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?".

Thursday, 3 November 2011

Greek recovery: Greece doing Iceland?

It is impossible to say whether Greece will (or will not) leave the euro. Let's leave it to fortunetellers. However the rest of Eurozone seems mortified to the point that they decided to parade and grotesquely admonish Greek Prime Minister Papandreou in front of G20 leaders. Cannes, the European film capital, was indeed the fitting location for this tragic farce.

It may well be the case that Germany might not be able to leave euro themselves orderly before the whole thing starts crumbling. So the Greeks get bullied by their European friends. They are told that they will be better off by accepting a massive austerity programme than by defaulting and basically starting from scratch as a bankrupt country. Public spending control and cuts is a good idea. But the Greeks are not the Germans. And even the last time round when Germany went through economic hardship, in the 1920's and 1930's, it produced the leader whose idea about European integration was rather unorthodox.

Greece is told that if they get half of their debt written off, accept a massive economic hardship for a decade, by the 2020 they will still be... 120% in debt to their GDP. It is unsustainable. By comparison the current Italy's debt to GDP is, surprise, surprise, 120% and is considered as unsustainable, And Greeks are meant to approach this level from the other side. Therefore, frankly, Greeks are on a receiving end of a lunatic proposition. The fact that the European leaders do not see this unreal side of their actions does not say much about them. It is actually very worrying.

The concept of bankruptcy was invented and defined in law for a reason. It is possible to reach a point when nothing works better for a debtor than accepting the insolvency and starting with a clean sheet.

Greeks can also take Iceland as an example: it was really the first and the only country that went bust in this crisis. They admitted the game was up. Iceland started negotiated hard with creditors. They have had their national interest in mind: first come Icelanders and then they can pay others. And quite rightly so: this is what sovereign nations, and their governments, are all about and creditors to sovereign nations know exactly that when they lend money.

Not surprisingly although Iceland is still heavily criticised for their actions, it is reviving pretty well. And less than three years ago it reduced its financial and state institutions to a basket case. However the common sense and survival instinct prevailed and Iceland is now where it is. Actually not bad. Greece can recover fast too: if Greece default on all of their debt, by next year, they will be running on the budget surplus, such is the current burden of interest. Take example from Iceland is no-brainer. Besides country bankruptcies are quite common in history so really the fuss, the opposition about the Greeks going bankrupt is about effectively enslaving them, to make them keep paying as much money as they can be squeezed for till the end of the world, and possibly one day longer. A classic loan shark strategy.

There is a side show to the prospect of Greece defaulting that no politician or commentator is taking about. Typically the most important and interesting things are those which are not talked about. Greek debt is supposed to have been "insured" by CDS'. So there should be no problem with Greek default, should it? It does not appear so. Despite the fact that CDS' are sometimes described as insurance against defaults, they are not. (As clearly they cannot bear the costs of Greece defaulting.) They are simply tools of market speculation with heavily misleading financial information about them: financial "weapon of mass destruction" as Warren Buffett called them. They epitomise the pathology of the financial system. Greece has many clever people in finance and wealthy individuals. Therefore it seems quite reasonable to assume that many of them, having common sense and possibly some inside inklings, bought a lot of CDS' betting that Greece would eventually default. They had plenty of money: apart from their own, thus far European bailouts were generous. Technically their CDS' value may actually exceed the Greek debt itself. Many time over. Therefore it is not inconceivable that, even if Greece do not benefit itself financially from the default, the default may actually produce a number of Greek millionaires or even billionaires. Greeks have an upper hand? This is what modern innovative finance is all about. Only if you know how to play it right.

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