Why Greece’s Lenders Need to Suffer

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There is definitive proof, for anyone willing to look, that Greece is not solely or even primarily responsible for its own financial crisis. The proof is not especially exciting: It is a single bond, with the identification code GR0133004177. But a consideration of this bond should end, permanently, any discussion of Greece’s crisis as a moral failing on the part of the Greeks.

GR0133004177 is the technical name for a bond the Greek government sold on Nov. 10, 2009, in a public auction. Every business day, governments and companies hold auctions like this; it is how they borrow money. Bond auctions, though, are not at all like the auctions we’re used to seeing in movies, with the fast talkers and the loud hammers. They happen silently, electronically. Investors all over the world type a number on their keyboards and submit it as their bid: the amount of interest they would insist on receiving in exchange for the loan. Just as with mortgages and credit cards, the riskier a loan is, the higher the rate would need to be, compensating the lender for the chance that the borrower in question will fail to pay it back.

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In hindsight, of course, we know that the investors should not have lent Greece anything at all, or, if they did, should have demanded something like 100 percent interest. But this is not a case of retrospective genius. At the time, investors had all the information they needed to make a smarter decision. Greece, then as now, was a small, poor, largely agrarian economy, with a spotty track record for adhering to globally recognized financial controls. Just three weeks earlier, a newly elected Greek prime minister revealed that the previous government had scrupulously hidden billions of dollars in debt from the rest of the world. In fact, the new leader revealed, Greece owed considerably more money than the size of its entire annual economy. Within a month of the bond sale, faced with essentially the same information the investors had, Moody’s and the other ratings agencies downgraded the country’s credit rating. In less than six months, Greece was negotiating a bailout package from the International Monetary Fund.

The original sin of the Greek crisis did not happen in Athens. It happened on those computer terminals, in Frankfurt and London and Shanghai and New York. Yes, the Greeks took the money. But if I offered you €7 billion at 5.3 percent interest, you would probably take the money, too. I would be the one who looked nuts. And if I didn’t even own that money — if I was just watching over it for someone else, as most large investors do — I might even go to jail.

http://www.nytimes.com/2015/08/02/magazine/why-greeces-lenders-need-to-suffer.html?_r=0

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1. Banks now encouraging investors to buy Greek bonds

LONDON: It is barely two weeks since Greece was on the brink of crashing out of the euro, yet some investment banks are now encouraging investors to return to its bond market.

A last-gasp deal on July 13 saw Athens accept a new round of austerity measures in return for talks on a third international bailout deal, which are about to get under way.

Although questions remain over whether Greece will be able to stick to the terms of a new deal or will be back at the ballot box within the year, markets have breathed a collective sigh of relief.

Greece's two-year borrowing costs have more than halved from peaks of over 58% hit this month even though they still yield more than longer equivalents – a signal that investors fear a default could be on the cards.

http://www.thestar.com.my/Business/Business-News/2015/08/01/Banks-now-encouraging-investors-to-buy-Greek-bonds/?style=biz

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2. Greek share, bond markets to reopen in limited trading on Monday

Greece's financial markets will reopen on Monday, ending a five-week suspension that began after the country imposed capital controls amid a confrontation with creditors.

Greek traders will be able to buy stocks, bonds, derivatives and warrants only if they use new money such as funds transferred from abroad, cash-only deposits, money earned from the future sale of shares or from existing investment account balances held at Greek brokerages, the Finance Ministry said in a decree on Friday. Foreign investors will be excluded from all restrictions, provided that they were already active in trading before the imposition of capital controls last month.

The resumption will end the longest interruption to trading in the Athens Stock Exchange since the 1970s. The shutdown was enacted as Greece attempted to shield its financial system from ruin as it fought austerity measures sought by European lenders. Local investors have been without prices in the $US41 billion equity market since June 26 as the bourse remained closed even after banks reopened with limited services on July 20.

