Last Updated Sep 28, 2011 9:28 PM EDT
Trader Alessio Rastani went on the BBC and told the world: Greece is going to default and the result will be terrifying. Maybe now people will listen:
As of Tuesday morning this clip has been viewed nearly half a million times on YouTube. There's been a lot of noise in the press and the blogosphere that Rastani was either pulling a prank or is the ultimate Chicken Little. His talk of Goldman Sachs (GS) ruling the world and "dreaming of a recession" makes it easy to take pot shots at him, but can anyone refute his core point?
The markets right now are ruled by fear. The big money and the smart money -- I'm talking about the big funds, the hedge funds, the institutions -- they don't buy this rescue plan. They know the market is toast. They know the stock market is finished. As far as the euro is concerned they don't care. They're moving their money away to safer assets.
That's exactly what has been going on. You can dispute everything else he says, but not this. While Rastani sees a crash as a money-making opportunity, it is also very clear he wants to warn people.
This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!
Since last weekend's IMF/World Bank meetings in Washington the rescue rumors have run wild. There have been reports of multi-trillion-dollar plans and hopes of the European Central Bank buying all of Greece's debt. (However the award for the weekend's most fantastic goes to Greek Finance Minister Evangelos Venizelos: "Greece will always be in the euro and Greece will never go bankrupt.")
Officially all that's been said is, "We are taking strong actions to maintain financial stability, restore confidence and support growth." Does that restore your confidence?
Denials are as close as we've come to hearing about anything concrete. Venizelos denied saying that an orderly default with 50 percent "haircut" for creditors is the best possible outcome. He may be right. Greek government debt is trading on the open market below 40 cents on the dollar. That is near what is considered the "recovery rate" -- the price investors would get for their bonds if the country officially defaulted. So 50 percent is looking as by far the best possible outcome.
If the finance ministers are doing anything worthwhile it is putting together plans to prop up their banks. This is what Germany started doing earlier this month. And it will have to be a country-by-country effort as the Germans just nixed the idea of doing the same thing on a Euro-wide scale.
The question at this point is mainly whether nations can shore up their monetary defenses fast enough. While some are thinking in terms of months, they probably have more like weeks at best. Bank of France Governor Christian Noyer claims there is "absolutely no reason" to activate a support system for the nation's banks set up during the financial crisis in 2008. I pray he only said this so as not to further spook the markets.
- A Guide to What Happens When Greece Defaults
- Depositors Fast Walking Their Money Out of European Banks
- Markets Terrified by Greek Attempts to Reassure the Markets About Bailout Plan
- A Guide to the EU Economic Crisis, Part 1: Greece
- Central Banks' Promise of Dollars for Europe Won't Stop Greek Default