Greece has nothing on Latvia

All the attention of the financial world has been focused on Greece. This is captured in one alarming statement made by the head of the German debt management agency.

"I think if one of the 16 members would default, it would be a collapse of the whole system," German Finance Agency managing director Carl Heinz Daube told a bond conference in London.
"If a country goes bankrupt, it will be the end (of the euro zone)," he told a panel discussion at a bond conference in London.

You would think that Greece is suffering from an epic economic collapse. In fact their economy has shrunk less than 3%.

Destabilizing a country by derivatives is "counter productive" - Bernanke

It is counter productive to destabilize or destroy a nation through derivatives according to Federal Reserve Chair Ben Bernanke.

Counter productive. Hmmmm, if it was a military weapon I do believe it would be called something else but as long as it's financial....well, ain't thems just fightin' words.

Obviously, using these instruments in a way that intentionally destabilizes a company or a country is -- is counterproductive, and I’m sure the SEC will be looking into that. We’ll certainly be evaluating what we can learn from the activities of the holding companies.

The SEC? Like Madloff? Bernanke said this during testimony before the Senate Banking Committee.

Chris Dodd asks:

Should there be limits on the use of credit default swaps to prevent “runs against governments?

Greece hit by general strike

You knew this was coming. Unlike Americans, the Greeks aren't going to take this lying down.

(Bloomberg) -- Greek police fired tear-gas and clashed with demonstrators in central Athens after a march organized by unions to oppose Prime Minister George Papandreou’s drive to cut the European Union’s biggest budget deficit.
“People on the street will send a strong message to the government but mainly to the European Union, the markets and our partners in Europe that people and their needs must be above the demands of markets,” Yiannis Panagopoulos, president of the private-sector union GSEE, told NET TV yesterday. “We didn’t create the crisis.”

Size matters for Greek bailout

The reason why the bailout of Greece is still in question is the moral hazard it would create throughout the rest of southern Europe. And the price tag is steep.

(Bloomberg) -- Europe may need to stump up as much as 320 billion euros ($441 billion) if it decides to bail out Greece because it would open the door to rescuing other countries in financial distress, according to BNP Paribas.
“To come up with a bailout plan that would be reasonably certain of success, it would have to cover all the most likely candidates, and it would have to be big,” said Paul Mortimer- Lee, global head of market economics at BNP in London. “Size matters when you are trying to scare off speculators and to comfort nervy bondholders.”

Greece and Swaps, the saga widens

Earlier we posted derivatives at the heart of the Greek crisis. Now the story widens and the saga continues.

First, Bloomberg reports Goldman Sachs, Greece Didn’t Disclose Swap. In other words Goldman Sachs helped Greece hide it's debt, mortgaging it's future in the process and also didn't tell anyone they had done so.

Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit.

What we could guess, derivatives at heart of Greece Crisis

The New York Times has a dynamite article, Wall St. Helped Greece to Mask Debt Fueling Europe’s Crisis. Not only did Goldman Sachs, JP Morgan Chase, work many deals to hide Greece's debt, another word dear to our heart, derivatives comes into play. Firstly, the hands in the cookie jar:

As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

The overall theme and message here is the financial sector controls the world through debt and even nations now. I hate to sound conspiracy theory, but assisting in hiding sovereign debt as well as something bankers can trade, generate large fees from....well, if looks like a duck....

Analyst predicts break up of the Euro Zone

Talk about doomsday analysis, this has to be it. An analyst from Société Générale (French Bank) is concluding the Euro area is headed for a break-up:

Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, a situation that will lead to the break-up of the euro bloc, according to Societe Generale SA’s top-ranked strategist Albert Edwards.

Greece gets its bailout

The game of chicken is over. Europe blinked.

European governments have agreed in principle to support struggling euro-zone member Greece and are considering various options, including bilateral aid, a senior German coalition source said on Tuesday.
"The decision on help for Greece has been taken in principle within the euro zone," the source said.

How important is Greece?

In our current interconnected global economy nothing happens in a vacuum.


Fears mount over European debt: Markets worry that financial crises in Portugal, Greece could spread across euro zone and spill across borders

 Spooked investors worldwide were fleeing risky assets like stocks. And from Shanghai to Sao Paulo, people were awakening to the reality that what is happening in these European minnow states has vast implications for the fate of the fragile global economic recovery.

European Contagion

The terminology is beginning to change in Europe. The fact that Spain's finance minister felt it necessary to say this speaks volumes about how the markets view Europe.

“Spain’s situation is not like that of Greece, not in terms of public debt nor in terms of economic strength,” Ms. Salgado said in an interview with La Cope radio.

Yields on Spanish bonds jumped today as the market demanded higher returns on the debt risk. Why did that happen?