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Greek Default Could Cost Uk £366Bn

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Oh dear....

(this will probably be merged with the biggun thread)...

http://www.dailymail.co.uk/news/article-2006539/Greek-debt-crisis-cost-UK-335bn.html

Britain could be hit with losses of up to £366billion from the collapse of the Greek economy, it has emerged. The potential devastation of banks and other City institutions would be equal to 24 per cent of our annual national output, or £14,640 for every family in the UK.

Ministers had claimed that British banks have 'only' £2.5billion of exposure to Greek government debt, while the Bank of England says the potential losses would be just £8billion. But experts last night said that UK financial institutions are in far more danger than previously thought, because banks are tied up in complicated derivatives and insurance deals.

They warned that if Greece defaults on its debts the crisis could cause a series of dominoes to fall, with Portugal, Spain and Ireland heading to the wall in turn.

The Greek government last night faced a crunch confidence vote at its parliament in Athens. Without a 'yes' there was no prospect of Greece enacting the £25billion of spending cuts and tax rises that EU finance ministers have demanded before granting a second bailout.

Meanwhile, David Cameron said the euro must not fail - because it would drag Britain's economy down with it. In a slap-down to Boris Johnson and other Tories calling for the end of the single currency in its current form, he said: 'Britain suffers when the eurozone struggles. Forty per cent of our exports go to eurozone countries. Turbulence in the eurozone is not good for Britain.'

Experts accused ministers of underestimating the true scale of the risk to the UK, as Channel 4 News revealed that estimates of potential exposure range as high as £366billion.

Danny Gabay, of Fathom Financial Consulting, which calculated the figure using data from the Department of Business, said: 'It's not the direct loan that’s the problem, it's the derivatives of those loans which can go on to be multiples of the actual original size of the loan.

'London made a vast amount of money in the ten years before this crisis selling those loans. Those chickens may now be coming home to roost.'

At the heart of the issue are credit default swaps - the same complex financial instruments that saw the sub-prime mortgage meltdown in the U.S. escalate into the global credit crunch.

They allow banks exposed to debt to take out insurance with other financial institutions to protect them from losses. They in turn sell the risk to others, meaning one debt can infect dozens of institutions. Former Labour City minister Lord Myners accused Treasury minister Mark Hoban of giving 'numbers that significantly understate the truth' when he told MPs on Monday that British banks could lose $4billion - about £2.5billion.

But despite this, the Prime Minister yesterday made it clear that Britain would not contribute to a second Greek bailout through the EU. 'It would be quite wrong now to bring Britain into this bailout,' he said. Instead, the UK will contribute around £1billion through its membership of the International Monetary Fund.

Mr Cameron's statements came as a report by the think-tank Open Europe predicted a third bailout will be needed to keep Greece solvent in the long-term.

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Oh dear....

(this will probably be merged with the biggun thread)...

http://www.dailymail.co.uk/news/article-2006539/Greek-debt-crisis-cost-UK-335bn.html

So, what will we do?

I dont really understand the implications.

Presumably it will lead to the printing of shed loads of 'money' to be used to bail everyone and everything out?

What will this do to UK house prices and interest rates?

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Good job it's reported in the Mail... any other reporter and significant losses at British banks might seem plausible in the context of a major European sovereign default.

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Danny Gabay, of Fathom Financial Consulting, which calculated the figure using data from the Department of Business, said: 'It's not the direct loan that's the problem, it's the derivatives of those loans which can go on to be multiples of the actual original size of the loan.

'London made a vast amount of money in the ten years before this crisis selling those loans. Those chickens may now be coming home to roost.'

Oh FFS. Some please just blow up the "Square Mile." How much more damage can those idiots do?

Edited by Sir John Steed

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Oh dear....

