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wonderpup

Maybe Syriza Wants A Bank Run?

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On the face of it the idea that any Government might actually welcome a run on it's banks would seem insane- it's usually considered a disaster.

But suppose you were a Government of a Bankrupt country whose banks you intended to nationalize and then transform into 'bad banks' to effectively neutralize their liabilities- basically default.

In such a scenario might it not be an advantage that your citizens have taken their capital out and parked it abroad, so that when you have buried the corpses of those debt riddled banks, wiped out their remaining liabilities- hopefully those mainly owed to external creditors- and created new debt free institutions then that capital can come home again to recapitalize the system?

Could a strategy like this actually work?

I ask because it seems otherwise hard to explain why the Greek Government has not imposed capital controls long before now- it's almost as if they are are happy to let their people shift their money out- which seems a little crazy unless they have some kind of bank nationalization/debt writeoff in mind.

Am I talking complete bullshite here- or is there something in it?

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You maybe talking bullshite but the same though had accursed to me. Maybe a good place to start a new county with no debt and loads of assets in a foreign country.

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On the face of it the idea that any Government might actually welcome a run on it's banks would seem insane- it's usually considered a disaster.

But suppose you were a Government of a Bankrupt country whose banks you intended to nationalize and then transform into 'bad banks' to effectively neutralize their liabilities- basically default.

In such a scenario might it not be an advantage that your citizens have taken their capital out and parked it abroad, so that when you have buried the corpses of those debt riddled banks, wiped out their remaining liabilities- hopefully those mainly owed to external creditors- and created new debt free institutions then that capital can come home again to recapitalize the system?

Could a strategy like this actually work?

I ask because it seems otherwise hard to explain why the Greek Government has not imposed capital controls long before now- it's almost as if they are are happy to let their people shift their money out- which seems a little crazy unless they have some kind of bank nationalization/debt writeoff in mind.

Am I talking complete bullshite here- or is there something in it?

I think that is precisely the plan. I can also see them exchanging euro denominated private debt (mortgages, personal loans etc) into Drachma - to be shortly devalued by 50-80% when it finds its true level against the Euro.

Which means that the country will very quickly rid itself of all debt, be in possession of a load of foreign exchange when the money gets repatriated (after the initial devaluation) and rise like the Phoenix from the fire. Much to the consternation of their EU masters.

Maybe I am being too simplistic.

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A little bit about Greece's finance minister

He is a political economist, professor, and author, and has dual Greek-Australian nationality.

Varoufakis is a participant in the current debates on the global and European crisis, the author of The Global Minotaur and several academic texts on economics and game theory, Professor of Economic Theory at the University of Athens and a private consultant for Valve Corporation.

Education

In 1978, Varoufakis's parents sent him to England to study, where he enrolled at the University of Essex. His initial interest was in physics but he felt that Economics was the lingua franca of political discourse. However, during his time at Essex, Varoufakis felt that Economics was only interested in putting together simplistic mathematical models and that the mathematics utilised were third rate and, consequently, the economic thinking that emanated from it was atrocious.

In 1982, Varoufakis then decided to complete a MSc in Mathematical Statistics at the University of Birmingham and a PhD in Economics (Essex).

https://en.wikipedia.org/wiki/Yanis_Varoufakis

The bloke clearly knows the game, seems to know its flaws, so maybe just maybe he is planning to do what wonderpup proposes. If he was a historian and former fleet street hack then he might do what his masters in the banks told him to do.

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A little bit about Greece's finance minister

https://en.wikipedia.org/wiki/Yanis_Varoufakis

The bloke clearly knows the game, seems to know its flaws, so maybe just maybe he is planning to do what wonderpup proposes. If he was a historian and former fleet street hack then he might do what his masters in the banks told him to do.

Taking your country to the edge of the abyss that is very stupid or brave.

Edited by macbeth79

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The whole sorry Greek saga has been as much about politics as economics.

The EU troika are essentially using debt as a weapon to coerce the Greeks and their government into submission. AEP writing in the Daily Telegraph thinks they have been more or less openly encouraging the bank run to undermine Syriza

http://www.telegraph.co.uk/finance/economics/11687229/Greek-debt-crisis-is-the-Iraq-War-of-finance.html

The problem for the EU is that the Greek government and everyone else is aware of this game now. Moreover, if the banking system collapses Syriza will have no alternative but to introduce capital controls and effectively nationalise the banks. The next step would be a straight monetization of the debt via an EU to Drachma conversion followed by a massive devaluation. This would create very severe short term inflationary problems for the Greek population. Long term, however, they would have big trade and economic advantages since their economy is hobbled by the Euro. I think it is all now coming down to who is going to cop the blame for this unravelling. There are also wider political implications since the current Greek government are clearly chatting to Putin about short term financial aid. That ought to concentrate the minds of the US government. The best solution here is clearly Greece out of the Euro in a more or less orderly fashion but still in the EU and NATO but that requires some European politicians giving up their megalomaniac plans for political union. The worst scenario is a complete breakdown in political order in Greece particularly it is the part of Europe nearest an already unstable war ridden Middle East. You would hope for an outbreak of sanity among the politicans but I won't be putting any of my money on it.

