Greece, the gloves are off

[GGT]

I found the comment of that Pimco CEO interesting. What it boiled down to is that the rating agencies are really at the core of this crisis. Again now with Greece; they gave Greek bonds a way too positive rating in the past and now are by their overly late downgradings adding to the panic.

The funny thing about all this is that I don't even know if I was/am right to strive for an absolute minimum in indebtedness.

That's what I've been saying for a few pages now, about the Big Three raters. Too much trust and credibility was bestowed on them, for too long. Remember they'd rate a cow if it came across their desk.

It turns out they've added odd "political capital" to their analyses, giving ratings based on "expectations of faith" in large economies (like the US with the Fed and Treasury, the eurozone with ECB and IMF) and currency trades (euro-dollar). Greek bonds were over-rated because they assumed an automatic bail-out if ever there was trouble.

I've read some angry views toward Merkel and Germany, for being slow to act when "all of Europe is at stake". But I think this has been good, to bring out what's really rotten and where.

[Hazir]

If you don't mind, I don't feel like we can afford to have all the rubbish come out at the same moment.

[GGT]

If you don't mind, I don't feel like we can afford to have all the rubbish come out at the same moment.

It is a tad overwhelming, isn't it? Don't blame me....blame technology. Now, thanks to twittering, blogs, and the interwebs, everyone is armed with just enough information to be disenchanted, angry, and dangerous.

*gulp*

[Crowheart]

Now, thanks to twittering, blogs, and the interwebs, everyone is armed with just enough information to be disenchanted, angry, and dangerous.
*gulp*

We're proof of that, eh?

[GGT]

We're proof of that, eh?

why yes we are.

It's amazing really, how hard it is to get away from the constant assault of web or cable information. It's in the 7-11, gas stations, the bars and restaurants, coffee shops, airports, waiting rooms. Flat screen tvs are everywhere, showing news or sports (with scrolling news banners), even in the dentist's office.

Sometimes my kid comes home from school and asks if I heard about xyz, because all the kids have cell phones with internet, or they heard it through the grapevine from a text....


I can barely keep up

[Hazir]

I'm really a bit worried about the UK; I have no idea how the economy at large is going to deal with a crisis overthere.

[GGT]

And some importance of the UK economy is wrapped up in financial services? Kind of like NYC and Wall Street?

I don't know, but they seem to think having the pound as back-up can help, they can devalue that and keep plugging along, but other countries that rely solely on the euro are shit out of luck?

[GGT]

Hazir, I saw some blurbs about the LIBOR going wonky. That will affect your mortgage, right?

[Hazir]

Hazir, I saw some blurbs about the LIBOR going wonky. That will affect your mortgage, right?

Not directly, mine is based on euribor. And really, I have a contingency plan for when interest rates go up. Even if they go up dramatically.

[Hazir]

Hehe, UK minister of finance A. Darling felt it necessary to say that the UK won't pay to support the euro. Now, besides the fact that he's in no position to support anything, and that it's funny that he's not willing to help British bank survive (who are also in deep trouble if Greece would default, it's also stupid to say something like that.

Of course, everybody knows that bailing out the UK probably will be too much for anybody. However given the present political situation in the UK and the jittery state of the markets wrt the British economy is it really wise to remind investors that there will no bailout for Britain only to placate some BNP/UKIP voters who are never going to change their minds about the project anyway?

[Lewkowski]

Hehe, UK minister of finance A. Darling felt it necessary to say that the UK won't pay to support the euro. Now, besides the fact that he's in no position to support anything, and that it's funny that he's not willing to help British bank survive (who are also in deep trouble if Greece would default, it's also stupid to say something like that.

Why would the UK have to support the Euro or Greece? They don't have the same currency, it isn't their problem.

[Hazir]

Why would the UK have to support the Euro or Greece? They don't have the same currency, it isn't their problem.

The rationale for bailing out Greece is that otherwise banks in other countries will fold. Britain's banks are in this for €15bn, that means that British banks are going to propped up by this bail out. That is in the British interest.

I know you have this funny idea that they should let those banks go bust, but in the case of the UK letting the banks go bust means letting the country go bust with them. That is not a tempting prospect for normal people.

Oh, and did I mention it's not even true They are contributing, even if it's less than the eurozone members.

[RandBlade]

There was an interesting discussion as to whether this Klingon dead-duck government would support a bailout with British money. Could have been an interesting photo-shoot for Darling and Brown before they walk away and wouldn't have to deal with the repercussions.

However turns out under British 'purdah' laws, Darling and Brown are not entitled to make that decision themselves anyway. Cameron/Osborne, Clegg/Vince had to be consulted too and it was after those consultations that Darling made his speech.

