Would you buy 10y Greek Govies ?

[AndyM]

I'm not trying to be flippant; crises have a tendency to hit those most marginalised, and hence all crises contain a tragic element. However, for me, the defining point about most financial market crises is that they don't destroy wealth, they just pull the curtain back to demonstrate to all and sundry that their imaginary wealth has disappeared.



One of the perks of trading the markets is that you get a front row seat to marvel at human folly, vanity, greed, delusion and the madness of crowds...I find that hugely entertaining.

[Cheng]

the defining point about most financial market crises is that they don't destroy wealth, they just pull the curtain back to demonstrate to all and sundry that their imaginary wealth has disappeared



Well said. What would you consider as starting point, ie when did the creation of imaginary wealth start ? I just had a discussion with a historian who claimed that this goes back to the abolishment of Bretton-Woods, ie 1973. Sounds a bit harsh imo, I would rather go back to the early '90s.

[pj]

I blame television and the end of the feudal system.

[AndyM]

Well, it's not a completely original thought; there's a famous quote along similar lines, can't recall the particulars at mom...



I think this is generally true of bubbles throughout the ages; the crash phase isn't what destroys value, the value has been destroyed by buying overpriced, unproductive shit in the first place...the crash merely brings that inconvenient truth to everyone's attention.

[Cheng]

I blame television and the end of the feudal system.



Regarded soberly it's a lack of vodka supply. Cool

[Martinghoul]

I was just reading this interesting take on the GGB situation (and everything else, it seems):



Greece: Our Debt, Your Problem

[kr]

the one thing that strikes me about the Govt Squid situation is that the obvious conclusion has not been drawn publicly - which is that other EU nations have done exactly the same thing, in larger size, with other banks besides Govt Squid. 



but then again it would be obvious to me b/c I've seen the evidence up close - different set of suckers...

[granchio]

Italy and JPM spring to mind...

[jungle]

Link



Given the Italian story was publicised over five years ago, by the Economist (see link above), you'd have to pretty stupid to be surprised Greece cheated it's way in.  And wasn't the Greek transaction publicised by Risk in 2003 (admittedly a publication less likely to be read by policymakers)?



"...consider a scheme whose returns have been so great they are unmeasurable. Fittingly, as the winner of the “greatest trade” title, it requires only brief description. In 1996 and 1997 Italy (yes, again) was desperate to reduce its public -sector deficit so that the country would qualify for entry into the euro. One unintended boost came from the sale of the postal bonds described above— bizarrely, because they matured after the euro deadline, they were not counted as current debt. But the stroke of genius by officials in Italy's finance ministry was to enter into a secret trade that simultaneously brought in cash, took some debt off the books and deferred the repayment of the cash and the debt until after the euro deadline had been  successfully reached.



Many economists were amazed when Italy defied expectations to qualify for the euro. And its admission into the system has been worth an incalculable fortune. It has brought huge savings via systematically lower interest rates and greater economic efficiency. Had Italy not qualified, its economy might have crumbled. Certainly, its public -sector finances would be in dire straits.



The trade itself was fairly simple, though complicated enough to ensure that it came to light only in late 2001, when Gustavo Piga, an economics professor, stumbled across it while studying public -debt policies. Essentially, Italy used a swap to defer interest payments on an issue of $1.7 billion of yen-denominated bonds that it had made in 1995, at the same time taking an up-front payment for the swap that was later repaid with interest. Thus was Italy able to make it into the euro, merely at the price of a big repayment on the swap in 1998.



Think of the various elements of the trade. It was bold and risky. It relied on secrecy. It was brilliantly conceived to solve a specific, and apparently insurmountable, problem. It was executed with great skill. And, for a fee, it gave Italy the opportunity to be part of the euro system, with its incalculable rewards. Part of its appeal is that the profits came not from the counterparty on the trade itself, but from the economic consequences of the trade.



Of course, it was also  thoroughly dodgy—had it been done by a company, the management would probably be in prison for cooking the books—though the Italians have always maintained that it exploited weak rules, rather than broke strong ones.  But there is no need to be churlish. This was, after all, the greatest trade ever.  Bravissimo!"

[kr]

bravissimo!



note that the banks wearing the counterparty risk are not mentioned