The newly announced 50% haircut to Greek debt holders is a colossal development. The stock markets have reacted exactly the opposite of the way they should have. It is unfathomable for markets to rise steeply due to this. It is an unmitigated disaster with disastrous ramifications.
It must be realized that billions upon billions of Greek debt is held by Greek Pension Funds. This means that 50% of the asset value of the Greek bond portion of the pension funds has just been wiped out.
Here's an example of what this really means to Greek pensioners and future retirees. I'll use my own situation as a proxy for a Greek citizen.
I worked for state government for 25 years and am now retired. Each and every time I got my paycheck I contributed to my state retirement pension fund (as did the system in my behalf). The fund then invested all the contributions in various assets such as bonds, Treasury's and stocks. The retirement fund directors pursued returns on assets to meet its payout obligations.
OK - just to provide a simplified example. What if my retirement fund held a mixture of investments that included 35% US government debt? What if, as just occurred in Greece, my pension fund and other state pension funds were forced to take a 50% haircut on the value of the US government debt portion? It would immediately destroy the integrity of my retirement program. Each and every retirement system for each and every state would go to crisis mode. They would all become insolvent overnight!
This exceedingly dangerous "solution" to Greece's sovereign debt crisis is catastrophic. Citizens in Italy, Spain and other sovereign debt stressed countries had better follow this very, very carefully. If things unfold resulting in other countries having to apply similar "solutions" - the world financial system will collapse. Completely fall apart.
No one will be safe. It will change the world as we know it. The legacy of worldwide governments will be that their central banks, planners, political bodies and all leaders blew up the world by allowing fraudulent unfree "free markets" and the elite users of weapons of financial destruction to ruin everything. That the fate of the world was handed over to a group who could not have been more wrongly selected. Could not have been more untrustworthy. The group who governments worldwide turned to for answers and guidance - when all they had to offer was destruction while they lived the high life. I predict when all is said and done, history will record the early 21st century as a period where the world could never adjust to the change from manufacturing-driven economies to financial-driven economies, much of whose resultant products brought no value to society. A time when the very definition of the term "bank" was perverted beyond recognition. When civilization caved in and crumbled as a result of continual bowing to the needs and desires of the very, very, very few.
No comments:
Post a Comment