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Monday, June 27, 2011

Chickens Coming Home

In April 2010 I wrote that Greece would be eventually forced out of the Euro.

Now, some 14 months later, it appears that the EU is finally waking up to the reality of Greece defaulting on its debt and being forced out of the Euro.

The UK Treasury for its part is attempting to "do a Canute", and "persuade" banks to "take a haircut" on their £2.5BN visible Greek debt. Even if the "ever generous" banks were to be persuaded to "go to the barbers", and take a hit, that would be but the tip of the iceberg.

Banks have a far greater (unseen) exposure to Greece than the on balance sheet debt of £2.5BN. The banks failed to learn the lessons from the American toxic debt crisis, that almost crippled the world's banking system, and have repeated the mistakes of the past by creating and selling complex financial instruments based on toxic Greek debt.

Needless to say, the complexity of these instruments means that no one is exactly sure as to how badly the banks are exposed.

It is ironic that the banks have failed to learn the lessons of the last financial crisis, and even more ironic that they chose to play the same "Ponzi game" of selling each other toxic products in a country that committed major fraud on a national scale in order to join the Euro.

Chickens are coming home to roost!

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