Questions and Answers on Euro Crisis

Mrs_Bones

I'm watching the talks on the Euro Crisis unfold and keep coming up with questions and I'm sure there are some knowledgeable people on here who have answers to questions. So thought I'd make this thread for all those of us who'd either like to gain an education by asking questions or show off by giving some answers.

I'll start it off by asking

1) What is leverage exactly? they keep saying they will use this to turn the few billions they've got for bailouts in to trillions, but isn't it just another form of borrowing. If countries can not pay back what they have borrowed now, how will more borrowing help?

2) The other idea I keep hearing mentioned is some sort of insurance scheme, where by investors will be protected for 20% of anything they invest in troubled countries. Is this really a good deal? I know I'm a cautious soul but I wouldn't invest if I was only protected for 20% in somewhere I knew was already in trouble. Will investors really feel encouraged to lend with such an insurance scheme?

nearlynew

Imagine 2 people who have 10k to invest. One buys some shares, the other puts it down as a deposit for a 100k house.

If the shares rise 10% and house prices go up 10%, the first person has made 1k, the second has made 10k. That's leverage - it amplifies the gains.
But leverage is a double edged sword because it also amplifes losses. If house prices fall 10% the second person has lost the whole 10k while a 10% loss for the first person means they only lose 1k

Banks have done this on a massive scale - turning once valuable assets like mortgages into junk which they have been selling to each other.

The other stuff you mention is just financial wizardry and fraud given a respectable name.
If gangsters were doing it they would call it a protection racket and people would be in jail.

The bank can do it because they call it trading.

nearlynew

So they have "solved" the problem of too much debt by throwing more money at the problem and creating more debt.

Genius.

What's the betting they do the same next month when this doesn't work?

Lying, can-kicking thieves.

BlondeHeadOn

This sounds more and more like one of those 'debt consolidation schemes' to me.

Are we sure that Ocean Finance isn't involved somewhere?

:cool:

gailey_2

Thanks for raising question i posted same thing.

leverage seems very bad to me.
really think greek should default and leave euro.

there are 28countries in european union
just 17 of which in eurozone.

the way they parcel up debts to sell confuses me.
thourght we had stopped with that in credit crunch clearly not.

my gut feel is

uk and euro banks wil cut back on lending even more as recapitalising means reducing their assets less assets mean they have to hold less money.

no growth ,high unemployment and high living costs will make it hard for some countries to get back on their feet.
its ok for germany they make stuff uks mostly services.

markets seem calmed are they total idiots.

I feel even more nervous

dont think they have any idea of what they doing.
could make things worse.

Mrs_Bones

None of this is actually going to help Greece is it. I mean they are completely broke now and this bailout fund isn't going to help them directly it's going straight back into the banks that lent them money to start with.

If their country is not growing how are they going to pay any of these bailouts back?

The_White_Horse

never mind this, i think people in the public sector should all get pay rises.

Aspiring_Writer

Mrs_Bones wrote: »

None of this is actually going to help Greece is it. I mean they are completely broke now and this bailout fund isn't going to help them directly it's going straight back into the banks that lent them money to start with.

If their country is not growing how are they going to pay any of these bailouts back?

Bang On MrsB. I cannot for the life of me see any way out of this for Greece bar defaulting on their debt. Then, with some financial advice from the IMF maybe, they can be shown how to get themselves back on track.

I have raised a question in another thread, unfortunately I have only just noticed this one.

Thanks for posting it. Hope we both get some answers, but I don't think anyone has a clue do they?

I don't mean necessarily just on here, everywhere!