Greece will default today, Puerto Rico will soon

House of cards
Here’s a tip to banksters. Loaning money to and buying debt from countries you know are in financial trouble often means they won’t be able pay you back. Loaning them money so they can pay back earlier loans is a textbook definition of insanity. Yet this is what passes for financial wisdom in our crooked, deranged world of international finance.

Not only will Greece default today, German Finance Minister Schnauble says Greece can stay in the euro even if it votes No on austerity. This after he huffed and puffed that Greece should just leave. Right. Meanwhile, Puerto Rico says forget about us paying back that $72 billion we owe. The White House wants public entities in Puerto Rico to be able to file bankruptcy. However, this would require changing laws, something Congressional Republicans oppose.

From the comments on Zero Hedge about Greece

The EU is calculating the risks of Greece default against the rest of the broke ass nations doing the same. This is why it has been handled this way. Public and ugly against Greece. I think they are hoping the Greek government and activists will be forced to capitulate and lose any political power while still keeping Greece within the union and under their direct control. The other nations must see that there is no escape, no options to the union. Greece will be sacrificed. It will become a backwater pariah. No one will want to follow in their footsteps. They WILL NOT be allowed to emulate Iceland.

Puerto Rico could easily become the same, as investors continue their pretend-and-extend.

Investors said the broad gains in the municipal bond market showed that Puerto Rico’s problems, while dire, would not lead to more systemic disruptions in the $3.7 trillion market that lends money to cities and states.

This is exactly what was said when real estate tanked in 2008. It wasn’t true then and it’s not true now. The big problem is that debt can be used as collateral from other speculation, and what the price of the debt tanks, the equivalent of margin calls happen. This makes everyone nervous because they’ve no idea where the risk is. Maybe their main trading partner just suffered huge losses and that could impact them. The risk is hidden and dangerous.

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