by Rom Badilla, CFA – Bondsquawk.com
May 16, 2010
It just seems like the “in” thing to do these days.
Bloomberg is reporting that Prime Minister George Papandreou stated Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis.
“Papandreou said the decision on whether to go after U.S. banks will be made after a Greek parliamentary investigation into the cause of the crisis.
“Greece will look into the past and see how things went,” Papandreou said. “There are similar investigations going on in other countries and in the United States. This is where I think, yes, the financial sector, I hear the words fraud and lack of transparency. So yes, yes, there is great responsibility here.”
Bloomberg stated that the investigation is focused on speculators that influenced the market, which led to spikes in borrowing costs.
“In the days leading up to the May 10 announcement of a loan package worth almost $1 trillion to halt the spread of Greece’s fiscal woes, European Union regulators were examining whether speculators manipulated the prices of bonds and equities and contributed to the crisis.”
“The Committee of European Securities Regulators said on May 7 it was investigating “exceptional volatility” in the markets and would work with other regulators, including the U.S. Securities and Exchange Commission, as part of a coordinated clampdown.”
This should be a quick investigation. The only thing Greece needs is a mirror. When a country has debt levels of 115 percent of GDP and a budget deficit as a percentage of GDP at 13.6, both figures are second highest in the EU, it only becomes natural for prudent bond investors to raise concern on your ability to pay down your debt. Throw in media footage of violent and deadly riots, bond investors have to question the government’s will to enforce austerity measures in order to get their house in order.
I hate to break it to you, Papandreou. Your country’s bonds were cheap for a reason. An investment’s worth isn’t what you think it is or should be. It’s worth what the next guy is willing to pay. Given the lack of fiscal responsibility the country has shown and the muted response by EU officials leading up to that point in addressing the crisis, it is apparent that there were no buyers.
The market does what it has to do since the final price of anything is the true arbiter of value. If you have a hard time accepting that, just check out the Euro. The markets have spoken as it will always find a way to express itself, even with ECB intervention. That’s not speculation or manipulation. That’s capitalism. That’s a fact.
Posted by Rom on 