El-Erian says Greece will default (PIMCO and former Harvard Fund manager is pessimistic)

Reuters ^ | 04/29/2010

[SeekAndFind]

greece Mohamed El-Erian has an important piece on Greece in tomorrow’s FT; if you want to boil his 750-word article down to 3, it’s basically “Greece will default”.

El-Erian comes to this conclusion using three logical steps. The first:

A number of things have to happen very fast over the next few days to have some chance of salvaging the situation. At the very minimum, the government in Greece must come up with a credible multi-year adjustment plan that, critically, has the support of Greek society; EU members must come up with sizeable funds that can be quickly released and which are underpinned by the relevant approval of national parliaments; and the IMF must secure sufficient assurances from Greece (in the form of clear policy actions) and the EU (in the form of unambiguous financing assurances) to lead and co-ordinate the process.

And a squadron of flying pigs dropping 100-euro notes from helicopters across both the Greek and Iberian peninsulas would probably help too. The fact is that far from all of these things happening in the next few days, the base-case scenario is that none of them will. (The “sizeable funds” might appear, but don’t believe for a minute that national parliaments won’t object.) And on top of that, El-Erian notes drily that “the official sector has yet to prove itself effective at crisis management” — or, to put it another way, if you really think the IMF can cope with a Greek crisis, just look at how it coped at previous crises in Asia, Russia, and Latin America.

[combat_boots]

One of Denninger’s articles (from 4/28/2010):

Watch The Birdie (Greece .et.al.)
Don’t believe the carnival barkers.

This morning we were treated to a nice rocket shot at about 4:00 (Central) in the Euro - an extraordinarily violent move that initiated when it was rumored that Greece had secured the terms of their “bailout.”

But then the TV cameras rolled, and there was no actual firm announcement.

Remember folks, this is the same procedure that everyone tried to run on you two years ago - first with “Subprime is contained”, then after Bear Stearns when “we have stabilized the situation”, then with Paulson’s “Bazooka” for Fannie and Freddie, and finally with the incessant, daily catcalls from Gasparino on the monoline insurers being bailed out, rescued, and being “well-capitalized.”

All these pronouncements did was pump the market higher than it should have been at the time and make the damage worse when recognition of mass insolvencies was forced to the forefront.

The insolvency itself happened long before, but by allowing people to lie investors were severely damaged instead of being properly concerned and acting to protect themselves.

So it is occurring again, this time in the sovereign debt realm. Greece is not a €30 billion problem it is more like €200 billion.

Worse is the fact that if Greece is bailed out with some sort of rescue package of new loans they will have simply made the situation worse by loading up more debt on an overlevered nation.

And finally, Greece is just the first of many - Spain, Portugal, Italy and even Great Britain anyone?

How’s that all going to work out?

Here’s the truth - it’s not.

Extreme caution is mandatory here folks. You’re not going to be told the truth - not by our government or anyone else’s. If a dislocation and “disorderly” bond market collapse gets going you will not be told in advance, but large players will be, and be position to profit significantly - at your expense.

There are no promises here, other than one absolute - you will be lied to by the governments of the world.

Trade and invest accordingly.

http://market-ticker.org/archives/2010/04/28/P2.html

[Red6]

The worst thing the Euro’s did was to take in nations like Greece into the EU. Portugal, Greece, even to a large extent Italy (I love the place, but it's true) are backwards and upside down and played all sorts of games with their currencies even when they were independent nations with their own currency. I remember the Italians on several occasions intentionally “devaluing” their currency so they have a competitive advantage inside Europe. You're dealing with nations that are like banana republics, they are corrupt, with large public sectors, largely socialized, they are the antithesis of the Deutsche Bank and their “in the past” ultra Conservative stance which made the Deutsche Mark a hard currency........ These economies are like a lead boot on the productive Europe (North of the Alps), making a big sucking sound year after year. If I were Germany, I'd cut them loose because they're not going to change.