Greek Leader Proposes to Step Down, Reports Say
June 15, 2011 10:15 AM   Subscribe

 
i don't know why anyone thought the Greek public would go along with "austerity" i.e. what the German and French bankers want...

Would the center-right party leave the euro if they were in power?
posted by ennui.bz at 10:20 AM on June 15, 2011


I've never really understood what the protestors hoped to gain here. The government is completely and totally broke, tax compliance is a joke, and replacing every single member of parliament isn't going to change either of those things. Making them all step down may make people feel a little better, but changing horses in midstream like that isn't going to make the inevitable solution to this problem--exactly the austerity measures being proposed--any easier or shorter. Remember, this is the guy the Greeks elected to fix the problem, and he's the first Prime Minister in decades to even pretend to be honest about the government's finances.

So the obvious solution is to... send the guy packing?
posted by valkyryn at 10:28 AM on June 15, 2011 [6 favorites]


I've never really understood what the protestors hoped to gain here.

I think their thought process is much like my neighbor: they can justify cheating on their taxes individually, because government "waste" and official corruption must be a much bigger problem than whatever the man in the street is doing (so they think).
posted by StrikeTheViol at 10:42 AM on June 15, 2011 [2 favorites]


Would that even help? How about some of those high cliffs being put to use for bankers one-time only use?
posted by telstar at 10:51 AM on June 15, 2011


I doubt the Greek mess is a result of the failure of common people to pay taxes. It's a complex problem created in no small part from the actions of an elite, and now the common people are being asked to pay. That's probably why people are rioting in the streets.
posted by KokuRyu at 10:53 AM on June 15, 2011 [16 favorites]


Very interesting - my friend and his wife are going there in a couple weeks. Hopefully shit doesn't get too crazy (I know how wackadoo the Greek anarchists can get! I don't know of any other country where the 'anarchists' murder politicians -- admittedly, it's been almost a decade since I've heard of it - but their pretty hardcore over there about their militancy)
posted by symbioid at 10:57 AM on June 15, 2011


I've never really understood what the protestors hoped to gain here.

I'm thinking they want to send a message: that the excesses of the wealthy aren't going to be born on the backs of the working class . A message that I wish we would see here in America but that does not look like its going to happen.
posted by Poet_Lariat at 10:58 AM on June 15, 2011 [3 favorites]


the inevitable solution to this problem--exactly the austerity measures being proposed

They could also just default on their debt like Argentina did. Despite what the IMF would have you believe, it's not the end of the world.
posted by empath at 10:59 AM on June 15, 2011 [2 favorites]


I doubt the Greek mess is a result of the failure of common people to pay taxes.

Is it the only cause? No, probably not. But tax evasion is a large and recognized problem which is complicating recovery efforts.
posted by valkyryn at 11:00 AM on June 15, 2011 [2 favorites]


They could also just default on their debt like Argentina did. Despite what the IMF would have you believe, it's not the end of the world.

Argentinian GDP is 18% lower than it was in 1998, and 60% of the country is below the poverty line. Not the end of the world by any means, but certainly not a terribly attractive prospect.
posted by valkyryn at 11:02 AM on June 15, 2011 [1 favorite]




Paul Mason's been in amongst the protests:
This is my third blog post in 24 hours from here, and at the risk of repeating myself, I think the level of mismatch between perception and reality within the Eurozone is worrying. Because last year's protests were mainly leftist; and the strikes mainly token, a pattern of thinking has emerged that dismisses all Greek protest as essentially this.

But a new situation is emerging: Greek people I have spoken to are beginning to express things in terms of nation and sovereignty - and this makes the Greek situation different, for now, to Ireland and Portugal.

While the centre right New Democracy would probably win any snap election, it is hard to find support for pro-austerity politics among ND's natural support base, the business class. Because austerity for them means getting hammered with a tax bill the like of which they have never dreamed, nor indeed paid.
Or from an earlier post:
The woman still tugging at my arm says, "We're not interested in media coverage. We've been here 22 days and this is the end of it. We've had enough".

An old man, aged 67, a sailor, says, "We don't want any more bailouts from the EU, we'd rather be poor and broke".

For all the leftist iconography plus the presence of that, by now familiar demographic, the Facebook youth - or "graduates with no future" - this thing has gone beyond left and right, it's no longer even a class thing. As the crowd around me erupts with the chant, "Greece, Greece, Greece!" it's clear that for many people it is the Hellenic republic versus the rest of the world.
posted by Abiezer at 11:05 AM on June 15, 2011 [3 favorites]


Anyone have any idea how many Credit Default Swaps against Greek default there are out there?
posted by ged at 11:06 AM on June 15, 2011


One small group of people profited greatly from years of uncontrolled government spending. The supposed solution is to apply harsh austerity measures on a different, much larger group of people.
Damn right I'd I'll be marching in the streets if it happened when it happens here. (pre-FTFY'd to save the effort)
posted by rocket88 at 11:07 AM on June 15, 2011 [8 favorites]


I'm thinking they want to send a message: that the excesses of the wealthy aren't going to be born on the backs of the working class .

The ship with the wealthy people on it has sailed. If the "working" class in Greece had better get to to work because no one is going to bail them out. German banks have been quietly dumping Greek government bonds for weeks now.

Even if the Greeks don't default, they will pay dearly for new loans to pay for their big fat Greek government.
posted by three blind mice at 11:08 AM on June 15, 2011


Argentinian GDP is 18% lower than it was in 1998, and 60% of the country is below the poverty line

Why did you pick 1998? The default was in 2002.
posted by empath at 11:09 AM on June 15, 2011 [5 favorites]


What are they hoping to achieve? Who knows. Perhaps they suspect that as usual, it's the common man in the street who will bear the consequences for the excesses of bankers, financiers and the elite who engage in irresponsible self-enrichment schemes while leaving the taxpayer to pick up the pieces. Why do they cheat on taxes? Well, maybe there would be greater compliance, if people felt that the system wasn't stacked against them; if you feel that you are reaping none of the benefits but are picking up the costs of a system run by rapacious elites, maybe you too would consider paying taxes to be a chump's game.

I wonder when the patience of the American people will similarly run out. You can only bail out the banksters so often before throwing in the towel and saying "fuck it". I love all that austerity talk from the usual quarters - all the austerity comes off the back of the poor, somehow the war department has endless funds and endlessly growing funds that never experience any austerity.

When the system is unfair and broken, people riot. That's been true for millennia of human civilization. Why is that surprising?
posted by VikingSword at 11:09 AM on June 15, 2011 [6 favorites]


Argentinian GDP is 18% lower than it was in 1998, and 60% of the country is below the poverty line

Actually, this is factually incorrect.

In 2002 the GDP dropped to 18% below what it has been in 1998. It's been growing at 8-10% annually since then.
posted by empath at 11:13 AM on June 15, 2011 [5 favorites]


valkyryn:Argentinian GDP is 18% lower than it was in 1998, and 60% of the country is below the poverty line. Not the end of the world by any means, but certainly not a terribly attractive prospect.

You misstated those figures. Reading your link , the figures that you gave were for 2002. The very next sentence in your misstated quote, that you declined to include said :
Real GDP rebounded to grow by an average 8.5% annually over the subsequent six years, taking advantage of previously idled industrial capacity and labor, an audacious debt restructuring and reduced debt burden, excellent international financial conditions, and expansionary monetary and fiscal policies.

also :
Argentina has managed to return to growth with surprising strength; the GDP jumped 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006 and 8.7% in 2007.

So the person that you were replying to was quite correct in saying that telling the banksters (IMF) to go to hell and not play their class-war games is not the end of the world. In Argintina'a case it led to greater prosperity.
posted by Poet_Lariat at 11:17 AM on June 15, 2011 [11 favorites]


Would that even help? How about some of those high cliffs being put to use for bankers one-time only use?

