Cash of the Titans

Our little Greek odyssey may be nearing its conclusion.

“I’m not saying that the government will ask for it,” Papaconstantinou told reporters in Athens after the first session of talks with officials from the euro region, the International Monetary Fund and the European Central Bank. The negotiations will probably last two weeks, he said.

The risk premium investors demand to hold Greek bonds over comparable German debt soared to 516 basis points, the highest in at least 12 years, on concern the cash-strapped nation may struggle to repay 8.5 billion-euros of bonds maturing May 19.

Every time Greece grasps like Tantalus for the fruit of low yields, they recede… And with the prospect of Greek default hanging like the sword of Damocles over the Eurozone bond market, Greece continues to roll like Ixion toward the inevitable.

I must admit, I do not want this to end. Writing about Portugal will be nowhere near as fun.

I have a question. Suppose a Eurozone bank buys some cheap Greek bonds and uses them as collateral for a loan from the ECB’s discount window. Suppose when it comes time to repay the loan, the bank says, “Never mind; just keep the bonds.” (cf. jingle mail) My question is, could this ever be a profitable trade? Say, for instance, if Greece defaulted in the interim?

Because if so, the ECB’s discount window must stink like the Augean stables.

1 comment to Cash of the Titans

  • MattJ

    You have an evil mind. I’m sure the European banks are too virtuous to even think of such a scheme, let alone do it.

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