Tags: Greece | Ross | eurozone | crisis

Greeks Realizing Consequences of Leaving Eurozone, Wilbur Ross Says

By    |   Friday, 10 July 2015 10:38 AM

Many pundits are going into the coming weekend optimistic about a deal for Greece but also realizing that they have thought this before other weekends. In the first clip, legendary optimist Wilbur Ross, who is a big investor in Greece, observes that, “At the end of the day, people do not commit economic suicide; that’s not a patriotic act, to bankrupt your own country.” He calls the scenario “Game theory meets harsh reality.” The interviewer expressed skepticism that after all this time, creditors could be satisfied by Sunday. Ross responded that he thinks Greeks who voted no “now realize what no means: no cash, nor food, no pharmaceuticals, no funds, no vacations, no nothing.” Greek voters intended with their votes to give their negotiators more bargaining power. An interviewer asked Ross why he invested in Greek banking assets, as he did in Ireland before. Ross said Greek banking is one of the most consolidated in Europe, with four banks controlling 80% of deposits, including Eurobank, in which he has invested, “So it’s an oligopolistic system that historically has had very wide net interest margins,” despite the state of the economy. This writer would note that Ross would take similar comfort from the consolidated nature of U.S. banking and confidence that it is backed by the government, which is why the U.S. can never end the doctrine of Too Big to Fail or the ongoing, permanent financial crisis.

A more skeptical view comes from Simon Derrick, chief currency strategist at BNY Mellon, a bank with a unique role in the administration of funding arrangements among the largest U.S. banks. He pointed to other occasions over the past five and a half months where deals have fallen apart at the last minute, to which an interviewer retorted, “But this is the last minute, isn’t it?” Derrick agreed, asking, “If it isn’t, what credibility’s left in the whole situation?” A cynic might ask what credibility has existed since the LDC debt bailout 40 years ago, and what has changed.

A graphic listed the components of a deal as 1) increase tax on shipping companies; 1) eliminate VAT tax breaks for islands by 2016; 3) raise corporate tax by 2015; 4) cut defense spending by 300 million euros by 2016. Unclear in the discussion was the status of possible restructuring of debt, with, as Derrick put it, “the biggest creditor still seemingly holding out.” Also intriguing was a reference by interviewer Steve to the deal representing “the pragmatism that Jack Lew wanted.” This writer has suspected all along that the U.S. Treasury and Fed, as well as TBTF banks, still have a stake that has not been acknowledged, documented, or addressed.

Another view comes from Neil Dwane, CIO of the German firm Allianz Global Investors, who spoke of German anger and the closing gap in attitudes between Chancellor Angela Merkel and hard line Finance Minister Wolfgang Schaeuble. Dwane lamented that there seems to be no operating CEO in Greece capable of overseeing whatever deal emerges from the negotiations. This writer would add that in the background is the issue of decades of mismanagement by highly leveraged banks and the accommodative Treasury, Federal Reserve, and IMF.

Finally, commentators looked at another trouble spot, China, as they discussed the views of Jim Chanos, of Kynikos Associates, whose bearish outlook contrasts with that of Ross. Chanos contends that the Chinese are adding credit faster than the economy is growing, but Hans Goetti, of the Banque Internationale a Luxembourg, predicted that the Chinese authorities “will do everything to stabilize the situation” so that 90 million retail investors “don’t lose their shirts.”

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Many pundits are going into the coming weekend optimistic about a deal for Greece but also realizing that they have thought this before other weekends.
Greece, Ross, eurozone, crisis
Friday, 10 July 2015 10:38 AM
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