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When Greece Finally Defaults, The Real Mayhem Will Begin

Update: German Official wants haircuts for bondholders


Must read from Euro Economist Andrew Lilico.

Source - Guardian

It is when, not if. Financial markets merely aren’t sure whether it’ll be tomorrow, a month’s time, a year’s time, or two years’ time (it won’t be longer than that). Given that the ECB has played the “final card” it employed to force a bailout upon the Irish – threatening to bankrupt the country’s banking sector – presumably we will now see either another Greek bailout or default within days.

What happens when Greece defaults. Here are a few things:

- Every bank in Greece will instantly go insolvent.

- The Greek government will nationalise every bank in Greece.

- The Greek government will forbid withdrawals from Greek banks.

- To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law.

- Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting)

- The New Drachma will devalue by some 30-70 per cent (probably around 50 per cent, though perhaps more), effectively defaulting 0n 50 per cent or more of all Greek euro-denominated debts.

- The Irish will, within a few days, walk away from the debts of its banking system.

- The Portuguese government will wait to see whether there is chaos in Greece before deciding whether to default in turn.

- A number of French and German banks will make sufficient losses that they no longer meet regulatory capital adequacy requirements.

- The European Central Bank will become insolvent, given its very high exposure to Greek government debt, and to Greek banking sector and Irish banking sector debt.

- The French and German governments will meet to decide whether (a) to recapitalise the ECB, or (b) to allow the ECB to print money to restore its solvency. (Because the ECB has relatively little foreign currency-denominated exposure, it could in principle print its way out, but this is forbidden by its founding charter.  On the other hand, the EU Treaty explicitly, and in terms, forbids the form of bailouts used for Greece, Portugal and Ireland, but a little thing like their being blatantly illegal hasn’t prevented that from happening, so it’s not intrinsically obvious that its being illegal for the ECB to print its way out will prove much of a hurdle.)

- They will recapitalise, and recapitalise their own banks, but declare an end to all bailouts.

- There will be carnage in the market for Spanish banking sector bonds, as bondholders anticipate imposed debt-equity swaps.

- This assumption will prove justified, as the Spaniards choose to over-ride the structure of current bond contracts in the Spanish banking sector, recapitalising a number of banks via debt-equity swaps.

- Bondholders will take the Spanish Banking Sector to the European Court of Human Rights (and probably other courts, also), claiming violations of property rights. These cases won’t be heard for years. By the time they are finally heard, no-one will care.

- Attention will turn to the British banks. Then we shall see…


Also from Andrew:





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Reader Comments (20)

#Radioactive Sewage Sludge and Slag in Tokyo

It was big news when the radioactive sewage sludge and slag were found in Fukushima Prefecture earlier this month (see my posts here, here and here).

And it is almost no news when the highly radioactive (170,000 becquerels per kilogram) sewage slag was found in TOKYO, and the slag's been already sold as construction materials.

May 22, 2011 at 7:57 PM | Registered CommenterDailyBail
May 22, 2011 at 7:59 PM | Registered CommenterDailyBail
Your government in action
BP gets a $13 billion tax write off for poisoning the Gulf

Health insurance bankruptcy.
It is people who ARE insured that are going bankrupt
Testimony of Steffie Woolhandler, M.D., to the Health Subcommittee of the House Energy and Commerce Committee
May 22, 2011 at 11:59 PM | Unregistered CommenterMorton
good stuff...thanks morton...
May 23, 2011 at 2:08 AM | Registered CommenterDailyBail
You gotta love this fiat stuff, it kinda makes all other ponzi schemes look like a nine year olds lemonade stand. British Petroleum gets a $13 billion tax write off for poisoning the Gulf, you just can't make this stuff up...
May 23, 2011 at 2:09 AM | Unregistered CommenterS. Gompers
Oh Wait, The Obama Admin Lied? (Again)



In November 2009, Attorney General Eric Holder vowed before television cameras to prosecute those responsible for the market collapse a year earlier, saying the U.S. would be “relentless” in pursuing corporate criminals.

In the 18 months since, no senior Wall Street executive has been criminally charged, and some lawmakers are questioning whether the U.S. Justice Department has been aggressive enough after declining to bring cases against officials at American International Group Inc. (AIG) and Countrywide Financial Corp.