BTW in my pessimistic view what we are seeing is just a prelude to wider political, economic and military conflict all triggered by the U.S. and British invasion of Iraq and the 2008 financial crisis which essentially broke the old status quo. The results of these events are still playing out historically.It is interesting to see that South East Europe as a trigger point though I think the real trouble is really waiting to start in Asia and the Pacific this time.

Edited by stormymonday_2011

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BTW in my pessimistic view what we are seeing is just a prelude to wider political, economic and military conflict all triggered by the U.S. and British invasion of Iraq and the 2008 financial crisis which essentially broke the old status quo. The results of these events are still playing out historically.It is interesting to see that South East Europe as a trigger point though I think the real trouble is really waiting to start in Asia and the Pacific this time.

How much has the Arab spring affected the exports of Southern Europe, they must have lost a major chunk of their export markets, and how to pay back the money borrowed for this.

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Which means that the country will very quickly rid itself of all debt, be in possession of a load of foreign exchange when the money gets repatriated (after the initial devaluation) and rise like the Phoenix from the fire. Much to the consternation of their EU masters.

Maybe I am being too simplistic.

This is a very interesting point and may explain the Greek governments seemingly insouciant attitude to the current bank run. Euros held in Greek bank accounts are vulnerable to sequestration by the Troika or to devaluation if Greece ditches the Drachma but if the private saving reserves are hidden in bank accounts offshore or even in cash stashed under the bed they are going to be a lot harder to get at. The smart move for Greeks would probably be to convert what money they have into dollars thus putting them completely beyond the reach of the EU or their own government. That way you are protected regardless what happens on Monday. If the Euro to Drachma conversion does occur it would definitely help the Greek economy in the future to have foreign private savings reserves that can be repatriated and spent. Best of all these reserves being offshored are currently being funded by loans from the ECB which may never have to be repaid in Euros at least. If you look at this way the allowing a bank run using money supplied by the EU makes perfect sense to the Greek government. Edited by stormymonday_2011

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The 7.2 billion euro bailout money is starting to look like chump change compared to the billion a day being taken out of the banks. Most of that 7.2 billion is going to go directly to IMF and foreign banks anyway.

Holiday makers are being advised to carry enough euro's to last their holiday. That sounds like millions of euro sloshing around the system even if they do close the ATM's

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The 7.2 billion euro bailout money is starting to look like chump change compared to the billion a day being taken out of the banks. Most of that 7.2 billion is going to go directly to IMF and foreign banks anyway.

Holiday makers are being advised to carry enough euro's to last their holiday. That sounds like millions of euro sloshing around the system even if they do close the ATM's

Total Greek GDP is less than $240 billion so if the Greeks keep it up at this rate they will have a tidy amount stuffed away in convertible cash reserves they can spend if and when the levee breaks. The question is who is the wrong end of this trade apart from the Greek banks.

I can not see how the EU can afford to let Greece go so I expect more can kicking on Monday as the EUs best bet is clearly to hope the Syriza government falls eventually so they can get a more amenable quisling regime in office. I suppose the issue here is the Greek people who still seem incapable of grasping the simple fact that their best future lies outside the Eurozone

Edited by stormymonday_2011

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Guys, all these theories are mute if you have no money.

They cant bail their banks.

They cant pay the IMF

They cant pay the German/French/UK Banks.

They cant pay anyone.

What they do have is a population, like any other in any place in the World, from which an income can be gleaned to start afresh. Starting afresh will mean old promises will be broken, the place will now not be equipped with lush furnishing but with tea chests and camp beds. A fall from living the life on credit to one where people will have to rean their place on the Earth.

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There is also the problem of Deustche bank which has apparently has derivatives tied to the Euro and Greece debt. Merkel and co probably know Greece could trigger a domino of defaults in the banking system. Many have said they could be the next Lehman for years.

When the SNB de-pegged from the Euro it almost trigged a default in Austria of a tiny little state. I forget the exact details but it just shows how everything is interconnected!

Edited by Assume The Opposite

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There is also the problem of Deustche bank which has apparently has derivatives tied to the Euro and Greece debt. Merkel and co probably know Greece could trigger a domino of defaults in the banking system. Many have said they could be the next Lehman for years.

When the SNB de-pegged from the Euro it almost trigged a default in Austria of a tiny little state. I forget the exact details but it just shows how everything is interconnected!

