The insight! The knowledge!

And just as in 2008, when Lehman fell, no one really knows what will happen now that the European Central Bank has declared Greek banks, en bloc, to be insolvent.

No, by refusing to increase the ELA the ECB has declared the Greek banks illiquid if withdrawals continue. Insolvency will follow if the withdrawals do.

There will be counter-parties to Greek banks in other countries who will lose as a result of what is happening. No one yet knows who they are.

We do, trivial amounts in various banks (essentially speculations on Greek Treasuries, of which there aren’t all that many) and €110 billion in ELA and TARGET2. Which are backstopped by the ECB. Or as we might put it, the taxpayers of other eurozone nations.

It was time for the EU, IMF and ECB to say debt write down had to be on the agenda.

The debt has already been written down. Time value of money and all that stuff. 50 year maturities, 1 and 2% interest rates, 10 year payment holidays. The NPV of that debt is nothing like the headline number. Meaning that a debt writedown has already occurred. It’s just that it’s occurred in a manner in which the governments of the other eurozone nations can deny causes a loss to their own taxpayers. Which is why they did it that way.

In that context the argument about ever closer union is meaningless.

And the argument about monetary union is just nonsense.

Well, yes, OK, give you that. But then where’s the congratulations for those of us who have been saying this since 1997?

There is just power. Ugly, brutal, financial power apparently exercise by homo economicus without compassion, as the breed demands.

Homo economicus are the ones who have been saying that it won’t work since 1997. And saying, since 1997, don’t do it. Don’t blame us for this shit.

32 thoughts on “The insight! The knowledge!”

  1. “The debt has already been written down. Time value of money and all that stuff. 50 year maturities, 1 and 2% interest rates, 10 year payment holidays. The NPV of that debt is nothing like the headline number. Meaning that a debt writedown has already occurred.”

    I’ve just posted on TRUK that it’s all priced in (and Asian stocks down 2% is nothing, I can fart and move the index that much as they really just gamble out here). Deleted of course. He doesn’t do facts.

  2. What a fucking wanker. Apparently because a SpaceX vehicle has exploded, that proves the state is good at such things and the private sector can’t do it.

    Because the state has never blown up a space vehicle, of course.

  3. In modern day Greek mythology, the Sphincter sits in Brussels and asks a riddle to all who pass by. If they fail to solve the riddle, the Sphincter kills them, and if the passerby answers the riddle correctly, then the Sphincter will destroy itself.

    The riddle:
    “What is worth five times more in the morning, three times less in the afternoon and “fuck all” at night?”

    Who is the new Oedipus and is the Sphincter twitching?

  4. “All of the Greek defaults going back to 5000BC were caused by the euro”

    Tough luck Biggie–the All Europe Tinpot Tyranny show is going off the air sooner or later. Get used to it.

  5. “What a fucking wanker. Apparently because a SpaceX vehicle has exploded, that proves the state is good at such things and the private sector can’t do it.”

    They can’t help themselves. They crawl over the still warm bodies to plant their flag, its a compulsion. See the Charleston murders for another example.

  6. Noel Scoper: If only space travel/exploration was as easy as setting yourself up as a tax expert eh!. Just set up a website and let fly with the shite. We’d have a base on Pluto by now.

    Space X at least hasn’t got anybody killed. It is not like its rocket science.

  7. Are the Loonies about to make an historic flip of position on the Euro, while denying emphatically that they ever supported it?

  8. If only Greece had the Fair Tax Mark then none of this would have happened.

    Perhaps some Green Quantatative Easing will help?

    Or some country by country reporting?

  9. “No, by refusing to increase the ELA the ECB has declared the Greek banks illiquid if withdrawals continue. Insolvency will follow if the withdrawals do.”

    Hmm. My understanding is limited, but while the immediate effect of that decision was to render the Greek banks illiquid – since the ECB will not stump up enough euros for them to cope with withdrawals, and this maturity mismatch is indeed about liquidity not solvency – you also have to look at why the ECB did it. In principle they’re not allowed to throw good money after bad. In the case of Greek banks they’ve clearly been on thin ice for a while. The decision they came to is basically a signal that they no longer can treat Greek sovereign debt as good collateral, since the failure of talks has made default inevitable, and this is essentially a declaration that the banks are insolvent.

    Is there anything wrong in the preceding paragraph?

  10. @Rob,

    Of course the EU is neoliberal according to the leftists and Marxist according to the libtards. They are both right to some extent (I think the leftists are slightly more correct in this case).

    None of which changes the fact that the euro assassinated the Archduke Franz Ferdinand and caused the thirty-years war.

  11. Too lazy to sign up to Forbes to comment there, but you apparently aren’t giving top marks to Syriza for how things are going in Greece. Just wondered how you think they might have done better, given the cards they were dealt (i.e., Europe, their election promises, the economic situation, and the Greeks).

  12. Richard is a racist.

    “No one can have failed to be moved by what has happened in Tunisia and France” says Richard.

    I did tell him that all the news reports also mentioned an atrocity in Kuwait. He’s deleted that.

  13. Noel

    He’s many things – thuggish, rude, profoundly ignorant and then, as seen by his ridiculous spat with the Oxford Centre for Business Taxation over the weekend, swift to take umbrage when a sensible organization decides we don’t what such an objectionable bastard to attend their conferences, babbling on about ‘failing to take valid arguments into account’.

    The comments on the space piece from the appallingly evil Andrew Dickie simply have to be seen to be believed – apparently the Soviet Union space programme made 100 million dead all worthwhile – absolutely shocking.

  14. Ben S

    How could Syriza have done better?

