Archive for June, 2011

Financial Contagion

As goes Greece, so goes us all.

With the 1-2-3 this week of a critical vote in the Greek Parliament on the continuing austerity measures, the IMF now appearing to have the backing of German financing to maintain the Greek ‘bailout’ package and the critical deadline of a series of debt payments on Friday the threat of financial contagion is very high.

La Banque Postale in France has cut weekly withdrawal limits to 1000 euro, similar measures are in place in other European Banks, to stem the tide of a ‘run’ on the banks.

Spain continues to experience pains coming in from financial drop off, with more demonstrations planned all the time.

Because of the inter connectivity of all these banks and how it is likely that a failure of Greece will bring about a Lehman Brothers like collapse, this is anticipated to spread literally around the world.  Within 8 trading days, definitely after 10 trading days after a Greece debt default the results would be in.  A lock-up of the lending markets, beyond what was seen after Lehman, with LIBOR rates simply not quoted – because there would be no money to lend from bank to bank.

Further harm would come from the cascading collapses, since the Greece failure would likely be larger and go deeper than the Lehman one ever did.  The desire to avoid this sort of panic pain is what is driving many national finance ministers to find a way out from the mess.

The truly sad part about all of this is … there is no way ‘out’, there is merely a resolution of the accounts.

This same situation has happened before, look into the lives of the Dukes of Burgundy.

If history is any guide, on this front, we are facing the end …

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Double Dippin’

Even Schiller is openly stating that the ‘short term’ downside risk remains.

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