I doubt the Greek mess is a result of the failure of common people to pay taxes. It's a complex problem created in no small part from the actions of an elite, and now the common people are being asked to pay

The role of the banks in Greece is not a major root of this crisis. The widespread failure of not just the Greek taxation system (much of which includes ordinary citizens evading tax; big corporations are more likely to be pay because they're more accountable; but of course the Greek elites are to blame too), but also of legal record-keeping (e.g. no land registry) and pumped-up unreliable government statistics and special interest, unrealistic economic policies over many years. The VF article highlighted above is a good accessible introduction to some of the key problems.
posted by Bwithh at 11:22 AM on June 15, 2011 [1 favorite]


If they default on the debt, then they leave the Euro. That seems to be the trade. Membership in the Euro has kept inflation under control, that's good for the consumer. The flip side is it also means depreciating the local currency isn't an option for situations like we see currently.

I don't know why the great evil "bankers" are at fault here. The crisis isn't a result of some mortgage finance crisis, its the result of a government that can't getting spending under control relative to revenues, and the belated discovery that they were lying about it for years. The spending issues have a lot to do with tax evasion in Greece - which is simply stunning in its depth and breadth - and yes, the rich are the most culpable (although the middle class is also jam packed with tax cheats).

As for what the crowds want? I assume a debt default and a restructuring - which basically screws the debtholders, which from their perspective should be fine. What's going on now is the muppets at ECB trying to find a solution to an unsolvable situation. You can't really "half -default" - they either bail the Greeks out with lots of cash from German and France, or they let them walk - which has all sorts of other issues for Spain, Portugal and Ireland - but from a greek persons perspective - if the strings attached are too high (and the actual cash amount isn't enough to put the whole thing to bed for good), then you should say no, and damn the other countries.

Its the ECB that's basically fucked, not the Greeks. The other issue the core EU governments have, is that they encouraged their banks to load up on Greek debt, so if that gets defaulted on, they'll have that issue to deal with. Adn the real worry wrt to this issue isn't Greece, but rather Spain.
posted by JPD at 11:23 AM on June 15, 2011 [4 favorites]


Its way too reductive to say Argentina's debt default was a good idea based solely on GDP growth in the years that followed. Not to say that defaulting on debt isn't sometimes a not terrible option, but I wouldn't point at any country that defaulted, and then so big growth as evidence that defaulting is some cakewalk.
posted by JPD at 11:25 AM on June 15, 2011 [1 favorite]


Paul Mason's reporting is critical and brave, but I can't help but find myself incredibly annoyed with how dismissive he is of the massive youth involvement in the movement. Handwavey references to the "Facebook Youth", as if that demographic somehow made this situation less legitimate instead of remarkably more, and barebones 'coverage' of the indignatos are sort-of starting to grate on me. I don't know whether its his own bias or attempts to downplay any connection to the huge UK Uncut youth movement at home, but it really does seem like he's purposefully overlooking and minimizing a maindriver of active but peacefulish protest in Athens and not connecting the dots.
posted by Chipmazing at 11:25 AM on June 15, 2011 [1 favorite]


Bwithh:The widespread failure of not just the Greek taxation system (much of which includes ordinary citizens evading tax; big corporations are more likely to be pay because they're more accountable;

There. Fixed that for 'ya.
posted by Poet_Lariat at 11:27 AM on June 15, 2011


While the centre right New Democracy would probably win any snap election, it is hard to find support for pro-austerity politics among ND's natural support base, the business class. Because austerity for them means getting hammered with a tax bill the like of which they have never dreamed, nor indeed paid.

So they are protesting about paying their actual tax bill? Eh - that's not really the best argument I've ever heard.
posted by JPD at 11:28 AM on June 15, 2011 [1 favorite]


Anyone have any idea how many Credit Default Swaps against Greek default there are out there?

That's a good question which no one really knows. American banks are exposed. In total it's estimated somewhere around 2 trillion in European debt and insurance, of which a fair estimate is around 2% Greek (20 billion). That is what I read anyway on someone's blog who seemed to know something about it.

A concern right now is in a default could be like 2008 where no one trusts anyone because no one knows who has massive losses on the books and thus markets kinda stop functioning.
posted by stbalbach at 11:29 AM on June 15, 2011


Remember, this is the guy the Greeks elected to fix the problem, and he's the first Prime Minister in decades to even pretend to be honest about the government's finances.

So the obvious solution is to... send the guy packing?


Not really - he was elected on his claim that "money exists": his party claimed harsh measures could be averted, because they will govern smartly and trim the fat without hurting the little guys. They then proceeded to twiddle their thumbs or take ineffective measures. For example, tax revenue is expected to go down this year - mostly because of the pay cuts, as well as due to an unsuccessful attempt to increase tax compliance by requiring consumers to collect receipts.

Not that I expect much better from any other government, but the current one has been spectacularly uninspiring so far.
posted by Dr Dracator at 11:31 AM on June 15, 2011


Why did you pick 1998? The default was in 2002.

Because that's what the CIA world Factbook said. Others have corrected me.

So the person that you were replying to was quite correct in saying that telling the banksters (IMF) to go to hell and not play their class-war games is not the end of the world. In Argintina'a case it led to greater prosperity.

I'll admit I misread those numbers. But I still don't think they add up to what you're saying they do.

GDP drops 18% in 2002. Even with an 8.8% increase in 2003, 9% in 2004, 9.2% in 2005, 8.5% in 2006, and 8.7% in 2007, you're looking at a final number which is only 125% of what it was in 2002. That's about 4% growth a year. Which is nothing to sneeze at these days, but hardly suggests "increased prosperity." Anything will fly if you throw it hard enough. Toasters, for example. It still took them three years just to get back where they were before.
posted by valkyryn at 11:31 AM on June 15, 2011


Not to say that defaulting on debt isn't sometimes a not terrible option, but I wouldn't point at any country that defaulted, and then so big growth as evidence that defaulting is some cakewalk.

It's probably better than the alternative.

It seems like everybody is deeply in debt to everyone else. Why don't we just wipe the slate clean and start over?
posted by empath at 11:31 AM on June 15, 2011 [1 favorite]


Bwithh:The widespread failure of not just the Greek taxation system (much of which includes ordinary citizens evading tax; big corporations are more likely to be pay because they're more accountable;

There. Fixed that for 'ya.



The US is not Greece, your point has tons and tons of merit WRT to the US, in Greece tax evasion is something everybody does.

A concern right now is in a default could be like 2008 where no one trusts anyone because no one knows who has massive losses on the books and thus markets kinda stop functioning.

This is kind hyperbole. Gross external debt is only about $600 bil, lots of that will be held by central banks and what not. There is 14 trillion in outstanding US RMBS.
posted by JPD at 11:32 AM on June 15, 2011


That's about 4% growth a year. Which is nothing to sneeze at these days, but hardly suggests "increased prosperity."

But neither was it a disaster. They were looking at a bad situation regardless of what they did.
posted by empath at 11:33 AM on June 15, 2011 [1 favorite]


Its the ECB that's basically fucked, not the Greeks.

The Euro isn't fucked. It isn't even scared. Greece is 2% of the Eurozone GDP. A recsssion in Greece is a round off error.

Leave the Euro? Greece should be thrown out of the Eurozone. What where the Germans and French thinking when they let that country share their currency. I mean last time I used a drachma I needed about 2000 of them to buy a beer. That should have been a clue that some behaviour never changes ever.
posted by three blind mice at 11:34 AM on June 15, 2011 [1 favorite]


Perhaps the protestors are hoping to not end up like the Irish people - where the average person is now saddled with a crushing burden that they cannot ever hope to pay off and the country is being decimated to pay debts not accrued by the average citizen. It's not like things have gone amazingly well for Ireland for deciding that they were going to stand there and take the pain.
posted by lesbiassparrow at 11:34 AM on June 15, 2011 [2 favorites]


It's probably better than the alternative.


