Solution to the PIIGS debt crisis....

[achilles28]

...What if the ECB/IMF/Federal Reserve cleared their respective commercial banks of toxic PIIGS debt, then immediately revoked all stabilization, loan and bailout packages to stricken countries?

This would effectively sterilize the risk of contagion to America and broader Europe, which is the number#1 threat to fragile global banks, while simultaneously imposing hardcore austerity on the laggards.

The logic here is the ensuing bank panic and credit freeze is much worse than the default itself. Actual losses and exposure uncertainty forces banks to curtail lending, both in the money market and to the private sector, which reduces money supply many times that of the actual size of the default.

So, if the goal is to protect the global banking system against collapse, the cancer ought to be isolated then cut out. Right now, Central Bankers are rewarding both the reckless borrower and lender, putting the entire system in jeopardy.

How am I wrong?

 

[Martinghoul]

There's nothing wrong with that in theory... However, if only it were that simple. In practice, it's actually almost impossible to implement it like that (the Europeans have been trying).

 

[achilles28]

Quote from Martinghoul:

There's nothing wrong with that in theory... However, if only it were that simple. In practice, it's actually almost impossible to implement it like that (the Europeans have been trying).

How so?

 

[Arnie]

I think this thing is so over blown. Greece makes up less than 3% of Eurozone GDP. Their economy is equivalent to Massachusettes. Let em go under, kick em out of the EU and let them live with the consequences. You won't have to force austerity measures on them.

 

[Martinghoul]

Quote from achilles28:
How so?

Well, for one, at what price do you "clear" your banks of toxic debt? Who sets this price? You, me, the ECB, the ECOFIN etc?

 

[jimbojim]

All rich people of Greece live in London and Geneva, control 25% of international shipping and they have let their country in debt. Most made their money getting loans to buy ships they never repaid. Their accounts should be confiscated. Germany said that Greeks have over 600 Billion ( you read right, billion) deposits in Swiss accounts, including corrupted politicians and tax evaders.

The real solution is much simpler. Confiscate the Swiss accounts, pay all bond holders and greek will be another regular country with no debt.

Edit: Out of 24 shipping companies listed in US markets, 32 are greek owned and control about 20% of all sea commerce.

 

[JamesL]

Quote from jimbojim:


Edit: Out of 24 shipping companies listed in US markets, 32 are greek owned....

 

[achilles28]

Quote from Martinghoul:

Well, for one, at what price do you "clear" your banks of toxic debt? Who sets this price? You, me, the ECB, the ECOFIN etc?

Respective Central Banks would set the price. Obviously, it should be an amount no less than that originally paid by each bank. What's next?

 

[LeeD]

Quote from achilles28:

Respective Central Banks would set the price. Obviously, it should be an amount no less than that originally paid by each bank.

So, what you are saying is if Greek banks own some subprime CDOs with market value, say 20 cents on the dollar, someone should buy these from the banks for the full dollar so that the management of the banks could pay themselves exceptionally good bonus for making exceptionally bad decisions.

Will be difficult to win support from anyone who may have to pay for such bailout.

 

[achilles28]

Quote from LeeD:

So, what you are saying is if Greek banks own some subprime CDOs with market value, say 20 cents on the dollar, someone should buy these from the banks for the full dollar so that the management of the banks could pay themselves exceptionally good bonus for making exceptionally bad decisions.

Will be difficult to win support from anyone who may have to pay for such bailout.

You're confused. We're talking about Greek sovereign debt. Not American subprime CDO's.

And btw, to comment on your off topic post, the Federal Reserve did exactly that with it's Maiden Lane 2/3, TALF, Congress with TARP and PPIP - bought toxic CDO's from domestic and foreign banks at near full value.