Possibility of a Greek default in next week

Tehanu said:
Well, here's the first bank to take a hit:

http://www.bloomberg.com/news/2012-...-injection-after-isda-triggers-greek-cds.html


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If the net exposure is $2.4 billion, net-net on a cash basis:
From the article:
The net cash payout on CDS when a credit event occurs is the face amount of the CDS contract less the recovery value of the underlying obligations as determined at a CDS auction. For example, if the CDS auction showed the recovery value of debt to be (hypothetically) 25%, the aggregate amount payable would, in Greece’s case, be 75% of $3.2bn: $2.4bn

And the bloomberg article is saying one institution is up for $1 billion, then we only have another $1.4billion to go from someone (by the way i have no idea about this $1billion), i am looking at the big picture.

In the whole scheme of things its chicken feed.
What was the US fed bailout at? somewhere north of the trillion mark wasnt it.
 
Tehanu said:
.

China and the blowing of the commodity bubble (especially if the rumours of commodities being used as collateral for Chinese property development deals is true) is where the spark for the next major crisis is likely to come from in my opinion.
Click to expand...

yeah to me China is a 'big black box'. very hard to analyse.
but there will be some good factors that come from a slow down in China (not a crash, but a decent slow down)

(a) currency effect on countries like australia
(b) reduction in commodity prices, especially energy based commodities.

These factors will help the developed economies.

What the net-net will be i dont know (ie net effect of positive and negative factors).

Our greatest treasurer little swanny won't be a happy chappy though, his mining taxes wont look to good then.:p
 
Intrinsic_Value said:
If the net exposure is $2.4 billion, net-net on a cash basis:
From the article:
The net cash payout on CDS when a credit event occurs is the face amount of the CDS contract less the recovery value of the underlying obligations as determined at a CDS auction. For example, if the CDS auction showed the recovery value of debt to be (hypothetically) 25%, the aggregate amount payable would, in Greece’s case, be 75% of $3.2bn: $2.4bn

And the bloomberg article is saying one institution is up for $1 billion, then we only have another $1.4billion to go from someone (by the way i have no idea about this $1billion), i am looking at the big picture.

In the whole scheme of things its chicken feed.
What was the US fed bailout at? somewhere north of the trillion mark wasnt it.
Click to expand...

The small amount is net over all exposures. The actual gross amount of Greek CDS out there is $70 billion.

http://www.efxnews.com/story/10687/gross-greek-cds-volumes-counterparty-risk-worth-watching

Gross amount of Greek CDS is $69.9B, an amount that would only be relevant if investors recovered zero. ECB's lending to European banks has alleviated some funding stresses, so a "dramatic event" would be needed, said Suki Mann, a credits strategist at Societe General, for example a Greek default, CDS triggering "plus other unfolding events leading to a massive contagion across the periphery" to see spreads gap wider, and stay wide.

European sovereign CDS are not yet centrally cleared so there is no reassurance that firms are truly protected, however.
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A lot of places are almost fully hedged - that is they bought almost as much Greek CDS as they sold. However it is possible that there are some hidden bombs out there like the Austrian bank who were clearly not hedged. As the Dow Jones article points out, without a central clearance agency it is hard to tell. Also I've seen criticisms of how well the ISDA's contract templates would actually work in orderly netting.

The net CDS payout on the Lehman bankruptcy was only $7.2 billion. The chaos that failed was due to disorderly netting the gross down to $7.2 billion - things like lack of hedging, failures of counter-parties so even if you did hedge you were screwed, hold out in the UK branch of Lehman's, parties refusing to close out contracts, etc. It's what you get when you don't have an orderly netting procedure...

Still I think the risk associated with the Greek CDS is manageable as everyone has been preparing for a Greek default for a while now, LTRO seems to work in the short-term at least, and the fall out of not triggering the CDS would have been even worse as the hedging strategies of the debt of all of the periphery would have been called into question causing interest rates to increase massively in Italy, Portugal, etc.
 
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The expectation here in Old Blighty is that Francois Hollande will moderate the promises made in his rhetoric during his election campaign. For example, I really can't see how he can offer retirement at 60 in any way that's affordable.

The main positive of his election is that he opposes the German austerity drive. This might lead to different, better solutions to what the Merkozy pairing came up with.

That said, the French political class gives me the impression that they see themselves as being special, and the natural leaders of Europe. In reality, I think that they've got a lot less influence, and with increasing fiscal problems they run the risk of being sidelined.

The Greek elections are really a vote of no confidence in the austerity programme. The problem is that I can't see any alternative. The Germans aren't going to keep on bailing them out, and the government has a huge deficit and national debt. There are no easy answers.
 
buzzlightyear said:
Given the election result, are we closer to a Greek default or at least the risk of it?
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As I understood the bailout conditions Greece had to maintain the austerity route to continue to receive the agreed funding, so if new government changes that I assume there is risk of the funding being cut off and an eventual hard default.
 
Correct Hobo-Jo.

Off the top of my head, the options on offer for Greece are:
  • Continue with the austerity policies. If things go well they might avoid a default.
  • Reject the austerity policies, have a hard default, trigger off a massive financial crisis across Europe, and possibly leave the Euro.
The first isn't going to be any fun, but the second would be a real car crash.

