GIVING GREEK GIFTS

Reading the press these days it is easy to have the impression that the European Union and the IMF are about to bail out the Greek government.

While that is certainly the surface appearance, there is more than meets the eye. The press has so far failed to take us beyond the surface.

The bail out is also a rescue for the investors in bonds issued by the Greek Government.

This is déjà vu all over again.

The world economy is still recovering from the "housing debt crisis". Better to have called that the "inept investment decisions relating to purchase of US mortgage backed securities"

Now we have the "inept investment decisions relating to purchase of Greek government debt".

Holders of Greek government bonds now realize they made bad investment decisions.
There are few clues as to who these holders are. Here is one
"Société Générale on Wednesday revealed for the first time a €3bn ($3.9bn) exposure to Greek government bonds as it announced a better-than-expected first-quarter net profit of €1.06bn."
[http://www.ft.com/cms/s/0/5b6fce12-580c-11df-9eaf-00144feab49a.html]

If the EU and the IMF supply money to the Greek government to keep it afloat they may simply be serving to minimize investment losses in the European banking sector

A possible rationale is that the European banking sector is still recovering from the credit crunch that spread outward from the US housing market debacle. This may justify the move but does not justify being less than forthright and transparent as to the winners and losers in this sad tale.

Once again the rating agencies are closing barn doors too late.
"LISBON, Portugal — Portugal, striving to avoid becoming the next victim of Europe's debt crisis, was put on standby for a credit rating downgrade on Wednesday even as the government managed to raise some euro500 million ($654 million) on the bond markets.
Moody's Investor Services warned it may downgrade Portugal's Aa2 debt rating in the next three months, a week after its rival Standard & Poor's cut its rating and stoked market concerns that the crisis in Greece was spreading to other financially troubled countries in the eurozone."
[http://www.google.com/hostednews/ap/article/ALeqM5gjzuiaROshdC5ZOt291UdymOx4bQD9FGOCK80].

In short, the sophisticated investors within the banking industry have made bad investments based on ineptness or laziness. The laziness relates to undue reliance on rating agencies who in turn have been inept or lazy.

The end result is that inept governments, issued debt to inept professional investors who were relying in part on inept rating agencies and now their losses will be significantly reduced by money supplied by the EU and the IMFto Greece. That money of course is not EU or IMF money, it is other peoples money and the other people are the taxpayers in Europe and around the world who pay taxes to support the EU and the IMF.