WHEN GREEK SOVEREIGN DEBT IS CONSIDERED RISKLESS.

WHEN GREEK SOVEREIGN DEBT IS CONSIDERED RISKLESS. I posted here about how “top thinkers from all the world central banks were involved in formulating Basel II”, which permitted triple A bonds [many of them toxic, as it turned out] to be used to permit banks to “theoretically ramp up their exposure to this asset class by 50-fold and still not breach the required capital ratio of 8 per cent.” Simon Johnson, who served as the Chief Economist of the IMF, says in this article that: “The most important fallacy within the Basel framework is that AAA-rated securities and sovereign debt (when less than AAA) are regarded as zero-risk. In most instances, banks have the lowest risk weight on debt issued by their own government — Greek bank lending to the Greek government….” Professor Johnson takes the example of a Belgian bank and concludes: If we evaluate the balance sheet as we would for any nonfinancial company, the answer is an unambiguous yes: Assets are 74.5 times total shareholders’ equity.”