Depends what the alternative is - if its Germany writing a check that basically terms out Greek debt for the next 5-10 years in exchange for changes to the tax regime - and some handwave-y agreement on spending - that's a whole lot better then default. For you as a non-Greek non-default is almost by definition better.
posted by JPD at 11:34 AM on June 15, 2011


that's a whole lot better then default.

For who? Not the people who are going to have to pay more taxes and get less services.
posted by empath at 11:37 AM on June 15, 2011


The Euro isn't fucked. It isn't even scared. Greece is 2% of the Eurozone GDP. A recsssion in Greece is a round off error

True, true - but the ECB isn't fucked because its worried about just Greece defaulting and leaving- they are fucked because there is a concern that a Greek default starts a run on Portugal, Ireland, Spain, and maybe even Italy. If those last two go basically every bank in the eurozone is toast.
posted by JPD at 11:37 AM on June 15, 2011 [5 favorites]


According to NPR's Planet Money, US banks hold 7 billion in Greek debt and 34 billion in Greek Debt Credit Default Swaps.
posted by jeffkramer at 11:44 AM on June 15, 2011


For who? Not the people who are going to have to pay more taxes and get less services.


Probably not a decrease in service, but more taxes - like the taxes they were supposed to be paying.

I mean I think you are letting those GDP number on Argentina blind you to how miserable the default was there. A lot of what has happened since '05 or so was a result of growth across the emerging markets, nothing Argentine specific. In the wake of the default inflation went up 26% in '02 and and 13% in '03. Prices going up 42% over two years is not a good place to be. Also the first year after the default unemployment went up 5%, granted it has come way down since then, but unemployment at 20% and inflation at 26%? That sounds good to you?
posted by JPD at 11:45 AM on June 15, 2011 [1 favorite]


G. Papandreou on TV just now. He's (typically) blaming the opposition for their lack of cooperation and mistakes of the past, and announced a cabinet restructuring and vote of confidence for tomorrow - a national unity government is off the table.
posted by Dr Dracator at 11:48 AM on June 15, 2011


BTW - I'm all for Greek choosing to default with the spending cuts required by the Germans are too onerous, I'm just saying a deal that the populace (not he politicians) can live with is better than a default.

The opposite case is Ireland, where their politicians were just a little too happy to jump on the cost cutting bandwagon in exchange for their bailout. But also the causes of the whole thing in Greece are quite different from the issues in Ireland. There it really was a small cabal of bankers and developers who were culpable.
posted by JPD at 11:49 AM on June 15, 2011


7 billion in Greek debt and 34 billion in Greek Debt Credit Default Swaps.

The assholes with the CDS's can die in a fire as far as I'm concerned.
posted by empath at 11:56 AM on June 15, 2011 [1 favorite]


Depends what the alternative is - if its Germany writing a check that basically terms out Greek debt for the next 5-10 years in exchange for changes to the tax regime

My impression is that Germany and France want sovereignty encroaching controls on the Greek economy/tax regime, plus budget cuts, plus sale of state assets. I can't imagine any government selling that to the Greek public.
posted by ennui.bz at 11:56 AM on June 15, 2011 [1 favorite]


The US is not Greece, your point has tons and tons of merit WRT to the US, in Greece tax evasion is something everybody does.

My point was in response to the person who said corporations were more responsible with their taxpaying responsibilities. Grated the examples were all U.S. based but the fact that the wealthy and powerful have far more resources available such as lawyers, accountants, bought and paid for politicians and favorable tax laws in order to evade their fair share of taxes than the average person I believe holds true regardless of country. I think this is a reasonable rebuttal to the fallacy that somehow corporations are more responsible or accountable tax-wise than the average citizen. Whatever solution is proposed needs to spread the burden among all the classes - not just the working class. In fact I would argue that the much burden should be placed n the bankers and speculators who likely got Greece in to the mess in the first place.
posted by Poet_Lariat at 11:59 AM on June 15, 2011


My impression is that Germany and France want sovereignty encroaching controls on the Greek economy/tax regime, plus budget cuts, plus sale of state assets. I can't imagine any government selling that to the Greek public.

I pretty much agree that's what they want. What they'll get could be quite different.
posted by JPD at 12:00 PM on June 15, 2011


I'm guessing the Greek people are protesting against austerity because they currently face this choice:

- Adhere to the demands of the bondholders/ECB, essentially lose their sovereignty, sell off a majority of the Greek national assets, find external sources of capical become prohibitively expensive AND...endure a brutal decline in the standard of living.

- Default and endure a brutal decline in standard of living as sources of external capital become prohibitively expensive BUT retain their sovereignty and not sell off a majority of Greek national assets to private hands. See Iceland


I don't know why the great evil "bankers" are at fault here.

Completely at fault? No. Blameless? Also no

A lot of the machinations by holders of Greek debt and the ECB have been towards avoiding taking any capital loss on their debt holdings.

Sorry, but I don't think their debt is equivalent to a mortgage on the nation of Greece - If Greece doesn't pay, they don't effectively get to foreclose on the the nation. It's about time that large lenders of money are allowed to actually sustain losses on poor lending decisions instead of subsidizing them out to the public at large.

Also - Did Goldman Sachs Help Greece Trick Its Way Into the Euro?
posted by de void at 12:03 PM on June 15, 2011 [3 favorites]


What they'll get could be quite different.

this Reuters article is a masterful foray into speculative fiction...
posted by ennui.bz at 12:04 PM on June 15, 2011


Meanwhile in Spain...

I'll be curious to see what happens if the euro-dominoes start to fall one after the other; I realize that this has been described as nearly apocalyptic, but what does that really mean? Do underwater zombie armies ravage Benelux? Does Indonesia fly off into space?

What actually ends up happening if Greece defaults, followed by one or more of the other PIIGS?
posted by aramaic at 12:04 PM on June 15, 2011 [1 favorite]


Leave the Euro? Greece should be thrown out of the Eurozone. What where the Germans and French thinking when they let that country share their currency. I mean last time I used a drachma I needed about 2000 of them to buy a beer. That should have been a clue that some behaviour never changes ever.

Just a datapoint, Jean-Claude Trichet, president of the ECB refers to allowing Greece to default as "an extreme mistake" and adds that what Europe "[has] to cope with is something which is bigger, much bigger, than Greece. Much bigger than what we are observing in the Euro area. Which is something which deals with the advanced economy as a whole."

This is way bigger than Greek behavior. I mean, I love it, it's a great story. Greeks are in fact really lazy, they have been this way for a long time, the drachma was intentionally devalued over the last 50 years as well, so let's not pretend like this is something new.

But the fact is that Greece's involvement in the EU served only to severely diminish its economic strength relative to other countries in its geographic area, add on top of that huge sums of money borrowed for public works, and the result is there are no answers as to why and how Greece can maintain economic relationships with large economies like Germany without some economics borders and forms of local monetary control which the EU does not currently offer.

Which is a long way of saying, the EU is methodologically fucked, and if Greece tumbles, it's only a matter of time until people realize that Spain and Italy are basically in the same fucking situation.
posted by phaedon at 12:04 PM on June 15, 2011 [4 favorites]


The one, important factor that made Argentina different is they were able to devalue their currency and thereby boost exports, which helped their recovery. Greece is unable to do that and I would be very surprised if they were allowed to leave the Euro, even though it may seem at this point like going back to the drachma may be the best solution.

