Would You Buy A Greek Bond?

[No DUplicitous DUpe]

Would You Buy A Greek Bond?
(posted with permission from: http://sane-ramblings.blogspot.com/2011/06/why-you-might-want-to-buy-greek-bonds.html)

The Greek economy is falling apart and its people have rioted over the severe financial cuts their government is trying to force on them as part of last year's European Union (EU) and International Monetary Fund (IMF) bailout. As we sadly and humbly predicted last year, Greece will default on that bailout.

The EU and IMF are discussing a new bailout with Greece but if a new bailout were done, it too would fail, for Greece is broke and putting them deeper in debt and more severely taxing its people, while cutting their wages further and slashing the retirement benefits of their senior citizens is not the answer.

What you don't see is behind the scenes, giant French, German, British and likely U.S. banks, along with U.S. money market funds and other huge investors from around the world bought the earlier Greek bonds and are now confronted with having to take massive losses on them. So instead, the 1st bailout took place shifting the entire burden on to the Greek people and now a 2nd bailout is being concocted. But the Greek people won't stand for it, for they are not the ones being bailed out, their bondholders are.

Why did all these giant investors buy those risky bonds. Because those bonds paid far higher returns than many other more conservative investments. But the reason they paid so much more was because of their risk and now as those bonds default, those losses must be taken. How bad is the problem? Greece a nation of just 11.3 million people owes 280 billion Euros ($400 billion)!

The EU and IMF will try to continue the earlier bailout to help these huge investors avoid taking the losses. This too will fail for the Greek people can't afford the old bailout nor a new one. In addition, Ireland and Portugal can't afford their bailouts and they too will default, once again forcing giant bank and money fund investors to face huge losses. Spain and Italy are next for they too are broke. The whole European financial system could implode, when these banks and money funds take these losses as part of appealing to their governments for "too big to fail" taxpayer bailouts. Add in England, which is also broke and the U.S. which is stunningly broke and the entire financial system is ready to implode. But the politicians in Europe and in the U.S. will try to postpone the day of reckoning for as long as possible.

So would you buy a Greek bond? You can buy them right now at a huge discount if you have a strong stomach for risk.

*For more information, please see: "Europe Shifts Path for Greek Rescue," The Wall Street Journal, 6/18-6/19/11
http://online.wsj.com/article/SB10001424052702303635604576392080582974272.html?mod=googlenews_wsj

[virgogal]

1. Nope. eom

[slackmaster]

2. I like Greek people and I love Greek food

But there's no way I'd invest in Greek debt.

[polichick]

3. No, but I'd buy a Greek island. I love Greece - God bless 'em!

[ret5hd]

7. well, you might have a chance to do just that, 'cause selling all the national assets...

is being suggested. kinda like selling the grand canyon and bryce national park and yellowstone park will soon be suggested here. after all, it's better to sell everything to the rich than inconvenience them.

[polichick]

9. I'd join with other environmentalists to buy an island in order to protect it...

Eventually it could be restored to Greece. There are a lot of ways to buy something.

[JackRiddler]

18. That's actually what the bondholders are hoping for...

Especially the ones who entered after the crisis started.

Why would they do that, knowing how very likely it is that Greece will default?

Because they're expecting IMF and ECB to enforce an appropriation of Greek assets -- such as islands -- on their behalf.

This is what the Greek people are out in the streets to fight against.

[FreeJoe]

4. $35,000 / person

Did I get the math right? $400 billion spread over 11.3 million people works out to about $35,000 per person. The debt clock shows the US as owing $46,000 per person. I'm sure that are difference in the numbers used (public debt vs total debt or something like that), but it doesn't look like the Greek debt is that much higher than the US debt. Then again, it looks like GDP per person is almost double in the US, so I guess we our debt is still more affordable...at least for now.

