Thursday, May 6, 2010

Greece Problems and the Markets Takes a Big Nosedive

Greece. Spain. Portugal. Contagion. European Banking Crisis. Sovereign Defaults. These were some of the words being thrown around today to explain the big downward dive in global equity markets. A few weeks ago I mentioned Greece and made reference to John Mauldin saying "there is not a happy ending here." Still true. There is no happy ending to countries spending way beyound their means.

I have to say I had a sinking feeling on my way in on the train this morning. Why? Because I read the newspaper. The article that really caught my attention was yesterday's piece in the FT by Martin Wolf ( love him )"A bail-out for Greece is just the beginning." ( love the FT) The article describes the bailout package for GREECE and why they are unlikely to avoid a debt restructuring. Greece is certainly in the worst situation "but several (others )have unsustainable fiscal deficits and rapidly rising debt ratios." Just like the US subprime problem, there is a lot of debt that is going to need to be written down and it mostly the European banks that own it. Is round two of the financial crisis about to unfold? How the heck do I know, but I certainly think there are some very big problems out there that would argue for a more defensive posture.


Chris Gray said...

Two concepts:

1. man's law versus God's law

2. political and economic elites have created, what I call ,a MASSIVE FALSE ECONOMY.

from Mauldin's latest newsletter- a lucid explanation of where we are.


The greatest systemic risk, therefore, is not an economic concept but a political one. Systemic risk emerges when it appears that the political and legal protections given to economic actors, and particularly to members of the economic elite, have been used to subvert the intent of the system. In other words, the crisis occurs when it appears that the economic elite used the law's allocation of risk to enrich themselves in ways that undermined the wealth of the nation. Put another way, the crisis occurs when it appears that the financial elite used the politico-legal structure to enrich themselves through systematically imprudent behavior while those engaged in prudent behavior were harmed, with the political elite apparently taking no action to protect the victims.

The full article-

In America the political elites will either feign a turn against the economic elites and see if the public will buy it or they will outright attack the economic elites. I agree this is now purely a political issue.

The sinking feeling should stay with you. Exit strategies for Portugal, Spain, perhaps Ireland?

Exit strategy for California? Illinois? Some cities and counties? Perhaps the United States.

It might benefit out country if a core group of economic elites could step back and clearly state what will work based on God's law.

Jacki Zehner said...

Great comments as always Chris. I love your challenge... i am sending it to my hubby. (engineer, trader now pastor) I can think of a few other people too.... thanks