Greece's problems are somewhat unique, given the widespread tax evasion (I would again like to draw attention to the Vanity Fair article linked above, which gives a very good overview) and any comparison to America and "evil bankers" talk is unproductive, misguided and unhelpful. I've been following the PIIGS crisis for some time now - basically since it started - and though I don't consider myself an expert by any means, I am really, really interested in how it's going to resolve itself. This is unprecedented territory we're in and there is really nothing to compare it to - the eurozone is like a big new experiment and despite all the talking heads out there, the best I've seen from any commentator is basically just a big shoulder shrug.

Anyway, I'm following this thread with interest and I'm glad JPD has been commenting and providing a bit of clarity on things.
posted by triggerfinger at 12:06 PM on June 15, 2011 [1 favorite]


I can't imagine any government selling that to the Greek public.

Well, the alternative would be Greece running within its means, since given the now well-documented fraud by the Greek government to get itself into and maintaining status in the Euro, it doesn't seem likely they'll be in line for anyone offerring them much money in the future. I don't think Greeks will be retiring ten years earlier than Brits or Germans in the forseeable future, no matter which option they choose.
posted by rodgerd at 12:06 PM on June 15, 2011


A few articles on the roles of financial speculators and banks in the current greek crisis:

Greece to probe U.S. banks' role in crisis:

Goldman role in Greek crisis probed

Merkel blasts 'treacherous' banks in Greek crisis

We have been through this crap here in America the past couple years. Working class citizens cheating on taxes don't bring a country's economy down. That's class war bullshit from the people who actually caused the problem in the first place. We know who caused it here in America. Is there serious doubt as to to who caused it in Greece.
posted by Poet_Lariat at 12:09 PM on June 15, 2011 [1 favorite]


I don't think Greeks will be retiring ten years earlier than Brits or Germans in the forseeable future, no matter which option they choose.


I loved that factoid, until I found out it wasn't true. Its something like 61 or 58 depending on who you ask.
posted by JPD at 12:11 PM on June 15, 2011


I don't think Greeks will be retiring ten years earlier than Brits or Germans in the forseeable future, no matter which option they choose.

It's exactly that sort of intra-national hostility that will prevent the Germans from making a deal with the Greeks that is palatable. You have to ask yourself: who is going to lose the most by a Greek default, and the answer probably isn't the Greeks...
posted by ennui.bz at 12:13 PM on June 15, 2011 [1 favorite]


The opposite case is Ireland, where their politicians were just a little too happy to jump on the cost cutting bandwagon in exchange for their bailout

And look at how well that worked for them in the polls. Fianna Fáil went from 41.6% of the votes and 77 seats in the Dáil, and leadership in the ruling coaltion, to 17.4% and 20 seats -- and a junior role in the opposition.
posted by eriko at 12:16 PM on June 15, 2011


empath:

The assholes with the CDS's can die in a fire as far as I'm concerned.

Speculation drove Greece to this did it? For everyone that is short through CDS, there is someone else who is long. So which ones is it you want to die? Or just everyone?

ged:

This is reflected in the relatively small amount of net notional of Greek CDS, which is currently US$5.3bn according to the Depository Trust and Clearing Corporation, compared with total Greek debt of about US$394bn.

From here

It's all very sad, we securitised the future and spent it on consumer goods ...
posted by fistynuts at 12:39 PM on June 15, 2011


For everyone that is short through CDS, there is someone else who is long.

Are you sure about that? My understanding is that you can buy CDS without actually having an interest/position in the credit being insured.

Kind of like being able to buy fire insurance on random stranger's houses...
posted by de void at 12:42 PM on June 15, 2011 [1 favorite]


My understanding is that you can buy CDS without actually having an interest/position in the credit being insured.



yes but someone has to be willing to sell it to you, and that someone is from an economic perspective, long the default risk of the debt.
posted by JPD at 12:45 PM on June 15, 2011


Here's a good summary from the BBC's business editor, for those of us slow to the party.
posted by cromagnon at 12:48 PM on June 15, 2011


Working class citizens cheating on taxes don't bring a country's economy down.

But it's not just the working classes evading taxes, it's also the middle classes and the rich (outside of those working for major corporations). And it's not just the fault of individual evaders, it's the political and technical failure of the rigid legal and bureaucratic system itself to provide accountability, reliable records and enforcement and its lack of flexibility and responsiveness. And it's not just taxes but accounting and legal practices in wide number of areas.

There is a rich vs. poor dimension besides this - but that's more to do with Germany and the other big Euro countries (including the working classes in those countries) vs Greece , and the way that the political and financial elites are trying to avoid the consequences of a poorly designed Euro currency system (Greece is to be faulted for cooking its books to qualify for joining the Euro and failing to modernize its bureaucracy, the international financial industry and Euro politicians are at fault for being overconfident in the Euro and trying to avoid fall-out). If Greece hadn't joined the Euro, it would have more policy options now (with less exposure to global financial crisis problems) although without widespread reform of its institutions , it would have arrived at a major internal crisis earlier ( because it wouldn't have undergone the unprecedented economic boom that came with joining the Euro - this turned out to be a castle built upon sand, but the economic growth papered over the deep cracks in the Greek system for a long time)
posted by Bwithh at 12:50 PM on June 15, 2011 [2 favorites]


Kind of like being able to buy fire insurance on random stranger's houses

It isn't really though in the case of a sovereign credit - or any other large debtor - you can't force them to default. You can't light the house of fire.
posted by JPD at 12:50 PM on June 15, 2011


yes but someone has to be willing to sell it to you, and that someone is from an economic perspective, long the default risk of the debt.

I don't care which side of a bet you're taking, you're still gambling.
posted by empath at 12:50 PM on June 15, 2011


yes but someone has to be willing to sell it to you

Interesting, isn't it, that there is no regulated exchange for CDS, and that there is no regulating authority ensuring that sellers of CDS actually have the capital to make good on their CDS obligations (Hello AIG!).

Wonder if some big, nervous, under-capitalized CDS sellers might be working the back channels to do anything to avoid an official Greek "default"?
posted by de void at 12:53 PM on June 15, 2011 [1 favorite]


Sure its gambling/speculating if you don't own the underlying, but the question wasn't "Is owning a CDS investing or speculating" it was :

For everyone that is short through CDS, there is someone else who is long.

Are you sure about that? My understanding is that you can buy CDS without actually having an interest/position in the credit being insured.

posted by JPD at 12:54 PM on June 15, 2011


My impression is that Germany and France want sovereignty encroaching controls on the Greek economy/tax regime, plus budget cuts, plus sale of state assets. I can't imagine any government selling that to the Greek public.

They're not sovereignty-encroaching controls, because Greece, like other European countries, has pooled some of its sovereignty to participate in the European single market and the Euro currency. The goal of this economic pooling is to increase economic stability and prosperity in a spirit of mutual interdependence. I don't hear anyone talking about giving back the large EU grants that were supplied to build up infrastructure in poorer EU countries - as someone who saw my country transformed from a poor, underdeveloped backwater to a full member of a modern civilization in the space of a few decades, I think the EU (and the Euro) has done a fantastic amount of good for the less well-off countries on its periphery. These nationalistically-toned complaints about 'foreign banking elites' and so on are exactly the sort of thing that hobbled European countries for centuries of mistrust and war, and which the EU was created to overcome.

It's exactly that sort of intra-national hostility that will prevent the Germans from making a deal with the Greeks that is palatable. You have to ask yourself: who is going to lose the most by a Greek default, and the answer probably isn't the Greeks...

That sounds remarkably like the argument of the House Republicans for not raising the debt ceiling.
posted by anigbrowl at 12:56 PM on June 15, 2011 [1 favorite]


you can't force them to default. You can't light the house of fire

But you can buy insurance that pays off multiples of the actual loss incurred.

E.G., one $200,000 house burns down, but 10 people collect in aggregate $2,000,000 in insurance payoff.
posted by de void at 12:57 PM on June 15, 2011 [1 favorite]


But you can buy insurance that pays off multiples of the actual loss incurred.

