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There were some interesting lines in Monday's speech by Greek Prime Minister George Papandreou. While speaking at the Brookings Institution, he laid out new austerity plan to reign in spending, while also stressing the importance of the trans-Atlantic bond the US and Greece share.

He did, however, spend an inordinate amount of time ranting about the swaps market. Oh, not the interest rate swaps that Greece used to hide its deficit, but the credit default swaps that bondholders buy to protect against defaulting Greek debt. To be fair, the PM made a great point in suggesting that those who do not own the underlying debt should not be profiting from spiking credit default swaps, but the point he misses is that they're irrelevant to the underlying issues. Namely that Greece overspent thanks to an artificially low cost of credit.

The most important part of the speech:

Despite the deep reforms we are making, traders and speculators have forced interest rates on Greek bonds to record highs.

Many believe there have been malicious rumours, endlessly repeated and tactically amplified, that have been used to manipulate normal market terms for our bonds.

Partly as a result, Greece currently has to borrow at rates almost twice as high as other EU countries. So when we borrow 5 billion euros for five years, we must pay about 725 million euros more in interest than Germany does.

Of course you have to pay higher rates, George! Just like a bankrupt state like California must pay higher rates than other states or the USA as a whole. That's not a result of "speculators" or "bond vigilantes." If anyone was "speculating," it was those lending money to Greece at the same rates that Germany was borrowing at despite a good decade or two of Greek accounting fraud.

(To clarify below, Germany and Greece were never the same credit, but investors in their giddiness lent them money with that implicit backing in mind.)

Disclosure: No position

Source: Charting the Complexities of the Greek Situation