If you are new to this blog, you are invited to read first “The Largest Heist in History” which was accepted as evidence and published by the British Parliament, House of Commons, Treasury Committee.

"It is typically characterised by strong, compelling, logic. I loosely use the term 'pyramid selling' to describe the activities of the City but you explain in crystal clear terms why this is so." commented Dr Vincent Cable MP to the author.

This blog demonstrates that:

- the financial system was turned into a pyramid scheme in a technical, legal sense (not just proverbial);

- the current crisis was easily predictable (without any benefit of hindsight) by any competent financier, i.e. with rudimentary knowledge of mathematics, hence avoidable.

It is up to readers to draw their own conclusions. Whether this crisis is a result of a conspiracy to defraud taxpayers, or a massive negligence, or it is just a misfortune, or maybe a Swedish count, Axel Oxenstierna, was right when he said to his son in the 17th century: "Do you not know, my son, with how little wisdom the world is governed?".

Friday, 24 June 2011

Greeks' upper hand

Greece is bust but no one formally admits that: i.e. there is no credit event as yet. There is an unusual resistance to face the obvious reality. On one argument why Greece should not go bust is that it would give a "bad" example to other countries that restructuring debt through default is the best for these countries at the costs of creditors. The other argument, not voiced that openly, is that currently a lot of debt is held by private banks (mainly in France, Germany and the UK) if Greece goes bankrupt, these private banks would face liquidity crunch, like or even bigger than at the end of 2008, and would require "rescue" packages from the taxpayers. This, in turn, would undermine the public trust in banks. It is impossible to predict the effect but a massive run on the banks is quite realistic then. Indeed justified. So the process of "rescuing" Greece is in fact an exercise of shifting their debt from private banks' books directly onto taxpayers books. And when Greece will go under private banks will be in safe positions and the taxpayers will get the hit directly. In other words it is a pathetic pantomime played to the public that banks are safe and prudent institutions to keep confidence in them.

However there is the third possibility. It is quite certain that behind many billions of euros lent to Greece there were many CDS' sold on the back of it. The Greek debt CDS market is vibrant.The European Central Bank should make it clear (down to at least 1 billion euro) how many billions of euros would have to be paid if Greece defaults on their debt. It is quite typical for CDS' that they were sold many times over exceeding the underlying debt. Hence if Greece defaulted, i.e. triggered the credit event, then the liabilities of some banks and financial institutions to the counterparties that bought CDS' may be many times (10, 20, 100 times or more: make your own guess) more than the Greek debt (going into trillions of euros). If that were the case then the financial system would go into the meltdown.

Greeks should ensure that they understand the CDS' position vis-a-vis their debt. If Greece is really such a store of toxic waste then they should use it to extract as much money as possible from the rest of the world that cannot allow them to go bust. Indeed some of these rescue loans they should use to insure many times over their own debt. So when the system collapses - as it eventually will happen - they would not be liable for their own debt but the counterparties that sold them CDS'. The financial system is so dysfunctional now, and the bankers are so greedy, that it should not be a problem to conduct such legitimate financial operations.

Incidentally there is nothing new in this analysis. This process, of toxic waste propagating through the financial system was predicted to follow the credit crunch of 2008 in the first article of this blog The largest heist in history written two and half years ago. It was clear already then that the financial system was at a state of utter dysfunctionality and stupidness.


  1. Some readers already expressed the doubt whether it is possible to insure Greek debt against default. Here is today's story in WSJ:


    So Greeks can insure their debt and default on it. Of course without making this too obvious:-)

  2. When we borrow money, we usually put up some collateral.
    What collateral did the Greeks or USA have?

    If they had none, how was it possible that money was lent?
    Of course, if no collateral was offered, then the debt cannot be recovered.. let the creditors face the loss.

  3. what kind of collateral do you need to buy debt?

  4. it's all rather symbolic don't you think? ...