Greek Default, Eurozone CDSs, American Banks on the Hook

A Greek default will cause big problems for Europe, America, and the rest of the world.

Greece has been on the verge of default for a couple years now. But each time Greece has been just about ready to go under, the Eurozone leaders and central banks cobble together some last minute scam, I mean, plan to keep Greece afloat and kick the can a little farther down the road. Then about a month later the whole thing unravels and the big wigs come up with another con, er, conjure up another plan to save Greece.

Detect any sarcasm there?

(And to clarify... the "Eurozone" is not the same as the continent of Europe. The Eurzone refers to the countries in Europe that use the Eruo as their currency. Not all of the countries in Europe use the Euro so those countries are not part of the Eurozone.)

If Greece is in such dire straights, then why is it that most the talking and deal making is done by the leaders of France (Nicolas Sarkozy) and Germany (Angela Merkel) and not so much from the leader of Greece?

It's because the French and German banks hold most of Greece's debt.

If Greece goes down, the large French and German banks will go down soon after. Those banks will drag down many other banks in Europe and the US.

Yup. The big banks in the US have got their hands caught in this cookie jar too.

The big American banks insured the big French and German banks with credit default swaps (CDSs).

Remember the big stink about AIG?

Back in 2008/2009 when all the big American banks were in trouble, AIG was the patsy stuck holding the bag and went down in flames because of CDSs. Now the shoe is on the other foot and the big American banks are stuck holding the CDS bag when the European banks get pulled under by Greece defaulting on its debts.

There are many theories as to what will happen when that time comes... and it will come.

One school of thought is that the Eurozone leaders won't allow Greece to officially default, thus triggering the credit default swaps that would most likely destroy what's left of the European and American economies.

(Turd Furguson Metals Report - Why Greece Matters and What It Means To You
http://www.tfmetalsreport.com/blog/3415/why-greece-matters-and-what-it-means-you)

Technically, mathematically, by all rights and definition, Greece will default but the Eurozone leaders and central bankers will demand, command, and strong-arm if they have to, every party involved not to declare Greece's default a default.

It's banana pudding.

It's flying pigs and polka-dotted elephants.

Call it whatever you want, but it is not, under any circumstances, a default.

(In the best Marlon Brando, Godfather impression you can muster.) - Capiche?

Another school of thought is that there are too many players and too many variables involved in this Greek tragedy to control so the whole thing is going to get real messy no matter what anybody does.

(The Economic Collapse Blog - 8 Reasons Why The Greek Debt Deal May Not Stop A Chaotic Greek Debt Default
http://theeconomiccollapseblog.com/archives/8-reasons-why-the-greek-debt-deal-may-not-stop-a-chaotic-greek-debt-default)

The banks, on either side of the pond, aren't coming clean as to how much they are truly exposed to Greek debt.

There are speculators betting big on Greece defaulting. We've seen what speculators can do to the price of oil, now similar sharks are sensing Greek blood in the Mediterranean waters.

Greece is going to have elections in April and the next batch of Greek politicians may give the Eurozone leaders and central bankers the finger.

And wouldn't it be convenient if there were some big global event to take people's attention away from the economic messes in Europe and the US?

Something, like... oh, maybe another world war kicked off by Israel and Iran?

Greece isn't the only headache for world leaders that could be conveniently snuffed-out by global war.

Then there is always the chance, however slim, that somehow this whole thing sorts itself out and there will be no big calamity.

Yeah, I'm not buying that one either.

The longer those involved keep denying and lying about the eventual default of Greece the worse it will be for the rest of us.



Comments
Please, keep your comments clean, civil and relevant. Cussing with foul language just for the sake of using foul language only proves the person to be an obnoxious, dull-witted fool.



Related Links:
Turd Furguson Metals Report - Why Greece Matters and What It Means To You
http://www.tfmetalsreport.com/blog/3415/why-greece-matters-and-what-it-means-you

The Economic Collapse Blog - 8 Reasons Why The Greek Debt Deal May Not Stop A Chaotic Greek Debt Default
http://theeconomiccollapseblog.com/archives/8-reasons-why-the-greek-debt-deal-may-not-stop-a-chaotic-greek-debt-default

National Credit Rating Downgrade Costs Us All

The downgrade of the US's credit rating, by relation of the currency, downgrades the credit worthiness of every corporation, business, organization and person in the country.

(Reuters - United States loses prized AAA credit rating from S&P
http://www.reuters.com/article/2011/08/06/us-usa-debt-downgrade-idUSTRE7746VF20110806)

In a mostly debt based economy like the US's, credit worthiness is a big deal. That's why so many people with credit cards and people who are trying to get a home loan (or any kind of loan for that matter), obsess about their FICO score (their personal credit rating). A downgrade of credit worthiness makes it much harder to get loans and harder to pay off existing loans.

Here's how the some of the cascading affects of a national credit downgrade costs us all.

