Comment by maaku | Hacker News Reader

Comment by maaku | Hacker News Reader

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Not to mention what is actually happening here -- publicizing private debts. Why should European taxpayers be on the hook for risky bets made by Deutschebank et al? That's what's really going on here. Nearly all of the bail out funds received by Greece have gone to paying back debt. Which sounds like a good, moral thing. But what that actually means is that public money (IMF or ECB loans, backed by governments and therefore taxpayers) is used to pay off the mainly private debt holders which hold Greek national debt. The banks which made the risky bets in the first place are getting their money back -- with interest* -- and the risk is being entirely taken on by taxpayers. So that when Greece does default -- and austerity is making that inevitable -- the bankers which made those stupid loans will have long since skipped the country, cash in hand.

TL;DR - the European bail out of greek debt is really a public bail out of the private banks -- Deutschebank, Goldman Sachs, etc. -- who made the stupidly risky bets in the first place. DB and GS are getting face value* for their worthless greek bonds, and the taxpayers are left on the hook.

But good luck getting that side of the story ever told in the media. DB and GS shareholders need their profits.

* There was a haircut by the private debt holders at one point in time, but interest on that debt has basically made up for it. It was still a profitable investment.

(Lesson for anyone aspiring for a profitable career in international finance: find the weakest member of an organization like the Eurozone, and offer them as much debt as you can get them to take. It will have stupidly high interest rates (e.g. >7%) because it will be so risky. But importantly, make sure that you take on so much debt that a default would ruin you. This is vitally important. Now wait for the inevitable to happen and your own government to bail you out because you are Too Big To Fail. Be sure to have a golden parachute in place in case a socialist is in power when it happens, but don't worry at worst you might lose one year's bonus. You will never go to jail.)

First, a minor point: The biggest holders of Greek debt were French banks by far, followed by UK banks and only then German banks. So when you say "Deutschebank, Goldman Sachs, etc." what you mean is BNP Paribas. But if you don't even know which banks—or countries—were involved, it raises questions. And I have no idea why you tossed Goldman Sachs in there; they never held significant amounts of Greek debt. They helped sell the debt; they were much too smart to buy it, much less keep it. The suckers here were, overwhelmingly, the French banks.

Second: "There was a haircut by the private debt holders at one point in time, but interest on that debt has basically made up for it." That's utterly wrong. It's so wrong, I'm not even sure how you could make that sort of error in good faith. Private banks lost 75%+ of the value of their Greek debt, in large part due to a forced reduction in interest rates. It's almost worthless because they have no ability to make it up via interest.

As a result, the private sector has basically written the entire thing off as a bad idea and walked away; the only real holders of Greek debt left are the troika and domestic Greek institutions.

We're discussing matters of public record. BNP Paribas loss on it's greek debt holdings is in their accounts in black and white. Who owns the debt, what the terms are, what the yield is; all of that is readily available, and none of it is what you imply.

If you want an example of publicizing private debts, look at the Irish bailout, not the Greek haircut.

Nice response, Lazare. It's great to learn from people with the competence to understand the facts, and the desire to stay objective.

1) The number of greek bond holders is numerous, obviously. I named the banks I thought people would know. There's a reason I tacked "et al" at the end. Any guesses why France is the strongest supporter of Germany in the Troika?

2) The haircut was in 2012. Interest rates in the decade-long run-up leading to the crisis was 5-7%. I'll leave it as an exercise to the reader to calculate how long it takes to make up a 25% loss at those rates (hint: less than the 10-year maturity period of the bond).

> the only real holders of Greek debt left are the troika and domestic Greek institutions.

Which was my point.

> I named the banks I thought people would know.

But not the ones who actually held significant amounts of greek debt.

> Any guesses why France is the strongest supporter of Germany in the Troika?

French banks already lost the money. At best this might explain why they supported Germany in 2010-2012, and that's assuming that France was acting in the interests of French banks and not the French government which, as already covered, they weren't. You're suggesting an explanation which makes no sense to explain things that didn't actually happen.

> 2) The haircut was in 2012. Interest rates in the decade-long run-up leading to the crisis was 5-7%. I'll leave it as an exercise to the reader to calculate how long it takes to make up a 25% loss at those rates (hint: less than the 10-year maturity period of the bond).

First, it was a 75%+ loss, not a 25% loss. Best case, if a bank made a 10 year bond, sat on it for 9 years and 11 months, and then went through a haircut, they still lost a bunch of money.

Second, even if it had been a 25% loss (which, again, it wasn't), they still wouldn't have come out ahead; you're ignoring their opportunity cost, cost of capital, etc. You're also ignoring the fact that the people who made the loans were mostly not the people holding them when the music stopped. It's the same mistake you made when you mentioned Goldman Sachs, who made money helping Greece cook their books but didn't hold Greek debt*

Third, BNP Paribas and the other banks lost billions of euros; it did not come out ahead, or even close to it.

>First, a minor point: The biggest holders of Greek debt were French banks by far

I was under the impression that the German banks were the biggest holders of Greek debt followed by France and Italy.

No. Back in 2012, French banks had about €30 billion in exposure, with UK banks holding €6.4b and German banks less than €5b ([1]). BNP Paribas alone lost almost as much as every German bank combined started with, to put it in perspective.

After the disaster that was the bond swap (more than 50% of face value removed, and swapped for bonds with 30 year terms, AND the interest rate slashed to almost nothing), most of the banks cut their losses and ran.

The exception is, yes, the German banks (along with US and UK banks). Their exposure has climbed, with each now holding around €10b, with Germany slightly in the lead ([2]).

So at the time of the 2012 haircut, French banks were most exposed (among banks) and lost a lot of money. Today German banks are most exposed (among banks), but it's a lot less than it was; private sector debt is way below its peak.

But keep in mind! Something like 80% of all Greek debt is held by public institutions, aka, the troika. All foreign banks, added up, are still something like...I dunno, 10% of total Greek debt. Greek is in hoc to the EU, the ECB, and the IMF; the €10b owed to German banks is peanuts in comparison, to the extent that the banks don't even have a seat at the negotiating table any more.

[1]: http://www.telegraph.co.uk/finance/financialcrisis/9125614/G...

[2]: http://www.theguardian.com/world/datablog/2015/jun/19/the-gr...

Why did the Uk/German holdings increase? When you say they now hold 10b I assume you mean face (redemption) value rather than market?

I don't really know. Some mixture of betting that Greece won't default and banks acting as a dumping ground for bad debts (someone has to end up owning it), I guess.

And yes, all numbers are face value. The market value of all that greek debt is...well, VERY much an open question right now. :)

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