A market's failure to anticipate a crisis.

This chart shows the development of Greek 10 year bonds.

It proves that those who actually bought these bonds in the marketplace were failing to anticipate the crisis; they bought the bonds without demanding an appropriate risk premium. There was no substantial risk premium in these trades until immediately before the Greek debt crisis this year.
The level of 2002-2009 is comparable to low-risk investments' rates.

Marketplaces - crowd intelligence - are rumoured to be better at anticipation than lonely government officials.

What does this tell us about the ability to predict conventional war? Not much, but it leaves more than just a trace of discomfort. After all, some NATO and government officials speak of an early warning period of six years before a major conflict that would require mobilization.

The early warning period may indeed be six years. It was decades in the case of Greece. 
Would this early warning period be used well or would security policy fail to exploit it and be surprised just like the professional bond investors?

Sven Ortmann


  1. I don't know the details, but I seem to remember reading somewhere that the greeks concealed the poor state of their economy with manipulated statistics and inaccurate data.

    You can't expect the market to draw the right conclusions when the available data is false.

    So this says nothing about the skills of anticipation of the market versus government officials.

  2. There are two problems:
    (1) The Greek had to admit years ago that they faked balances, so there was little reason to trust them in the last years.
    (2) The official budget deficit isn't the only macroeconomic parameter that should inform investors about the risk of long-term bonds. The terrible trade balance deficit, the widespread corruption, the notoriously poor politics and many other factors should have been obvious enough warning signs.

    I admit that the bond buyers were obviously incompetent and politicians are not necessarily the same (*bitter laugh*).

    Nevertheless, "it leaves more than just a trace of discomfort."

  3. Yes and No.
    You have to ask who owns greek debt.
    Believe me, it aint Gordon Gecko.

    Its pension funds, and what they do is regulated, massivly so.
    Theres also a question of competance.
    If you are a hot shot investor who makes 8% returns minimum, you wouldnt be working for the french state pension fund.

  4. Further
    Norways state controlled pension fund is (claiming) to be investing masses of money in Greece.
    If thats true, I would submit it as further evidence that "the markets" arent always crowd intelligence, thay can easily be crowded out by a lonely government official with an agenda.

  5. "German creditors have a combined $43 billion outstanding with Greek borrowers, behind only French and Swiss lenders with $75 billion and $64 billion, (...)
    Greece owes $302 billion to all foreign lenders(...)"

    That's why Sarkozy pushed so much for a bailout; he protected the French bank shareholders' wealth.

    The overwhelming majority of creditors are large banks and only some of them are under state control.

  6. http://nbyslog.blogspot.com/2010/09/exclusive-norways-investment-in-clubmed.html
    Sorry I was refering to this piece, helps if I link to obscure articles I'm referencing, doh.

    "That's why Sarkozy pushed so much for a bailout; he protected the French bank shareholders' wealth."

    If only that were the whole truth, a Greek default would wipe out shareholders, bond holders and big chunk of depositors, which the state is insuring.
    Its not beyond reason that France could afford E30bn if Greece defaults, but the scary bit of Greece, is that it could force a Spanish default, and if that happens, theres just no way deposit guarentees can be met.