4 ms·

I'm not so sure this tells the whole picture. Countries borrow money from banks and wealthy individuals in the bond market. These same countries (and I class Eu

I'm not so sure this tells the whole picture. Countries borrow money from banks and wealthy individuals in the bond market. These same countries (and I class Europe as a pseudo-country) want to bring in legislation to prevent banks from doing what they did to create the first crisis in 2007. But the interest rates are being set by the lenders, and this can be used as a kind of weapon to retaliate in this game. What's happeneing at the moment is that the bond holders are basically trying to force the governments to raise taxes and cut public expenditure for no other reason than so they can get their money back. Governments are caught in this trap because it's rather unfair to punish the people like this. If you take a step back and look at the series of problems since 2007 you'll see that the banks were responsible for selling worthless "structured debt" to each other before realising they couldn't trust each other, then freezing all lending causing liquidity problems, and now using bonds interest rate weapons to effectively prevent governments from legislating against their bad behaviour. It's a game of poker with some very high stakes: the options are a few banks choking or whole countries. I'm not greek but the more I read and look at this the more I think they had the right idea to stand up to the banks. In the end they got half their debt removed, but unless all politicians stand together with the people and call it, this will all end in tears.

justincormack 15y ago
The Greek debt negotiations haven't finished, and while the private sector bond holders may get 50% losses, Greece will not cut 50% of its debts, as the official lenders are not taking losses. Greece would be better off simply defaulting fully, as it will still end up with government debts of 150% of GDP or so after default. Also if the countries default the banks do too, as they hold a lot of the government debt - it was a mutual game.
- chris_dcosta 15y ago
  Agreed. Banks were previously bailed out on the basis that this would be terrible for the people whose assets/savings were held at banks that failed because they could not return those assets to the people. But things have changed since then... firstly governments have guaranteed people's assets in the event that a bank fails. In addition some countries took charge of their banks, notably the UK, meaning that at least from a "business as usual" case, it is not inconceivable nor technically impossible to move the accounts from a failing bank into a nationalised bank. So if the banks were to default now, the situation would be different. The governments could let a bank or many banks fail and with careful management take back control. One other point is that banks can make very large profits in a very short space of time. LloydsTSB in under six months following the write-down of massive losses in the crisis, made a first quarter profit of 3 billion pounds. I don't know many companies that can turn things around that quickly, but banks regularly do. This, to my mind, makes it less credible to hold the threat of many banks defaulting over the heads of the governments, and is another reason why I say the governments make the call.

justincormack 15y ago

The Greek debt negotiations haven't finished, and while the private sector bond holders may get 50% losses, Greece will not cut 50% of its debts, as the official lenders are not taking losses. Greece would be better off simply defaulting fully, as it will still end up with government debts of 150% of GDP or so after default. Also if the countries default the banks do too, as they hold a lot of the government debt - it was a mutual game.

chris_dcosta 15y ago
Agreed. Banks were previously bailed out on the basis that this would be terrible for the people whose assets/savings were held at banks that failed because they could not return those assets to the people. But things have changed since then... firstly governments have guaranteed people's assets in the event that a bank fails. In addition some countries took charge of their banks, notably the UK, meaning that at least from a "business as usual" case, it is not inconceivable nor technically impossible to move the accounts from a failing bank into a nationalised bank. So if the banks were to default now, the situation would be different. The governments could let a bank or many banks fail and with careful management take back control. One other point is that banks can make very large profits in a very short space of time. LloydsTSB in under six months following the write-down of massive losses in the crisis, made a first quarter profit of 3 billion pounds. I don't know many companies that can turn things around that quickly, but banks regularly do. This, to my mind, makes it less credible to hold the threat of many banks defaulting over the heads of the governments, and is another reason why I say the governments make the call.