02 November, 2011

Greece and its Debt

Once upon a time in the world of finance, Germany and France got together and decided to adopt a common currency, the Euro. Thus was born the Euro zone. Ah, but they needed others to join the zone, otherwise there would be  no trading partners, so they invited the Benelux countries, Ireland, Spain, Portugal, Italy, Greece,as well as some Eastern European countries. Whether their citizens were happy with it or not, they were encouraged, actually pushed by their own governments, to adopt the Euro as their currency. Banks and investment groups were excited  the new countries to invest in, countries that were backed by Germany and the Euro.

Like errant children, Greece, Italy, Spain, Portugal and Ireland were ecstatic. They borrowed and spent, borrowed and spent to their heart's content. And no one questioned them. Then in order to pay their debts, they borrowed more until someone said no. And the financial world came toppling down.

How did they borrow?  The countries created bonds, and the banks all over the world snatched them up. No one bothered to see if the countries could actually pay the bonds back.

And so we sit and watch the never ending soap opera played out in the market, on the news programs and in the newspapers. Don't we have enough problems of our own to talk about? And if the big banks were foolish enough to invest in what is now considered "Junk" bonds, let them suffer. There are hundreds of little banks that didn't make that mistake.

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