Posted by: John Gilmore | September 16, 2006

Greek Crisis Continues – April 20 2010

You know it’s getting serious if the IMF comes out (article at end of this email) and says the Greek upheaval could cause the ‘next phase’ of the global financial crisis. I thought the crisis was over? It’s never been over – we’ve simply been in a stimulus/bailout induced lull.

It would appear that this is going to get resolved within the next couple of weeks – one way or another. Greece has $8+ billion (Euro) in debt maturing around May 19th. Without market participation – someone will need to get creative. If they know they can’t access debt markets – they are now working on plan B. They’ll need a solution much sooner than when the debt is due to mature. Waiting until the debt is due and then defaulting would be catastrophic. See Russia – circa 1998.

“On August 13, 1998, the Russian stock, bond, and currency markets collapsed as a result of investor fears that the government would devalue the ruble, default on domestic debt, or both. Annual yields on ruble denominated bonds were more than 200 percent. The stock market had to be closed for 35 minutes as prices plummeted. When the market closed, it was down 65 percent with a small number of shares actually traded. From January to August the stock market had lost more than 75 percent of its value, 39 percent in the month of May alone.”

The current (obvious) problem is that this is a confidence game. As long as the market feels confident that a nation can pay their maturing debt + interest – everything is fine – and rolling over maturing debt is easy. The moment the market perceives a nation has too much debt (and/or insufficient cash flow aka taxes) and may not be able to pay off what is due (default) – things go haywire in a hurry. The music stops and you have no chair. It’s happening to Greece – and it’s now spreading to other nations in Europe (France & Germany are now on the radar) – even before a Greek default. Once Greece defaults – or chooses some form of a bankruptcy – the game will change significantly. This is why the IMF is now ‘concerned’ and making ‘official’ statements about sovereign debt levels. They have been A-OK with nations carrying massive debt loads for years – until now. They’re ‘concerned’ because debt has reached critical levels that now threaten the stability of the entire system.

This will eventually spread around the globe – and at some point – the world will sober up and take a hard look at the finances of the United States – and determine (rightfully so) that there is no way we can pay our obligations. When this happens – the great global debt based monetary experiment of the past 100 years will be over….and the battle for the next global financial system will begin.


Closed Door Meeting Discloses The Obvious: “Greece No Longer Able To Borrow From The Markets Nor The Banks”

Submitted by Tyler Durden on 04/20/2010 14:31 -0500

Headlines from Looks like its IMF-go time. The same source states that the “market situation will be aggravated by Greece’s usage of the bailout mechanism 10-12 days from today.”

Greek 10 Years Pass 8% On Rumor Of Voluntary Bankruptcy

Submitted by Tyler Durden on 04/20/2010 10:28 -0500

The Greek 10 Year (well technically 9.5 Year) just passed 8%, 8.003% to be precise.

The reason: increasing market rumors that the country is contemplating a voluntary debt exchange in which a portion of the debt will be cut, in essence an out of court bankruptcy but for a sovereign. How this will be accomplished and whether it is at legal per the EU charter is uncertain. What is rumored is that since the transaction would be voluntary between debtor and creditors, it would not trigger CDS thus an event of default will not have occurred. On the other hand total Greek debt exposure may end up being cut by about 25% or more, which would trim the country’s interest outlays. As Greece is currently caught in a debt spiral in which its cost of debt is orders of magnitude over its growth rate, this would actually be the right thing to do. The question is if 25% of the total Greek debt of €305 billion is eliminated (there is $375 billion in debt and future interest for Greece alone), what will happen to the creditors, primarily European banks, and whether they have provisioned for over $100 billion in losses on the country. Furthermore, will this send a signal to the rest of the EU that out of court transactions are ok: how much debt will be eliminated in such a manner next time around when Portugal, Spain, Hungary, and everyone else that is comparably insolvent decides to “cut” some debt?

IMF Warns of ‘New Phase’ in Crisis


Wall St. Journal

April 20, 2010

WASHINGTON—Greece’s upheaval could mark the starting point of a “new phase” in the global financial crisis, one marked by escalating concerns about sovereign debt, the International Monetary Fund warned Tuesday.

“Higher debt levels have the potential for spillovers across financial systems, and to impact financial stability,” the IMF said, noting that debt levels among advanced countries have already risen to levels not seen since the end of World War II.

Mounting risks of sovereign default can reverberate through the global economy, the IMF said, including by pushing up interest rates on government debt, which in turn causes interest rates on commercial debt to rise as well. A diminished faith in the value of government guarantees can also push up borrowing costs across nations as the market demands higher interest rates for commercial debt.

Tuesday’s warnings come at a time when the global concern over bank losses appears to have ebbed. In its semiannual Global Financial Stability Report, the IMF projected that global banks would book losses of $2.3 trillion for the 2007-2010 period, down from its October 2009 projection of $2.8 trillion in losses. About $1.6 trillion has already been written off, it said, with another $700 billion in losses still to be recognized. The report estimated that banks could cover those losses through their anticipated earnings.

“Banks have been raising significant amounts of capital so that now they can cope with the losses that are coming in a way that puts them in a rather comfortable position,” Jose Vinals, director of the IMF’s monetary and capital markets department, said in a discussion with reporters.

Two former senior IMF economists, Kenneth Rogoff, now at Harvard, and Carmen Reinhart, now at the University of Maryland, have been warning that banking crises frequently lead to sovereign debt crises several years later, in part because governments spend so heavily to restore their banking systems to health. Essentially, the IMF report was adding detail to the work of Mr. Rogoff and Ms. Reinhart.

“Careful management of sovereign risks is essential: governments need to design credible medium-term fiscal consolidation plans in order to curb rising debt burdens and avoid taking the credit crisis into a new phase,” the IMF said in its report. Greece’s struggles to get out from under a mountain of debt should serve as a “wake-up” call to governments, said Mr. Vinals.

Still, Mr. Vinals was quick to describe Greece as a special case that shouldn’t be lumped together with other countries whose deficits have come under the market’s glare—Spain, Portugal and Ireland. Those countries started out with better fiscal situations and institutions than Greece, he said, and have already taken measures to address budget concerns.

Speculation in sovereign credit-default swaps, which Greek Prime Minister George Papandreou has blamed for helping push the country deeper into crisis, may sometimes exaggerate public debt strains, said Mr. Vinals. He said proposals to ban naked CDSs—betting on the default of a credit without having an underlying interest in the bonds—would be counterproductive given the difficulty of defining illegitimate activities.

The IMF report noted that money is now flooding into Asia and other emerging markets, particularly because interest rates are so low in the U.S. and Europe. Some markets are showing evidence of overheating, and not only in developing countries, the IMF said. These include residential real estate in Australia, China, Hong Kong and France, and sovereign debt in Japan.

“But we find little evidence that bubbles have formed in these segments in the near term,” the IMF found.

Write to Tom Barkley at and Bob Davis at

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