Anthony Hall
The smell of money is uncanny -- just about unforgettable, it might be said.
For two years, like a wobbly orchestra on a wobbly stage, the European financial system has hit all the wrong notes. First Greece looked ready to default, after initially handing deceptive financial statements to the European Commission. The European Union then spent two years scaring investors around the globe by assembling a series of too-little-too-late interventions that still have not resolved Greece's financial difficulties, despite a series of harsh and extremely unpopular austerity measures adopted by Athens. In the meantime, Ireland, Portugal, Spain and Italy took turns making headlines that spelled out their financial woes.
Despite the egg-on-faces reputation earned by credit ratings firms during the Great Recession (all of them clearly missing the call), when Fitch or Moody's Investors Service or Standard & Poor's now cast doubt over a nation's financial strength, the reverberations can be felt across the globe. S&P downgraded the United States last August and the Dow Jones industrial average experienced its most volatile week in a 75-year history, dropping and rising more than 400 points on four consecutive trading days. The index rose 5.5 percent on the year, but in August it dropped 4.4 percent. National Public Radio's online news site ran a headline in early August that said, in part, the downgrade meant "The End of Business As Usual."
No one argues these days that Greece's debt is any better than junk -- a technical term meaning 10-foot poles define a reasonable margin of safety. The $260 billion in Greek debt held by European banks represents a serious fault line in the financial system and the powers that be have warned the banks to accept 50 percent of the debt's value or be reasonably warned: Soon, they could have no value at all.
So, who steps in? That's right: Hedge funds are suddenly betting the European Union will not allow Greece to default on debt obligations that mature in March and are gobbling up Greek debt, like turkey vultures.
It turns out, The New York Times reports, the turkey vul --, the hedge funds may be doing themselves a disservice. The European Union has demanded Greece negotiate a 50 percent haircut (devaluation) of its debt, to reduce obligations as one step to put Greece back on solid ground.
The more debt the hedge funds take off the table the less an opportunity for Greece to show that is its making any headway on its debt.
In March, the big gamblers assume, Greece will be given a $38 billion rescue fund disbursement by the EU and the International Monetary Fund. Hence, the hedge funds are waiting for taxpayers to hand them the bounty of well-earned cynicism that they chose to ignore. Bully for them.
In international markets, the Nikkei 225 index dropped 0.74 percent while the Shanghai composite index was flat, dropping 0.05 percent. The Hang Seng index in Hong Kong fell 0.3 percent while the Sensex in India lost 0.86 percent.
The S&P/ASX 200 index in Australia shed 0.16 percent.
In midday trading in Europe, the FTSE 100 index in Britain fell 0.06 percent while the DAX 30 in Germany rose 1.02 percent. The CAC 40 in France added 0.73 percent while the Stoxx Europe 600 added 0.32 percent.
