The really odd thing here is that the bondholders were pitched a deal a couple months ago to take a 21% haircut and be able to walk away. They refused and now they’re being told that a 50 to 60% cut is what is now under consideration.
These idiots in European banking must be really, really, really stupid, because I’m only slightly familiar with the numbers out of Greece and I would have been *all* over that 21% deal, saying “Where do I sign and in how many languages?” Because while I might not know the exact numbers, I can look at the recent trajectory of the Greek economy and see that they’re going to default on a lot more paper as their economy swirls down the drain and then pulls in the drain stopper after them. Their protests, strikes and work slowdowns are killing them, which leads to new rounds of austerity talks, which leads to more slowdowns and strikes... lather, rinse, repeat.
The problem could have been contained for awhile with a 21% haircut. It might have gained the Greeks a little breathing room to let the crowd fury die down because the Germans wouldn’t have had to make new demands every single week for more Greek budget cuts in order to get the bankers to agree to haircuts. But no, everyone decided to buy the jumbo cup of steamin’ stupidity, so here we are, talking of 50%+ haircuts and that will likely result in some Frog and Kraut banks tipping over.
Sigh. So much stupidity, So many people in dire need of a really good beating with a piece of pipe.
So little time in which to do it.
Eurobankers seem stupid because they operate almost completely under a different set of assumptions. The most pernicious one has been around for a couple of hundred years, to wit, that the state has a duty (and a cash obligaion...) to preserve them, almost no matter what. Every time someone points out to them that this assumption is lunatic in an objective world, they throw up the Kredit Anstalt and Herstatt fiascoes as wishful absolute defenses to the argument. You'll never change this attitude w/o a major collapse, either.
Just BTW, my back-of-the-envelope (and thus not necessarily reliable) calcs show that a requirement for a 72% haircut on all Greek sovereign debt would produce **roughly** a 50-50 chance of Greek fiscal stability for a period of one year. Obviously, the unknowable here is whether or not Papandreou et al. are serious about the drastic budget cuts necessary, and HOW serious they are. Hence the 50-50 result.
I can hear SocGen and BNP Paribas screaming from here.