The entire game here is to run the clock. See, there's this thing called the "Statute of Limitations." For Securities Fraud it is typically five years. Five years since 2007 would 2012. Next year.

You don't think this is the game? Like hell it isn't.
May 23, 2011 at 10:37 AM | Unregistered Commenterjohn
First Wind issues $200M in notes for new wind projects



First Wind Holdings Inc. has raised $200 million by issuing notes through its subsidiary First Wind Capital LLC, which the company said it will use to pay down debt and finance new wind projects.

The senior secured notes, due 2018, were issued at par with a coupon of 10.25 percent, officials said. Credit Suisse, Deutsche Bank Securities, Goldman Sachs & Co. and RBS acted as joint book-running managers.

New First Wind ownership flowchart.

May 23, 2011 at 12:19 PM | Unregistered Commenterjohn
'Soft Debt Restructuring Cannot Solve Greece's Problems'

May 23, 2011 at 12:27 PM | Registered CommenterDailyBail
China warns U.S. debt-default idea is "playing with fire"


China agrees to halt subsidies to wind power firms



China's largest wind turbine makers Sinovel Wind Group Co and Xinjiang Goldwind Science and Technology -- also among the world's biggest wind turbine makers -- have announced plans to supply markets overseas....

....Goldwind established a wholly owned U.S. unit in Chicago last year, marking its ambition to serve American markets.
Jun 8, 2011 at 8:24 AM | Unregistered Commenterjohn
Taking Out A Student Loan? Think Twice



Kenneth Wright does not have a criminal record and he had no reason to believe a S.W.A.T team would be breaking down his door at 6 a.m. on Tuesday.

"I look out of my window and I see 15 police officers," Wright said.

Wright came downstairs in his boxer shorts as a S.W.A.T team barged through his front door. Wright said an officer grabbed him by the neck and led him outside on his front lawn.


The U.S. Department of Education issued the search and called in the S.W.A.T for his wife's defaulted student loans.
Jun 8, 2011 at 11:51 AM | Unregistered Commenterjohn

Obama promised it.

First they came for the Jews,
and I didn't speak out because I wasn't a Jew.

Then they came for the trade unionists,
and I didn't speak out because I wasn't a trade unionist.

Then they came for the communists,
and I didn't speak out because I wasn't a communist.

Then they came for me
and there was no one left to speak out for me.
Jun 8, 2011 at 11:58 AM | Unregistered CommenterPG the PT
john...i saw that student loan swat team story early this morning...it is absolutely unbelievable...beyond pale...
Jun 8, 2011 at 12:13 PM | Registered CommenterDailyBail
Update: German Official wants haircuts for bondholders

Jun 8, 2011 at 12:29 PM | Registered CommenterDailyBail
Bank Not Responsible for Letting Hackers Steal $300K from Customer



A judge in Maine has ruled that a bank that allowed hackers to steal more than $300,000 from a customer’s online account isn’t responsible for the lost money, saying the customer should have done more to protect the account credentials.

Magistrate Judge John Rich sided with Ocean Bank in recommending that the U.S. District Court in Maine grant the bank’s motions for a summary dismissal of a complaint filed by Patco Construction Company. The ruling was reported Monday by BankInfoSecurity.
Jun 8, 2011 at 2:04 PM | Unregistered Commenterjohn
great link thanks john...
Jun 8, 2011 at 2:22 PM | Registered CommenterDailyBail
Russia may develop nuclear offensive, arms race - Serdyukov



Russian Defense Minister Anatoly Serdyukov on Wednesday said that Russia would develop its own offensive nuclear force if NATO fails to come to agreement over the European defense shield.

"We have no other way, otherwise we'll just have to develop an arms race," Serdyukov said after a Russia-NATO meeting in Brussels.

Comment: Obviously this missile shield clearly has nothing to do with N. Korea or Iran. It is the encirclement of Russia and they do not appreciate it. What if Russia decided to put their missiles in Cuba, Canada and Mexico to protect us from N. Korea or Iran........
Jun 8, 2011 at 3:23 PM | Unregistered Commenterjohn

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