# How the EU bailout package works..



## rayrecrok (Nov 21, 2008)

Hi.

It is a slow day in a dusty little Greek town near Thessaloniki . The sun is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist called Angela Merkle' is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner she wants to inspect the rooms upstairs in order to pick one to spend the night. 

The owner gives her some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. 

The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. 

The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. 

The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub. 

The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. 

The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. 

The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. 

At that moment the German traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. 

No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism. 

That is how the EU bailout package works! :wink: :lol: :lol: :lol:


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## GEMMY (Jun 19, 2006)

Nice "update" Ray. :lol: 

tony


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## nicholsong (May 26, 2009)

Nice one Ray, but unfortunately the credit has been going the other way round the block, methinks.

Could be that the 'tourist' ends up looking like the prostitute?

Geoff


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## raynipper (Aug 4, 2008)

From a financial friend ...................... more truth here even if it is all a joke. Ray.

Subject: Why the latest eurozone worry?... Long response but I think worth reading.

Basically it has become clear, and again this is where some of the protestors instincts if not their understanding is correct, the banks are playing both ends of the deal again. The reason I came to appreciate that the question of default is so important is because of this. It works like this. A country offers a release of Bonds to the market. These are usually bought by banks, hedge funds, mutual funds etc with only a tiny percentage going to individuals. Then the bonds sit in the banks books as assets that can be offset against capital requirements set by the FEDs here or ECB in Europe. Now this is where it gets interesting. When you get less secure bonds like by chance from Greece and Portugal the same types plus a few ‘vulture’ investors start to buy them as a gamble because the rates are higher. Sound familiar so far! Well then the banks/investors/hedge funds etc. Now these bonds can’t be used as security against the banks legally enforced capital ratios so what do they do…well they insure them of course! Sound familiar again? Well it should because that’s exactly what they did with the mortgages they sold. Well who provided the insurance? Well I bet you guessed it! Yes it was, wait for it, the same Banks! So now the banks have both ends of the same stick exactly as they did with the mortgage CDS. These insurance policies are payable on “default”. Now comes the bit that had been puzzling me for some weeks. Why when the banks etc have insurance on their Greek et al bonds should they accept a voluntary reduction of 15%, 30% and finally agreed to 50%? Well it turns out that if an agreement is “voluntary” the insurance is not triggered. So here’s the clever bit. The Banks get to sit down and run the numbers both ways to decide whether it will cost them more to trigger the insurance they wrote on other peoples bonds or to take a reduction in their face value of in this case 50%. Well they took the cut which tells you that in writing these insurances they took a huge risk similar to AIGs with mortgages. Yesterday three years after Lehman failed we had MF Global fail with listed assets of $41 billion and $39.68 billion in liabilities. Their leverage was 41 TIMES!!! I find it almost incomprehensible that Corzine an ex head of Goldman would have gone out there again and deemed this worth the risk. AKA we have learned nothing and apparently have nothing in place to prevent this kind of stupidity. An analyst yesterday said all it needed was a 3% fail rate on their bets for them to be out of capital. Talk about desperation!

So here is the bottom line again the banks etc are betting on both ends of the deal and we, Joe public, have zero idea where the empty chairs. I always said that I saw the property collapse coming but had no idea as to the depth and breadth of it. Well this explanation tells you why. Even the insiders don’t have a picture of the total exposure. This should be illegal but it isn’t. It won’t become so until they have destroyed some major institution which is so visible to all that it can’t be defended. As I said in an earlier e-mail…we are all doomed!!


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## nicholsong (May 26, 2009)

I have been saying for 20 years that if all the debts in the world were called in, or 'marked to market' the world would be proved to be bust.

The EU has not had its accounts signed off for 6 years!

Why do we let politicians handle our money?

Geoff


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## GEMMY (Jun 19, 2006)

Geoff, I believe the EU has NEVER had its accounts signed off. :wink: 

tony


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## nicholsong (May 26, 2009)

Tony

Says a lot doesn't it.

Would anyone employ an accountant who could not do accounts?

We are doomed!!

Geoff


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