Wednesday, March 7, 2012

You Thought the Bird Flu Was Contagious!

Yes, Greece, again.

Why all this fuss over a little land in the sun sitting lazily on the Mediterranean? Whitewashed houses full of tourists and wine.


Greece needs to make a payment of €14 billion on March 20. It doesn't have any money (who does?) and will likely default.

It looks as though the private bond-holders are calling the Troika's bluff and putting the International Swap Dealers Association's backs up against the default wall. The bondholders want their money back from their insurance, they do not want to take the 50% haircut.

Those without insurance will not get their money back and will have to scratch out those assets from their balance sheets. Gone.

Then the mess starts to unravel. The light gets shone on Spain and Portugal and worry turns into fear turns into panic and depositers begin to withdraw their savings from institutions causing a bank run. As we saw in September, 2008, bank runs are nasty and require swift action by authorities. But will the contagion be able to be halted this time? After all, last time, countries used their clout to bailout businesses. Now countries are insolvent. Where do we turn to? Mars?

Stock markets and commodities, including gold, slid last night on such worries. The tipping point for all this is sensitive indeed. There is a warning that such a default in Greece will cost the eurozone €1trillion. 

I'm glad we don't print paper anymore, the Green movement would be livid. €1trillion would be a lot of trees.

Let' us all hope somebody comes up with a plan.

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