While we wait for the antics in Greece to result in some announcement, I can’t help but think about how different the Greek situation is from when JPM bought Bear Stearns (shortly after the last time the Giants won the super bowl).
The “weekend” deadline for Bear was neither artificial, nor self-imposed. Without a deal, Bear would have failed that week as risk aversion hit an extreme. Greece has until the March 20th payments, so all the deadlines we keep hearing about are mostly negotiating ploys.
The negotiators in Greece will have to approve whatever they decide, so they will need some time. When Jamie Dimon said “done” on the Bear deal, it was done. It also meant a very savvy investor had his people do the analysis and was comfortable with the deal (I’m sure the Fed backstop didn’t hurt). But in Europe, almost none of the people involved in the negotiations have the authority to “pull the trigger”. They have to go back to their respective parties or groups or special interests they represent and get the deals approved. Even more bizarre, is how few of the people involved have financial experience, let alone investment experience. They are largely politicians. The Minister of Finance was the Minister of Defense less than a year ago. The IIF team has limited experience in distressed debt. The “technocrat” in charge has experience, but like many of the Troika members it is as an economist in a functioning economy – not the disaster that is Greece.
They all seem so scared that no deal is awful, that we will probably see a deal. Will there be one more petulant flight out-of-town before we get that agreement? Possibly, but so far they all seem to believe that a deal is necessary to say the world.
What I find interesting, is that finally some Greek citizens and even minor politicians seem to be getting the joke that the “bailouts” aren’t for Greece, it is for the people who lent Greece money. I do not think a Greek default is an economic disaster (stocks would sell off, probably 5% or more over a week or two, but that is not an economic disaster). A Greek default would be good for Greece. Greece wouldn’t owe the money. We all know the old saying about if you borrow a little and can’t pay it back, you have a problem, but if you borrow a lot and can’t pay it back, the lender has a problem. The Greek case is even stronger – they have borrowed a lot, and can’t pay it back, but the lenders have almost no way to enforce even the limited rights they have. The longer the negotiations drag on, the more people in Greece that will finally figure this out. When everyone was scrambling from desperate “plan” to desperate “plan” no one seemed to spend the time thinking about what a default would mean. The “Default” card would be played any time actual critical thinking reared its ugly head and with some gnashing of the teeth and wringing of the hands, new plans would be created. Now, more and more sensible people seem to be reaching the same conclusion – default would not be end of the world (heck, not even the end of the banking system) and might provide the best framework for future growth.
It is probably too early to get that outcome, and instead we will get one more round of plans and measures that barely get approved, don’t work, and get the people who agreed to them kicked out of office, and then, maybe, finally economic reality will take over, which in the long run will be the best for all.