Greece is a tiny European nation with approximately $240 billion Gross Domestic Product (GDP), compared to B.C.â€™s $215 billion GDP, so why is their sovereign debt such a threat to the European Union (EU) and other world economies like ours?
Defaults can affect us all as they ripple financial markets around the world. Derivative exposures can debase banks, credit unions, brokerages, insurance companies, pension funds (private and union), money market funds, large corporations, provincial and local governments, etc.
Greece has a newly elected left wing socialist government, the same kind of stubborn big spenders that brought them into their debt-spiral insolvency.
The Greeks decided it was completely unthinkable to face reality, lower their standard of living, work hard together, and pay down their debt.
Itâ€™s easier to believe politicians telling you itâ€™s no problem to live beyond your means, you poor victims, youâ€™re entitled to retire at 52 and have free university. You owe it to yourselves, and the solution is to vote for more of the same.
Reminiscent of TransLink?
Greeceâ€™s new government resolve is to renege on the old debt, gambling the EU will continue to bail them out so they can rack up new debt.
The World Bank in 2011 ranked Greece as very high risk, 150th in investor protection, and interest rates are now at 19 per cent.
The EU consists of many broke countries that are cross collateralized, frantically buying each otherâ€™s worthless junk bonds with money printed by the European Central Bank, also borrowing worthless paper from JPMorgan, City Bank, Bank of America, Goldman Sachs, etc.
Itâ€™s a huge, complicated shell game mess of derivatives made up of fancy instrument names like Credit Default Swaps, Repos (Repurchase Agreements), Reverse Reposâ€¦ all basically glorified insurance policies pretending to protect each other against default.
In reality, itâ€™s all bogus in the event of default, because of over-leveraging.
General Accepted Accounting Principles (GAAP) allows the big financiers to carry Repo debt â€œoff balance sheet,â€ allowing repetition of massive leveraging rendering those monetary transactions worthless.
Itâ€™s like The Emperors New Clothes, because the EU doesnâ€™t want the illusionary money-lending practices to be exposed by admitting that, for a decade, Greece is still not paying down its debt, so they continually pretend to renegotiate to buy more time.
Itâ€™s a shell game with nothing under any shell; like hundreds of paper insurance companies with zero intent or ability to pay any claims.
The conundrum: Greece is gambling that if the EU allows it to go under, then Italy, Spain, Belgium, and others fall, like dominoes, and the EU house of cards could collapse.
However the EU knows, as it deals to bail out Greece, the others next to default will be demanding the same treatment.
Unfortunately, the ponzi scheme has run out of magic jugglers, and itâ€™s just a matter of time for the implosion bell to toll.
No surprise the bankers get away with the fraud, but not the taxpayers who have to replace the nonexistent money with real, hard-earned money.
Roland Seguin, Langley