Greece: Sounding Very Lehman-ish

If you recall the early stages of the financial crisis there was one glaring trend from the various bank CEO’s and CFO’s – they just couldn’t wait to get on TV with their slogan:

“We are well capitalized.”

Of course, that turned out to be a lie as it’s now clear that most banks in the USA were woefully undercapitalized. Yesterday, Greece’s finance minister was out with similar comments:

Restructuring is not going to happen. There are much broader implications for the eurozone should Greece have to restructure its debt. People fail to see the costs to both Greece and the eurozone of a restructuring: the cost to its citizens, the cost to its access to markets. If Greece restructures, why on earth would people invest in other peripheral economies? It would be a fundamental break to the unity of the eurozone.

In other words, “we are well capitalized”. That’s all well and good, but actions speak louder than words. The truth is that austerity is not working in Greece. They have failed to realize the crucial flaw in the Greek austerity plan: the private sector and public sector can’t save at the same time. They’re essentially hoping that they can get more blood to the heart by cutting off both arms. That’s just not how it works. Cutting off both arms simply exacerbates the problems. Slowly, but surely, you bleed out.

Their continued funding woes are obvious. According to the bailout facility Greece continues to increase their reliance on the ECB. ECB funding now represents 20% of total Greek banking assets. The following two charts from Goldman Sachs show Greece’s (and the entire periphery’s) increasing reliance on the kindness of strangers.

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