French, German Banks Could Bear Brunt Of A Greece Default

Wall Street Journal ^ | 4/28/10 | William Launder and Jethro Mullen

[marshmallow]

FRANKFURT (Dow Jones)--As global financial markets eye Greece's mounting fiscal woes Wednesday, analysts warn that some German and French banks could incur billions of euros in earnings losses and write-downs given their high exposure to Greek debt.

French banks would be dealt a "severe" blow by a default on Greece's debt, even if their underlying book value would remain in tact, said Dirk Hoffmann-Becking of Sanford C. Bernstein.

[givemELL]

Another article stated that Germany is exposed to 30% of the Greek debt.

[JasonC]

Um, European stocks have already fallen by $1 trillion over this.

Methinks the idiots trying to save $50 billion over Greece need another round of Lehman lessons. Failing messy doesn't save anyone, anything.

[mainsail that]

Either way Germans and French will pay. Now it’s a question of cutting their loses or support Greece for generations to come.

[Army Air Corps]

This ought to make German and French citizens really happy. (do I need a sarcasm tag on this?)

[truth_seeker]

Since the first origins of the EU there was resistance by Germany, Belgium, France to the idea of letting poor southern European countries join; meaning Greece, Portugal, etc.

Now having done so anyway, it turns out those fears were well founded.

Of course the mission of the EU has grown and morphed.

[Lurker]

Let ‘em all crash. They made the bets, now shut up and take the consequences.

[givemELL]

Just thinking, if the Germans establish the precedent of bailing out Greece, will they not be faced with the expectation of bailing out the rest of the PIIGS also?...Bummer..as they say.

[JasonC]

Sorry, that is too stupid for prime time. Burning $1 trillion to "save" $50 billion isn't economy. It is just idiocy.

[Leisler]

The last century and a half, there have been three unpopular, forced unions by elitists planners in Germany. Bismark, Hitler and the EU.

Germans have a history of stolid....inert-ness, followed by radical popular... expression.

We will see how much Fritz will bear.

[GeronL]

They will all fall down like dominoes.

[Leisler]

Damn, I hate it when the model is threatened by reality. Really, something should be done.

[givemELL]

German MP now says Greece needs 150 billion Euros:

http://www.ft.com/cms/s/0/a7a9c604-5297-11df-a192-00144feab49a.html

[givemELL]

German MP now says Greece needs 150 billion Euros:

http://www.ft.com/cms/s/0/a7a9c604-5297-11df-a192-00144feab49a.html

[marshmallow]

Methinks the idiots trying to save $50 billion over Greece need another round of Lehman lessons. Failing messy doesn't save anyone, anything.

Maybe America ought to bail out these guys. The American taxpayer wouldn't mind, would he?

I'm a bit short until Friday. You know what it's like at the end of the month.

How much can I put you down for?

[mainsail that]

That’s the issue: why should the Portuguese leaders impose cuts and risk their reelection when they can kick the can with German help a few years down?

[mainsail that]

“Sorry, that is too stupid for prime time. Burning $1 trillion to “save” $50 billion isn’t economy. It is just idiocy.”
—
1. Nothing is burned, stocks go up and down.

2. Lehman would not have been independent today even if it was saved, probably part of JP Morgan.

3. Greece will still have their socialist leader and communist attitudes tomorrow. $50 Billion is just for year one, and only to add more debt to Greece.

4. With Lehman, US Treasury sent e message: you might not get a bailout so don’t count on it.

[Lurker]

Burning $1 trillion to "save" $50 billion isn't economy.

Ahhh the 'too big to fail' argument. Spoken like a true Liberal. Well have your pals at Goldman Sachs get out their checkbooks. I'm sick of paying the freight.

Shut down the IMF now. Let the Euroweenies crash and burn.

[JasonC]

On (1) it is idiocy, of course the value of all assets matters, it drives GDP through wealth effect. Policy should aim to preserve or increase total wealth not destroy it with the flippant hope that it might come back. (2) is a straw man, the whole point was Lehman's creditors then and Greece's creditors now. Lehman was toast but could have been sold to Barclay's for $40 billion in loss guarantees to creditors, and doing so would have save the authorities oh about $3 trillion in interventions, and the world as a whole easily twice that is lost asset values. With Greece, the aide package already approved but currently being stalled by the Germans when it comes to actual implementation would still leave the Greeks implementing draconian austerity - which they need and will happen regardless of the choices made now, their populace's denial notwithstanding. The issue is will their banking system also be destroyed, and with it a crisis in all the PIGs, etc. Which is another "run" that is preventable with a modest upfront payment. Not paying upfront doesn't mean getting out of the expense, it means paying 20 to 50 times as much in a greater smash.

And no, it doesn't just add more debt to Greece, Greece gets austerity regardless. They can get it from complete cut off from the capital markets or they can get it from rational government policy, but they get austerity. The issue is, do their creditors get 35 cents on the dollar or do they get repaid in the short run by the IMF. If the former, you don't save anything, you just ensure that every periphery country in Europe gets to pay 5% more to borrow anything ever, while all existing loans drop in value by large amounts, decapitalizing the European banking system once again.

And if the message of Lehman was supposed to be "you might not get bailed out", what actually came through was "die you capitalist scum, never lend to anyone" but after that made everyone panic it was over in about 1 week and the new message was "the Fed will print $1 trillion to stop all the runs".

If you just want to discipline markets to think there might be failures and losses, why not just order the US air force to nuke lower Manhattan? Wouldn't it send a clearer message what you really think and want?

[JasonC]

You don't have to worry about paying anything, you don't have any money anyway.

Also, nobody is talking about your paying anything (not that you can).

Also, Europe crashing and burning will not save you a dime. It will cost others who actually have money plenty, but it won't help you (who don't) one iota.

Shall we start again at the begining of the economics lesson? Economics is the art of moving any scarce resource to the spot where it does the most good, as measured by the total wealth that results. If spending $40 billion on X creates $1 trillion in wealth, then being against it isn't "economy", it is idiocy.