One last post on Greece.
I think it’s pretty clear that Greece is not Lehman Brothers – so I won’t go there again. For that kind of talk, see this previous post.
That article points these crucial items:
- Greek debt is about EUR320 Billion
- 75% of the Greek debt is held by “the institutions” and such
- They mention the ELA loans- however, this number is deceiving. Greek banks have had to put up good collateral for these loans (with Greek bonds not being accepted since the ECB dropped the special exemption). Even in a default situation, these collateralized loans would be in a relatively comfortable situation.
- All of this Greek exposure equals about 3.3% of the Eurozone GDP per Barclays.
On this last point, I’ve seen people use it in what I consider to be a deceiving manner – saying “look, this much will disappear and we’ll be in deep trouble”. First, if Greece defaults, I doubt they’ll escape with paying nothing. They can be slick but not that slick.
However, the most important thing is that the Greek debt was never expected to be repaid tomorrow. That number extends for some 50 years with an average maturity of 16.4 years. Thus, nobody was looking to see that money at time soon. At the end of the day, the direct and immediate impact on the Eurozone economy is a fraction of the numbers that people throw around – I would extrapolate that for these reasons the market is like – screw it.
Lastly, the money used for Greece came mostly from governments that put funds into special programs and things of that sort. Let’s be serious, if that money goes poof, it’s not the end of the world. “The institutions” will be just fine if they don’t get the money.
I think of it like a cool Kickstarter project that you pledge $25 – it would be nice if you got the product and it worked, but you won’t be crying a river if it doesn’t work out (you may post an angry comment online,but that’s about it).
I promised not to mention Lehman, but I lied. Here are some things that Lehman was or did that Greece is not or does not do:
- Be a counterparty in trillions (notional amount) of derivative instruments.
- Think about this one. That CDS where Lehman was on the other size, who was going to pay you on that daily mark to market?
- An active creditor or counterparty in various loan markets
- A larger debt load and a sizeable amount of commercial paper (i.e. short term loans that people expected to be paid pretty soon)
- And when a guy like this doesn’t pay, everyone looks around and says “uh oh, what about if Merrill or Morgan Stanley doesn’t pay me?”
- If Greece does not pay up, everyone will be like “dammit, why did I do that”. Very different market extrapolations.
- Held very large amounts of other people’s money. How do you know those are not compromised?
- And so on
Moral of the story: the Greek numbers really don’t matter. I agree with The Guardian – longer-term political and societal issues within the country could be the real problem. Those usually take time to develop though.