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I wonder if the net impact of what we're seeing here is that Greek debt--held by German and French banks--is rolling over to Greek banks with every new issue. And the Greek bank is allowed to keep buying because its Greek bonds are cleared as assets through the ECB. In the end, the Greek banks will own a much heftier amount of Greek debt--rather than banks in the eurozone--and that this will be the cutoff point for Greece, the point at which they can conceivably be lead to restructure without other euro countries taking the hit. This would mean the collapse of Greek banks, because it would be absurd to transfer the debt back to the country after this whole fiasco.

But then again, Greece did have a TARP program last year, and from Frank S.'s posts, I'm shocked to discover that Ireland is taking on the equivalent of 60% debt to GDP in toxic paper from its own banks.

Am I reading this wrong? After the Greek banks take on the bulk of Greek debt, they will then transfer that debt back to the nation?

Is this a little like those people who transfer balances from one credit-card to another in endless circles?

I have a relative who does mortgages in NYC and he tells me he has clients who constantly roll-over interest-only mortgages to new ones, and by so doing, managing to cut their living expenses by more than half. You can buy a 800 sq. foot Manhattan apartment for $400k, but that same apartment can cost $2400 to rent. The interest on $400k at current rates is so much lower than rent, even when you add closing costs of $5k for each new loan you take on (interest only is locked in for 5 to 10 years).

Is this what the bankers have cooking for Greece?

by Upstate NY on Tue Apr 13th, 2010 at 12:19:15 PM EST
[ Parent ]
Greek debt--held by German and French banks--is rolling over to Greek banks with every new issue

Where do you see evidence of this? Do you mean the Greek private banks or the Greek Central Bank?

And the Greek bank is allowed to keep buying because its Greek bonds are cleared as assets through the ECB.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Tue Apr 13th, 2010 at 12:25:18 PM EST
[ Parent ]
Greek private banks. Apparently, they are the ones buying massively. I read so many of these articles daily that this nugget of info gets lost, but usually the one to report this is Reuters. The National Bank of Greece ( private bank) is the biggest buyer.
by Upstate NY on Tue Apr 13th, 2010 at 12:36:55 PM EST
[ Parent ]
I think your scenario

I wonder if the net impact of what we're seeing here is that Greek debt--held by German and French banks--is rolling over to Greek banks with every new issue. And the Greek bank is allowed to keep buying because its Greek bonds are cleared as assets through the ECB. In the end, the Greek banks will own a much heftier amount of Greek debt--rather than banks in the eurozone--and that this will be the cutoff point for Greece, the point at which they can conceivably be lead to restructure without other euro countries taking the hit. This would mean the collapse of Greek banks, because it would be absurd to transfer the debt back to the country after this whole fiasco.

is actually a good thing...

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Tue Apr 13th, 2010 at 12:48:36 PM EST
[ Parent ]
If so, then why didn't Ireland try the same method?
by Upstate NY on Tue Apr 13th, 2010 at 12:59:22 PM EST
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Their banks failed first, and their public debt was relatively low.

Public sector balance + private sector balance = current account balance

Ireland had a hole in the private sector and a healthy public sector.

Greece had a hole in the public sector and a healthy private sector.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Tue Apr 13th, 2010 at 01:05:11 PM EST
[ Parent ]
Yes, I should have thought of that!

So, now, consider: most of the holdings of the Greek banks are in Turkey and the Balkans.

In some Balkans countries, these banks are the major source of liquidity.

It just never ends.

Austrian and Greek banks together have like 85% of external exposure in the Balkans.

by Upstate NY on Tue Apr 13th, 2010 at 01:19:01 PM EST
[ Parent ]

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