If so they are compete numpties begging for bankruptcy. A Greek default is hardly a surprise or a shock event.

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Taking your country to the edge of the abyss that is very stupid or brave.

But it was at the abyss ages ago, if Greece sticks with the Euro and takes another hard dose of austerity (coupled with boat loads of illegal immigrants landing on their shore) the Greek people might decide to bring a far-right party into power. Who knows what they might do, align Orthodox Greece with Orthodox Russia, leave the Euro, EU and perhaps even NATO? Putin will do deals with Syriza, but they are likely to be limited so long a Greece remains tied to the West through the EU and NATO (which Syriza still want).

IF Varoufakis really is good at game theory then he would have thought this through long and hard. Far harder that the EU I suspect, look at how they handled the Ukraine in comparison to the Russians - how many leaders in the west dismissed the idea of Crimea leaving the Ukraine and becoming part of Russia?

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Guys, all these theories are mute if you have no money.

They cant bail their banks.

They cant pay the IMF

They cant pay the German/French/UK Banks.

They cant pay anyone.

What they do have is a population, like any other in any place in the World, from which an income can be gleaned to start afresh. Starting afresh will mean old promises will be broken, the place will now not be equipped with lush furnishing but with tea chests and camp beds. A fall from living the life on credit to one where people will have to rean their place on the Earth.

Well they certainly wont have any money while they agree to 50 years of debt servitude tied to the Euro

Given that the current settlement has left them bust I cant see how anything else could be worse

They will have plenty of money if the leave the Euro since they can print all they want just as countries with large current account deficits such as UK and US do all the time.

It wont be worth much but it would keep the wheels of their economy turning (ie they will have liquidity and a medium of exchange) and devaluation will give them a big trade advantage in terms of tourism etc which is not a trivial part of the Greek economy. Foreign exchange will be hard to come by but then those Greeks who have run down their bank deposits will have some that will have to be repatriated and spent sooner or later.

Edited by stormymonday_2011

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But it was at the abyss ages ago, if Greece sticks with the Euro and takes another hard dose of austerity (coupled with boat loads of illegal immigrants landing on their shore) the Greek people might decide to bring a far-right party into power. Who knows what they might do, align Orthodox Greece with Orthodox Russia, leave the Euro, EU and perhaps even NATO? Putin will do deals with Syriza, but they are likely to be limited so long a Greece remains tied to the West through the EU and NATO (which Syriza still want).

IF Varoufakis really is good at game theory then he would have thought this through long and hard. Far harder that the EU I suspect, look at how they handled the Ukraine in comparison to the Russians - how many leaders in the west dismissed the idea of Crimea leaving the Ukraine and becoming part of Russia?

Why would Putin want Greece whats in it for him.

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Well they certainly wont have any money while they agree to 50 years of debt servitude tied to the Euro

Given that the current settlement has left them bust I cant see how anything else could be worse

They will have plenty of money if the leave the Euro since they can print all they want just as countries with large current account deficits such as UK and US do all the time.

It wont be worth much but it would keep the wheels of their economy turning (ie they will have liquidity and a medium of exchange) and devaluation will give them a big trade advantage in terms of tourism etc which is not a trivial part of the Greek economy. Foreign exchange will be hard to come by but then those Greeks who have run down their bank deposits will have some that will have to be repatriated and spent sooner or later.

exactly, the debt train comes to the end of the line...a person with no choice has an easy decision to make.

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yep, just like a person going bankrupt

a couple of years of hard times and a reputation to overcome

but, with hard work and clear focus, it can come very good again very quickly afterwards

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Guys, all these theories are mute if you have no money.

Any private credit moved offshore will retain it's status and value as Euros- unlike bank notes credit cannot be differentiated.

So the game goes like this- allow your citizens to export their wealth, nationalize the banks wiping out their debts, create new debt free banks and wait for that money to come back in to recapitalize your system.

Sounds far too simple to work but maybe this is or something like this is the game plan?

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Any private credit moved offshore will retain it's status and value as Euros- unlike bank notes credit cannot be differentiated.

So the game goes like this- allow your citizens to export their wealth, nationalize the banks wiping out their debts, create new debt free banks and wait for that money to come back in to recapitalize your system.

Sounds far too simple to work but maybe this is or something like this is the game plan?

The banks need liquidity to move credit offshore.

Offshore, into the wallet, under the mattress, all are components of a bank run.

You see, this is the difference between a bank balance, and cash....you need a bank to monetise your bank balance, settle your debit card bill, transfer your balance overseas.

It is the most important distinction for people to understand....I can go Bloo in the face trying to explain the difference to people, even ones on this board....cash you spend yourself....debit card, cheque direct debit, whatever else, needs a third party, usually a bank to spend it.

A busted bank cant carry out your instructions.

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