What does that have to do with anything? Why does that matter? That's not an indictment of people trading credit default, that's an indictment of leverage in the financial system.

I can name you a whole raft load of things I can buy where my potential return has nothing to do with the notional value of the instrument.
posted by JPD at 1:01 PM on June 15, 2011 [1 favorite]


I don't care which side of a bet you're taking, you're still gambling.

Do you drive without insurance too? Because in the real world, people use financial instruments like insurance policies and swaps to hedge their risk. It's the responsible thing to do because certainty is elusive and as a result all investments involve betting on probability to a certain extent. You can drive safely but you can't be sure that you will never, ever be the cause of an accident so you should buy some auto insurance. You can build your house carefully, or buy a well-built house, but you can't be sure that it will never catch on fire or be damaged by some unforeseen circumstance so if you own a home you likely have some sort of insurance policy.
posted by anigbrowl at 1:04 PM on June 15, 2011


Why does that matter?

It might explain why the default of a smaller EU member has major banks near frantic with worry.

The buildup of leverage via CDS sure mattered in the popping of the housing bubble/2008-09 financial crisis.
posted by de void at 1:05 PM on June 15, 2011


Regarding a challenge to my earlier comment that ordinary citizens (which includes the middle classes; and I should have also added the rich as well, though they are not ordinary, and I was addressing a previous point someone made about working classes ) in Greece was more likely to evade tax than major corporations, I would stress that there is an important difference between tax evasion and tax avoidance. Tax evasion means avoiding paying tax by illegal means (e.g. lying about your income) and hiding from tax enforcement. Tax avoidance means using *legal* means (not only loopholes, but squeezing the most out of official tax breaks and relief policies, sometimes but not always perverting the spirit and intentions of those official policies) - major corporations can hire legions of expensive corporate lawyers and accountants to do this.
Major corporations may not pay enough tax given the benefits they get from society and the profits they make, but this shortfall, while unfair (though it could be argued by the corporate lawyers and accountants that if they reduce the corporate tax bill by a massive amount by following government policies, they are merely responding to the carrots and sticks the government is using to shape society according to its agenda; this is often disingenuous if the government/legislature is under the influence of the corporations and if the corporation tax avoidance perversely undermines government goals ) , is generally legal and accountable (tax evasion does occur in some cases, of course, in which case, executives may well go to jail). The problem in Greece is that tax *evasion* is rampant at all levels of societies, due to the lack of strong taxation and enforcement institutions.
posted by Bwithh at 1:07 PM on June 15, 2011


It might explain why the default of a smaller EU member has major banks near frantic with worry.
Actually you should read the IFR article posted ahead - there isn't really a lot of CDS outstanding on Greek debt - mostly because there is a concern that the eventual result will be some gaming of the ISDA's standards for declaring a default - which means the CDS is useless as a hedging tool.

The banks are freaked out, because as I said above they pretty much all subscribe to the "domino" theory - and forget about CDS exposure - if Spain or Italy go pretty much every bank in Europe has enough of their debt that any sort of restructuring would destroy their own capital bases.
posted by JPD at 1:11 PM on June 15, 2011 [1 favorite]


The buildup of leverage via CDS sure mattered in the popping of the housing bubble/2008-09 financial crisis.


Not really. CDS enabled more leverage, but it wasn't CDS's paying out that did much damage to anyone other than the monoline insurers.

I mean leverage was absolutely the cause of the crisis, just that CDS angle is sort of not correct. Even AIG didn't actually run into trouble because they had to pay out on CDS, but rather they had dumb collateral agreements realted to their CDS, that combined with some unrelated stupid things done in the securities lending biz is what blew them up. But as far as cash out the door for CDS events of default? not really material.
posted by JPD at 1:14 PM on June 15, 2011 [1 favorite]


Do you drive without insurance too? Because in the real world, people use financial instruments like insurance policies and swaps to hedge their risk.

Did you look at the actual number of debt vs the value of the CDS's? People are gambling far more money on the outcome than what was in the actual loans. These are not people responsibly hedging risk. There's are people borrowing piles of money to play roulette.
posted by empath at 1:16 PM on June 15, 2011


Wow, I don't even know what happened to that sentence-- "actual amount of debt" and "These are people"
posted by empath at 1:17 PM on June 15, 2011


in Greece tax evasion is something everybody does.

um... *raises hand* I'm in Greece, and this family, at least, pays its taxes. I will say that it makes it very hard to live sometimes, especially when the people you're working for don't pay you. (Or pay way, way late.) Aside from those who ended up just never paying at all, the longest we had to wait to get paid on a job my husband did was over two years for a project that was funded by a grant from the government. In the end he collected about 60% of what he was owed. (Perhaps it wouldn't have been paid at all, but at the Greek Film Festival he ended up sitting next to a government official who happened to be one of the powers administrating this money -- and during the break, my husband showed off a tiny remote control helicopter he'd acquired . Some level of bonding occurred. At the end, when my husband asked about this outstanding payment, the guy said get your people* to come to the office X day.)

It's always who you know, and this is a huuuuuuuge problem here.

Anyway, I won't comment much here, because I'm out of my depth on the subject matter, but I will say that those who think people here are just lazy might be surprised. From my viewpoint, I'm seeing people working insane hours for a fraction of what you'd be paid elsewhere for equal skill levels -- if they're lucky enough to be paid at all... and they don't have the luxury of spending a lot of hours each day hanging out on social networking sites. Not everybody, of course. But if you don't work for the state here, you are pretty sure to be working hard, working long hours, in a constant state of financial stress, and not making much money. Unless you are connected.

* not actually my husband's people -- the people who were in charge of the project; husband was contracted by them.
posted by taz at 1:20 PM on June 15, 2011 [5 favorites]


E.G., one $200,000 house burns down, but 10 people collect in aggregate $2,000,000 in insurance payoff.

true

so 1 394 bio USD house burns down and one group of risk holders stand to gain 5.4 bio from another group of risk holders

neither of these groups burnet the house down and the net gain or loss is 0 - cds is a bout risk transfer - and yes, its bad that people who don't understand the risk decide to take it, but whose fault is that?

People smoke all the time despite the risks - because they think they have something to gain from smoking. Then they get cancer and start crying to their mothers and expect the state medical systems to take care of them at no cost to them ...
posted by fistynuts at 1:24 PM on June 15, 2011


They may not all have been the same person but it feels as if Papandreou has been Greek PM since I was a little boy.
posted by jfuller at 1:25 PM on June 15, 2011


Actually you should read the IFR article posted ahead

Will do, thanks.
posted by de void at 1:28 PM on June 15, 2011


empath:
Did you look at the actual number of debt vs the value of the CDS's?

Greece debt 394 bio

Greece cds outstanding 5.4 bio

The article you qoute doesn't know how to read the figures and quotes volume rather than open interest - ifr is one of the industry journals
posted by fistynuts at 1:32 PM on June 15, 2011


further comment on the bis data

If you’ve learned anything from this, it should be that it’s totally unclear, viz the BIS data, how much CDS US banks have written on Greece. And also that BIS data are fiendishly difficult to interpret.
posted by fistynuts at 1:42 PM on June 15, 2011


Greeks are in fact really lazy, they have been this way for a long time

Wow, really? Nice stereotype there. I have to say that's not true of the 30 or so Greeks that I know personally, some of whom are the hardest working people I've ever met on either side of the Atlantic.
posted by longdaysjourney at 2:02 PM on June 15, 2011 [1 favorite]


Η πολιτική της αποτυχίας έχουν αποτύχει. Πρέπει να κάνουμε να λειτουργήσει πάλι.
posted by blue_beetle at 2:18 PM on June 15, 2011 [1 favorite]


There is nothing magic here. You, me and Greece pay interest on our loans. Or bonds. Or whatnot. The reason for this is that there is a chance that one of us will default.

