Is Greece Lehman or Bear?
Neither, argues BTIG’s Mike O Rourke.
We have come to the realisation that Lehman is not the correct analogy, Countrywide Financial is. Countrywide was the first “real” financial company to succumb to the credit crisis. Countrywide’s meltdown commenced in August of 2007. We have argued repeatedly, that Countrywide was the failure that should have happened. The money centre banks could have easily withstood and digested the fallout from a Countrywide failure. A bad actor would have been removed from the system and those trafficking very close to the danger zone would have recognised the need to right their ship quickly by reducing risk and cleaning up their books. Instead the Federal Reserve engineered an investment by Bank of America in order to prevent BNY Mellon from liquidating Countrywide’s collateral they had on hand for a margin call. The company was force into the embrace of BofA 5 months later. Then 2 months after that Bear Stearns was hurried into the arms of JPMorgan. As the weakest players were saved first, there was no will to save the moderately stronger later in the cycle, thus pushing the financial system closer to systemic risk. Greece is Countrywide, due to the limited exposure and size (for a sovereign). If this sovereign debt crisis needs a sacrifice, Greece is the default that markets can most afford to see . A Greek default would push other nations with tenuous debt situations to take their medicine sooner rather than later once the example is made. The short term pain would likely translate to long term gain.
Of course, it’s still stunning that we got into this mess. For that you can blame dithering Angela Merkel:
The EU will continue to try to avoid a Greek default , but from our perspective it is beginning to appear that the EU’s fretting and lack of leadership when the crisis first emerged has done irreparable damage to this process. The EU leadership has essentially waited until the last minute to thread this needle and this is a tough feat to achieve under immense pressure. If member nations fail to ratify the package, the next step will likely be and expanded role for the IMF
Of course, that means an expanded role for the US taxpayer!