I wonder who called the shots on that one? Not saying I don't think it was Darling (he's really in no position to be pissing away any more money unnecessarily), but it wasn't guaranteed to be his decision.

-------------

Britain is not contributing except as a member of the IMF which has nothing whatsoever to do with the eurozone. An IMF bailout would have been applicable even if the eurozone didn't exist, even if the EU didn't exist. In fact had the Greek economy been destroyed like this without the euro then we'd have been contributing four times more had the sole responsibility for the bailout been the IMF.

[Hazir]

It's not really relevant anyway because the issue is subject to QMV, so a no-vote by the UK would have zero-effect.

[RandBlade]

Except that only eurozone members are funding the bailout, if we were a member of the bailout we'd be getting dragged even further down into this morass.

[Hazir]

Except that only eurozone members are funding the bailout, if we were a member of the bailout we'd be getting dragged even further down into this morass.

What I am saying is that he should have had the grace to shut up. That way he wouldn't have hurt the British interest. Everybody knows you are in no position to support anything, it's not so smart to remind everybody that you don't want to support anything. Making enemies just before you might find yourself in want of friends isn't considered smart outside autistic circles.

Third parties tend to notice if you make yourself impopular.

[RandBlade]

There were calls to speak up to clarify the British opinion and it was right to do so.

His party's record in government has hurt the British interest, the opposing parties are now formalising a deal to remove him from power but for once not spending money is not something that's hurt our interest.

If he were to have remained in power (not going to happen) then the IMF would have been called in on Britain, like it was last time Labour was left in power too long. The election has intervened though and as predicted, Labour lost.

[Hazir]

There were calls to speak up to clarify the British opinion and it was right to do so.

His party's record in government has hurt the British interest, the opposing parties are now formalising a deal to remove him from power but for once not spending money is not something that's hurt our interest.

If he were to have remained in power (not going to happen) then the IMF would have been called in on Britain, like it was last time Labour was left in power too long. The election has intervened though and as predicted, Labour lost.

And who asked you to contibute?

As things stand this only reminds the markets of two nasty facts; the UK is in no position to do anything, and the UK has no friends.

Also, you are terribly short-sighted not to understand that it would not be in your interest if this sovereign debt/ euro crisis is not controlled; the risk for the UK is much bigger than that for any other country involved.

[RandBlade]

I am sure that if Darling had said the UK was willing and able to contribute Merkel et al would turn around and say "no it's OK, we don't want your money" ...

The markets need no reminding of what the UK is in any position to do.
The markets need no reminding of the fact that Darling is billy-no-mates.

The markets will judge the UK on the negotiations between Clegg and Cameron and what the resulting government does, not the last gasp pronouncements of Mr A Darling.

As for the eurozone crisis, I don't want it uncontrolled. But am happy for the eurozone to clean up its own mess, and for us to clean up our own mess. Nobody serious would possibly imagine the risks of this eurozone-crisis was greater for Britain than it is for Portugal, Italy or Spain. The PIGS nations are the most at risk as everyone knows. While Germany and others are getting dragged down by them.

[Hazir]

Well, thanks again for nothing. As for the UK being at risk; just how much do you like your special position of being at risk for your public debt and your banking system at the same time? Really Randblade, you have no idea of how miserable the position of the UK is compared to any country in the rest of the EU. Even the Greeks will have an easier time getting out of their mess than you will if the shit hits the fan.

[Lewkowski]

The rationale for bailing out Greece is that otherwise banks in other countries will fold. Britain's banks are in this for €15bn, that means that British banks are going to propped up by this bail out. That is in the British interest.

Is it in any countries interest to encourage banks to make risky loans to crappy countries? By bailing out Greece they would be encouraging Greece's risky behavior AND encouraging banks to continue lending money to crappy countries.

I know you have this funny idea that they should let those banks go bust, but in the case of the UK letting the banks go bust means letting the country go bust with them. That is not a tempting prospect for normal people.

I think a lot of people support ending bailouts for banks.

Why would the country go bust if some of its banks went bust? Is it one of those situations where the country owns the bank and guarantees its debt like the Iceland fiasco? I honestly don't know how the finance system is set up in England.

Oh, and did I mention it's not even true They are contributing, even if it's less than the eurozone members.

Kinda silly of them, but what else is new in our crazy bail out world.

[CitizenCain]

Is it in any countries interest to encourage banks to make risky loans to crappy countries?

Every country's, in fact.

It's kind of the way all countries finance their Ponzi schemes and unsustainable spending, so the longer the leaders can keep convincing (or extorting) banks to go along with shitty loans to sovereign powers, the better. For them anyway. Yippie, democracy!

