GREECE: SOUNDING VERY LEHMAN-ISH
If you recall the early stages of the financial crisis there was one glaring trend from the various bank CEO’s and CFO’s – they just couldn’t wait to get on TV with their slogan:
“We are well capitalized.”
Of course, that turned out to be a lie as it’s now clear that most banks in the USA were woefully undercapitalized. Today, Greece’s finance minister is out with similar comments:
“Restructuring is not going to happen. There are much broader implications for the eurozone should Greece have to restructure its debt. People fail to see the costs to both Greece and the eurozone of a restructuring: the cost to its citizens, the cost to its access to markets. If Greece restructures, why on earth would people invest in other peripheral economies? It would be a fundamental break to the unity of the eurozone.”
In other words, “we are well capitalized”. That’s all well and good, but actions speak louder than words. The truth is that austerity is not working in Greece. They have failed to realize the crucial flaw in the Greek austerity plan: the private sector and public sector can’t save at the same time. They’re essentially hoping that they can get more blood to the heart by cutting off both arms. That’s just not how it works. Cutting off both arms simply exacerbates the problems. Slowly, but surely, you bleed out.
Their continued funding woes are obvious. According to the bailout facility Greece continues to increase their reliance on the ECB. ECB funding now represents 20% of total Greek banking assets. The following two charts from Goldman Sachs show Greece’s (and the entire periphery’s) increasing reliance on the kindness of strangers.
Of course, this is all just politics as Greek politicians hope for some sort of economic miracle (which isn’t going to happen) and the ECB tries to come up with a plan that actually resolves the structural flaws in the Euro system. The markets (as seen by yields and CDS) clearly aren’t so optimistic that Greece is “well capitalized”. Without major reforms in the EMU or an economic miracle the endgame for Greece looks increasingly dire. These periphery nations sound all too much like the many US banks that were on the verge of collapse in 2007 and 2008.
What about FDI?
The Greeks sure don’t have much access to capital, but countries like China have a lot of money, and they are looking for investing, like ports.
Lest we forget – let’s revisit the Lehman saga from 2 yrs ago.
When Lehman released its preliminary Q3 2008 earnings report on September 10, 2008, Lehman claimed that their core business is fairly sound and that any declines in core business can potentially be due to the swirling rumors about their stability.
Richard Fuld, former CEO of Lehman Brothers, stated their goal of “reinforcing our focus on our client-facing businesses and returning the firm to profitability.”
On September 9, Standard & Poor’s put Lehman Brothers long-term ‘A’ rating on watch for a possible downgrade. As it turned out, the long-term rating quickly became a moot point. On September 15, six days later, Lehman filed for bankruptcy.
PS – We learn history so as not to repeat it.
So how may this affect the price of the Euro relative to the dollar , say from here to the next 6 months if Greece will eventually have to restructure?
The ECB’s program is in place until 2013 so restructuring is not likely in the near-term unless the market pushes the issue.
The Greeks don’t have anything – money, morals, decency, an economy – you name it. And that is coming from a Greek (in case my username didn’t give it away). I spend a lot of time every year there seeing family, so I understand it better than most. There is no way out for them. No chance of survival in their current form. Worse yet, is that even after they default, the future is not any better. The people there have lied, cheated, and stolen their way into an abyss. Their reputation is about as bad as it gets.
You should be ashamed to call yourself Greek! Go back to Astoria, Greek.
Yep, no different from the US. What is different US is far richer and has much longer to go. But the level of lying and manipulation is no different. As for morals, I think politicians leave their morals ( if they still have any left ) at home before they come to the office so that morals don’t interfere with their jobs. It is not personal, it is business.
Perhaps they are “Technically” well capitalized if there is some sort of a Repo 105 gimmic out there for Govt Books to be cooked under.
It is only a matter of time before Greece defaults, followed by the other PIGS.
Anyone holding out hope for Greek survival in its current form would be wise to go read Michael Lewis’s latest piece. Those who try to encapsulate Greece’s problems withing their debt/GDP ratio miss the greater point. Their problems do not stem from a banking crisis or excess debt levels. The problems are systemic, buried withing the society, and no amount of IMF suits bearing below market interest bonds will solve that. They can’t even find relief in a falling Euro because the level of exports they send outside the Euro region is less than 3% of GDP and any potential tourism boost is being wreaked by all the labor unrest.
http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010?currentPage=all
Portugal is the next greece…
Short the portuguese CDS…
Expenses are increasing at 4% annual rate, families continue to spend like there is no tomorrow (creditr cards increased by 30%)!!!
Debt costs are increasing and the government says it is not a problem that next year is the problem, bla, bla…