"I think the markets opening is another small positive sign that conditions are normalising in Europe," said Jason Benowitz, a New York-based senior portfolio manager at Roosevelt Investment Group. "In Europe overall, we're starting to see signs of life and QE beginning to have an impact. Greece's last- minute negotiations and referendum put a pause in the healing, and now it can resume."

http://www.smh.com.au/business/markets/greek-share-bond-markets-to-reopen-in-limited-trading-on-monday-20150731-gip8gt.html

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3. Greek PM defends controversial ‘Plan B’ for euro zone exit

ATHENS - Prime Minister Alexis Tsipras acknowledged on Friday that his government had made covert contingency plans in case Greece was forced out of the euro, but rejected accusations that he had plotted a return to the drachma.
Tsipras was forced to respond to the issue in parliament after former finance minister Yanis Varoufakis this week revealed efforts to hack into citizens’ tax codes to create a parallel payment system, prompting shock and outrage in Greece.

The disclosure heaped new pressure on Tsipras, who is also battling a rebellion within his Syriza party and starting tough talks with the European Union and International Monetary Fund to seal a third bailout programme in less than three weeks.

“We didn’t design or have a plan to pull the country out of the euro, but we did have emergency plans,” Tsipras told parliament. “If our partners and lenders had prepared a Grexit plan, shouldn’t we as a government have prepared our defence?”

http://nation.com.pk/business/01-Aug-2015/greek-pm-defends-controversial-plan-b-for-euro-zone-exit

[Igel]

4. A lot of private investors took a pretty severe haircut back in 2012.

I think it was 2012. Maybe 2013.

Nobody cares, though, because it's really important to make sure that at some point investors are finally forced to take a haircut.

If a haircut happens in the woods and nobody is there to hear it, does it make a sound?

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5. They should lose their shirts for this sort of shit. All of it.

In real life that is what happens when you give money to people who won't pay it back.

And even more so with governments.

[KoKo]

6. The Challenges of the Greek Crisis--(Not the only hazard that the Eurozone Faces)

The Challenges of the Greek Crisis
Posted on August 1, 2015 by Yves Smith

By Joseph Joyce. Originally published at Capital Ebbs and Flows

The Greek crisis has abated, but not ended. Representatives of the “troika” of the European Commission, the European Central Bank and the International Monetary Fund returned to Athens for talks with the Greek government about a new bailout. This pause allows an accounting of the many challenges that the events in Greece pose to the international community.

The main challenge, of course, is to the Greek government itself, which must implement the fiscal and other measures contained in the agreement with the European governments. These include steps to liberalize labor markets as well as open up protected sectors of the economy. While these structural reforms should promote growth over time, in the short-run they will lead to layoffs and reorganizations. At the same time, Prime Minister Alex Tsipras must oversee tax rises and cuts in spending. The combined impact of all these measures, which follow the virtual shutdown of the economy during the protracted negotiations with the European governments, will postpone any resumption in growth that past efforts may have generated.

It is not clear how long the Greek public will endure further misery. Any form of debt restructuring may give policymakers some justification to continue with the agreement. New elections will clarify the degree of political support for the pact. But the possibility of an exit from the Eurozone has not been removed, either in the eyes of Greek politicians or those of officials of other governments.

The Greek crisis, however, is not the only hazard that the Eurozone faces. The Eurozone’s government have yet to come to terms with the effects of the global financial crisis on its members’ finances. A split prevails between those countries that ally themselves with the German position that debt must be repaid and those that seek with France to find some sort of middle ground. Other European countries with debt/GDP ratios of over 100% include Belgium, Portugal, and Italy. Weak economic growth could push any of them into a situation where the costs of refinancing could become daunting. How would the Eurozone governments respond? Would they bail out another member? If so, would the terms differ from those imposed on Greece? Would European banks be able to pass the distressed debt on to their own governments?

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More speculation about what could come down the road at.......

http://www.nakedcapitalism.com/2015/08/the-challenges-of-the-greek-crisis.html