Greek debt crisis is Europe's 'Lehman Moment'
Political chaos and riots across Greece stoked fear today, of a massive overhaul within the current Greek government as well as ousting the incumbent Prime Minister George Papandreou. This chain of political events stems from the exact economic policies and key measures which have been set in place to combat the financial crisis of 2008-2009 and the credit crunch of 2007-2008, which brought the entire world to its knees.
We can all remember the sudden collapse of Lehman Brothers in September 2008, the official launch of the last financial crisis. Panicked investors dumped stocks and bonds around the globe in a desperate flight to cash and quality. Credit froze. Banks buckled. Trade plummeted. Recession bit hard. Unemployment soared. The global economy was permanent altered. And here we are, almost three years later, confronted by another possible bankruptcy, that of Greece.1
That’s why there is so much pressure to lend Greece more money to help service the extraordinary amount of debt it has already. Greece’s debt will be 160% of GDP by August and it is running a deficit of more than 5% of its budget.2 There is just no telling how far investors are willing to go and buyout defaulting debt from all the sovereign nations in Europe, in anticipation that there will be collateral for their risky debentures in the morrow.
But, bondholders hit by losses on Greek debt will dump the bonds of the other PIIGS like Ireland, Portugal and Spain, intensifying the European debt crisis. Perhaps the euro zone will fold up. Worst case scenario, panicked investors will sell off stocks and bonds in emerging markets and anything else considered risky. Financial markets will once again freeze up as banks, swamped by new losses, lock down credit. But worst of all, a default by Greece causes confidence in other indebted sovereigns to wobble, sparking debt crises for the U.K, Japan, and even the United States. It’s 2008 all over again, I do not doubt any of this for a moment.3
Many financial institutions do not realize the severity of their actions today and rather just shrug off “all the noise”. Many big wigs within the European Union and the United States are holding our economies for ransom, by overleveraging their bank balance sheets on purpose. This, in turn, will force central banks around the globe to open the discount window and pump our systems dry of liquidity. Although, it has not occurred to Wall Street just yet that all financial institutions that are dubbed “too-big-to-fail” are really “too-naïve-to-succeed”, pushing their debt crisis onto the government. It was never the government’s place or intention to collateralize or play the role of a major broker-dealer between “XYZ Corporation”. The financial world is missing the premise behind trying to get real and residual returns off viable investments to work for them within all the debt markets, and in turn help to increase access to capital. In twenty words or less, “if my debt does not pay me my kickback, what’s the point of issuing the model?”
The credit crunch, financial crisis, and sovereign debt crisis have become a sorry excuse for greedy Wall Street bankers up 3% y-o-y in a bull-market to make a quick buck off the taxpayer by holding our entire financial systems hostage. It’s just not fair, anymore. Let them fail. They will see the light, one day.
We will keep writing this note over and over and over, until you guys get it. Even, if that means 50% unemployment across the board.
I’d rather be a dead duck, than a sellout.
1, 3) Schuman, Michael (14, June 2011). Is Greece the next Lehman? Time. Retrieved from http://curiouscapitalist.blogs.time.com.
2) Lenzner, Robert (16, June 2011). A Bankrupt Greece Could Be Europe’s Lehman Brothers. Forbes. Retrieved from http://blogs.forbes.com.