Greek Debt Bailout Follow-up
Here's a quick follow-up on my 3/7 post re the Greek debt bailout. Then I focused on the effect of all this "bail-out" activity on the people of Greece. This week, John Mauldin's column addresses what's going on with some numbers:
Add to this the fact that although the recent bail-out was proposed on the premise that the private debt-holders would have to accept a cut of over 50% in the value of the Greek bonds they were holding, it turns out that the bonds they will be given in exchange will probably be worth only 20 - 30% of the face value. (That price is based on the fact that the new bonds are already trading in the markets, and that's the price their trading at.)
Do the math and it turns out that the total loss will now be closer to 90%, not 50%. Of course, you shouldn't be surprised if you didn't know this, or if you have a bit of trouble following all this. After all, we were just informed by various European Union and ECB (European Central Bank) officials that this isn't really a bail-out at all. So we shouldn't be calling it that. They've just said that there's not reason for a bail-out because Greece hasn't and won't default on their bonds.
Now if you look at all this with a modicum of reasoned thinking, you see that the people who loaned Greece money will likely lose 90% of what they loaned. Next you will see that officials are saying that Greece didn't and won't default on their obligations.
So, I suppose, losing 90% of what was loaned to Greece is being defined as "not a default."
Does that make any kind of sense to you? (C'mon, you don't have to be an economist or even someone trained in finance to answer the question, right?)
Now, one more thing to think about: Doesn't it seem that these officials are lying? And doesn't it seem that all these twisted negotiations (which have stretched out over months and months) and transactions (the recent "swap" of the original Greek bonds for these newer bonds), that all this serves to not only distract, but confuse as many people as possible from the truth?
Finally, ask yourself, who benefits from this?
The banks? Well, they're going to lose over 90% of the value of their investment. How does this benefit them? On the other hand, since they're being propped up by the central bank, maybe there is after all some benefit - continuing their privileged status, continued financial life support, continuing to pay bonuses to their executives...you know, something along those lines.
The officials (politicians and bureaucrats) who negotiated all this? Well, the European Union lives on, keeping all these people in their coveted jobs - so maybe we've got something there.
The Greeks? Not if you re-read Mauldin's comments above, or my recent post.
The Greek economy is down by almost one-fifth in less than five years. Unemployment has risen to 20%, and 50% among young people, many of whom are leaving the country. Resentment has grown among ordinary Greeks over the austerity medicine ordered by international creditors, which has compounded the pain. Greek papers are full of stories blaming Germany for their problems.
By any standard, what will soon be a 20% drop can be classified as a depression. There is nothing on the horizon to suggest things will turn around any time soon.
Add to this the fact that although the recent bail-out was proposed on the premise that the private debt-holders would have to accept a cut of over 50% in the value of the Greek bonds they were holding, it turns out that the bonds they will be given in exchange will probably be worth only 20 - 30% of the face value. (That price is based on the fact that the new bonds are already trading in the markets, and that's the price their trading at.)
Do the math and it turns out that the total loss will now be closer to 90%, not 50%. Of course, you shouldn't be surprised if you didn't know this, or if you have a bit of trouble following all this. After all, we were just informed by various European Union and ECB (European Central Bank) officials that this isn't really a bail-out at all. So we shouldn't be calling it that. They've just said that there's not reason for a bail-out because Greece hasn't and won't default on their bonds.
Now if you look at all this with a modicum of reasoned thinking, you see that the people who loaned Greece money will likely lose 90% of what they loaned. Next you will see that officials are saying that Greece didn't and won't default on their obligations.
So, I suppose, losing 90% of what was loaned to Greece is being defined as "not a default."
Does that make any kind of sense to you? (C'mon, you don't have to be an economist or even someone trained in finance to answer the question, right?)
Now, one more thing to think about: Doesn't it seem that these officials are lying? And doesn't it seem that all these twisted negotiations (which have stretched out over months and months) and transactions (the recent "swap" of the original Greek bonds for these newer bonds), that all this serves to not only distract, but confuse as many people as possible from the truth?
Finally, ask yourself, who benefits from this?
The banks? Well, they're going to lose over 90% of the value of their investment. How does this benefit them? On the other hand, since they're being propped up by the central bank, maybe there is after all some benefit - continuing their privileged status, continued financial life support, continuing to pay bonuses to their executives...you know, something along those lines.
The officials (politicians and bureaucrats) who negotiated all this? Well, the European Union lives on, keeping all these people in their coveted jobs - so maybe we've got something there.
The Greeks? Not if you re-read Mauldin's comments above, or my recent post.
Comments