I think that a real solution would involve debt forgiveness on a much large scale than seen so far, government cuts, and getting the Greek tax system to function correctly. That's probably not too far off the austerity package they're currently suffering from.

The Eurosceptic right wing press in the UK wants to see Greece leave the Euro, because they believe that a free floating exchange rate will see them come out of it better. I think that a certain amount of that is wistful thinking, and the reality would be that the new Drachma would crash on the FX markets, there'd be a huge amount of imported inflation, and they'd find it difficult to access bond markets for several years.

On top of that, a number of rich families have squirrelled their cash away overseas, and would use the above scenario to pick up whatever assets the Greek government disposed of in a fire sale on the cheap. That's not a good outcome either...
 
Hi Graemsay,

Your perspective is most interesting. Australians seem almost entirely fixated by the economic fallout risk from Europe. But your posts keep alluding to the political risks too - the crumbling of French defacto regional leadership; the British rightwing media's delight at the idea of a new Drachma; the inflammatory examples of cashed-up contra-patriotic elites, etc. I find this very suggestive.

From our stable vantage point here it's like we keep waiting for economic rationality to break out and take hold in Europe, as it did by and large in Australia over the course of the last 3 decades. But the politics of Europe are evidently of a different universe's order of complexity than Australia's, which would mean that whatever the outcome, words like quick, logical and elegant are not going to describe it.

This suggests to me that the question of Greek bail-out compliance or Greek hard default is chimeral. The end game is almost certainly to be what price Germany is prepared to pay to keep France in the Euro. And Australians may find that they need to brush up on the old British discipline of political economy to get a handle on that.
 
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hobo-jo said:
As I understood the bailout conditions Greece had to maintain the austerity route to continue to receive the agreed funding, so if new government changes that I assume there is risk of the funding being cut off and an eventual hard default.
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IMPO it would have been easier straight up, than to prolong the inevitable. allow Greece to leave the Euro on a hiatus/suspension, re-instate the Drachma, adjust it away, get back on their feet and re-join in 5-10 or so years.

it's funny how governments dont understand or represent the people they were elected by anymore, don't you think?
 
As a complete novice in world politic's - I suspect the argy bargy is a heck of a lot more than purely getting the economy back on track.

If only it was that simple.

There is a whole undercurrent of ego power mongering, ingrained cultural corruption and general sulky contrary pertulance that has to be resolved first - throughout Europe (not just Greece).

That is the big difference to Australia - generally we don't have corruption on a widespread scale - no point in getting sulky or contrary as we only have ourselves to tell ourselves what to do - and our ego powermongering is pretty weak when the two egos are Julia and Tony ... no real mafia (okay, so the unions come close on occasion) or big business domination.

Makes it difficult for us laid back Aussies to understand "why?"
 
lizzie said:
That is the big difference to Australia - generally we don't have corruption on a widespread scale - no point in getting sulky or contrary as we only have ourselves to tell ourselves what to do - and our ego powermongering is pretty weak when the two egos are Julia and Tony ... no real mafia (okay, so the unions come close on occasion) or big business domination.
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Umm what? No corruption? No big business domination?

The big 4 banks aren't a cartel?
Coles and Woolworths aren't pushing the little guy out of business?
Mining big wigs aren't trying to get a foothold in the media industry?

On a smaller scale:
We don't have tradies doing cash jobs here, there and everywhere?
Tax payers aren't throwing on ineligible expenses to their tax return every year?
 
hobo-jo said:
Umm what? No corruption? No big business domination?

The big 4 banks aren't a cartel?
Coles and Woolworths aren't pushing the little guy out of business?
Mining big wigs aren't trying to get a foothold in the media industry?

On a smaller scale:
We don't have tradies doing cash jobs here, there and everywhere?
Tax payers aren't throwing on ineligible expenses to their tax return every year?
Click to expand...

Anyone who has travelled much would know that the level of corruption in Australia is relatively negligible.
 
TomW said:
Anyone who has travelled much would know that the level of corruption in Australia is relatively negligible.
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Well I would agree on a global scale, but my response was in context to lizzie's post which was comparing Australia to Europe. So can you share some examples of corruption in Europe which show my examples to be relatively negligible?

Perhaps I am wrong.
 
Monopoly power isn't corruption (banks, supermarkets). It's not really good for consumers but corruption implies a governmental involvement to it - which is lacking in this country. Just go to any south east Asian country and corruption is so rife over there that it's expected to get any sort of deal/transaction done whether the transaction is legitimate or not. If you tried any of that crap here you would be dobbed in and thrown in jail...
 
hobo-jo said:
Well I would agree on a global scale, but my response was in context to lizzie's post which was comparing Australia to Europe. So can you share some examples of corruption in Europe which show my examples to be relatively negligible?

Perhaps I am wrong.
Click to expand...

I could give you a bunch from Spain. Specifically from the city council that my husband used to sit on. Bribery, assault, threats, misappropriation of funds, jobs and contracts given to family and friends, etc., etc. And I can guarantee the same sort of stuff goes on at all levels, all over the country.
 
Qatar above the USA????

They must have paid off the authors of the Transparency International Corruption Index after finishing with FIFA when they won the 2022 football world cup.
 
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