Wednesday, November 2, 2011

Greek salad days are over....

It has been over a year now since I first wrote about a sovereign debt and currency crisis. The best part of that post, is the YouTube video that is associated with it: Overdose: The Next Financial Crisis. The video goes over the cause of the US mortgage and housing crisis that culminated in the Great Recession, and the aftermath that Americans are still coping with.
Banks and bankers, Wall Street and the corporations were blamed for that financial crisis, and are still being blamed thanks to the recent Occupy Wall Street movements around the world. Of course its true, they deserve blame but it is only part of the truth. The video clearly points to the real culprits as being the US (and other) government's attempts to prevent a severe recession after 9/11 by increasing liquidity, or in English, making it easier to get a loan, buy a house etc.
It worked, it really did get easy to get a loan or mortgage, so easy that people that should not have qualified for loans/mortgages got them anyway. And of course those shaky loans were "packaged" together, and with the help of colluding ratings agencies, the loans were treated as Triple A guaranteed secure investments to obtain an income stream. The packaged loans came to be known as Asset-Backed-Commercial-Paper, and the rest is now history.
But of course the crisis did not get resolved, it just got magnified and compounded as the video suggests, with huge bailouts, socialized bailouts. These corporate bailouts mostly, were so large (like TARP), that the US incurred new huge debt. Many countries already had such high debt and future liability from entitlements, that their solvency was already in jeopardy. Europe seemed to be rife with those countries that have come to be known as PIIGS. Greece is the "G" in PIIGS and it looks like it has real problems.
So here we are. Greece has so much debt, it has trouble meeting its obligations to payoff loans. As a member of the Eurozone, a Greek default would create a Lehman-like collapse for Europe, damage the Euro, and likely bankrupt some large banks that hold the debt. The Eurozone leaders met last week, and the crisis was resolved! Yippee! Stock markets were euphoric until yesterday, when the Greek President announced that there will be a referendum to accept or reject the terms of the Eurozone bailout, I think. The wording of the referendum is still in doubt, because the Greek government may not last until the end of the week. A parliamentary non-confidence vote could scuttle the whole deal, hell, the referendum could scuttle the whole deal. What is the deal? Basically the Greek debt will be "forgiven" to a degree. That means the debt holders will not get all their money back, like in a bankruptcy and Eurozone partners will cover some of Greece' payments and of course increase their own debt (lets not worry about that now.....).
But what about the referendum, what are the options Greek voters have? Greece looks like it is now stuck between the proverbial rock, and hard place. Should their be a referendum? That timely question was kicked around by two good writers at the National Post. In favour of a referendum: Terence Corcoran, against is Peter Foster


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