“We’re talking about the credit default swaps. There is a crisis in the derivatives again that nobody sees, but many people know. … Modern derivatives have some degree of margin behind them, but not enough that could possibly survive a default on Greece tomorrow followed by all of the weaker nations of the EU. .. their ability, taken as a whole, to guarantee the debt of sovereign nations is simply not there. If you think that the banking system of the western world is strong enough to guarantee the debt of the western world, you’re totally out of your mind. … they’ll do everything possible to paper over the Euro crisis to prevent the defaults in order to prevent another crisis in banking that definitively would occur, that absolutely would occur from a default. This fact is ravingly positive for gold. You would have a complete collapse of the western banking system if Greece goes down.” – Jim Sinclair on KingWorldNews
- If you think Lehman 2008 crisis was bad, what is coming is many times worse. It is a sovereign debt crisis leading to the bankruptcies of: UK, Japan, Eurozone and US. When the financial tsunami sweeps, the entire globe will be engulfed. I do not believe that Asia will escape.
Trichet Says Risk Signals Are Flashing Red as Debt Crisis Threatens Banks
By Jeff Black and Gabi Thesing, http://www.bloomberg.com/
European Central Bank President Jean-Claude Trichet said risk signals for financial stability in the euro area are flashing “red” as the debt crisis threatens to infect banks.
“On a personal basis I would say ‘yes, it is red’,”Trichet said late yesterday in Frankfurt after a meeting of the European Systemic Risk Board, referring to the group’s planned“dashboard” to monitor risks. “The message of the board is that” the link between debt problems and banks “is the most serious threat to financial stability in the European Union.”
Trichet, who chairs the ESRB, made the remarks as European leaders meet in Brussels to discuss how to stave off a Greek default, while preparing a second bailout. The EU is trying to avoid a repeat of the financial crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc. (LEHMQ) and resulted in European governments setting aside more than $5 trillion to support banks.
The yield difference, or spread, between 10-year German bunds and Greek securities of a similar maturity was at 1,388 basis points today, up from 1,317 at the beginning of the month. Swaps on Greece rose 25 basis points to 2,012, signalling an 82 percent chance of default within five years, according to CMA.
Greek bonds have been pushed lower as authorities bickered over ways to support the nation. The ECB and the German government have clashed over how much investors should contribute to alleviating Greece’s debt load, which reached 143 percent of gross domestic product in 2010. The German government has argued for an extension of the maturities of Greek bonds, with the ECB saying it opposes anything that could be interpreted as a default.
While Greek Prime Minister George Papandreou earlier this week won a vote of confidence, bolstering his new government’s chances of pushing through austerity measures to secure further financial aid, European finance ministers said earlier this week they would hold off on approving a 12 billion-euro ($17 billion) payment to the country promised for July until passage of the plans to cut the budget deficit and sell state assets.
“European leaders will try and convince Greeks and financial markets when they meet in Brussels today and tomorrow that they have a workable plan to help Athens avoid a debt default,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. They’ll use a “mixture of arm-twisting and moral support” to force Greece to adopt further reform.