(this will probably be merged with the biggun thread)...

http://www.dailymail.co.uk/news/article-2006539/Greek-debt-crisis-cost-UK-335bn.html

Ho hum. Similar huge figures were bandied about when Lehman brothers went down but the CDS market did not generate the cascade of failure expected. The fact that swaps don't all take one side of a bet means a lot of the liabilities cancelled each other out. The main problem with CDS is that they are over the counter not traded on an exchange so no one including the authors of the article knows where all the liabilities sit. The truth is that it is straight forward bad lending into an asset bubble and the mis pricing of risk through insufficiently high interest rates that caused the crisis not the derivatives market. The latter was just used to conceal the former and to help pump more air into the bubble. CDS may increase the costs of failure for certain counterparties but it is the original bad loan not the insurance written against it that is the true source of the crisis.

Edited by stormymonday_2011

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Britain could be hit with losses of up to £366billion from the collapse of the Greek economy, it has emerged. The potential devastation of banks and other City institutions would be equal to 24 per cent of our annual national output, or £14,640 for every family in the UK.

Ministers had claimed that British banks have 'only' £2.5billion of exposure to Greek government debt, while the Bank of England says the potential losses would be just £8billion. But experts last night said that UK financial institutions are in far more danger than previously thought, because banks are tied up in complicated derivatives and insurance deals.

Who to believe, eh :lol:

366/2.5 = 146.4

366/8.0 = 45.75

So the government and the BoE aren't that far out :lol: but it does help to explain their performance in meeting the 2% inflation remit.

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...further info...

http://www.telegraph.co.uk/finance/financial-crime/8590404/What-will-happen-if-Greece-defaults.html

What is a default?

Default occurs when a company, government or individual is unable to make an interest payment on an outstanding debt or does not have sufficient money to repay a loan or any other financial obligation that has reached maturity.

Will credit default swaps be triggered if Greece defaults?

The answer may seem obvious, but in the legally grey world of the multi-trillion dollar CDS market this is not clear. First of all, a default and a "credit event", the legal term for the process that would trigger CDS payouts, are legally distinct. It is extremely unlikely Greece will declare an all-out default on its sovereign debt and the government, with IMF and EU support, will likely agree a "restructuring" deal. Deciding whether this constitutes a default is the job of the International Swaps and Derivatives Association (ISDA), the representative body of the derivatives market that designs CDS contracts.

How will this work?

The first step in deciding whether a credit event has occurred will be a request by an investor or interested party to the ISDA Determinations Committee asking for a judgment. In Europe, this committee comprises 10 banks, including Barclays, Goldman Sachs and UBS, whose representatives will together vote on whether a credit event has occurred. If they decide a credit event has not occurred then CDS will not pay out. This means that even if Greece does not declare default, ISDA could decide a credit event has occurred and CDS would pay out.

Is this significant?

As one trader said: "A CDS agreement is nothing more than a betting slip, ISDA can do what it likes." While the ratings agencies can issue opinions it will be the ISDA that ultimately decides and in that sense any investor that does not already understand CDS are not a direct exposure to a given debt security will get a wake-up call soon.

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the reason the system didn't go under with lehman was that bank failures were prevented by sovereigns laoding up on banking risk.i'm struggling to imagine how they'll morph this one away although the figure seems rather high to say the least.greece can probably be handled but some of the bigger piggies could present a soemwhat deeper problem.

as far as greek cds go,people have been shrinking their exposure for some time from what I've read.

it would be interesting to read a concise version of their detailed £366 bill workings.

I remember the figure of all outstanding derivatives adding up to $50 trillion.

Id always imagine thats the value if everything blew up, but given that CDS insure against all types of things, and there are thousands of possible outcomes, dont see that $50 trillion is a likely result, given only one path will play out.

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the reason the system didn't go under with lehman was that bank failures were prevented by sovereigns laoding up on banking risk.i'm struggling to imagine how they'll morph this one away although the figure seems rather high to say the least.greece can probably be handled but some of the bigger piggies could present a soemwhat deeper problem.

as far as greek cds go,people have been shrinking their exposure for some time from what I've read.

it would be interesting to read a concise version of their detailed £366 bill workings.