Bondholders being bailed out via a fire sale in Greece is perverse.

Let the bondholders take a haircut. It's what they get paid for. By ways of interest.

The assholes with the CDS's can die in a fire as far as I'm concerned.

Damn right.
posted by Djinh at 2:21 PM on June 15, 2011


Nobody really knows the total amount of CDS written against Greek bonds, as the market is - unbelievably, after 2008 - still largely unregulated. However, the BIS estimates indirect exposure of US banks to a Greek default to be 56% of the world's total. Presumably most of this insurance has been bought by European banks. Thus US banks stand to lose most by a Greek credit event.

I found this rather surprising, given the bitter hostility in US and UK financial media toward the euro project.
posted by Bas at 2:37 PM on June 15, 2011


Did you look at the actual number of debt vs the value of the CDS's? People are gambling far more money on the outcome than what was in the actual loans. These are not people responsibly hedging risk. There's are people borrowing piles of money to play roulette.

But empath, you have no idea what they're trying to hedge against. For example, I might not own a single Euro of Greek sovereign debt or commercial paper, but might still want to be insured against the possibility of default on those instruments. Suppose that 10% of the demand for my product or service comes from Greece, or that I am dependent on Greek suppliers for some essential input to my business. If there is a default and that demand or supply goes away because the cost of capital in Greece goes through the roof, then there are indirect costs to replacing it which fall on me (by developing another market or finding another supplier).

I don't care for this casino metaphor of financial markets for two reasons. First, in a real casino the probability of success is known in advance, knowable to everyone who participates, and always tilted in the house's favor. In the real world, markets exist because they are one of the best tools for dealing with unknown probabilities, and sometimes unknowable ones at that. Things like prices and yields represent the best collective estimate of probability, and the market works in the general case because it requires people to put their money where their mouth is. That does not mean it's infallible, because sometimes the crowd is wrong. But the utility of any non-market alternative has to be measured in terms of its predictive power.

Second, the casino metaphor tends to be based on the perception of traders as an irresponsible, carefree lot who play with other people's money for fun. I have worked alongside a lot of traders and do think a lot of them are irresponsible, and worse. It is not a personality type that I care for. However, they are ultimately only agents for other people, who are demanding the best return that they can get. And those other people are not just a bunch of shiftless tycoons, but managers of pension funds and the like as well. The market is no more a casino than the croupiers in an actual casino are getting rich every time one of the players makes a losing bet.

Your assumption that all swaps that are not directly linked to loan security are therefore frivolous reflects a narrow and incomplete understanding of the financial system. There's plenty to criticize, but you'd do better to make informed criticisms - for example, of how sovereign lending standards were so low that the Greek government was able to lie about its poor finances for years, or how policies designed to protect economic rents effectively traded wealth for liability. Calling the financial system a casino and suggesting that default isn't such a bad idea are not constructive criticisms, but rather a display of ignorance - the sort of ignorance that got us into these problems in the first place.
posted by anigbrowl at 2:42 PM on June 15, 2011 [5 favorites]


Calling the financial system a casino and suggesting that default isn't such a bad idea are not constructive criticisms, but rather a display of ignorance - the sort of ignorance that got us into these problems in the first place.

Oh please. The people who got us into this problem are the crooked politicians and the banks that paid to put them in office-- the people who are supposed to know what they're doing.

I'm tired of paying for their bailouts on the backs of the 'ignorant' poor and middle class.
posted by empath at 2:55 PM on June 15, 2011 [3 favorites]


Wow, really? Nice stereotype there.

Sorry, I'm Greek, and my character assassination of Greeks was meant to be humorous. Greeks have a lot of funny things to say about Greeks. That they are selfish, entitled, insubordinate, overly materialistic, rest on their laurels, and like to put things off.

For the uninitiated, my comment earlier should have read "if" Greeks are in fact really lazy, they have been this way for a long time, etc. Which was my way of attributing the recession in Greece to the systemic changes that are the result of joining the EU that have been introduced relatively recently, and not on the character of the country, which has been what it has been for at least a few generations.
posted by phaedon at 3:27 PM on June 15, 2011


No empath, it's actually up to the citizens to have some idea of what politicians and bankers are doing precisely because experts are fallible and those charged with holding a trust are sometimes corrupt.

In a democracy, the people who are casting the votes bear the ultimate responsibility for the outcome, and it won't do to say the banks just 'paid to put them in office.' Paid who? The voters? If so, then the electorate needs to make better judgments about short-term gain vs. long-term pain. The media and political parties? If the electorate is so easily swayed by billboards and commercials then maybe this one-person-one-vote concept of democracy is not such a good idea after all - indeed, I have frequent doubts along those lines. If the election itself is rigged, then there needs to be a clear public demonstration of that - not just an inference based on a possibility, because inferences without evidence are nothing but gossip.

I absolutely reject this idea that if we don't understand something, then it's someone else's fault. That's not much better than blaming outbreaks of illness on witchcraft, natural disasters on sexual immorality, or social problems on whatever ethnic or cultural group happens to be the most unpopular. In Europe, we have centuries' worth of evidence - millenia worth, even - of what happens when you turn away from problems and take up the la-la-la-I-can't-hear-you chant of nationalism instead. It does not work. Numerous societies have decided to get back at those filthy ____ bankers by turning to ____ism. The words filling in the blanks vary, but the outcome is usually the same - hypernationalism, armed conflict, followed by years and decades of suffering and misery.

Citizens in a democracy need to have a basic grasp of economics, like they need a basic grasp of civics, mathematics, and history. Blaming 'people who are supposed to know what they're doing' while refusing to invest any time in learning about what it was they were supposed to be doing on your behalf is a failure of civic participation. Why are you so infatuated with ignorance? The anti-intellectualism of the class warfare narrative is disturbing, and reminds me unpleasantly of the whole Tea Party non-philosophy of the right.
posted by anigbrowl at 3:29 PM on June 15, 2011 [3 favorites]


Complex financial transactions exist to launder money or trick endusers. That's it. The more complex a transaction is, the more likely it exists strictly for money laundering or trickery.
posted by wuwei at 3:40 PM on June 15, 2011


Citizens in a democracy need to have a basic grasp of economics, like they need a basic grasp of civics, mathematics, and history.

Understanding of leverage, risk, hedging, the black-scholes equation, collateralized debt obligations, etc, is not something that is ever going to be widespread in the populace. I'm not ignorant of how all of it works. I quite frankly don't care. The long and the short of it is that the government is going to the people saying "You need to give us money to give to the bankers" and the people are saying no, and I think rightfully so. You can explain and explain and explain all you want, but it's not going to make any difference.

The bankers made bad bets, and that is their fault, and they should pay the consequences.
posted by empath at 3:44 PM on June 15, 2011


I absolutely reject this idea that if we don't understand something, then it's someone else's fault.

And by the way, how is it my fault that bankers made bad loans? I'm fairly sure I had nothing to do with it. I think people should only be responsible for stuff that they do.
posted by empath at 3:46 PM on June 15, 2011


Complex financial transactions exist to launder money or trick endusers.

'Complex' compared to what? Examples would help. Should we apply the same metric towards regulation? Simplicity is attractive, but sometimes deceptively so.
posted by anigbrowl at 3:48 PM on June 15, 2011


The bankers made bad bets, and that is their fault, and they should pay the consequences.

Yes...with our money. Or do you think it's theirs they bet?
posted by Skeptic at 4:04 PM on June 15, 2011


I'm not ignorant of how all of it works. I quite frankly don't care. The long and the short of it is that the government is going to the people saying "You need to give us money to give to the bankers" and the people are saying no, and I think rightfully so.

