This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

EU Aid Package Will Destroy Greece: Opinion

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet ) -- Greece is insolvent. No amount of new loans from rich EU governments and the IMF can save Athens from default on sovereign debt, and that poses a clear threat to the global financial stability. Moreover, the solutions being imposed will reduce Greeks into poverty to sustain German prosperity. Welcome to the New Imperialism!

Greece's national debt exceeds 175% of GDP, and investors view its debt so risky that its bonds are deeply discounted in the resale market, pushing up yields to 20% and more. At those rates, Greece simply can't refinance existing bonds as those come due.

>> 5 Reasons Greece Deserves to Default

Either bondholders accept new notes with longer maturities and pay much lower effective yields than the notes they currently hold, or Greece must default on bonds coming due. However, bonds with longer maturities and lower effective yields will be immediately worth less than their face value in the resale market -- this makes such a rollover a soft restructuring or soft default. Bond rating agencies, if they apply established standards, must declare Greece in default in the face of such a maneuver.

This poses a twofold challenge for rich EU states. Their banks are extremely vulnerable and Greece has another way out if Athens has the sense to use it.

French and German banks hold $14 billion and $23 billion, respectively, in Greek sovereign debt, and even greater exposure to Greek private debt.

A soft restructuring on maturing debt should require those banks to recognize losses on their balance sheets, and if the bond rating agencies do their job --declare Greece in default. SWAP contracts guaranteeing the entire Greek sovereign debt, which exceeds $500 billion, will trigger. In addition, contracts on the debt of some European banks could trigger, and U.S. banks have considerable exposure to EU banks.

The global economy could easily replay the tragedy that followed the 2008 failure of Lehman Brothers and then AIG (AIG), which wrote SWAP contracts it could not honor, and threw the global financial system into chaos.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs