Why Euro Countries Won’t Punish Investors, Only Taxpayers

http://www.hsdent.com/blog/Why_Euro_Countries_Wont_Punish_Investors_Only_Taxpayers


Extract from above link
-------------

German banks own $65 billion of Greek bonds, $186 billion of Irish bonds, and $216 billion of Spanish bonds.

French banks own $83 billion of Greek debt, and $201 billion of Spanish debt.

The Spaniards have the greatest exposure to Portugal, holding roughly $98 billion of Portuguese debt.

So, if the Irish can only pay back 80% of what they owe, then the German banks take a collective $37 billion loss.  If the Greeks only make good on 80%, then the Germans lose $13 billion and the French lose $16 billion.  You can see how this plays out.  If the weak countries lower the amount they will repay to the banks that lent them all that money, then the banks in stronger countries will take losses.  What is a bank to do? 

Obviously you instruct your bankers at the European Central Bank to create ANY DEAL that does not include write downs of bonds.  This includes printing more euros out of thin air, which is a tax on all euros in existence, and also crushing individual populations like the Greeks and Irish under austerity programs.  The logic of this is sound, even if the justict of it is questionable.  The profits and bonuses earned and paid by these large banks remain in their pockets, but all the risk of their actions is being carried by populations far and wide.

When states such as California, Illinois, and others that are under crushing debt start making noises about their cost of borrowing and begin looking for alternatives, remember all this.  It will sound depressingly familiar.