He seems to be blaming the opposition to a Greek haircut to bond holders on the banks.
Which is so weird as to be almost insane. It\’s precisely the banks, the financial traders, who all accept that there is no solution without a haircut to bond holders.
That\’s, after all, why the bonds are trading at levels which already assume a haircut.
The people against such a haircut are the officials: specifically although not exclusively, the officials at the ECB.
There\’s the usual bunch of \”Europe\’s Lovely\” tosspots, those who would do and say anything to preserve their dream of a more integrated continent. But the ECB\’s opposition to a haircut is easier to understand.
They own a huge chunk of that Greek debt. They\’ve bought it directly, to support the price. They\’ve also taken it as collateral for loans: the Greek banks have been parking Greek sovereign debt at the ECB and getting loans against it.
So, impost a haircut on the bond holders, the Greek banks all go bust, the ECB loses the loans and ends up with the collateral now worth say 50% of the loan it can\’t get back.
The ECB goes bust. And yes, the numbers are around and about large enough that the ECB would be bankrupted by a Greek haircut. Which is why the ECB is against such an event.
The alternative is to cut a grand bargain and to do so fast. Global finance has to accept it has responsibilities, not usurious claims that must always be met in full whatever the pain. Greece\’s creditors must accept write-downs and write-offs of their loans. In return, they should be allowed to swap their lending into new financial assets that they can freely buy and sell.
Yes Will, the private sector banks already know this and are quite happy, just fine, about it.
It\’s Greece\’s largest creditor, the European Central Bank, which isn\’t.