Greece is the canary. Europe is the coal mine. One voice calling it yellow and black.
Harsh but true words on Greece, the Euro
Reply
Category Archives: banking
SAM and Basel III deadlines
Meanwhile, it seems the FSB is still committed to a 2014 deadline for SAM. Given the range and size of stumbling blocks still to be traversed, I expect if we do go live in 2014 it will be with some transitional measures.
Nearer the edge than ever before
I wouldn’t want anything to do with any bank that has much at all to do with European banks or European sovereign debt. The old South African Rand is seeming like a safer relative bet than at pretty much any other time in the last decade.
Greek default?
So European politicians have more or less agreed a deal which may, more or less, push some of their problems to one side for a period. Yes, I’m not madly optimistic about this as a cure-all. This is not the end of the Euro problems.
Part of the deal is a “50% loss for private investors”. Which is part true and part nonsense but will be an effective Greek default when enacted / agreed. (I don’t care how “voluntary” it may be, it’s a default and almost all definitions of default include restructuring of debt in any way that isn’t what was originally promised.)
Why is it only partly true? Well it’s not necessarily a “loss” for private investors. The probability of default on Greek bonds has been just about 100% for a while now. This probability of default is derived from market prices for Greek bonds and market spreads on Greek Credit Default Swaps (CDS) and an assumed Loss Given Default or Recovery Rate for investors when the bonds do default. Actual Recovery Rates vary widely, but often analysts plug in the average Recovery Rate over most of this century on unsecured debt which is around 40%.
So if market prices for Greek bonds assumed 100% default probability and a 40% recovery, then a 50% recovery doesn’t sound so bad. The potential downside is that Greece may still (need to) default on these written-down bonds at some point in the next two decades.
So the real question is what will the new probability of default be? Then we will know whether investors “took a loss” and perhaps gain the market’s view on how successful the deal really will be.
Regulations and technology vs ideals
Aside
Banks are threatening to pull out of the Financial Services Charter, apparently due to impracticalities of complying given international regulatory developments one of the one hand and the irrelevance of complying through the advances of technology on the other.
Swazi King not sure he wants the conditions attached to the loan
This is really fantastic news. The Swazi King is apparently reluctant to accept the loan from South Africa because of the conditions imposed in the agreement. I was quite harsh in criticising the granting of the loan with only conditions for improvement far down the line. (I still believe the first condition should be an immediate unbanning of political parties.)
Hearing that the conditions are sufficiently onerous that the borrower may not want it is great news. At the very least this reflects a balanced package rather than one heavily in favour of the undemocratic absolute monarchy of our neighbour.
I wonder how many of these conditions were added or modified after the initial public announcement. Cosatu, amongst other powerful groups, has also been very outspoken against the loan.
Greek probability of default to 98%
Link
Bits of Krugman
Krugman catches up with me on Bitcoins and comes to pretty much the same conclusions in fewer words. Hey, he’s been blogging and writing and talking about economics longer than I have so that’s ok.
I haven’t seen the data myself, but he points to declining value of transacations as people hoard Bitcoins – exactly what is expected and exactly the catastrophic result that makes Bitcoins a really bad idea for a monetary system.