Black Swans Gather For Greek Default Feast

Greek default playing with fire

The economic and political consequences of Greece defaulting instead of reaching a voluntary debt-restructuring deal are being underestimated, Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said.

Default risk is much higher than what people normally take into account,” Ackermann said today in an interview at the World Economic Forum in Davos, Switzerland. “You see already that some markets are nervous about certain countries,” he said. “That is playing with fire if you think that a default will have no impact.”

As Greece’s creditors continue negotiations with the country’s government as well as the International Monetary Fund, European Union, and European Central Bank over the terms of a restructuring, some investors and financiers are downplaying the consequences of a default. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said this week that it would not be a “disaster,” Dow Jones reported, citing an interview with CNBC.

“They are underestimating the collateral damages and they are underestimating the risk of contagion,” Ackermann, 63, said today. “If we have a default in the euro zone going forward, this will reduce somewhat the trust and confidence in the euro system and so, in that sense, we should do everything also from a historic and political perspective to prevent a default.”

Market participants remain sceptical that Greece will be able to make a 14.5 billion-euro ($19.2 billion) bond payment in March. In a Bloomberg Global Poll of 1,209 investors released this week, 93 percent of respondents said they expect Greece to default.

My view:

Peak complacency is demonstrated by this bit of news.

Facebook Inc., the world’s largest social-networking service, is aiming to file for its initial public offering as early as next week, two people with knowledge of the matter said.

The company is discussing a valuation of $75 billion to $100 billion, said two people, who asked not to be identified because the plans haven’t been made public. Timing for the filing is still being discussed and may change, they said.

The market is becoming very complacent.

The decline of the volatility index VIX is one indicator.

Another is the expectation that Facebook will launch an IPO within the next couple of weeks.

The market has probably priced in either a very orderly Greek default, or a new extend and pretend package for Greece.

The Troika certainly does not want European banks to take a huge hit to their capital if they can avoid it as it would slow down business lending.

Other forces are gathering to counter the Troika, and their plans to trump Greek sovereignty and indeed the sovereignty of every nation within the Euro.

Germany Calls for EU Control of Greek Budget

Watch for the results of the upcoming French presidential elections, and the reaction of right leaning parties in Germany and the Netherlands.

These black swans are gathering eagerly waiting to feast on the corpse of the European Union and its failing Euro currency.