And then, finally, there’s Peter Eavis’s conspiracy theory: if the Greek bond exchange goes really smoothly, and the sun rises in the morning and Italian bond yields stay below 5%, then maybe that’s the most worrying outcome of all. Because at that point Greece will have managed to wipe out, at a stroke, debt amounting to some 54% of GDP. You can see how Portugal and Ireland might be a little jealous. You don’t want to make sovereign default too easy — not least because it would do extremely nasty things to European banks’ balance sheets.
That is Felix Salmon, here is more, in recent times Felix has been the go-to guy for the Greece story: “…we’re going through the largest sovereign default in the history of the world, and surprisingly few people — including senior European policymakers and journalists who are covering it professionally — really seem to understand what’s going on.”
All the financial innovation and someone can’t figure out a bond that has senior subordination?
Presumably the effect would be that lenders are less willing to lend. This would probably manifest itself in a steeper Plank curve.
So, in effect, this action may actually cause the problem it was intended to avoid, by blowing up the risk of problematic non-Greek debt (which there is a lot more of) in the eyes of lenders.
TANSTAAFL
I have appreciated Felix’s reporting and have learned from it. But I must admit that when I saw his “Rubber ducks explain the Greek negotiations” video (http://blogs.reuters.com/felix-salmon/2012/02/10/rubber-ducks-explain-the-greek-negotiations/) my confidence in him dropped by about 50%.
Talldave, the ecb will buy sovereign hard enough to keep rates low. Only when the race to the bottom shows serious signs of a winner or commodity prices begin to inflate will anything the banks think matter… and maybe not then.
Why would Ireland, Portugal, Spain and Italy agree to a less “generous” (or would the term be “socially just”?) troubled debt restructuring than Greece?
The Irish government yesterday announced a referendum on the proposed EU fiscal treaty.
We will see where that goes.
That isn’t a conspiracy theory.
How is the default swap market not simply imploding now? On the one hand you have companies who issue insurance but can’t pay out and on the other hand you have countries who can force a 75% loss on bondholders and have it not be counted as a credit event. Why would people continue to buy the insurance?
Aren’t we seeing a new form of socialism whereby governments are crowding private companies out of access to capital by coercing the banks to lend primarily to the over-spending governments ?
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