The markets have been choppy of late, due in no small part to the bit of drama playing out in the EU right now. A couple of EU nations are against the ropes in a big way, and there doesn't seem to be a coherent plan in place yet to deal with this next step of the crisis.
At the center of the problem are Greece and Spain. Greece is in worse shape than Spain, but not by a whole lot. And the Greeks have some serious problems with government transparency. Problems that were evidently exacerbated by a little monkey math on the part of Goldman Sachs.
It is being reported that Goldman helped the Greek government circumvent the Maastricht rules requiring full disclosure of financial condition by engineering a clever swap that enabled the Greek government to borrow money off the books. In fairness, they're not the only investment bank to do this, just the most famous.
My sources here are telling me that the prevailing inclination is to let Greece deal with the problem on their own. The current swaps market seems to believe otherwise, after some encouraging words from incoming European economic affairs commissioner Olli Rehn. I asked again, and my folks tell me that there is no stomach to bail out Greece, especially while most of the people in charge are heavily invested in Spain and would like an opportunity to get their money out at some point in the future. We shall see.
In the meantime, the mess is leading to a stronger dollar, which certainly helps.
To me, "circumvent the rules" = "break the rules". Just cause the law does not explicitly describe this exact situation, I fail to be impressed with someone's "cleverness" when they clearly violate the spirit of the law. Greece wasn't supposed to borrow off the books. Just because it wasn't "borrowing" is just getting cute. Enron tried this too. Shame on GS, shame on any other bank doing this, and shame on Greece.
Don't you think Germany/France will end up supporting Greece in some fashion or other? Interesting that you're hearing the inclination is to let them langer... I still feel like the EU is more committed than that.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/721322…
Well, there you go. It's kind of a minute-to-minute thing. That France/Germany announcement came out about ninety minutes ago.
Basically, what my people have told me is that the folks at policy level have a much greater vested interest in Spain than they do Greece. Spain had a real estate boom that made the U.S. bubble pale by comparison, and all these jamokes got roped into it. They've all got vacation homes and rental properties in Spain, and if they ever hope to see that money again, they have to help Spain out as it nears 25% unemployment. Greece, not so much.
Of course, this is assuming the policy types accept that they have a finite supply of cash to aid any and every EU country. I've never known government officials to embrace that notion.
Greece is to Bear Stearns as Spain is to Lehman.
I should have interned at CollegeBoard.
Are there any capital markets stories these days that doesn't involve GS screwing things up?
LOL. They do bring a lot of it on themselves. I give them a lot of shit because I think they do some shady (though not illegal) stuff, but you have to credit them for the innovation. If there's a way to pound a square peg through a round hole in finance, Goldman's going to find it.
I thought the order was 1. Greece 2. Portugal 3. Spain
am sure GS has manufactured some sort of CDS to short the PIGS and is going to get a huge windfall off it even though they are advisors to Greece etc.
Wait a minute! Hold that thought on the Greek bailout. Revision 57:
http://www.guardian.co.uk/theguardian/2010/feb/11/germany-greece-merkel…
And here's the Mises Institute's take on the situation:
http://mises.org/daily/4091
How does Ireland compare to the rest of the PIGS (Portugal, Ireland, Greece, Spain)?
On par with Portugal as the least emergent situation currently. Basically, in order of likelihood of default, it looks like Greece, Spain, Portugal/Ireland.
SocGen predicts death of the Euro:
http://www.dailymail.co.uk/news/worldnews/article-1250433/Greece-debt-b…
This is absolutely ludicrous.
That a common currency is not viable because countries cannot devaluate is a very specious argument, as it can be applied within a country as well: one may as well say "the US dollar is not viable because Detroit cannot devaluate and regain competitiveness against Japanese car manufacturers."
The inability to devaluate is a minor hindrance compared to the huge benefits brought by the absence of multiple currencies. I've said for a long time that a common currency makes competitiveness adjustements harder (see West vs. East Germany for another example), sure, but does anyone remember when you had to exchange money (and pay a commission) when you went, say, from Italy to France?! No wonder the British and Americans don't understand, to them the Continent has never been more than pages in history books or pricey holidays.
Anyway, the Euro is here to stay. Way too complicated to go back to the old system - thank God.
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