I can't take the Mail article seriously because it claims that CDS played a major role in the US sub prime market meltdown when in reality the financial instruments involved were CDO. Again the ultimate source of the problem was bad loans to people who could not pay them back . It is possible that a Greek default will trigger wider counterparty failure but if that happens across the board then it is likely that those who bought the original insurance on the their loans rather than those who wrote the CDS who are most at risk. When the music stops it is those out of the money who are in most danger since enforcing payment on CDS may not be easy particularly for cross border liabilities. BTW I understand that Paris not London has written the bulk of the derivatives business on Greek debt.

Edited by stormymonday_2011

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the reason the system didn't go under with lehman was that bank failures were prevented by sovereigns laoding up on banking risk.i'm struggling to imagine how they'll morph this one away although the figure seems rather high to say the least.greece can probably be handled but some of the bigger piggies could present a soemwhat deeper problem.

spain is pretty much the St.Pauls Cathedral of this particular blitz, heh

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Ho hum. Similar huge figures were bandied about when Lehman brothers went down but the CDS market did not generate the cascade of failure expected. The fact that swaps don't all take one side of a bet means a lot of the liabilities cancelled each other out. The main problem with CDS is that they are over the counter not traded on an exchange so no one including the authors of the article knows where all the liabilities sit. The truth is that it is straight forward bad lending into an asset bubble and the mis pricing of risk through insufficiently high interest rates that caused the crisis not the derivatives market. The latter was just used to conceal the former and to help pump more air into the bubble. CDS may increase the costs of failure for certain counterparties but it is the original bad loan not the insurance written against it that is the true source of the crisis.

But the problem here the winners want their money the losers can't pay so both will hit the wall,July August is falls apart.

Edited by crash2006

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I'm just waiting for mass unemployment to kick in. Merv's plan won't look so great when millions of people can't pay the fecking mortgage or buy food.

He must know that it's either raise rates and watch millions default on their mortgages or keep rates at 0.5% and watch million sign on the dole, so defauting on their mortgages anyway.

It's the blind leading the blind down a road to ruin. Pathetic days have found us!!

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Ultimately bankers just shuffle paper around, no wealth is created. So if they 'earn' £100 billion in 'revenues' this year.. it means £100 billion +++ in losses will show up in a few years time.

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Britain could be hit with losses of up to £366billion from the collapse of the Greek economy

I have a problem with this since Britain did not write these CDS's. Britain's only exposure is via the nationalised banks. Yet these banks are companies and thus offer limited liability. Like any company that goes bust, all the creditors can do is sell off the companies assets. They cannot go after the other assets of the shareholders.

Of course the pension funds will also have underwritten them and will take a hit on their funds. They will probably demand the government make them good and the government will agree. It is generational theft once more. The pensioners keep the value of their funds by passing that debt onto their children. The ministers are aged with large pension funds and will be thinking of their own interests.

I am reminded of "Earthquake insurance". You collect insurance premiums each year and pay out fat dividends. When the earthquake finally does arrive, you have no funds left in the coffers and the policy holders realise they are not going to get paid.

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Only becaus e the US nationalised AIG.

That was what I was going to respond too. Also Fannie and Freddie backstopping all the loans. So the default event never occured.

If Greece goes and just defaults on all the debt, 1.3 trillion Euros worth.. plus all the derivatives it will be a blood bath. Then everyone holding debt in all the other Euro nations which might possibly default will run for the exits at the same time. Which the interest rates going up so high will soon mean others hit the wall.

That is why at the end of the day France and Germany will write the Greeks a cheque for whatever they want. This round started out with the Greeks asking for 70 billion Euros to make payroll. Now as the negotiations have gone on the Greeks are asking for 120 billion Euros.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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