So, if there are to be any banks in Greece, they need to have an injection of capital. Not loans, but new ownership money. The requirement being discussed is ten percent of loans by 2013. Remember, Greece is something like five percent of the Euro zone. I have seen estimates that the recapitalization of all Euro zone banks, with all of the Euro debt problems, is one trillion euros, which is about $1.3T.
Who would want to put money into Greek banks? Not foreign investors. Not domestic investors (if there is anyone with real money to invest). No, there is only one source: the government.
Yes, the bankrupt Greek government is going to put money into Greek banks. The Greek government doesn’t have any money so it will acquire the funds from outside the country, just as the government is doing for all of the other help the government is getting. The way it will probably work is that someone like the IMF, the European Central Bank, or one of the two entities that have been created to deal with the sovereign debt crisis will give/loan the money to the Greek government which will then put the money into the banks.
But, the Greek government won’t just hand over the money to the banks. No. It will “invest” the money, i.e., it will buy stock. The Greek government will nationalize the banks. There is some talk about making the stock the government buys a special, non-voting stock, thus preserving an illusion that the original owners have some standing in the bank’s ownership. But, that is what it is, an illusion. The banks will be even more tied to the Greek government than they were.
So, as an overview, here is what we have: The Greeks (actually you can insert any European Common Market country you want because the pattern is consistent throughout) borrowed from anywhere they could for a massive spending spree. They required the banks to be a major lender. They required the banks to have little or no reserves against the loans to the government. The government can’t repay the loans. The banks are failing. The government, with money acquired from elsewhere because it has done stupid, insane things, is going to buy the failed banks. The banks are even more tied to government policies than before. The government has ownership and control of the banks. Does anyone think that the Greek banks will be better off?
Makes sense, doesn’t it. When you live by force, you “win” by force. And you all go down the tubes together. Moreover, I have seen no comment or hint that anyone writing about the European situation has anything to say about the matter. Perhaps they haven’t even noticed.
But the failure of putting two and two together is a common theme in the entire European debt crisis. It is most blatant with the Greeks.
This week there have been more “strikes,” riots, and protests against the terms required by the agencies that would bail out the Greeks. Many of the chanted slogans and posters and banners declare that the foreigners are dictators and imperialists. The protestors want the politicians to “resist”! The Greeks appear like angry four year olds who have been told that they can’t have the toy on the shelf because mommy doesn’t have the money. How and what are the politicians suppose to resist? They are suppose to resist the requirement that they do not incur more debt. They are suppose to resist the requirement that they try to pay back their existing debt. They are suppose to resist the requirement that if they are given money they spend it wisely instead of like a drunken sailor (my apologies to sailors). The Greek protestors have no contact with reality. None. They have no idea that money has some connection to real things. That real things are made by someone who wants to be paid for their efforts. That borrowing actually means that the lender expects to be paid back. The Greek country is a testament to modern education and economic “thinking.”
WHATTA POST! AWESOME! WHERE HAVE YOU BEEN ALL MY LIFE (at least since 10/20111)! I think you are spot on...but I have this question...what's next? My personal "bet" is that the recapitalization of NBG will be exactly that, non-voting shares, and that the run-up until these last few weeks is an attempt by current shareholders to reduce the amount of this "intrusion" by raising the price and hence the amount of shares that are to be purchased...that's what we are doing, the EU is doing, EVERYBODY'S DOING...and so what you are using to purchase these "assets" with, ie currencies of ALL types, is devalued against these "assets" and these "assets" RISE in value (assests are in quotes because it doesn't seem right to assign them the complete dictionary definition of "something of value"...). Therefore, what is the value of the NBG relative to any CURRENCY it trades in? I would say, perhaps naively, that the Greeks will riot and burn the Parliament to the ground before they run on their banks...in essence, distilled fully, that is the NBG long position...that it will outlast the KKE, Pasok, ND and whatever "new" (but actually hackneyed) political party/movement grows out of this crisis