Blood Bath In Greece; Make World Red.- written in year 2010

With reference to my article "आर्थिक संकटातील शिकवण " dated 30 th July 2012 , diya marathi paper,
I suddenly recalled my article written in  22th Feb 2010- "Blood Bath In Greece; Make World Red."
 Wherein I had mentioned what was went wrong with Greece & how it will affect world economy, which is being proven right........   
Here is the article :

Blood Bath In Greece; Make World Red.             

22/02/2010

Financial markets will eventually drive bond yields higher, and European countries such as Greece and Portugal will “have a lot of troubles.” Global scrutiny of sovereign debt has risen as nations including Greece reveal fiscal deficits that have swollen in the wake of the worst global financial crisis since the Great Depression.

Concern about Greece’s ability to fund its debt have roiled financial markets since the government said it had a budget shortfall of 12.7 percent last year, the highest ratio in the 27-member European Union.

Greece’s debt totaled 298.5 billion Euros ($407 billion) at the end of 2009, according to the Finance Ministry. That’s more than five times more than Russia owed when it defaulted in 1998 and Argentina when it missed payments in 2001.

So, who is going to patronage Greece is the death (yaksh) question in front of other European Union countries. Future of EU depends on how this obstinate question is going to be solved & when good solution to be came.

Many global economists in the world think that if this question is again to be solved in the same manner in which it was solved 10 years back, will create hash in financial markets. This turmoil/ bloodbath would be same like U.S. subprime crisis or even greater. This will lead world economy into deep sea of blood.

From last 20 years FINANCIAL DERIVATIVES (mainly used for the purpose of short term money creation) has been used by the big economies in the world to tackle with financial problems. Derivatives is the instrument which is useful to slower the doldrums in the economy, otherwise these doldrums can impact adversely on the economy. So, one can save money & get appropriate solution by entering into SWAPS, when inflation changes. Many biggies in corporate & National Governments had been succeeded to get rid of financial deficits with the help of Derivatives.

We can finger towards Italy as a recent example for successful use Derivatives as instrument to come out off fiscal deficit. In 1996, Italy had presented big deficit budget. With the help of J.P. Morgan Italy had done a swap transaction through which Italy had benefited big chunk of money. Through this, future expenses of government are made and this does not affected the creditworthiness of country.

So, Financial Derivatives are innovative product. Via seeing the success of Italy in using these financial instruments for solving financial problems, Greece had also appointed famous specialist on Wall Street ‘GOLDMAN SACHS’ (GS) for solving Fiscal deficit problem. For getting membership of ‘EUROPEAN UNION’ Greece needs to show that its fiscal deficit is below the certain limits. And therefore Goldman Sachs arranged loans of millions of dollars to Greece.  For getting these loans one has to mortgage certain kind of property, which Greece dint have. Even then (GS) referred management specialist had given loan based on futuristic (baseless), incomes form National Highway (Toll Income), Airports and even income from Italian lottery. On the basis of this future income, which was uncertain GS had arranged $ 300 Billion loan for Greece.

By assuming that, Greece can pay off the loan amount. GS succeeded in arranging loan for Greece by mortgaging on these assumptions (which were not certain). For arranging this loan for Greece, GS earned $ 30 cores consultation fees.

Because of the nature of loan i.e. no mortgages are kept, that’s why entry of this loan was not made into the accounts of country. But the refund of this loan was not made in next 10 years. Because of the compounding interest effect the balloon of this debt got bigger and bigger. The assumptions made for income from above mentioned three sources are not up to expectations which lead great peril to Greece. The solution fined out by great specialist is got trapped.

Doubt about Business Ethics:

Now The EU is realizing the realistic situation. In the month of November 2009 GS debt/ loan closure suggestion was not accepted by Greece.  But interest has been created amongst other country for knowing which kind of derivatives was developed for this case. So, world is doubting on the practice of Wall Street Management Specialist for solving such problems- so question is arising about their ETHICS OR MORALITY.

Those people who had read ‘Barbarians At The Gate’  which is based on Americas financial approach ,would not require  to say anything more about Wall street Economist , financial consultant and about their innovations. Because of this the message is spreading world over that one should keep certain distance from these specialist as question is arising is about their ability to solve financial problem or mess which they can create.

As we had seen in ‘Sub-prime Crisis‘that loans were granted on mortgaged properties. And for solution on this U.S. government had given bailout program to major banks. Just like this, if Europe decides to give bailout / loan to Greece then banks don’t have any thing to be get mortgaged. Those who had given loans to Greece government are in trouble to get the refunds. If government got bankrupt then how economy is going to be survive?

 If Greece will not clear its debts, on time then it will affect world economy or either will affect European share markets immediately, this kind of fear is predicted. If EU gives bailout to Greece then the refund of loan and its interest part will may affect on EU. If EU gets ready to burden by giving bailout then how much amount should it be for bailout is not cleared as there is no entry in country’s account about the loan taken from GS and still lender (GS) is demanding his money.

How one can believe on it?

 I f again loans are given then how to get them back in how many years?

Or Union should create a fund for saving the country which is already Deep in to Red See?

If these questions are not solved they will create chaos and unrest around the globe. Greece’s trouble is as serious as SubPrime and will lead towards ‘doldrums’ the world is still unpredictable.

Regards
Devendra Pandit- Founder & CEO
WealthPreneurs