Wait a minute, let me get this straight - If Greece defaults

[scooterscot]

Will the UK end up owing billions? (I'm not talking about the pocket change of £2.5 billion greek bonds we have)

But will the UK possible end up worse off than Germany and France who made the largest loans in the first place?

Another worry is that Britain's banks and hedge funds have written multibillion-pound insurance contracts – credit default swaps – that would be triggered if Greece defaults.

Erik Britton, director of City consultancy Fathom, said: "It's not the direct exposure, it's the indirect exposure and the implications of an unruly default that I would be worried about. French and German banks bought Greek bonds, and they took out insurance against default. Who did they take out that insurance with? The US and UK banks. There has to be a loser – who's the loser?"

Perhaps Britain should just join the euro, you know better the devil you know and all that.

Treasury urges British banks to take big losses to help Greece avoid meltdown | Business | The Observer

[minestrone]

Seen a graph of each euro country's exposure to the debt on a paper last week (cannot remember which one sorry), Germany and France are up to their eyeballs in it compared to us.

We never joined the Euro so it is not our problem really.

[kaiser78]

Apparently if GB assist with bail out of Greece it will cost less than if they do go bankrupt in the long run.

[scooterscot]

Seen a graph of each euro country's exposure to the debt on a paper last week (cannot remember which one sorry), Germany and France are up to their eyeballs in it compared to us.

As you say 'euro country's exposure to the debt'

This article is not about direct exposure to debt. It's the indirect exposure, your graph would not show this.

[scooterscot]

Apparently if GB assist with bail out of Greece it will cost less than if they do go bankrupt in the long run.

I believe it. So indirectly we're not doing ourselves any favours by helping Greece out the door, are we? That would seem short sighed.

[doodab]

We never joined the Euro so it is not our problem really.

Unfortunately it could be a problem for US & UK banks. They made an absolute fortune from credit derivatives over the last decade. The market isn't reported on in much detail but it's big. The BIS reckon there are about $30 trillion of outstanding credit default swaps although obviously these aren't all linked to eurozone sovereign debt.

So the question is who holds them? Some will be held by people hedging their bond exposure and cancel out losses on the underlying assets, no doubt there is also a proportion of them that are held by hedge funds and other speculators with no exposure to the underlying (although they might have hedged with other derivatives, which will partially cancel each other out) and their win will be someone else's loss.

I did find this which attempts to explain it in terms of "potential exposure"

BBC News - Eurozone woes are US woes

The trouble is it's hard to put a number on the total losses or where the buck stops. It's not clear how banks report their exposure to derivatives contracts, or whether those holding bonds net those off against any CDS they may hold, how they account for counterparty risk on the CDS and so on.

[minestrone]

At some point you have to say no to lending someone money to repay money. Germany and France might want you to think Greece are some big country that cannot fail but in reality they do nothing and make nothing in a currency that is not our own.

[doodab]

Here is another scenario.

Goldman Sachs basically knew the true situation in Greece because they helped the then government cook the books. Quite a lot of other banks didn't, and sold credit derivatives which priced the risk of default based on the distorted information. Goldman and the speculators they service may or may not have taken a massive bet against various eurozone goverments defaulting (as they were accused of doing by EU ministers when all this kicked off) and may or may not stand to make a ******* ****load of cash when the chickens come home to roost.

All I'm saying is I'll be very surprised if GS are one of the institutions which stand to lose from a default.

[doodab]

At some point you have to say no to lending someone money to repay money. Germany and France might want you to think Greece are some big country that cannot fail but in reality they do nothing and make nothing in a currency that is not our own.

From the perspective of the Greek economy chucking good money after bad certainly isn't the answer. Personally I think a protocol for exiting the € in an orderly manner needs to be put in place sooner rather than later and Stavros and friends need to take advantage of it, and I think those who have lent to Greece need to accept they aren't getting all of their money back.

[suityou01]

Here is another scenario.

Goldman Sachs basically knew the true situation in Greece because they helped the then government cook the books. Quite a lot of other banks didn't, and sold credit derivatives which priced the risk of default based on the distorted information. Goldman and the speculators they service may or may not have taken a massive bet against various eurozone goverments defaulting (as they were accused of doing by EU ministers when all this kicked off) and may or may not stand to make a ******* ****load of cash when the chickens come home to roost.

All I'm saying is I'll be very surprised if GS are one of the institutions which stand to lose from a default.

Goldmans held a huge short position against Greece after selling them a tulipload of CDS. Go figure.