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Seems a little high on the fear mongering and a little light on the details. I fail to see how a Greece debt restructuring would negatively impact the US econo

by c2 15y ago

Seems a little high on the fear mongering and a little light on the details. I fail to see how a Greece debt restructuring would negatively impact the US economy except to cause a little more fear on wall street. Also - anyone else notice that the only people who seem to give praise to Greenspan are his ex-colleagues in the central bank?

dpapathanasiou 15y ago
"I fail to see how a Greece debt restructuring would negatively impact the US economy" Is $41 billion at risk insignificant? http://www.marketwatch.com/story/greece-poses-41-billion-risk-to-us-banks-2011-06-15 http://www.marketwatch.com/story/greece-poses-41-billion-ris...
- WildUtah 15y ago
  Compared to the size of the USA bond sector, yes $41 billion is insignificant. Compared to my personal holdings, I'd be willing to consider even half of that amount significant. Send my bailout as a check or money order, please.
  - dpapathanasiou 15y ago
    Except the banks holding the bag have taken TARP funds, and are still struggling. Plus the $41 billion number is just an estimate; the real total won't be known until all the derivative contracts are unwound. Either way, it would be a mistake to dismiss a Greek default as irrelevant to us.
    - c2 15y ago
      Except most of the banks have paid back TARP. Most major banks are back to 10+ % profit margins (only one lower I found was BAC). Out of the 700 billion TARP fund, only 51 billion remains outstanding (as of September last year), which is larger then the 41 billion number you were floating around: http://online.wsj.com/article/SB10001424052748703431604575522242672430182.html http://online.wsj.com/article/SB1000142405274870343160457552... I'm not saying all banks will be fine if Greece "defaults" (remember in this case "defaulting" implies restructed debt), but causing a US recession? Highly highly unlikely.
      - dpapathanasiou 15y ago
        We agree to disagree. But even according to the article you posted, bank balance sheets are still weak. Losing $41 billion (or more, possibly, given the nature of these derivatives) is not going to be good news for them. While technically not in recession, the economy is not thriving, either, and so one blow like this may indeed push it back into recession.
- c2 15y ago
  I've never heard any claims that the 41 billion will just disappear. The worst I've heard is that they will restructure the loans to extend pay back dates. Also, from the article, the banks have a drop in the bucket exposure to these loans, which isn't even reporting in their annual reports as a risk. The highest exposure bank seems to be half a billion on BoA's balance sheets, and like I said, it isn't like that debt obligation is just going to disappear. There's a lot of FUD around Greece "defaulting", and like I said, I think the main impact area will be the stock market, not necessarily bank balance sheets or the economy at large.
  - dpapathanasiou 15y ago
    "I've never heard any claims that the 41 billion will just disappear." What do you think default means? It has happened before, most recently with Argentina in 2002, and with Russia in 1998, which triggered the LTCM crisis. "The worst I've heard is that they will restructure the loans to extend pay back dates." That is just default in everything but name. The reason the so-called seven year Vienna plan has so much resistance is that ECB members know they'll never get paid back.
    - c2 15y ago
      The FUD "defaulting" means they won't pay you back. The real "defaulting" in this case means they will restructure the debt. It is a credit agency's definition of "default", but it won't be as adverse as the money disappearing from balance sheets.
      - dpapathanasiou 15y ago
        "The real "defaulting" in this case means they will restructure the debt." So far, all proposals to do that have been shot down by the ECB b/c even with longer and more generous terms, Greece is not in a position to service the debt, let alone repay it.
- rayiner 15y ago
  Yes?
ignifero 15y ago
It's that fearmongering that keeps greece from officially defaulting though, eventhough it's officially incapable of paying its debt for a year now. It's kind of irrational fear, too. I mean, japan's earthquake alone cost ~300 billion and there was no new crisis.
- blantonl 15y ago
  There is no new financial crisis yet from the Japan earthquake. But the problem with your assumption is that the real economic damage occurs just immediately after a disaster. The reality is that the actual economic affects of the Japan earthquake will only begin to really show in the next five years. With what is happening at Fukushima now, and the associated supply chain disruptions that are already filtering down the creek, there should be serious cause for concern. I personally made a long term bet in the Japanese market shortly after the quake, but you can "bet" that it won't pay off for a long time.
anonymoushn 15y ago
I expect much of the exposure is in the form of credit default swaps (CDS). A CDS is an instrument by which the insurer assumes the risk associated with some reference instrument in exchange for a cut of the revenue associated with that instrument. In the case of a 2-year Greek bond (currently yielding 20%), Alice and Bob might draw up an agreement that says that Alice can have 15% throughout the term of the bond as long as she pays Bob the defaulted amount in the case of default. These instruments are, by themselves, not particularly dangerous. What is dangerous is that there is generally no regulatory requirement for the people who are selling these contracts to actually have any money, which means that the people who are buying these contracts might be greatly understating their exposure. If there are large numbers of outstanding unbacked CDS, the situation is similar to what occurred with AIG in 2008. Because CDS are not exchange traded, we don't have a reasonable way of knowing how much risk is out there.

by c2 15y ago

dpapathanasiou 15y ago

"I fail to see how a Greece debt restructuring would negatively impact the US economy" Is $41 billion at risk insignificant? http://www.marketwatch.com/story/greece-poses-41-billion-risk-to-us-banks-2011-06-15 http://www.marketwatch.com/story/greece-poses-41-billion-ris...