[FreeJoe]

5. As far as the original question...

I'd say "maybe". It depends on the level or risk and the yield. Most bond markets are pretty open and price differences are pretty well aligned with risk differences. In this particular case, I'd bet that government backed buying is keeping yields low relative to the level of risk, so I'd probably say "no". I wouldn't know for sure without a lot more work.

[Aerows]

6. Yep

When free advice tells you not to buy something, you can be sure that paid advice tells you to buy. Personally? Absolutely because this is the time to buy.

[JVS]

8. By that logic we should all be drinking whatever has a Mr. Yuk sticker on it.

[AngryAmish]

10. The people are in the streets screaming that they won't pay

So that would be rather foolish, no? OTOH, if they are euro enumerated and I did not need the income stream...

[Poll_Blind]

11. Maybe backed by New Drachmas, not by Euros.

:shrug:

PB

[JackRiddler]

12. So why did the big banks buy these bonds since the original bailout...

when it was obvious that the original bailout was never going to prevent the inevitable Greek default?

Because:

1) The TBTF banksters know they will get high returns for a while and then get their bailout. There are two possibilities. The bailout will be through Greece (in the form of a second "bailout" for Greece that does nothing other than take money from EU taxpayers and pay it straight as interest to bondholders). Or else, if Greece decides to default, the bailout will be directly from the German et al. governments to their own banks.

2) The banksters anticipate a deal wherein they get possession of Greek islands, monuments, beaches and other assets.

a) Lending at high interest,
b) when you know the borrower will go under,
c) when the borrower is forced by political pressure to take the loans
d) in anticipation of later getting the borrowers' assets at low or no cost,

is essentially predatory.

The Greeks need to extricate themselves from the deal.

That's why they're marching under three slogans:

They don't owe. (The vast majority did not do these deals and never saw anything from them).

They won't sell.

They won't pay.

DE HROSTAME
DE POULAME
DE PLIRONOUME!

.

[suffragette]

16. Absolutely agree with you

And I think it's time we started to take a closer look at the banks and bankers involved in this:
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x1344099#1344717

[gratuitous]

13. If I did

I wouldn't expect someone to make me whole if there was default on it. There is always a risk to investing, and you could lose your shirt. It's in the fine print. Someone would have to be extraordinarily naive or greedy, or hope that everyone else was such to expect that if the bond purchased went south, you'd still be entitled to be insulated from loss.

[FLPanhandle]

14. Not a chance.

Because I think the Greeks should default.

[ladjf]

15. The good news about buying Greek bonds is that they pay

18%. The bad news is that you might never get paid. nt

[JackRiddler]

17. Why should Greece subject itself to loan-shark terms just to make the ECB and IMF happy?

They should default and monetize their debt in drachmas.

[ladjf]

19. I have no idea about that. I just saw in the news the other day

that the interest rate was 18% which would be a fantastic return unless the risk is too high.

[JackRiddler]

21. The risk is near-guaranteed default...

so buyers are going in with an eye to the bailout package and the promise of getting some islands.

[FLPanhandle]

22. It's still lower than it should be based on risk.

There is an assumption that a bailout will happen. If that wasn't an option, the rates would truly be at "loan shark" levels

[A HERETIC I AM]

23. Is the INTEREST rate 18% or is the yield 18%?

The difference is that you won't realize the yield unless you hold them till they mature or if you are able to sell them for par.

If they pay an 18% coupon, then that's not so bad, providing they actually get redeemed upon maturity or you are able to sell them at some point for at least what you paid for them.


FWIW, you can still buy US 30 year Treasuries that have an 8% coupon. Those notes were issued in the early 1990's, but these days they sell for more than par making the yield closer to that of a current 10 yr.

[Taverner]

20. Sure...why not? I'm sure they have secret agents too

http://www.youtube.com/watch?v=FfU5N95T25Y

[mysuzuki2]

24. to each his(her) own but

the idea of Greek bondage does not appeal to me at all.

[HopeHoops]

25. No. James Bond has always been British.

:evilgrin: