Saturday, June 18, 2011
Greek debt will never be paid back. Moreover, Greece may be unable to pay even th interest on its debt. So the question of its debt management is that of the rollover - to find entities that accept the old debt and are ready to trade it for new debt on different conditions. Last week there was some difficulty in rolling over a piece of the Greek debt which stressed the permanently over-anxious stock market. Shares went down. Now the fear has eased a bit but I have lost much money.
Looking into it, the Greek debt is marginal to Europe. European banks that have lent the money are strong enough to suffer a Greek default. The most exposed is Deutsche Bank that has 45% of its Tier II capital in Greek Debt. How this well managed bank got into this situation, that I dont know. All in all, German Banks have little to fear from Greek debacle: their realproblem is contagion. The German Banks are owed a hundred billion euros by Irish banks. If the Irish are unable to roll over their debt, the whole European edifice collapses.
In its essence, the banks receive money from depositors as against the promise of paying back with interest. The banks have to find entities that will accept the money against the promise of paying it back plus higher interest. Banks like Deutsche Bank accepted at face value Greek faked accounts an lent them money, which now we know, cannot be paid back. Other banks lent money to Irish banks that were financing Irish industrial growth. It is the German worker's saving that is now at risk. They will have no old-age pensions.
The whole financial system is a Ponzi. The system works to the moment that people has the confidence that it will work. When they stop believing, they want their mnoney back now and willnot accept future promises. The thing seems to me incredibly fragile, yet it has worked more or less smoothly for hundreds of years. In reality, it is very robust.
In a world without finance, people has to have family to help them out in rough times and children to take care of them in their old age. We cannot go back to primitive economy, we are stuck in this world. We need more faith to make stocks grow. We need people believe in the future. We need leaders able to put faith and hope into the stupid hearts of the masses.When the stupids have hope, everything is well. Pic.: Athen's Protective Goddess, Athena. Tons of gold, indeed.