Posted on 05/25/2011 4:22:46 PM PDT by george76
If Greece defaults on its debt, the direct secondary effects on financial institutions could be much worse than what we saw after the collapse of Lehman Brothers.
The collapse of Lehman Brothers sent shockwaves through the global financial system—in part because it revealed that the United States government was willing to let a large, interconnected, complex financial company go bankrupt. Panic erupted, threatening the financial stability of other companies.
But the actual direct effects were few.
...
high concentration of sovereign debt in European banks raises the possibility that the banks may be severely undercapitalized—and may require a government recapitalization or face failure themselves. Even the European Central Bank, which now holds a huge amount of Greek debt, may need to be recapitalized.
It is difficult to tell which European banks have the most exposure to a possible Greek default. And this could be a recipe for panic if a default occurs. Banks will know their own exposures but not the exposures of their counterparties. Fearing the worst, many may simply refuse to extend credit to potentially insolvent institutions. A great credit crunch could further imperil Europe’s financial institutions and economies.
But make no mistake. This is not a crisis caused by speculators or greed or capitalism. It is a crisis of governments and regulations, i.e. governments that borrowed too much and regulators that encouraged banks to lend those governments too much.
(Excerpt) Read more at cnbc.com ...
Bravo. Sierra.
“It is difficult to tell which European banks have the most exposure to a possible Greek default. And this could be a recipe for panic if a default occurs. Banks will know their own exposures but not the exposures of their counterparties. Fearing the worst, many may simply refuse to extend credit to potentially insolvent institutions. A great credit crunch could further imperil Europe’s financial institutions and economies. “
This brought down Bear Stearns and was helping bring down Lehman,Merrill,Morgan Stanley. Lehman melted so quickly the Fes never had a chance to intervene. It’s not just banks unwilling to extend credit aka accept counter party risk but an unwillingness of customers to do business in the fear that their transaction may be held up in legal limbo. This is the heavyweight version of what happened with Banks suck as Washington Mutual and Wachovia. In their case they had withdrawals for the same reason people feared to do business with the Wall Street Banks.
I second that!
Nothing more than Greed using Fraud and The force of government. Banish the moneychangers
“This high concentration of sovereign debt in European banks raises the possibility that the banks may be severely undercapitalized—and may require a government recapitalization or face failure themselves. Even the European Central Bank, which now holds a huge amount of Greek debt, may need to be recapitalized.”
But the ECB is able to print Euros to recapitalize the banks, and that is exactly what they would do. They would make good the losses out of thin air. This might cause inflation, but that is certainly better than the alternative.
The longer we prop up the unsustainable and failures, the worse it gets for all of us. Either you believe in the free markets or you don't. Interference and manipulation by gov’t is what got us here.
The big problem in the Greek crisis is that the EMU is a currency with a dozen our more treasuries behind it. They think they have a central bank, when in reality, they gave only the facade of a central bank, with a bunch in the back room who, in these situations, make the Three Stooges look like a financial special-ops team.
I think the situation is so long and drawn out in comparison to our meltdown that they have made all the preparations in regards to their banks. The issue is the size of the haircut they may have to take.
Once the loan is approved, the US must pay its share, usually about 20%. We lend the IMF at 0.25% interest and the IMF lends it at about 3%.
If Greece defaults, we have to borrow that defaulted amount from the sale of treasury bonds, mainly to the Chinese.
I’m not sure anyone knows where the paper/computer trail leads , anymore.
Greece is an otherwise insignificant country that is given disproportionate importance due to its use of the Euro as a currency. Germany was wrong to allow Greece into the Euro and wrong to not kick them out.
Why aren’t the Germans (or Canadians) running the IMF?
Many other countries are also, period!
For Greece the best option was to default a year ago the 2nd best is to default now!
The longer they kick the can down the road the worse it is going to be.
For Greece it is really simple. Most of their dept is in Euros, therefore it will be the banks taking the haircut not the citizens of Greece. The banksters deserve to take their losses. They made bad loans knowing Greece could not pay.
Will this hurt the people of Greece? Yes, but the sooner you take your medicine, The sooner you recover! if you wait too long you may not recover. (in this case as a country)
They cannot reduce their govt spending without riots, but maintaining spending means they go even deeper into unsustainable debt.
The longer they defer, the worse it will be.
That panic in September 2008 happened because the bankruptcy of Lehman Brothers was an unplanned event, which caused a lot of uncertainty and panic. I mean, look at what they did with General Motors: because the Chapter 11 bankruptcy filing was completely planned out, it meant a lot more stability as GM was able to shed unprofitable divisions and reorganize its finances to make it a better company today.
What you say might be true - but it'll make countries like Greece winners - and responsible countries like Germany, losers.
Somehow or other that's not gonna be a good long term solution...
Not really. They will recapitalize the French and German banks. Greece will still be broke, and no one will loan them money, so they will have to dramatically reduce their living standard and leave the Euro.
A Greek default might be worse than Lehman’s, but a Greek default there will be. The longer it is postponed the worse it will be for Greece, Europe(Germany) and the world. Postpoenment just means shoveling good resources after bad. When you are in a hole if you keep digging, the hole will get deeper and eventually the sides will collapse.
Best argument for a gold or commodities backed currency: it keeps governments honest.
Greece Is ‘Insolvent,’ Unlikely to Honor Debt, ECB Economist Issing Says
Greece will probably be unable to meet its obligations as the euro region’s most-indebted nation is insolvent, according to former European Central Bank Chief Economist Otmar Issing.
While it is “not physically impossible” for Greece to honor its obligations, repayment is unlikely, Issing, 75, said at a press conference hosted by Nykredit A/S in Copenhagen today. The region’s debt crisis, which has also forced Ireland and Portugal to seek bailouts, has left the euro in a “critical” condition, Issing said.
“I’m skeptical about Greece,” said Issing, who joined the ECB a year before the euro’s inception in 1999 and stayed there until 2006. “Greece is not just illiquid, it’s insolvent.”
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