Do the financial problems of Greece make you wonder whether the gods and goddesses of Greek mythology would have thrown up their hands in frustration? While some might say yes and others might not, either way, Greece’s financial misfortunes have a lot of people talking. Mark Matson wants clients to understand that the news surrounding Greece’s current financial crisis isn’t as bad as it seems.
For years, Greece has had difficulty paying back borrowed money, including two separate bailouts received in 2010 and 2012 that roughly equate to over $240 billion USD. The bailout dollars represent billions of dollars owed to banks, private investors and a number of European countries like Germany, France, Italy and Spain.
Right now, Greece and its lenders are hashing out a third potential bailout that must be settled by Aug. 20 absent a second bridge loan. According to Reuters, this bailout, expected to be worth up to 86 billion euros ($94.5 billion), is likely to happen, but there is still work to be done. The question is whether Greece will be capable of paying back these billions of dollars. If Greece defaults or declares bankruptcy, creditors would lose their investments. Some fear that bankruptcy or default will cause a ripple effect that could damage other economies, including the United States.
Responding to The Concerns
Mark Matson gave his thoughts on these concerns during a recent segment of Matson Money Live! where he and his team broke down the logistics of the issue. They noted that investors should first understand that things seen on televised news shows or read in newspapers about the issue are often sensationalized to make it seem worse than it really is. Michelle Matson put it in perspective by saying one country, particularly a relatively small country like Greece, is unlikely to have the largest impact on the global economy.
In addition, even if the situation turns into a bankruptcy or default, investors need to understand that this would not necessarily mean that repayment will not happen. Historically, these events have happened before and have resulted in a number of different outcomes, including debt restructure plans, modified repayment arrangements and other solutions. Investors should also understand that government defaults and bankruptcies can happen anywhere around the globe. Take for instance the 2014 restructuring plan in the city of Detroit, Michigan after they declared bankruptcy. It can happen anywhere, but it doesn’t necessarily impact the global economy.
The credit default risk associated with emerging markets and municipalities is one reason why Matson Money does not invest in municipal or emerging markets bonds. Avoiding these investments decreases credit default risk for your portfolio, but is not a guarantee of portfolio performance.