    1) Gone after the oligarchs who control the media and big business. Taxed their TV stations and the right to broadcast – immediately rather than promising to do it at some point – interesting that Syriza managed to spend a load of money, but did nothing against the oligarchy.

    2) Agreed to a uniform VAT rate that would have helped to reduce evasion.

    3) Not undertaken the tax amnesty that helped to persuade people that not paying was an option

    4) Not rolled back reforms to the civil service that were part of the process of improving governance and instead going directly to hiring of friends and family

    They could have done all these things while still holding to their lefty red lines of hiring back the tiny number of civil servants that were fired by the previous government and spending on the poor.

    What Syriza demonstrated was that they were just an incompetent bunch of left wing idiots who had inherited PASOK’s clientele and were fully intent on spending money with no attempt at any reform.

  15. @ken

    Thanks, I must admit to not knowing much about Greece beyond the headlines (which probably means knowing less than nothing).

  16. Van _ Patten

    There aren’t thay many left who are prepared to champion the U.S.S.R or acknowledge THAT

    L it was Socialist. So I say let’s cherish Andrew Dickie whilst we can.

  17. MBE: yes, the whole point of the ELA is to support solvent but illiquid banks. The ECB’s refusal to extend ELA implies either that it thinks the banks are insolvent, or that it thinks further ELA would be bad for the Eurosystem.

    In practice, the Greek banks are almost certainly insolvent, because of their government debt holdings. But on that basis they were insolvent last week too.

    …€110 billion in ELA and TARGET2…
    ELA is not a debt to the ECB. All the ECB does is give the Bank of Greece permission to create money to lend to Greek banks. If that money gets withdrawn in banknotes, printed by Greece in excess of its quota, that creates a Eurosystem obligation on the Bank of Greece. If it gets withdrawn by transferring it to banks overseas, that creates a Target2 obligation on the Bank of Greece. Those obligations to the ECB are perpetual debts (there’s no requirement to redeem them at any particular time) carrying a very low interest rate (currently 0.05%). So there’s no need to treat them as having defaulted whatever Greece does – even if it leaves the Euro it will still want to participate in Target2.

  18. SJW

    Thanks. My limited understanding re “In practice, the Greek banks are almost certainly insolvent, because of their government debt holdings. But on that basis they were insolvent last week too,” was that the ECB decision to keep propping up the banks was legally controversial in some quarters and probably on very thin ice. But the political pressure was very great to keep ploughing on. The failure of negotiations acted very much like a release of the pressure valve, and made the pretence of solvency (essentially a fingers-crossed, “something will turn up” type of solvency) impossible to maintain. But again this is my very basic understanding of the issues!

  19. MBE

    I’m of the they were insolvent all along school. But, they had the backing of the Greek government, which had the backing of the EZ (kind of), which in the eyes of the ECB, made them “kind of” solvent. For the purpose of ELA. As of Saturday, the Greeks are in limbo regarding support from the EZ. Technically as of Tuesday they’re not, in which case, things get dicier still. But there is a hope that something might turn up.

  20. SJW

    It is a perpetual debt unless repudiated by the Greeks, which would then be an interesting problem for the ECB.

    Per the Bundesbank:
    “Should a country with TARGET liabilities opt to leave the euro area, any claims the ECB might have on the NCB of that country would initially persist in the same amount. If the exiting central bank proved unable to repay its liabilities despite loss-offsetting within the Eurosystem and the collateral available, it would be necessary to devise a solution for the outstanding amount. Only if and when a residual claim was deemed unrecoverable would the ECB actually recognise a loss by virtue of writing it off as a bad debt.” The ECB could then call on its shareholders – that is the central banks of the remaining euro area countries – to participate in the loss according to their shares in the ECB’s capital.
    http://enews.ebf-fbe.eu/2014/01/who-said-payment-systems-are-simple-legal-issues-arising-from-the-structure-of-target-2/

    The interest rate is indeed 0.05% today, but it is a variable rate and was higher prior to the crisis – it is the Main Refinancing Operations interest rate.

    https://www.ecb.europa.eu/stats/monetary/rates/html/index.en.html

  21. Is there anyone on this thread who believed in the Euro as a viable common currency at the start and now doesn’t?

    Is there anyone who still does (let’s say viable for the existing EZ countries or some number of)?

  22. So, is it no longer a sign of being a swivel eyed loon to think the Euro is a bad idea? How soon before the Borg collective switches to denouncing anyone who supports the Euro as a swivel eyed loon? Believe me, it can happen with astonishing speed.

  23. Interested – I was never a Euro fan but I would have thought Benelux/Germany/Austria was viable.

  24. Interested – “Is there anyone who still does (let’s say viable for the existing EZ countries or some number of)?”

    – I offered them my advice in autumn 1998 (ranted at the tele), that they were going too far too fast.

    That they have France, Germay, Belgium, Netherlands only, run it for a decade and try to get the Brits in, then accept other countries only when they had met the strictest standards for a couple of decades. It would be my advice again today.

    They didn’t listen (apparently, they can’t hear it when I shout at the tele).

    I think the Euro is great idea, but Oh! how those wankers have fucked it up.

  25. Interested,
    Logically, almost no one involved the Euro’s creation thought it viable. It was based on stringent entry criteria plus strict operating rules.

    Once it was decided to bin all the rules, the Euro had to be non-viable. Otherwise, what was the point of the rules? The ERM should have provided some lessons.

    johnny bonk,
    The Euro may or may not be a great idea, but I don’t think we ever got to that stage of the argument. I think it would be a great idea to be part of the England Rugby squad for the World Cup. However, a) I don’t meet the entry criteria, and, b) I’m pretty sure they’re not going to relax them for me because the management lack the required idealism and grand vision. Sad but true.

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