WildUtah 15y ago
Compared to the size of the USA bond sector, yes $41 billion is insignificant. Compared to my personal holdings, I'd be willing to consider even half of that amount significant. Send my bailout as a check or money order, please.
- dpapathanasiou 15y ago
  Except the banks holding the bag have taken TARP funds, and are still struggling. Plus the $41 billion number is just an estimate; the real total won't be known until all the derivative contracts are unwound. Either way, it would be a mistake to dismiss a Greek default as irrelevant to us.
  - c2 15y ago
    Except most of the banks have paid back TARP. Most major banks are back to 10+ % profit margins (only one lower I found was BAC). Out of the 700 billion TARP fund, only 51 billion remains outstanding (as of September last year), which is larger then the 41 billion number you were floating around: http://online.wsj.com/article/SB10001424052748703431604575522242672430182.html http://online.wsj.com/article/SB1000142405274870343160457552... I'm not saying all banks will be fine if Greece "defaults" (remember in this case "defaulting" implies restructed debt), but causing a US recession? Highly highly unlikely.
    - dpapathanasiou 15y ago
      We agree to disagree. But even according to the article you posted, bank balance sheets are still weak. Losing $41 billion (or more, possibly, given the nature of these derivatives) is not going to be good news for them. While technically not in recession, the economy is not thriving, either, and so one blow like this may indeed push it back into recession.
c2 15y ago
I've never heard any claims that the 41 billion will just disappear. The worst I've heard is that they will restructure the loans to extend pay back dates. Also, from the article, the banks have a drop in the bucket exposure to these loans, which isn't even reporting in their annual reports as a risk. The highest exposure bank seems to be half a billion on BoA's balance sheets, and like I said, it isn't like that debt obligation is just going to disappear. There's a lot of FUD around Greece "defaulting", and like I said, I think the main impact area will be the stock market, not necessarily bank balance sheets or the economy at large.
- dpapathanasiou 15y ago
  "I've never heard any claims that the 41 billion will just disappear." What do you think default means? It has happened before, most recently with Argentina in 2002, and with Russia in 1998, which triggered the LTCM crisis. "The worst I've heard is that they will restructure the loans to extend pay back dates." That is just default in everything but name. The reason the so-called seven year Vienna plan has so much resistance is that ECB members know they'll never get paid back.
  - c2 15y ago
    The FUD "defaulting" means they won't pay you back. The real "defaulting" in this case means they will restructure the debt. It is a credit agency's definition of "default", but it won't be as adverse as the money disappearing from balance sheets.
    - dpapathanasiou 15y ago
      "The real "defaulting" in this case means they will restructure the debt." So far, all proposals to do that have been shot down by the ECB b/c even with longer and more generous terms, Greece is not in a position to service the debt, let alone repay it.
rayiner 15y ago
Yes?

ignifero 15y ago

It's that fearmongering that keeps greece from officially defaulting though, eventhough it's officially incapable of paying its debt for a year now. It's kind of irrational fear, too. I mean, japan's earthquake alone cost ~300 billion and there was no new crisis.

blantonl 15y ago
There is no new financial crisis yet from the Japan earthquake. But the problem with your assumption is that the real economic damage occurs just immediately after a disaster. The reality is that the actual economic affects of the Japan earthquake will only begin to really show in the next five years. With what is happening at Fukushima now, and the associated supply chain disruptions that are already filtering down the creek, there should be serious cause for concern. I personally made a long term bet in the Japanese market shortly after the quake, but you can "bet" that it won't pay off for a long time.

anonymoushn 15y ago

I expect much of the exposure is in the form of credit default swaps (CDS). A CDS is an instrument by which the insurer assumes the risk associated with some reference instrument in exchange for a cut of the revenue associated with that instrument. In the case of a 2-year Greek bond (currently yielding 20%), Alice and Bob might draw up an agreement that says that Alice can have 15% throughout the term of the bond as long as she pays Bob the defaulted amount in the case of default. These instruments are, by themselves, not particularly dangerous. What is dangerous is that there is generally no regulatory requirement for the people who are selling these contracts to actually have any money, which means that the people who are buying these contracts might be greatly understating their exposure. If there are large numbers of outstanding unbacked CDS, the situation is similar to what occurred with AIG in 2008. Because CDS are not exchange traded, we don't have a reasonable way of knowing how much risk is out there.