Greeks in order to preserve the discipline of the Euro zone they now look forward to this bleak scenario:

Damaged Collateral

“Eventually the Greek banks could run out of additional collateral acceptable to the ECB/Eurosystem,” Buiter said. “Their funding needs are likely to be exacerbated by a withdrawal of deposits that could become a run.”

If Greece’s lenders run out of collateral and suffer an outflow of deposits, the ECB would have “to reduce the minimum quality threshold on securities acceptable as collateral, currently BBB- or the equivalent, or refuse to lend to the Greek banks,” Buiter said. That would spark “a funding crisis and possible bank failures,” the Citigroup economist said.

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2 Comments:

At 28/4/10 5:22 pm, Anonymous Tim200 said...

Who rates the credit rating agencies? They haven't exactly proven themselves to be the cat's whisker over the past 2 years. Why do we place such faith in them?
Oh shit...I forgot, the same reason we place such faith in our current gubbamint. PR, bullshit and spin

 
At 29/4/10 9:24 am, Blogger Eure said...

Try to be succinct enuff for tiny comment space. Two facts. The Nats moved NZ's economy from balanced budgets into revenue shortfall by borrowing to fund tax cuts, and John Key is a banker from US Merril Lynch.
Matt Tabibi has an article here http://www.globalresearch.ca/index.php?context=va&aid=18623 on how the major amerikan banks have been bribing state and local government officials to take loans from them. The loans are treacherous pieces of usury which end up driving the borrowere (the state or the city) bankrupt. Thus far the banks have walked away still collecting their dosh even though bribery has been proven.

The Greek situation has been compounded by a derivative instrument called a CDS, a credit default swap. Imagine a situation where anyone can take out insurance on anyone else's house, and do it as many times as they want to. A house is insured a hundred times over by a swathe of greedheads, how long before it mysteriously catches fire? Yet that is what happened with Greece (see Dean Baker's excellent article on the Goldman Sachs Greek rort here http://www.counterpunch.org/baker04202010.html). Everyone bets Greece is gonna go under so the rating agencies mark it down, that forces up interest rates. The increase in interest rates causes Greece to go bust and all the psychopaths in banking collect and collect and collect. The act of buying CDO's against the failure of an investment which you have deliberately constructed to fail then sell to ignorant investors is exactly what Goldman Sachs bosses have recently been charged with. Meanwhile back in Greece, 'the rubber hits the road' so to speak, the Greek government is told that they can have some money so the country can keep trading but not only will they have to pay exorbitant interest, they must stop funding health education and welfare programs. No more free medical, no more free education and certainly no more income support for all those who have been left unemployed and bereft by the collapse of an economy engineered thousands of clicks away on Wall St.

Young Andy Cockburn has written an excellent piece on the mechanics of this operation, he called it The Economic Velociraptors http://www.counterpunch.org/andrew02122010.html Thus far the only mob to have successfully resisted a determined 'short sell' by way of CDOs is the Teamsters, The Teamsters are one of the great, staunch unions who have survived despite sffering a century of slander, intimidation and assassination.
Tell me do you think kiwis are that strong? When the boys on Wall St run through the fine print Key has put into our loans, one quiet week when there are no bigger fish to fry, how staunch do you think kiwis will stand as our dollar is driven down? Yeah right. There will be much fingerpointing - the media who are asleep at the wheel will blame the poor, the rich will blame the poor, the bourgoisie will blame everyone and since we don't have anything to sell this time (flogged off after Muldoon's borrowing spree), Kiwis are gonna go bust. All for the sake of a $6 pw tax cut. Don't pay? Ask Haiti about that. http://www.guardian.co.uk/world/2010/jan/14/haiti-history-earthquake-disaster

 

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