Excerpt
In one of the more comical meetings we have ever attended, one chief economist at one of the largest banks in
Greece surmised that if the sovereign could transfer €100 billion of government debt to the personal balance
sheets of the population that it would be a potential “magical” fix for the state’s finances (and subsequently
pointed out that Greece would not be such an “outlier” as a result). When asked how the Greek state could
accomplish such a feat, he said he did not know and that maybe Harry Potter could find a way. It is hard to
believe, but he was completely serious. For him, it wasn’t important how or if it could happen – as long as the
potential outcome made the situation look better for prospective bond investors. Greek banks have between 3â€
3.5x their entire equity invested in Greek government bonds. Consider that if these bonds took a 70% haircut
(Hayman’s estimate of the necessary writeâ€down), Greek banks would lose more than twice their equity.
Shortly after this meeting, my host informed me of an audit recently done on one of the largest hospitals in
Athens. This hospital was hemorrhaging Euros, and the Greek government is required to make up the deficit
with capital injections. Officials began an inquiry into these losses and found 45 gardeners on staff at the
hospital. The most interesting fact about the hospital was that it did not have a garden. The corruption is
endemic in the society, and it is no wonder that Greece has been a serial defaulter throughout history (91
aggregate years in the last 182 – or approximately half the time).
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