Greece Closes Banks in Crisis

Posted on | June 29, 2015 | 70 Comments

It was first announced that Prime Minister Alexis Tsipras debt-ridden left-wing government would close banks Monday, but now they’ve decided the banks will remain closed all week:

Greek banks are to remain closed and capital controls will be imposed, Prime Minister Alexis Tsipras says.
Speaking after the European Central Bank (ECB) said it was not increasing emergency funding to Greek banks, Mr Tsipras said Greek deposits were safe.
Greece is due to make a €1.6bn (£1.1bn) payment to the International Monetary Fund (IMF) on Tuesday – the same day that its current bailout expires.
Greece risks default and moving closer to a possible exit from the eurozone.
Greeks have been queuing to withdraw money from cash machines over the weekend, and the Bank of Greece said it was making “huge efforts” to keep the machines stocked.
Greek banks are expected to stay shut until 7 July, two days after Greece’s planned referendum on the terms it had been offered by international creditors for receiving fresh bailout money. . . .
Eurozone finance ministers blamed Greece for breaking off the talks, and the European Commission took the unusual step on Sunday of publishing proposals by European creditors that it said were on the table at the time.
But Greece described creditors’ terms as “not viable”, and asked for an extension of its current deal until after the vote was completed.
“[Rejection] of the Greek government’s request for a short extension of the programme was an unprecedented act by European standards, questioning the right of a sovereign people to decide,” Mr Tsipras on Sunday said in a televised address.
“This decision led the ECB today to limit the liquidity available to Greek banks and forced the Greek central bank to suggest a bank holiday and restrictions on bank withdrawals.” . . .
The temporary closure of banks in Greece, and the introduction of capital controls, is very bad news for Greece. Greek people will have less money to spend and business less to invest; so an already weak economy will probably return to deep recession.

(More at Memeorandum.) Notice how Tsipras suggests that the creditors are being undemocratic, rather than admitting that Greece has been irresponsible? Tsipras obviously believes Greeks have a right to other people’s money, and that it is wrong for European creditors to expect them to pay back what they borrowed. Meanwhile the financial experts are getting worried:

The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned.
The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies.
These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.
Claudio Borio, head of the organisation’s monetary and economic department, said: “Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.”

Oh, by the way: Puerto Rico can’t pay its debts, either.

Category: Economics, Greece

Comments

70 Responses to “Greece Closes Banks in Crisis”

Quartermaster
June 29th, 2015 @ 7:44 am

This is just the first wave. There will be more coming. A lot more.
Jim R
June 29th, 2015 @ 7:46 am

But Greece described creditors’ terms as “not viable”, and asked for an extension of its current deal until after the vote was completed.

“[Rejection] of the Greek government’s request for a short extension of the programme was an unprecedented act by European standards, questioning the right of a sovereign people to decide,” Mr Tsipras on Sunday said in a televised address.

He’s complaining that an unaccountable body has ruled in a way contrary to the democratically-expressed wishes of the people? Are we talking about Greece or the United States here?

/sarc

As for the criticisms of central banks backing themselves into a corner, it seems to me that this is only one way that big banks and nations have (once again) set up a situation where something is “too big to fail”: easy credit; excessive debt, both national and individual; politicians giving more and more goodies to voters in order to keep their phony-baloney jobs and often paying for these goodies by just printing money; increasingly large permanent welfare classes who expect and demand that the checks keep coming; central banks playing all sorts of games with money so that its actual value is highly questionable; and an international credit system that looks more like a shell game.

What will tip this tottering edifice over the edge? And what lies at the bottom of the cliff?
Sandtiger
June 29th, 2015 @ 7:50 am

Greece has behaved in a fiscally irresponsible manner. Sort of like that other country that has amassed ~19 trillion dollars in debt…what country was that again, I forget?
trangbang68
June 29th, 2015 @ 9:06 am

Coming to your local Wells Fargo at a date yet to be determined. Our intellectual betters have walked on water, defied the laws of economics, created “wealth” out of whole cloth, subtracted 5 from 2 and came out with a positive. Reality’s a bit*h.
God’s book says, “you’ve sown the wind, you’ll reap the whirlwind”
TheOtherAndrewB
June 29th, 2015 @ 9:50 am

If things get worse–and I am sure they will–there will be a lot of people standing around looking stupid and saying “But, but, but…Gay marriage!”
My father, a child of the Depression, told me a story from his childhood. His mother had invested all of her savings in “widow and orphan” stocks–absolutely rock-solid companies like railroads and steel mills. She spread the stock certificates on a table and said to my father “See all the pretty paper? It is just paper now.” She lost everything. Soon, many millions around the world will do likewise. But a fraction of the 3% of our population who are gay and want to get married can do so, so all will be well. It is all about priorities.
CrustyB
June 29th, 2015 @ 10:05 am

I had a friend who went to Greece with her Greek-born husband. Very pleasant place, lots to see and people are laid back, but to a fault. Nobody sticks to a schedule, airplanes take off whenever, businesses open whenever the owner feels like it, government workers retire to lifelong pensions at the age of 50 or younger.

