Greek debt

Greek Bad Loans Climb To Record 25% Of Total

Zero Hedge,

29 September, 2012

It appears that in the past few weeks, the number 25% is strange attractor of bad luck for Greece. First, a month ago we learned that Greek unemployment has for the first time ever reached 25%. Now we get to see the income statement and balance sheet manifestation of a society in socioeconomic collapse - Kathimerini reports that Greek bad loans, or those which haven't seen a payment made in over 3 months, have hit a record €57 billion, or 25% of all bank debt. "With one in every four loans not being repaid for more than three months, the bank system is feeling the pressure, leading to additional capital requirements that are expected to aggravate the state debt further."

That was Kathimerini's spin. The reality is that just like in Spain, where between bad loans and deposit outflows, the country has become a protectorate of the ECB, which is now fully in control of its banking system, so too in Greece Mario Draghi's tentacles are now in every bank office. Should Greece repeat the festivities of this summer and threaten to pull out of the Eurozone, the ECB will merely in turn threaten to push the red button and cut off all cash to terminally insolvent Greek banks, which of course would also mean a total halt of all deposit outflow activity. So instead what will happen is the ongoing rise in unemployment, and the increase in bad loans as percent of total, until one day the economy, even with all the money in the world pumped into it from Frankfurt, will no longer move. That day is getting very close.

From Ekathimerini:

The greatest part of the bad loans derives from business activity, accounting for some 33 billion euros of loans that are not being repaid. Bad mortgage loans come close behind, as they are approaching a record 20 percent of all housing loans, amounting to 15 billion euros. Consumer loans and credit card bills that are not being repaid add up to 30 percent.

Another worrying factor is that nonperforming housing and consumer loans have reached this level despite the fact that banks have proceeded to favorable arrangements for some 665,000 loans totaling 20 billion euros.

One "solution" to dealing with untenable debt: extending debt slavery in perpetuity:

The Development Ministry is already working on changing the legislation for overindebted households. The main changes will concern the continuation of loan repayments by borrowers who seek to benefit from the legislation.

Currently installment payments are frozen until borrowers’ cases are heard. The amount of the installment will be determined by the loan recipients who apply for protection according to the law. The change in legislation is aimed at borrowers avoiding accumulating more debt until their cases are heard, as well as reducing abuse of the law by borrowers.

Another change planned is for the extension of the repayment period of housing loans concerning main residences, which currently stands at 20 years. This could be stretched to up to 40 years, based also on the age of the borrower.

Another "solution", because there is never such a thing as a free lunch, or debt amnesty, is to have all those other people who lived prudent, and fiscally responsible financial lives, bail out the deadbeats, who after monetizing the benefits of loans they had taken out without a gun to their heads up front, have now refused to pay their contractual obligations.

In cooperation with banks, the Development Ministry is promoting a regulation for a 30 percent reduction in the monthly installment borrowers have to pay. This amendment will reach Parliament along with the withdrawal of the names of borrowers who despite being blacklisted for not having repaid their loans since 2009, have managed to pay their dues since then in spite of the crisis. This will be a form of amnesty, used as an incentive for debt payment.

Here is the problem: you don't incentivize someone to pay their debt by telling them the already massive debtload will be cut by 30% as a result of it being too great. You incentivize them to pile on even more debt!

But such is (the lack of) logic in the New Normal Insolvent world. Pick your poison.