Monday, February 27, 2012

Third bailout? Greece can't even pay the vig on the first one

With a second bailout of Greece pretty much agreed to by the EU and with the holders of Greek debt prepared to take some more heavy losses--all for the dim hope that they might somehow recoup a small measures of their investments--Angela Merkel is now openly proclaiming that "there is no 100 percent guarantee that the second bailout programme will succeed."

Of course, there is never a 100% guarantee that any plan will work, so why does Merkel bother to make the point? Obviously, I think, it is because she knows that there is very little chance of the second bailout working. The Economist agrees:
First, the demands being made of Greece will be almost impossible to meet: they will eventually need more money or some kind of forbearance. Wolfgang Schäuble, Germany's finance minister, and Jean-Claude Juncker, Luxembourg’s prime minister, have both suggested in recent days that a third bail-out may well be needed.
The issue here is pretty simple: Greek bonds are worthless, more worthless than mortgage-backed securities even. Bond-holders have already seen their investments lose 70% or more of their value. The second Greek bailout is really no such thing, as the monies involved will mostly be used to make the drastically reduced payments to these bondholders. What is left will be used to keep the Greek government running--in a similarly drastically reduced form--for a another six months or so. Then what? How will Greece possibly meet it's next round of obligations? It can't, so it won't. That's when it will be time for bailout number three.

But who is going to--in their right minds--eat that loss? The EU banks? Not bloody likely. They're already saddled with truckloads of worthless Greek paper and they're more than a little worried about Italian and Spanish paper, as well. The IMF (i.e. the United States)? Talk about setting the table for 2012, mein Gott, I don't think so. The EU member-nations? Well that's pretty much all that's left, unless the EU agrees to sell Greece to China, outright.

I guess--in a way--one has to admire Merkel's tenacity here. She knows the end-game, but is apparently hoping for some sort of miracle. But where will it come from? A real default is the only answer and that means--for Merkel and the EU--admitting that the first two bailouts were pointless wastes of money and--for Greece--accepting that it must reorder its structures in total, allow that it must shrink back into a second-world nation (or worse). And that is just not gonna happen, as Tyler Durden as Zerohedge so eloquently notes, in answer to the question "would Greece accept a default?":
Why of course not: since nobody in Greece has the balls to say enough, why should the broke European banks, whose LTRO lifeline incidentally is ending, stop sucking the last remaining drops of blood from the Greek debt slaves? If we were in their shoes we would do precisely the same thing until the bitter end. And frankly, just like America is about to get a president it deserves, so Greeks are clearly the recipients of just the fate they so rightfully have 'earned' by doing absolutely nothing. But go ahead and throw a Molotov cocktail or two, and don't forget to loot that store right next to Syntagma square. After all, what is heroism if not stealing from others, just the way the despised banker uberclass steals from you?
If you think you're hearing a bit of anger in my words--not to mention in Durden's--you're right. And that's because this entire situation is the consequence of stupidity: stupidity on the part of Greek politicians (that goes back decades), stupidity on the part of the EU, and stupidity on the part of economic analysts who--via deeply flawed methodologies--have enabled all of this, who have crunched meaningless numbers extrapolated from a fantasy version of reality.

And who will pay for all of this stupidity? Everyday Greek citizens, who were promised a bill of goods not earned and never paid for. While I sympathize with their plight, they let it happen, failed to ask the right questions, and succumbed to the promises of their own elites, who were never much more than gangsters.

Cheers, all.

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