And the country is broke, you say?
Wombat_socho
June 29th, 2015 @ 10:31 am

Starting with the rest of the appropriately named PIIGS, I suspect. Didn’t Spain just kick out the (relatively) conservative Peoples’ Party in favor of the Socialists again?
Art Deco
June 29th, 2015 @ 11:08 am

The top financial sector firms in the United States (JP Morgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, GE Capital, MetLife, Prudential, AIG, and Berkshire Hathaway) are generally satisfactorily capitalized, with equity equal to around 10% of assets. I think the one with the lowest ratio would be Prudential, at 6% of assets. As we speak, loan deliquencies at commercial banks are near 25 year lows for every class of asset other than residential real estate loans. Our debt to GDP ratio, while high at 100%, has stabilized in the last couple of years (and a great deal of it is held by the Social Security fund and the Federal Reserve).
Ilion
June 29th, 2015 @ 11:29 am

“Notice how Tsipras suggests that the creditors are being undemocratic, rather than admitting that Greece has been irresponsible?”
Now, now! Simply *everyone* knows that “democracy” means “you have to do what *I* want you to do”
ConstantineX1
June 29th, 2015 @ 11:31 am

This will be happening to the United States the moment China no longer needs our economy to sell their shit to in order to keep the peasants employed and not slicing the throats of their Communist dictators.
texlovera
June 29th, 2015 @ 11:32 am

Guess it’s time to go check out the madness at zerohedge…
ConstantineX1
June 29th, 2015 @ 11:32 am

No, “democracy” means doing whatever the majority of 9 unelected lawyers want you to do. Everyone knows that.
ConstantineX1
June 29th, 2015 @ 11:35 am

Including the US and our 19 trillion in on book debt plus $140 trillion in future unfunded liabilities. The Dollar is actually worthless except for the fact people still THINK it has value.
Art Deco
June 29th, 2015 @ 12:01 pm

Not yet. General elections are due in Spain before the end of the year.
Art Deco
June 29th, 2015 @ 12:02 pm

plus $140 trillion in future unfunded liabilities.

Someone’s been selling you on an accounting method which does not belong in a poker game.
Art Deco
June 29th, 2015 @ 12:06 pm

She lost everything. Soon, many millions around the world will do likewise.

Give it a rest. The Greek economy is not that large. Nominal prices on American equity markets declined by 90% during the period running from the summer of 1929 to the summer of 1932, but that reflected an implosion in corporate profits over the period (really, the disappearance of aggregate profits). That was in turn a function of horrendous deflation consequent upon maintenance of the gold standard. Nothing similar is in the offing. We have no gold standard in this country.
Art Deco
June 29th, 2015 @ 12:10 pm

??

Chinese exports to the United States amount to about 2.6% of our domestic product. They’re unlikely to evaporate overnight.
Art Deco
June 29th, 2015 @ 12:12 pm

The moderator is quoting a reporter’s gloss on the BIS report, not the report itself. Caveat lector. A great many reporters are attention whores.
Art Deco
June 29th, 2015 @ 12:12 pm

First wave of what?
TheOtherAndrewB
June 29th, 2015 @ 12:23 pm

I pray every day that you are correct.
DeadMessenger
June 29th, 2015 @ 12:31 pm

As I was saying the other day, there’s the coming of the four horsemen of the apocalypse, which are global judgments.

The third horseman is worldwide economic devastation (and I mean devastation), which comes *after* WWIII, which comes *after* the revealing of Antichrist, who is the first horseman.

And the revealing of Antichrist is either after, or coincident with, the Rapture.

Having said that, though, the dominoes could be lining up right now, which would mean that we’re very, VERY close to the end.

