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Thursday, June 16, 2011

Riots in Greece? Who would have thunk?

The markets were taken by surprise yesterday by the rioting in Greece. So much for the theory that the markets look out into the future. They certainly can't see very far if they missed that one.

Why are they rioting in Greece? Well, Gee, with real unemployment up at around 40 percent, and an economy that's in deep recession - if not depression - it's the European Central Bank's idea that what Greece needs is a good austerity package.

Why do they think that? Because that's the only way they can restructure Greek debt, thus creating commissions for the bankers who lent the Greeks money when they should have realized there was no way the Greeks could ever pay them back (including serveral huge US banks like Bank of America) - not to mention more commissions for the banks that helped Greece hide its debts through derivatives - like Goldman Sachs.

You see, the banks love problem loans. Good loans that get repaid quickly are not very profitable. Problem loans that need to be endlessly restructured at higher and higher rates - and fees - are the mother's milk of bank profits. That's why the banks keep making these bad loans. And if the loans go bad, then so what? The Central Banks will just bail them out. And the Tax payers will pay.

Somehow the unemployed starving Greek workers don't agree. They think that Greece should default and the banks should eat it.

"Don't worry" says the head of Barclay's Global Strategy on CNBC this morning (same guy who helped run Lehman Brothers into the ground). All we need to do is "Kick the can down the road a few years to give the European banks time to recapitalize." What does this mean? It means that the European Central Bank just has to have time to print the 2 trillions dollars needed to help the banks absorb all the bad Greek debt along with counterparty defaults that will ensue as the Greeks repudiate this debt. He's just worried if it happens too quickly and the Central Banks need to print all that at once there could be a loss of confidence.

But he's not worried. According to Lehman Brothers - I mean Barclay's Capital - there's no problem so big that it can't be kicked down the road.

And what about Spain, Portugal, Ireland and Italy? Gee, that's a lot of cans to kick down the road. But don't worry the market's looking out into the future. It's already discounted all that. Right?

And what about the Zombie banks here in the US that still carry trillions in bad mortgage debt on their books? The market's already discounted that too. Right?

Gee, maybe it's not too late to buy a little gold - just in case.

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