The Greek Situation Resembles Lehman A Lot

The same atmosphere that was in the air right before the fall of Lehman Brothers is in the air in Europe and Greece. Steen Jakobsen, head economist of Saxo Bank, described in a note how he remembered to be almost alone in his conviction that Lehman Brothers was going to fall; both the Fed and the market kept seeing last-minute solutions.

Jakobsen sees plenty of similarities between Greece now and Lehman Brothers then. Lehman was financed 30/35 times on its balance sheet and Greek debt has/had similar exposure. The moral risks are also comparable; it comes down to buying more time on a macro-financial level, which never works.

Lehman Brothers’ Plan

Jakobsen explained that the Federal Reserve also wanted to buy more time for Lehman Brothers, since Plan A and Plan B were carrot-and-stick type of solutions. When those failed, Plan C was to panic. Lehman did not have a plan and Greece also doesn’t have a plan. Not having a plan is not a good plan and that is what is happening before our eyes today.

We keep having trouble with non-linear movements in the market, which is evident from the hope and the trust. To underline this once and for all: the biggest risk is huge value-at-risk; Puerto Rico possibly bankrupting and a more expensive euro, is what the economist writes.

A Holiday From The Market

He states that the market is looking for hedges that don’t exist. There is no good way to cover your positions at the moment. The only thing that is possible is not having bad positions when every thing correlates with each other.

Not making a last-minute agreement will push the German DAX down by 3 to 5 percent again and blow up credit risk for new members of the eurozone like Hungary, Croatia, Bulgaria, and Romania. Jakobsen concludes that his advice, which is to take a 6 month holiday from the markets, is the best advise he can give at the moment.