Or else, we’re very close to a really bad economic situation, but not global devastation. Just as 2001 was bad, 2008 was worse, then 2015 could be worse than that. (Can you see that these are all 7 years apart, and on Sabbath years? And also, this year is the 7th Sabbath year, which means that next year is a Jubilee year? Don’t know what that means, if anything, but I know to be watchful when weird “coincidences” start lining up. Proverbs 16:33).
trangbang68
June 29th, 2015 @ 1:47 pm

You seem like a pretty smart cat, while I’m an ignoramus when it comes to the dismal science so please enlighten me.
Is the Fed printing money to buy their own debt sound fiscal policy?
Will 2 or 3 taxpayers in a few years be willing to pay 75 % of their income to fund one retiree or even worse one disabled snowflake with acute social anxiety disorder?
Are the same financial giants that you claim are “generally satisfactorily capitalized” different than the ones who lost billions 8 years ago on derivatives?
Like I said, I’m no financial whiz kid, just an old carpenter trying to stay solvent. So please educate me into a happy place where unicorns and leprechauns dance around the pot of gold at the end of the rainbow White House.
Quartermaster
June 29th, 2015 @ 1:56 pm

I think the first step is the fall of the US. Economic chaos would rise quickly at that point. Israel will then be alone, and bad things will then begin to happen in the middle east once it is realized we can no longer protect Israel in anyway. First will come Psalms 83, then after a time will come Ezekial chapters 38 & 39. That will announce the end of the Church age.
Many think the latter will take place after the Rapture. I’m inclined to agree, but am not sure.
Quartermaster
June 29th, 2015 @ 1:58 pm

You make out like you’re so brilliant, what do you think it would mean?
Matt_SE
June 29th, 2015 @ 2:20 pm

I think the next shoe will drop on Tuesday, when Greece formally defaults. You see, we humans have common sense and can see where this is leading. That’s why our stock markets are falling.
The real deal happens when all the legalities are observed, and Greece defaults LEGALLY.
When that happens, the credit default swaps kick in: an automatic doomsday machine, run by machines (high frequency trading algorithms).
If Lehman taught us anything, it’s that world economics are complex and most of the connections are hidden.
Maybe I’m wrong, though.

PS: note that it is in the financial self-interests of a lot of people to deny that a default has taken place. The losers don’t want to pay up. They’ll call it a “partial haircut,” or some such bullshit. A partial haircut is a full default, since the original contract expected FULL repayment.
Art Deco
June 29th, 2015 @ 2:50 pm

When that happens, the credit default swaps kick in: an automatic
doomsday machine, run by machines (high frequency trading algorithms).

I believe people who traffic in these are generally both buyers and sellers of credit protection. On the Lehman CDS, IIRC the Depository Trust and Clearing Corporation made an unusual announcement to the effect the only about $6 bn would have to change hands because everyone’s positions netted out. Nouriel Roubini’s agency was at the time claiming that over $100 bn would have to change hands. What was unusual about AIG was that Joseph Cassano’s unit warehoused the risk, selling $400 bn worth of swaps on mortgaged backed securities, often unaware what the composition of the pools was.
Art Deco
June 29th, 2015 @ 3:34 pm

I’m not an expert either.

I’m pretty sure the Fed buys in the secondary market and not from the Treasury directly. The stock of outstanding Treasury issues has increased by north of $8 tn since September 2008. Federal Reserve Banks’ holdings of Treasury issues has increased by about $2 tn since then, so the equivalent of a quarter of new issues have been purchased by the Federal Reserve. Fed holdings of Treasury issues have been fixed since last November, so any debt issues since then have been purchased by dealers not influenced by the Fed in the market.
Matt_SE
June 29th, 2015 @ 3:49 pm

I haven’t seen a huge increase in transparency since Lehman, so I would bet most of the iceberg is still underwater. We won’t have long to wait, as Greece seems intent to not mince words about their default tomorrow.
Art Deco
June 29th, 2015 @ 4:55 pm

Again, most of the outstanding debt is held by public agencies. You can buy and sell naked CDS, I believe. If you’ve got some fellow like the London Whale who made some sort of intricate network of derivatives trades, I suppose it could be a mess for some institution. (And another reason, in case we needed one, that subsidiaries of a financial holding company which includes a deposits-and-loans component should not be permitted to take positions in futures and options markets. Ever).
Matt_SE
June 29th, 2015 @ 5:33 pm

BTW, my understanding was that many European banks accepted Greek debt as collateral. I doubt they’ve had time to divest themselves into safer instruments. That may be a serious problem for the rest of Europe.
Also, bond yields for PIIGS nations are already rising.
Grab the popcorn.
marcus tullius cicero
June 29th, 2015 @ 6:05 pm

…Forget Greece, the debacle with Puerto Rico bonds is gonna hurt a lot of retired people that bought into the “high return” “high risk” bull crap…It’s gonna be horrible when bond funds collapse!
Adobe_Walls
June 29th, 2015 @ 6:12 pm

It stopped being money in the thirties. Now it’s not even currency.
Adobe_Walls
June 29th, 2015 @ 6:15 pm

I don’t think end times are coming in the biblical sense. We haven’t earned that kind of break.
Adobe_Walls
June 29th, 2015 @ 6:34 pm

Oh I think we went over the cliff years ago, it’s just a really really long way down.
If allowed to the Market could teach a great many things about Greece’s collapse, the folly of the Euro, and the crash in 08 *sigh*. Greece in the near term and the Euro in the long term must collapse. As the Dothraki say ”it is known”. The ECB and the rest of Europe with the possible exception of Germany have known since 09 that Greece must succumb. They simply had to postpone the event until it wasn’t as scary and was less likely to be a contagion. Of course this is not to imply that anything constructive was done about the problem.
Adobe_Walls
June 29th, 2015 @ 6:39 pm

”a great deal of it is held by the Social Security fund and the Federal Reserve”
Which means the interest and SS payouts must be paid out of current receipts or current borrowing.

