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Luni, 13/02/2012

I gave it a lot of thought whether to publish my position regarding to why the bankruptcy of Greece could blow up the European Union.

I feel that no other stress element is needed besides the snow and blizzard weather codes of all colours that are messing with our lives these days.

However, the situation in Greece is degenerating, escalating, and the danger is so serious that I cannot just keep for myself its potential valences and consequences, including on Romania.

My hesitation is due mainly to the fact that, as a financier, I am having a hard time presenting to you from the inside the misery and toxicity of a financial world, whose collars are white but whose conscience is extremely guilty, a world that we are part of regardless of our will.

But I am going to do it anyway because it’s fair this way.

Let’s first understand what’s with this dirty world, created and run by the most advanced intelligences in the field, trained in the famous brain incubators like Harvard, Oxford, Cambridge or other Top 10 universities, providers of Wall Street infrastructure.

At a world GDP estimated to approx. USD 70,000 billion, the international finances have created a virtual financial world considered to reach amounts ranging between USD 500,000 and 700,000 billion. To realize the magnitude of these figures, I will present to you two GDP extremes: USA – USD 14,400 billion, i.e. approx 2% of the aforementioned financial bubble, and Romania – USD 170 billion, i.e. approx. 0.02% of the same order of magnitude.

This virtual financial world between USD 70,000 billion (real value) and USD 700,000 billion (artificial value) is a toxic creation of the human mind, blinded by greed and hunger for profit by all means, that the great American businessman Warren Buffet considered in 2009 as “toxic weapons of mass destruction”.

What are they in fact? We could say they are financial instruments so complex that their own creators and promoters no longer understand or can control, but accept their evolution, development and dissemination.

Their creation was possible by combining 3 types of intelligences: economic, computing and mathematic, being produced at the border of these top domains, using the high financial technology.

One can find them sometimes in the financial press under the name of credit default swaps (CDS), derivative instruments, most frequently held on margin, swap instruments of the interest rates, clearing bonds and repo contracts, and many other such instruments.

It would mean suicide for this article if I presented you the economic, mathematic and computing construction of these financial instruments, which are extremely complex and, for this reason, I will present you their common denominator in a language easy to understand: the bet.

In fact, through all these types of financial engineering bets are being made, starting from the collapse of a state because of bankruptcy, as a result of a default, i.e. the suspension of payments from that state, e.g. Argentina in years 2000, and ending with the collapse of banks or other financial institutions, insurance companies, investment funds, pension funds, social security funds, hedge and estate administration funds and many other financial organizations which feed themselves with the toxic products explained above.

Why is the toxicity of these products so high?

And now I am going to present you the common denominator: the margin.

What does margin mean? It is in fact the stake of the bet; in other words, one can bet a certain amount using a financial instrument and, if they opt for the margin, it will guarantee them they can win much more than they invested, or maybe lose as much.

Example: you invest EUR 1 million. The bet quota, allowed by the margin, may reach even 1 to 40, depending on the incurred risk, which means that, if you win, the starting base for that winning will be EUR 40 million, not the single million you actually invested.

Let’s say you managed to win with a 40% efficiency. This will bring you a total winning of EUR 56 million (40 + 16), i.e. 56 times more than the investment itself.

Don’t forget that when somebody wins, somebody else loses.

How can you lose?

Let’s say you made a wrong bet; the loss will be compared not to the invested million but to the EUR 40 million; so, if we apply the same reasoning, you lose EUR 16 million, which means you have to bring in your own money, thus losing 16 times the invested amount.

Imagine that all these bets are permanently being placed and that a computing platform, programs and applications ensure its automatic functioning, without giving you the possibility to withdraw, especially when you feel that you placed a wrong bet.

It’s only logical for it to be that way. It’s just like the system of the classical financial operations like: documentary letter of credit, transit operations of the escrow account type, letters of guarantee, where at least the two parties involved in the contract, i.e. the seller and the purchaser, can no longer intervene, while a third party, usually the banks, play the role of the arbitrator, independently of the contracting parties and depending on the contractual provisions, thus conferring firmness and irrevocability.

On the mere collapse of the Euro currency, the scarecrow of the months of October-December 2011, EUR 21 billion were placed in bets; if we add a quota of 1 to 10, 20 or even more, we will realize the disaster in the pocket of those who placed a wrong bet, as the Euro currency is perfectly healthy even today.

Let’s get back to Greece.

Why do you think that the EU leaders refuse to allow it experience its financial end, through bankruptcy, i.e. default, when in fact that is the factual situation that governs it?

Why is there this unexplainable fear and these messages that are quite frightening, claiming that the default of Greece would mean a disintegration of the EU?

After a simple and good sense economic analysis, without taking into account the underground of the European finances, which are occult to the bones, we might wonder how a country whose GDP is EUR 250 billion would shake the GDP of the EU, which exceeds EUR 12,000 billion, representing 2% of it?

The answer that no European leader has the courage to give is that, upon the official acknowledgement of the default, a European (or even worldwide) tragedy is automatically triggered through the computer systems of the transaction platforms, as a result of the huge net of margin bets under all forms, which could actually blow up the European Union. The infection and contamination in the European financial system is so widespread that it can no longer be measured or prevented, neither before nor after its triggering, as it acts automatically.

This gives the shivers to the EU leaders because what could happen can neither be controlled nor managed.

For a better comprehension, I would like to remind you of a case that happened several years ago at the Bank Société Générale, in France, which I would like you to understand by considering what I’ve said before: Jerome Kerviel, a broker at this bank, involved the bank, without its knowing, in operations with derivatives, involving a margin.

He won EUR 1.4 billion, it went to its head (he probably already started thinking of himself as a star or maybe was encouraged by somebody), he increased the margin and the quota for bets, after which he lost more than EUR 6 billion at once; after his apprehension the bank’s shareholders had to convene a General Meeting of Shareholders and immediately bring in EUR 5 billion form their own sources.

Imagine that Greece is not Société Générale and that the bets on its life were made in the entire EU any beyond, infecting the entire world.

This is the cruel truth: the official acknowledgement of the bankruptcy of Greece would trigger the very same second, automatically, the close-out of all financial positions (there could be millions or billions of such operations), probably opened in years, particularly during the most recent years, which might cause effects unimaginable today, such as chain bankruptcies in all kinds of financial organizations that placed lots of debts on one situation or the other, pulverization of the funds deposited by various categories of depositors to financial institutions such as those described above, and all kinds of adverse effects like that, which could decisively affect the life of citizens of Europe or even of the world.

Or even worse, as a subsequent effect of opening positions held on margin in order to favor the relevant bets involving amounts of hundreds and thousands billion Euros, some extremely powerful financial entities use their lobby and influence in order to make their stakes happen, pushing towards the disaster even states, not to mention other entities weaker than the states.

In the specialized literature, these are known as speculators, of whom many are afraid and in front of whom all kinds of obstacles are installed (e.g. the IMF loan for Romania, whose aim is said to be a consolidation of the NBR’s capacity to fight against this species of financial predators).

This is the reason why the EU will do its best not to encourage Greece to officially declare its bankruptcy and, eventually, it will probably tolerate all its fiscal-budgetary caprices in the detriment of certain states, such as Romania, which in its entire history has never been exempt from reimbursing even one penny.