John Mauldin's latest letter (click on the header of my blog entry to access it) starts out in a very interesting way:
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It now looks like almost 30% of the Greek financing will come from the IMF, rather than just a small portion. And since 40% of the IMF is funded by US taxpayers, and that debt will be JUNIOR to current bond holders (if the rumors are true) I can't tell you how outraged that makes me.
What that means is that US (and Canadian and British, etc.) tax payers will be giving money to Greece who will use a lot of it to roll over old bonds, letting European banks and funds reduce their exposure to Greece while tax-payers all over the world who fund the IMF assume that risk. And does anyone really think that Greece will pay that debt back? IMF debt should be senior and no bank should be allowed to roll over debt and reduce their exposure to Greek debt on the back of foreign tax-payers.
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Regardless of the seniority of the bonds, this is pretty outrageous. Anyone feel like contacting their Congressional delegates?
Regards,
Trond
Tuesday, May 4, 2010
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6 comments:
This isn't nearly as bad as Mauldin makes it out to be.
Good find. I have emailed Mauldin for clarification.
The difference is between $17B and $3B, by the way. The question is still: is even $3B "too much" for US taxpayers to be sending out?
And yes, I realize it's pretty much a sunk cost, regardless, since our IMF dues are already paid.
Regards,
Trond
I'm ok with it considering that this is what the IMF is for. $3B is a drop in the bucket if it helps stablize exchange rates since we're all more globally connected than most people think.
The chances are likely that we will get most if not all of it back over time, and the benefits of helping to stablize things will pay dividends for us as well. I mean, just look at how much turmoil this has caused in our financial markets from this past week alone.
Here is a great post that essentially captures the essence of why I think the $3B is "ok".
I've always wondered about this type of situation. I mean other than on a much grander scale, how is this any different than when someone stops paying on a debt. Or files bankruptcy?
Who absorbs the debt that was created when all those people in America simply walked away from homes they couldn't pay for or afford in the first place?
Hi Ming,
The banks absorbed some of the losses that took place, but not as much as they should have because they securitized most of that debt and sold it as AAA investment grade securities. So while the banks took a little bit of a hit so far, and the taxpayers have taken a little bit of a hit so far, the most victimized people to date are the ones who "invested" in these junky securitized investment vehicles...mostly pension plans, townships, municipalities, hedge funds on the wrong side of the deal, and anyone else that the big brokerage firms pitched these investment vehicles to. This is why Goldman Sachs is currently on everyone's hit-list these days.
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