March 29, 2024

News Cymru

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Moody’s – Utterly Clueless Regarding Grexit – Commentary from former Vice President Christopher T. Mahoney

You probably already knew Moody’s were clueless and not to be taken seriously.

An article today appearing in Project Syndicate reaches levels of ignorance even I did not expect.

Mahoney makes it easier to take his article apart so here goes.
He lists some of the problems as he sees it regarding a Grexit. As I have said before it makes no sense for Greece to exit the Euro but assuming it does, let’s have a look at Chris’s points

  • Will foreign governments freeze Greek banks’ assets and liabilities? – This will be decided by the courts and accountants/administrator
  • Who will be the receiver for Greek bank branches in London? – The administrator of the Greek banks
  • How will UK banks view their continental counterparties in Spain and Italy after a Greek redenomination? – Who knows, one things is for sure, much more positively than now assuming the default comes before the Grexit
  • How will Greece treat Greek citizens with euro deposits in foreign banks? – The Greek government has no jurisdiction.
  • Will Greece close its borders and confiscate all euronotes? – Why would it? Evidence shows the two currencies will co-exist for a period of time re introduction of the Euro.
  • What kind of exchange controls will Greece impose? – With the Drachma? None, why would it need to?
  • What will become of euronotes issued by the Bank of Greece? (Note: The identification code letter is Y.) – There is no difference between Greek issued notes and German issued notes so I don’t see the point of the question.
  • What will be the accounting treatment for frozen deposits in Greek banks? – The administrator will decide and if necessary, the courts.
  • How will Greek bank and government bonds be valued on banks’ books? – The administrator of each bank will decide.
  • When Greek default rips a huge hole in the ECB’s balance sheet, will this require a recapitalization (which will annoy the German public)? – Its a small issue compared to Spain.
  • What will the Bundesbank’s balance sheet look like after Greece repudiates its TARGET2 liabilities? – As bad as it does now.
  • How will the ECB treat the Bank of Greece and the Greek banking system after exit? – The same as they do now and the same as they did with the Drachma. The ECB, Bank of Greece and Greek banking system are all parts of the same entity. It is like asking, how will the rest of the body treat the arm that lost the arm wrestle? Its a stupid question.
  • How will Greece pay for essential imports on Day Two? – With the money in the country
  • If the Greek government loses control, will the army step in, as it did in 1967? – Lose control in what way? To broad a question to be able to answer. He needs to be more specific.
  • Will European governments have to intervene and purchase at par all Greek assets held by their banks? – Why would they, the assets will be worthless. If banks don’t want them then why would the taxpayer?
  • How big a dollar swap line will be required by the ECB? – Eh?
  • Can the looney-tunes in Congress prevent the Fed from lending to the ECB? – Again, eh? And the term “Looney Tunes” exposes the authors prejudice.
  • How soon before foreign creditors try to seize all Greek government assets outside of Greece? – Again, the administrators will decide probably with the help of the courts.
  • When the Greek government and banks are declared in default under English law, what happens then? – Again, the administrators will decide the fate of the assets of the Greek banks, with regards to the government assets, this will probably be looked after int he same way.
  • Will European banks do business with Greek banks who are in default on deposits and bonds? – He must mean banks who are going through bankruptcy procedures. In which case in us up to the other banks, given they all work together in a banking cartel I am sure they will work something out.
Basically all the points brought up by Mahoney expose nothing. Every point he highlights will be dealt with using normal bankruptcy procedures. It is not something unkown or something terrible.
Sure some rich people and going to lose a lot of money, but that is not the concern of governments.
With the “looney tunes” comment, the author is clearly a fan of massive money printing which suggest the point of the article is to instill irrational fear in anyone who takes him seriously.

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