Why? Did the bankers and bondholders force Greece to run up loads of debt and misreport the public finances? What is so great about blowing off a publicly incurred debt that was allowed to accrue over many years, despite the multiple opportunities that voters had to correct the problem at previous elections? I don't think saying no is a good idea at all, because it basically just kicks the can down the road and ensures that getting any new capital will be impossibly expensive for the next couple of decades. I'm reminded of when the crisis broke in 2008, and some on the left were arguing that the whole system should be allowed to fail. When banks actually started failing left and right in 2009 they complained that there was a capital strike going on and wanted banks to be forced to lend, while simultaneously condemning excess leverage. Ultimately these debts were incurred on behalf of the Greek public, and I'm not sure why you think that is lenders' fault.

You can explain and explain and explain all you want, but it's not going to make any difference.

I may not convince you, but I'll continue to raise these points for people who are reading and who I think would be the worse off for believing your view on these things. What we have here is a good example of public choice theory in action, and it seems to me that if the Greek public had been a bit more attentive and honest with itself about Greece's public finances, then this situation could have been avoided in the first place.

I think people should only be responsible for stuff that they do.

Unless that happens to involve taking out loans, apparently.
posted by anigbrowl at 4:15 PM on June 15, 2011 [2 favorites]


Disproportionate rewards should equal disproportionate punishments.

I voted for the wrong fuckers, and I accept that therefore I owe some responsibility for the actions of those fuckers. I bear this responsibility, and to some degree my children will bear this responsibility.

...however, the fuckers who made a million salary off their fucking my economy?

Yeah, they should probably be killed.

And, if you doubt that, here's my price: pay me a half-million dollars a year, and I will accept a 10% chance of being killed by a mob.

I'm completely serious. Go on, pay me. We can roll the dice in a public form, and if they come up 1-10, I die.

You wanna call my bluff, well get to it. If any banker out there is reading this and feels like they might be killed by a mob, you go ahead & give me the entirety of your assets and I swear to almighty God I will take your place in any punishment that may follow.

Really. C'mon, get to it. Seriously. Apologists for the fuckers, you can join in on the fun. MeMail me, and I'll give you a PayPal account I expect to see money flooding in to.

Oh, wait, no?

Huh, how surprising.
posted by aramaic at 4:24 PM on June 15, 2011 [1 favorite]


It's not about taking out loans anymore, anigbrowl, and you know it. It's about when those loans become liable.
posted by panaceanot at 4:24 PM on June 15, 2011


What is so great about blowing off a publicly incurred debt that was allowed to accrue over many years, despite the multiple opportunities that voters had to correct the problem at previous elections?

You mean the students that have never had a chance to vote who are going to be burdened with a lifetime of paying of debts that their parents accrued?

Not their problem, and if I were them, I'd be on the streets, too.

Banks should have cut Greece off a long time ago.
posted by empath at 4:26 PM on June 15, 2011


anigbrowl You still should answer how ratings agencies considered Greece an AAA debtor just months ago, and now consider its bonds junk.
With each downgrading, Greece has to pay higher rates to service its debt, increasing in turn that debt, and pushing it further down the drain. Most outrageously, this was not done when Greek governments were (quite blatantly) misreporting their spending, but when a Greek government finally came clear about the real debt.
Now, banks are making a killing using cheap bank bailout money to speculate against a sovereign state, and in fact against the whole of the EU. With the overt cooperation of the ratings agencies. This is loan shark behavior at its most predatory. The fact that Greece had such a high public debt (not nearly as high as Japan's, though) has just put it first in the firing line, but other countries like Spain, which entered the crisis with a budget surplus and still has a llower public debt-to-GDP ratio than Germany, are next in the firing line.
posted by Skeptic at 4:30 PM on June 15, 2011 [1 favorite]


With each downgrading, Greece has to pay higher rates to service its debt, increasing in turn that debt, and pushing it further down the drain.

Which is exactly what they do to credit card holders, too.
posted by empath at 4:37 PM on June 15, 2011


one word about "insurers" and "hedges" - they only work if the people who are offering them don't go broke - could they go broke?

we might find out pretty soon
posted by pyramid termite at 4:42 PM on June 15, 2011


CDS's, btw, mean that banks have almost no incentive to prevent a default, either. They get paid either way.
posted by empath at 4:52 PM on June 15, 2011


Where is Mutant when we need him most?
posted by SouthCNorthNY at 5:06 PM on June 15, 2011 [2 favorites]


"A World at Financial War" by Michael Hudson is quite an informative account of the European debt crisis.

Will the wealthy, and the corporations they employ, win the class war that they are waging? I sure hope so. The re-feudalisation of the world will create a lot of investor confidence, and then we'll all be winners!
posted by nikoniko at 5:40 PM on June 15, 2011 [2 favorites]


You mean the students that have never had a chance to vote who are going to be burdened with a lifetime of paying of debts that their parents accrued? Not their problem, and if I were them, I'd be on the streets, too.

Sounds to me like the problem here is with the parents rather than the banks, to a large extent. I don't think it's going to take a lifetime to pay off, but I do think it's an excellent argument for things like raising the retirement age instead of the more usual approach of slashing investment in education. Somehow the people who are near retirement always seem to prefer passing on the cost on to the people entering the workforce. Strange, that.

Banks should have cut Greece off a long time ago.

I agree about this, but any time a ratings agency downgrades or threatens to downgrade a country's debt there are howls of outrage and protestations of ill-treatment, injured integrity and so on. When you get down to it banks don't really have the authority to go in and audit a government's ministry of finance; hence the necessity for central banks and international peer pressure. I rather feel that financial ratings should perhaps be the function of central banks rather than private agencies, but frankly I don't know how you get around the problem of countries taking other countries' unfavorable economic decisions as a casus belli, which has happened a lot in history.

When you get down to it, banks kept lending because multiple Greek governments swore up and down that they took their commitments seriously, the country was good for the amounts being borrowed, and that structural reforms would be made, knowing that at some indeterminate point in the (then) future those promises were going to be called in.

Which is exactly what they do to credit card holders, too.

Yes, I had that experience before (due to an unforeseen operation). You know what I did? I cut my discretionary spending to almost nothing and sold some stuff I didn't need in order to pay it off as fast as possible. And then I cut it up. I didn't enjoy it at all, nor was I enamored with the bank that issued the credit card. Still, it worked.

See, I'm sympathetic to the argument that the young, who were unable to vote on these things, ought not to have to pay for their elders' mistakes. But the solution always seems to involve driving away the creditors, even if some of their claims are legitimate. And the 'benefits' of default - which I contend exist only in the very short term, and are so superficial as to be deceptive - are not distributed exclusively towards the young and/or economically vulnerable. Rather, they tend to entrench the economic position of the people who were most responsible for running up the debt in the first place, resulting in a greater concentration of wealth than before. Consider the patterns of income inequality in Argentina leading up to and following that country's financial crisis for example.

I would like to see much tighter regulation of the financial sector, both in Europe and internationally, and more economic opportunity for people at the younger end of the population. However, I do not think that 'fuck the banks and the IMF' amounts to a reform program. Over a longer timescale, this is very like the problem we face with climate change, which requires a lot of money to mitigate and which has also involved a great deal of can-kicking. But if we (as in humanity) end up being handed a bill by nature in the year 2100 or so that is beyond our ability to pay, then we're not going to be able to default our way out of it with the climate so it's going to end up as a horrible bloodbath instead...much like those commonly seen in countries that respond to a crisis by instituting a policy of forced autarky.

