Greece and the banks are about to have a day of reckoning.
Greece faces yet another reckoning before April ends—and it is the big banks of Germany and France, and the European Central Bank itself who are first in line for a noose. Of course, don’t forget that a ton of the “insurance” for Greek debts (the insurance is known as CDS—Credit Default Swaps) is held by our big gamblers… er, bankers.
Bill Holter wrote about this the day before yesterday at the Miles Franklin blog:
Greece has already begun raiding public pensions to run even day to day operations. The current estimate is they will run out of cash before the end of April. It is no wonder they are having high level meetings with Moscow and will meet with Mr. Putin this coming Monday. It has been said they are not looking for a handout. This may be so but they will certainly be talking about running a pipeline through their country. As I have said all along, broke is broke, they simply cannot make payment on what they have already borrowed from the West.
The West, led by Germany may be able to restructure terms or even offer the Greeks more current cash. Any deal made will not solve anything as whatever Greece accepts (if they do) will also need to be paid back. Paying one credit card off with another one does not lower your balance, on the contrary, the total balance rises and this is the problem. Greece as recently as 2010 was the shining star of Europe, just as a bank rated AAA on a Friday afternoon is bankrupt on Monday morning, so went Greece.
What is being missed here is Greek debt is held widely by German and French banks …and by the ECB itself. When Greece does finally default, these already undercapitalized banks will capsize, but this is only part of it. Just as happened back in 2008, there may be 10 times the amount of CDS (insurance) written versus their debt, now we are talking $3.5 trillion. Do you know of any entity on the planet that could make good on this policy?
Oh, and then there’s June, with collapse in Ukraine and Austria on the menu. Once again, the biggest, greediest, most corrupt banks in the West—you know, like Citibank, JPMorgan, Bank of America—are on the hook, but… wait… Congress let them off the hook in last year’s CROmnibus fraud and they put the risk on you and me… Sweet!
Gosh, I wish this were an April’s Fool joke. Unfortunately, it’s not. Buckle up.