We borrowed over 8 trillion dollars in 2013.
Adobe_Walls
June 29th, 2015 @ 6:41 pm

Quite
Adobe_Walls
June 29th, 2015 @ 6:47 pm

Greece isn’t the big deal, unless of course it is. But if it’s default causes a panic it will be for sound economic reasons not because of the systemic importance of Greece itself. The market will have it’s say whether we listen or not.
So with all this news of Greece and now Puerto Rico going into default, how about some Rita Moreno! | Batshit Crazy News
June 29th, 2015 @ 6:55 pm

[…] down! EBL: Look on the bright side, the exchange rate in Greece should be fabulous! TOM: Greece Shuts Down Banks and Greece Runs Out of Other People’s Money Rule […]
Art Deco
June 29th, 2015 @ 7:17 pm

No. Total debt stock is $18 tn. The increase in the face value of outstanding stock since 2008 had been $8.5 tn.

We’ve never run a federal deficit equal to 45% of gdp. We’ve only ever had a federal budget that contextually large during the 2d World War.
Art Deco
June 29th, 2015 @ 7:18 pm

No, they did divest themselves of Greek debt, by and large. Central Banks have it, EU agencies have it, the IMF has it.
Art Deco
June 29th, 2015 @ 7:20 pm

This isn’t 2008. The trainwreck in Greece is no surprise.
Art Deco
June 29th, 2015 @ 7:22 pm

Puerto Rico debt amounts to about 2% of the outstanding stock of municipal bonds. Some people will lose money, not their shirts.
M. Thompson
June 30th, 2015 @ 8:52 am

This may be the signal of the end of the 70 years of Post World War II Europe. Old hatreds may erupt again, possibly into a shooting war.
Quartermaster
June 30th, 2015 @ 9:57 am

In 1929 there were people that had all the answers, just as you do, and they lived to see their wealth obliterated. We are in uncharted territory and have no idea how far the collapse will reach. There is a real danger that it will reach every part of the economy. We will have to wait ands see what will happen. It is a certainty that things will get bad as long as people are sanguine and do nothing about the dangers piling up. It would hurt to end the party, but it is also certain that the universe will end the party on its own terms, and its terms are far more harsh.
Quartermaster
June 30th, 2015 @ 10:03 am

The Gold Standard had little to do with the crash of 1929. It had a lot to do with the utter incompetence of people at the Federal Reserve Bank. The problems are a matter of record.
Like OtherAndrew I hope you are correct, but too many who earlier had all the answers lived to see their wealth destroyed against all they “knew.”
Art Deco
June 30th, 2015 @ 10:30 am

The Gold Standard had little to do with the crash of 1929.

And I never said it did. The gold standard was the reason that the monetary base remained fixed in the face of a rapid increase in the demand for real balances. The result was hideous deflation and and implosion of the real economy. The economy of both Britain and the United States began to recover rapidly when the currency was devalued and the classical gold standard replaced.
Art Deco
June 30th, 2015 @ 10:35 am

I have ‘all the answers’ and your humble self is babbling about “We are in uncharted territory and have no idea how far the collapse will reach.”.

What collapse caused by what, and when I say, ‘what’, I mean something going on outside your imagination. We have two very well telegraphed defaults, one of which implicates 2% of the value of outstanding municipal issues in the United States and one of which implicates about 4% of outstanding sovereign issues in Europe (which issues are mostly owned by public agencies). Traders in distressed debt who invested heavily in one or the other lose. That’s regrettable for them.
Art Deco
June 30th, 2015 @ 10:36 am

You think France and Germany are going to war?
Art Deco
June 30th, 2015 @ 10:40 am

Oh I think we went over the cliff years ago, it’s just a really really long way down.

What cliff? We have a problem with fiscal policy (which seems to have hit a plateau for the time being), a dubious regulatory architecture regarding financial institutions, a crummy body of labor law, and some anomalies regarding the composition of the monetary base. These are problems you can repair.
Art Deco
June 30th, 2015 @ 10:42 am

You fancy the dollar has not been a medium of exchange, a store of value, or a unit of account since 1933?