Greece "Defaults"

Title should be changed to "Moody's thinks Greece has defaulted"

I have stopped trusting a word that comes out of Moody's mouth. Moody's is described by wikipedia as: "Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation,". Moody's corporation is described as "often referred to as Moody's, is the holding company for Moody's Investors Service (MIS), a credit rating agency, and Moody's Analytics (MA), a provider of financial analysis software and services."

They are not an independent body.

They also reported that they thought Ireland needed a second bailout. This was reported by the Irish Independent(another source of news I now take with a pinch of salt) as the headline "Ireland needs second bailout"

Dubit10 wrote: »

So despite all the huffing and puffing and cover ups from our supposed betters and the elite Greece finally has defaulted. Life goes on.

No, a financial corporation considers Greece to have defaulted per its default definitions.

Thats a bit like the ESB cutting you off because you were a week late paying the bill.

4.legs.good wrote: »

And the world does not end...

http://rt.com/news/moody-s-greece-default-debt-241/

ISDA, who are the only relevant organisation until Monday afternoon, have only decided that a credit event has occured. This does not mean a default in the sense of a failure to pay. This credit event will be classified as a "restructuring credit event" following on from a deterioration of the terms governing the Greek bonds.

The reason why the initial response has been subdued is because this credit event has been priced into the cost of Greek debt and CDS - arguably since its voluntary swap last July, when financial institutions had time to sell off or otherwise mitigate their exposure to Greece.

That does not apply to Ireland. Because market participants do not presently anticipate any voluntary or forced default on Irish debt, because the country's debt is seen to be more sustainable than Greece's or Portugal's, any similar credit event here would be a shock and would be more distressing to European balance sheets than that event which has occurred on Greek debt.

syklops wrote: »

They also reported that they thought Ireland needed a second bailout. This was reported by the Irish Independent(another source of news I now take with a pinch of salt) as the headline "Ireland needs second bailout"

I only remember this because there was a similar debate used about the same line being used by the IT. The headline used in both cases, originally, was "Ireland likely to need second bailout warns rating agency Moody’s", and then the Irish Times changed theirs to 'Ireland may need second bailout'. Both are correct.
http://www.independent.ie/business/irish/debt-crisis-ireland-likely-to-need-second-bailout-warns-rating-agency-moodys-3039526.html

In any event, as far as I can remember the exact same warning was issued last Summer, and for definite people like Willem Buiter chief economist at Citi and many financial journalists and institutions have been saying this for just as long. I don't see why it's big news when Moody's says it, apart from the fact that the media (like the markets) love a good spook.

ArmaniJeanss wrote: »

Why do you say this is a 'disaster for Greece', as opposed to a disaster for the holders of Greek bonds?

I wouldn't necessarily agree that 'this' event is a disaster for Greece. This event is merely the official manifestation of the inevitable. It has been priced into Greek debt for months, it has adversely affected its financial and economic stability in a domestic sense, it has caused a major contraction of Greek employment and economic output, with GDP down over 7% in the last quarter based on the previous year. And it still has to implement a crushing degree of austerity because with this sort of adverse perception of the Greek economy, its economy sinks deeper and deeper into decline.

We don't know what sort of impression this will have on Greece ever returning to the sovereign bond markets, and any suggestions are complete speculation. However, that's not even the point. The damage has been done over the past 12 months in particular, and will continue to be done as economic output worsens.

We do now want this. We should not want to be Greece.

ArmaniJeanss wrote: »

What do I say to people who say 'look at Greece, they got their debt reduced and thats fantastic news for them, why can't we get the same'?

Ask them if they want Ireland to go right down the toilet like Greece first.

Monty Burnz wrote: »

Ask them if they want Ireland to go right down the toilet like Greece first.

Exactly; a portion of their principal burden has been reduced but the cost of financing the balance of it has just increased (based on notional market indicators, since they're out of the markets).

What's the point of reducing your principal if you're just making it harder for yourself to finance the balance when you do so? There's a reason this stuff is so detested by a lot more people than just those with exposure to a sovereign.

It was often said that Ireland should adapt a "wait and see" approach to sovereign restructuring based on the Greek outcome. Well we have waited and seen the crisis unfold when it became evident that this restructuring would occur, and we ought have no reason in the world to want to emulate it.

stackerman wrote: »

They are indeed,
But what happens when Spain, or Italy do the same thing (and they will). Theses Banks/financial entities can not cover such huge amounts.

This has effectively already been engaged with. LTRO operations can be argued to be an appropriate short-medium term solution while European peripherals get their house in order or while the Euro gets its governance in order.

And if you look at the refinancing costs of non-programme, peripheral debt, it appears to be working.

Scofflaw wrote: »

Greece is hoping - with the write down and much much more austerity - to get their debt levels down to 120% by 2020, whereas we're expecting to top out at 115% in the next couple of years and then start declining.

My understanding is that Ireland is expecting to reach 119% of GDP, just 1% short of what is deemed the magic figure in unsustainability.

http://ntma.ie/Publications/2012/InvestorPresentationIrelandOnRecoveryPathFeb2012.pdf


Some people may look at this and regard it as nitpicking but actually there is a perception that the 120% figure is important as a macroeconomic indicator for sustainability, and that any adverse deviation means trouble for the state's perceived health. So we really are sailing close to the wind.