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Believer
07 March 2012, 04:12 PM
Namaste,

For those of you who may be interested in the Greek loan fiasco,

When the Govts. want to borrow money for development, they issue bonds, which is a note saying that the Govt owes you so much money and defines the terms for interest and loan repayment. China owns about 1.5 trillion dollar worth of US public debt - bonds issued by the US Govt (total being about $14 trillion). Similarly, Greek Govt. also has large debts in the form of bonds issued to foreign banks/Govts., insurance companies and private investors. Since their economy is floundering and they cannot make the interest payments on their debt, they are seeking loans from other EU members and the EU bank. They are being asked to reduce their debt to qualify for these new loans.

The Greek Govt. is negotiating with the existing holders of bonds for a loan/bond swap - exchange the existing bond papers with new bonds worth half the loan amount. This has been termed as 'getting a haircut'. It will be interesting to see how far can the Greek Govt. push the lenders to avoid a loan default, which is defined as missing of the scheduled payment on the loans. Their federal treasury is empty and the revenue coming in is shrinking because of decrease in tourism and their downward spiraling economy. This morning's news article said that the Greeks have a law whereby if 50% of the debtors agree on the 'shave', then they can force it on the rest. So, with 60% of the debt holders already agreeing to the deal, the balance 40% don't have to come into the barber shop for a 'haircut'. They will get it without their consent. The old bond papers will be invalidated and the new ones worth only 50% of the original loan amount mailed out (delivered) to the debtors. Six months or a year downstream, when the next payment comes due, Greeks will play the same game and further erode the value of the original loans. Bad, Bad, Bad people.https://mail.google.com/mail/images/cleardot.gif

Originally, it was estimated that a 90% shave was necessary to sustain the Greek economy. But the investors balked at such a massive haircut in one stroke. So, the Greeks are going with 50% now, and will definitely try for more later. It is akin to a loan write off over several stages to reduce the pain. What a mess! You loan somebody money and when the repayment comes due, they turn their empty pockets inside out and beg for the loan to be forgiven. Bunch of losers. But we still will not call it a developing country, since it is in the Western hemisphere. ;)

Pranam.

Adhvagat
10 March 2012, 08:43 PM
And all this mess to save a dying system. Capitalism as it is has failed, has detroyed the planet and it's spiritually retrograde.