[Hazir]

Is it in any countries interest to encourage banks to make risky loans to crappy countries? By bailing out Greece they would be encouraging Greece's risky behavior AND encouraging banks to continue lending money to crappy countries.



I think a lot of people support ending bailouts for banks.

Why would the country go bust if some of its banks went bust? Is it one of those situations where the country owns the bank and guarantees its debt like the Iceland fiasco? I honestly don't know how the finance system is set up in England.



Kinda silly of them, but what else is new in our crazy bail out world.

No it is not in the general interest that banks are up to their necks into bad loans. However, those banks are in exactly that position. The country UK would go bust if its banks would have to write off their club Med loans. They 'd indeed be in a similar position as Iceland, with the difference that no other government will be able to pick up the bill, so creditors will feel the pain directly.

Should people have understood they shouldn't put their money in a crummy economy like the British? I think they should have and they shouldn't have put their money in a place that risky. However, so many people did it that even I, who never saw the UK as a safe place to put my money will suffer if all the people who got conned lose their money.

some reading

P.S. while reading this, imagine what would happen if British banks would have to write off in the region of €100bn of bad PIIGS loans when they are already not in the best of health and the British government is running a deficit of 12 or so per cent.

[Hazir]

Ok, if this is shock and awe, they have at least succeeded with me. They have pledged €700 billion in order to stabilize the markets.

At the moment it seems as if the markets are buying this deal; all futures are pointing towards an opening in the green.

[Lewkowski]

P.S. while reading this, imagine what would happen if British banks would have to write off in the region of €100bn of bad PIIGS loans when they are already not in the best of health and the British government is running a deficit of 12 or so per cent.

OK - Say the bank goes under. The country doesn't bail it out. Big whoop. Investors in the bank get the short end of the stick, but hey its an investment not a guarantee. As far as depositors well I assume that like in America there is protection for them. I don't understand why people are so afraid of a bank failure.

[CitizenCain]

OK - Say the bank goes under. The country doesn't bail it out. Big whoop.

Right, and it's not like that would prompt a massive run on the market and make this whole "Great Recession" thing even worse...

I don't understand why people are so afraid of a bank failure.

Perhaps because if banks start failing, people go back to "saving" their money by hiding it under the mattress or burying it in the back yard, or dumping it all in the wall safe, and that causes negative economic growth.

[Hazir]

OK - Say the bank goes under. The country doesn't bail it out. Big whoop. Investors in the bank get the short end of the stick, but hey its an investment not a guarantee. As far as depositors well I assume that like in America there is protection for them. I don't understand why people are so afraid of a bank failure.

Because you can't imagine a banking sector that's actually bigger than your entire economy it seems like no big deal. In the case of the UK it means it goes overnight to a 'safe place' to park your money from a place where your money is at risk. It will cause a run on all banks untill the country is bled dry.

[Lewkowski]

Because you can't imagine a banking sector that's actually bigger than your entire economy it seems like no big deal. In the case of the UK it means it goes overnight to a 'safe place' to park your money from a place where your money is at risk. It will cause a run on all banks untill the country is bled dry.

Not all UK banks are investments banks I imagine. Why would there be a risk to normal local banks? For example in America even before TARP - there were few 'bank runs' on credit unions and localized banks. Sure some went under, but that wasn't due to bank runs it was due to them also making the same mistakes the big boys did. This financial apocalypse talk is just used as an excuse to get the public to accept bail outs.

[CitizenCain]

Not all UK banks are investments banks I imagine. Why would there be a risk to normal local banks? For example in America even before TARP - there were few 'bank runs' on credit unions and localized banks. Sure some went under, but that wasn't due to bank runs it was due to them also making the same mistakes the big boys did. This financial apocalypse talk is just used as an excuse to get the public to accept bail outs.

Right, when banks take your money, they hide it in their employees' homes, and don't invest the vast, vast majority of deposited money.



FYI - the reserve rate in the US is only 10%, (dunno about the UK), so using the simple math, banks invest 90% of the money that's deposited (it actually works out to even more than that, but whatever), so, say a trillion or so dollars in defaulted bank loans are kind of a big deal.

[Hazir]

Not all UK banks are investments banks I imagine. Why would there be a risk to normal local banks? For example in America even before TARP - there were few 'bank runs' on credit unions and localized banks. Sure some went under, but that wasn't due to bank runs it was due to them also making the same mistakes the big boys did. This financial apocalypse talk is just used as an excuse to get the public to accept bail outs.

At this moment I can not think of a single UK bank that could survive a sovereign debt default by the PIIGS at the moment. Relative to the US the UK has an exponentially bigger problem with its financial sector. The banking sector in the UK also couldn't be bailed out if such a situation would occur, bailing Greece and some other countries is still doable.