A colleague across the hallway from me and I often humorously wonder how long Europeans will go on pretending that Greece can be saved from bankruptcy.
It’s been obvious for a couple of years now that Greece was going to default because even the mathematically-challenged such as I can do basic scribbling that reveals that there now friggin way that Greece can ever pay off what it owes the banks in Germany, France and elsewhere. Yet the Greek Prime Minister and all sorts of Euro-politicos keep going on and on about how Greece is committed to fulfilling its debt obligations and that everything’s going to be just fine. And not only ordinary Europeans, but also European market analysts, have generally seemed to believe it. As my colleague points out to me, Europeans believe their politicians, bureaucrats and business elites can fix anything, so they actually haven’t realized how full of poppycock they are.
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Well, the wheels are finally falling off that wagon and now the Germans are just talking about trying to arrange an “orderly” default, which is about as likely as trying to have an orderly heart attack.
The markets are leaping upwards today because of world efforts to protect European banks, even if it’s just for a few months. This is from a Bloomberg story today:
“The ECB said it coordinated with the Federal Reserve, the Bank ofEngland, the Bank of Japan and the Swiss National Bank to extend three-month loans to euro-area banks in an effort to ensure they have enough cash for the rest of the year. The announcement added to optimism that policy makers were containing the European sovereign debt crisis after the leaders of France and Germany yesterday confirmed they will support Greece’s continued participation in the shared euro currency.”
(Back to Ed White here) Well, at least they’re facing reality, right on the anniversary of the Lehman Bros collapse, which you might recall provoked such a mess and caused all commodity prices including crops and meats to slump like a Winnipeg Blue Bomber fan after last Sunday’s game.
So folks are wondering if the eventual Greek default will be the new Lehman Bros failure. Will it shock the financial system to the point of paralysis and collapse? This would obviously be bad. None of us who rely in some way on crop prices want to see everything flushing down the toilet again.
There’s a tonne of bearish stuff out there today, with every economy and region seeming in bad shape right now. But there’s also a bullish possibility, which is more cheery to think about and so that’s what I’m going to do.
Perhaps the oncoming bankruptcy of Greece will be a Bear Stearns rather than a Lehman. Bear Stearns was a New York investment bank that collapsed in March 2008 in one of the tremors preceding the subprime mortgage meltdown. Quick and decisive action from the Federal Reserve Board of New York – a $30 billion loan – allowed Bear to limp into the arms of  buyer J.P. Morgan. And there was no general market collapse.
And commodities kept roaring higher. Even though the U.S. stock markets had turned down in August 2007, commodities – especially crops – shot ever higher. And it was in the post Bear weeks and months that crops like spring wheat shot to all time highs – by an incredible amount.
So commodities, and crops, can power higher even as the economy and financial system begins slumping. That’s worth keeping in mind now, because crop fundamentals are bullish – like they were in mid-2008 – at the same time as economic fundamentals are bad and getting badder.
So let’s hope a Greek debt default seems more like a Bear Stearns collapse and not a Lehman. And let’s hope a Lehman never happens.
