Quote:
Originally Posted by Kobi
I see another house of cards with a really shakey foundation. Hope whomever makes the right decisions or it will get very ugly, very quickly.
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See I might be missing something here, but I think that is precisely the point. The uglier the better. Quicker not so much. No rush. The more time, the more money can be squeezed out of these crises.
Hedge funds and credit default swaps seem to be holding the world hostage.
Let's look at how this is playing out in Greece (and in time will play out everywhere.)
Hedge funds are minimally regulated and privately managed investment funds arranged so the rate of return is ridiculously high, easily far in excess of 10%. To accomplish these kinds of returns, hedge funds walk dangerously close to the edge.
So the thing is Greece can't pay off its loans. The EU and the IMF offer them a bailout package in exchange for enormous cuts in government spending and painful sacrifices by the Greek people. Hedge funds, which by the way must involve real people and real corporations, and there are about 8000 in the world, but in my research they are always referred to as simply hedge funds as though this financial terrorism is being conducted by inanimate objects, anyway, hedge funds have been buying up Greek debt. (Sound familiar? It should. Think housing debt.)
The EU wants to recall old bonds and replace them with new ones at lower interest. Now that would cost these bond holders money and they don't like to sacrifice anything, no matter how small, to help pay for the financial problems they create. So hedge funds are refusing the offer of the EU. Now you might ask why would they do that? If Greece defaults on the very bonds the hedge funds own won't that be like biting your nose to spite your face? Nope. Not at all. Actually quite the opposite. Why is that you might ask? And I hope you do.
Well, first off the financial elite that make up these hedge funds that have been buying up Greek bonds are in no hurry for the party to end and they want to get their hands on as much of the bailout money as possible, the suffering of the Greek people is as inconsequential and moving to them as the suffering of insects are to us. But, you may say, if Greece defaults won’t the holders of these bonds end up with nothing at all. Wrong again. Because, and this is the beautiful part of all this, the fact is that hedge funds have covered their bets with CREDIT DEFAULT SWAPS (these might also sound a little familiar, once again think US housing crisis then remember the derivatives involved, called weapons of mass destruction by Buffet, same game, still happening, the masters of the universe won't be happy till they destroy the world). Credit default swaps are financial insurance that would pay them the full value of the bonds (so why would they accept a deal where the bonds are discounted so Greece can afford to pay off its debt).
The problem with all this is that the entire financial system might collapse if Greece defaults. It’s like using a nuclear weapon in a way. If one bank fails to deliver it could set off a chain reaction of financial defaults around the globe.
Credit default swaps have been likened to nuclear weapons in that you can have them but you best not use them.
Before Wall Street and the financial world lost it's fucking mind, it used to be that bankers didn’t bet against their clients. If a client was successful the banker was successful. If the credit risk was bad you didn’t extend the loan or secured the loan with a lot of collateral, you didn’t give the person the loan and buy a credit default swap. This crap is ridiculous, toxic and financially destabilizing.
So what you see going on in Greece is financial blackmail by the hedge fund who holds the bonds. It’s like a game of chicken. And they get away with it because a large part of the word’s financial system has, of lately, been built with magic, voodoo, imaginary money and toxic economic practices and everyone knows it won’t take much for it all to come crashing down.
Apparently no one can stop these people.
Financial terrorism and economic weapons of mass destruction, how come we don’t declare war on them?