There are other AA+ rated countries in the world who have a much, much lower debt-to-income ratio than the US. That low debt-to-income makes those other AA+ (and the AAA) countries more attractive to global investors.

If you were a global investor, who would you feel more secure about lending money to - a nation that is bankrupt and governed by dysfunctional politicians or a nation that has very little debt and is governed sensibility?

(Hint - The US lost its AAA rating because of too much debt and incompetent politicians.)

Since America's economy is based mostly on debt, the country depends on cheap loans from foreign investors (lenders).

Other countries that have a stable currency, low debt, and positive economic growth are far more attractive to investors than the US. To win back those investors the US has to sweeten the pot by paying the investors (lenders) higher interest rates to get the loans and credit the US needs to function.

Higher interest rates for the federal government will result in higher taxes for the rest of us in order to pay for the rate increases.

Here's the double-whammy. A lot of interest rates on consumer credit and debt are based on the federal interest rates. The higher the federal interest rate goes the higher the consumer interest rates will go.

Higher taxes and interests rates for the general public could be enough to push the nearly flat-lining US economy into a full-fledged economic depression worse than the Great Depression of the 1930's.

The only way now for the US government to afford higher interest rates is to print more money in addition to the trillions of excess that have already been printed. This has a very high risk of triggering hyperinflation.

We're not just getting hit by the federal government debt; we're also getting smacked hard from all levels of government debt all the way down to local, small-town-USA debt.

Now with the best infomercial announcer voice you can image, "But wait... there's more!"

It's not just interest rates on government debt that's going up, it's also the interest rates on any bonds that businesses issue. You know, the places were people work?

Might explain why you haven't gotten a meaningful raise, if any at all, in such a long time.

Any time a government or a business sells bonds they are taking out loans, going into debt.

A bond is a type of loan, to paid with interest. Governments and businesses issue bonds to raise more money to pay for things.

For example; a city council votes to approve a bond issue to build an addition to the school so the school can handle the growing number of students. Investors give the city money in exchange for IOUs (bonds) to be paid back with interest by the city over a specified period of time.

The interest rate of many bonds is based on the interest rate for US federal bonds. If the interest rate for federal government bonds go up so will the interest rates on many other bonds throughout the country.

Higher interest rates make it more expensive for bond issuers (like the city in the above school bond issue example) to get the money they need for growth (more classrooms), maintenance (bridge repair), disaster recovery (flooding) or anything else they need loans for.

When bond issuers can't afford to pay the higher interest rates bond buyers (investors/lenders) are demanding (interest rate hikes) then the bond issuers can't get any more credit. This is a form of credit freeze. A credit freeze in a debt based economy means a lot of things come to a grinding halt - for everyone.

By losing it's AAA credit rating, the US government now has to pay higher interest rates on its debts. Taxpayers have to pay higher taxes to pay for those higher interest rates on government debt as well as paying higher interest rates on their own debts because those interest rates are based on the federal interest rates.

This compounding of interest on all debts, both public and personal, are costing us all dearly.



Comments
Please, keep your comments clean, civil and relevant. Cussing with foul language just for the sake of using foul language only proves the person to be an obnoxious, dull-witted fool.



Related Links:
Reuters - United States loses prized AAA credit rating from S&P
http://www.reuters.com/article/2011/08/06/us-usa-debt-downgrade-idUSTRE7746VF20110806

Mortgage Settlement Rewards Lawless Banks

The mortgage settlement sets a dangerous precedent placing the banks above the law.

Oklahoma's attorney general is the only one, out of the other forty-nine, that didn't go along with this farce.

Geesh! Talk about short-term gains with long-term negative consequences.

What am I grumbling about?

The $25 billion is mere chump change for the banks and we're the chumps.

What this settlement does is set a legal precedent that basically protects the banks from any prosecution. They are now above the law. Any crimes the banks commit will now be absolved by paltry fines.

The big banks committed nation-wide fraud, perjury and out-right theft to the tune of trillions of dollars, destroyed the global economy and in return they get bailed-out, lavished with multi-million dollar bonuses and slap-on-the-wrist-with-a-feather fines.

If you don't know anything about foreclosure-gate and robo-signing then look them up on the Internet. It is truly sickening and maddening stuff.

Here are three, good articles on this spectacular failure of justice, mortgage settlement.

From Greg Hunter's USA Watchdog.com:
"Mortgage Settlement Will Plunge Real Estate Values"
http://usawatchdog.com/mortgage-settlement-will-plunge-real-estate-values/

From US News:
"Mortgage Settlement a Distraction, Not a Solution"
http://www.usnews.com/opinion/blogs/economic-intelligence/2012/02/10/mortgage-settlement-a-distraction-not-a-solution

From Gonzalo Lira's blog:
"A Tale of Two Settlements"
http://gonzalolira.blogspot.com/2012/02/tale-of-two-settlements.html



Comments
Please, keep your comments clean, civil and relevant. Cussing with foul language just for the sake of using foul language only proves the person to be an obnoxious, dull-witted fool.