Greece Fire Up Next???

  If you have been watching the news, we appear to be coming close to the end game in Greece. I thought we were close a number of times only to have the European Union bail these guys out time and time again. Why would they bail out this Welfare State time and time again? How about self preservation. The dirty big secret is, Many of the big Banks in Europe, are the clowns who bank rolled this sorry state and if it goes bust, they lose all their money and then the CDS’s kick In. For those who don’t know what a CDS is, its called a Credit Default Swap. These little gems are what we would call an insurance policy, let me explain.

    Say you’re a big bank and you bought some Sovereign Bonds from Greece. (Greek Debt) As a big Fiduciary for this bank, you have analyzed the current state of Greek Finance and decide you need some insurance on all that Greek debt you and your bank bought.

  Enter the CDS. You then go into the market and buy insurance in the form of these CDS. Guess who sells CDS? Most are written and sold by American Banks. At this point, if your smart, your getting the idea that Greece is not the real story. Yeah,…. its regrettable they are in the state they are but Come on…Can you spend more than you earn for years on end and then expect some one to bail you out?

  The problem here is, there is massive Exposure to European and American banks, hence they are doing everything to prop this walking Zombie up because the alternative to a banker is UN-thinkable…. This whole house of Cards comes tumbling down. If that were to happen, you have a couple of Big European banks that will probably go bust. Then, when Greece defaults guess what happens? the USA banks who wrote the CDS are then called on to pay Up. As you know many of these banks here in the USA are technically insolvent, and now they have further claims for Billions and Billions of Dollars……You see,  this was never suppose to happen…Countries can’t go bust…….Can They?????

  Yeah…they can. and just like your dead beat brother in law who is always putting the arm on you for more money….the day finally arrives when you tell him…Sorry old Boy…Your account is closed.

  Okay so let me say this. Never underestimate a desperate Banker. Can they keep the game going ? You never Know, however they have kicked the can down the road for a long time and they are running out of Road.



1 Comment

  1. Martin Landry

    September 7, 2012 at 9:53 am

    Also, CDS’s aren’t regulated. In 2008, as the markets were tanking, I sat and watched as they explained them on CNBC. My jaw hit the floor when they explained how they originate. If I trust you and you trust me, we could originate a credit default swap. You say you think some entity will default on their obligation, and I say I don’t think they will – that is the basic premise. No underlying security has to be owned.
    Also, they say that 1 out of 4 Greeks work for the government (in Spain, it’s 1 out of 5). That means that three people are working to pay the fourth (and pay for defense, education, infrastructure, etc). How long can that work? In the US I think it’s about 1 in 20, But as far as I can see, the stimulus plans only seemed to ‘create’ government jobs. If you were a state that accepted stimulus money earmarked for jobs, how do those jobs get funded next year? Don’t count on the Fed to pay for them.

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