I feel sorry for the people camped out in the center of Athens, but chanting the name of the country over and over to drive the rest of the world away is not a viable economic strategy.
Not that I expect everyone in Greece to have an MBA or a PhD in finance or economics, but οικονομικός is a Greek word. If I were Greek, I'd feel very proud that my culture had originated this concept, along with many others such as democracy, the republic, constitutional government and so on. But I would be pretty damn depressed at the refusal to get to grips with the immediate problems facing the country. Perhaps this is how Socrates ended up losing at trial.
posted by anigbrowl at 5:57 PM on June 15, 2011


Consider the patterns of income inequality in Argentina leading up to and following that country's financial crisis for example

What about them? The gini coefficient seems to have floated around between 45 and 50 for years, roughly around where the US is.
posted by empath at 6:09 PM on June 15, 2011


anigbrowl:
Complex as in mortgage securitization, vice holding the mortgages until maturity or simply selling the note in a secondary market. Complex as in annuities based on Black-Scholes pricing models, sold to school teachers as "can't lose" investments.

Regulation should be simple because otherwise it's a full employment act for lawyers and susceptible to non-obvious rigging. Adding rules doesn't help; you have to change the game itself , additional complexity makes things worse for average people. That's the ultimate failure of liberalism, this belief that you can take a screwed up system and make it better by adding layers of regulation and good honest regulators. That's a joke. Okay great, you have regulations. You have laws. Now how are private citizens going to navigate these laws? Hire an attorney? Do you have any idea how much it costs to litigate in civil court? In California, one year of civil litigation in costs alone (photocopies, expert fees, couriers, deposition transcript recorders) can easily cost between $10,000 and $25,000. And, once you add all these regulations, do you realize how interpreting them and litigating them only adds to the time of litigation, directly increasing the costs? And in a contest between individual homeowner/investor and MegaBank, N.A., who do you think has more resources in the battle of attrition that is civil litigation?

Furthermore, what do you think that financial institutions are going to do with the regulators? Bribe them with the implied promise of a nice job in the private sector when they get out. And when some guys out there start digging too deeply into what they're doing, banks can hire shadowy PR, law and "internet security" firms to try to blackball the targets. Public choice theory? Please, how naive can you get.

In my professional life, I regularly deal with complex financial transactions in the home lending context, and can say that much of it is obfuscatory and difficult to penetrate even for experienced industry professionals with bank operations experience and/or law degrees and that many of the transactions are multilayered for no good reason other than what appears to be obfuscation.

Regarding the euro zone, probably the one of the best takedowns takedown is here:
Because they assumed that a sharp decline in output and employment would be rectified through emigration or a depreciation of the euro, the authors of the Maastricht Treaty saw no reason to create a fiscal analogue to the ECB, an institution that would bear responsibility for promoting growth and employment in the Eurozone. Instead, the political intention of the Treaty was to subordinate the role of fiscal policy, leaving it to the individual member nations to cope with a downturn by permitting only a modest increase in their deficits.

The problem, as everyone now observes, is that an individual member nation can find it impossible to engineer a recovery on its own.

During a recession, the private sector retrenches, preferring to save or pay down existing debts rather than parting with cash or borrowing to finance new purchases. Without an offsetting increase in demand – from the public or foreign sector – unemployment will rise and GDP will decline. The Maastricht Treaty assumed that a small increase in the deficit, together with some emigration, would be sufficient to bring about a recovery. That was wrong.

The bottom line is this: the Euro system contains a serious design flaw. It failed to recognize that it was designing a system that would cause its members to become more like Alaska, California or Utah than Australia, Canada or the US. That is, it was stripping them of their capacity to use their budgets to stabilise their own economies.

[break]
The fundamental problem is that member nations have no safe funding mechanism under the existing system. To fix the problem, the ECB should create the euros that its member governments, as USERS of the currency, cannot. It would do this simply by crediting bank accounts, just like the Federal Reserve does when it transfers money to cash-strapped states in the wake of a national disaster. The funds could go directly into the member governments’ accounts, or they could be routed through the European Parliament, which could distribute them on a per-capita basis to all seventeen members of the Eurozone. Because these are transfer payments – not loans – the ECB would not seek repayment. A back-of-the-envelope calculation suggests that an annual distribution of about 10 percent of Euroland GDP would be sufficient to eliminate the funding risk, reduce borrowing costs, permit the repayment of debt and help to restore growth.

Link
posted by wuwei at 6:33 PM on June 15, 2011


With each downgrading, Greece has to pay higher rates to service its debt, increasing in turn that debt, and pushing it further down the drain.

Uh no they don't. That's not how government debt works. And WRT to the rates they pay on newer debt that is only tangentially related to what the rating agencies rate them, but in the respect that market views them as less creditworthy, then yeah they pay more. But its not like a credit card where the rate can be jacked up on existing debt.

BTW there is nothing remotely complex about the Greece situation. The first sovereign debt default was centuries ago.
posted by JPD at 6:49 PM on June 15, 2011 [1 favorite]


As another Greek here, let me add this: there's an aphorism beloved by Greek politicians: "there are no unsolvable problems in a democracy". Which is crap: the Greek political system is morally bankrupt and has put us all in a dead-end situation. Let me count the ways.

All the main political parties have secured favorable loans from state-controlled or state-influenced (i.e. doing a lot of business with the state) banks. Both major parties have securitized *future* membership dues and borrowed against them. In effect, they are both going to be actually bankrupt, very, very soon, as these dues are unlikely to be paid, ever.

No major political party (including the Communists) has allowed its finances to be publicly scrutinized: no Greek knows how their coffers fill up and by whom.

And yet: the existing political parties receive massive state subsidies (put into law by themselves of course), to the tune of 10 euro per vote. And of course, new parties that don't break the threshold of entry into the parliament (3%) are not eligible for these subsidies. And such parties are not *allowed* any TV or radio time, even if it's paid from their own funds. In effect, the major Greek parties have legislated themselves into an oligopoly.

OK, so that can still work, right? I mean in most democracies, the actual party organizations have remained the same for years, if not centuries.

Well, what if we added to the above that all major parties have been selling political favors for votes for decades? what if that has directly led to a state machinery that's roughly 3 times the size (per capita) of any other EU country? Well, still that could be manageable, right? I mean if the state is providing all the services it's supposed to, it could work...

What if I told you that in order to protect their clientele, gradually over the last 3 decades, governments have removed all checks, all reviews, all means of punishing, demoting or penalizing state servants? civil servants cannot be fired, they cannot be reprimanded, they cannot be transferred for cause, they can't even have pay docked. And although the state mechanisms are notoriously corrupt, almost no one gets arrested, fired, or even fined.

To top it all off, the ruling political class has written into the constitution immunity for themselves (no joke). Any MP or minister cannot be prosecuted for anything he did unless the parliament decides to lift that immunity. Only they don't. Not even for things like traffic tickets, alimony payments, even criminal charges that date to before the MP was elected (true stories all).

The Greek state is bankrupt because it is simply financially unsustainable. The Greek political system is bankrupt because it's also deeply immoral. What I don't see, what no Greek I know sees, is how these people, given these conditions, can save this country within our lifetimes.
posted by costas at 7:30 PM on June 15, 2011 [10 favorites]


What about them? The gini coefficient seems to have floated around between 45 and 50 for years, roughly around where the US is.

Quite. What does that say about your theory that the people of Argentina are better off for having told their creditors to take a hike? Inequality has fallen in the last couple of years, but seemingly only as a result of the global recession, which hit Argentina as hard as anyone else despite the country being shut out of international capital markets and thus (theoretically) immune from their woes. My point is that there is little or no evidence to show that Argentina is better off as a result of its default, which might explain why the government of the country has been quietly negotiating swaps with its bondholders.

Regulation should be simple because otherwise it's a full employment act for lawyers and susceptible to non-obvious rigging. [...] Public choice theory? Please, how naive can you get.

I would regulation and financial products to be simpler, and if it were up to me I'd be inclined to reinstate Glass-Steagall immediately. But your view that it should be simple, as if that will automatically solve all our problems, seems deeply misguided. The idea of a flat tax is seductively simple. So are various populist manifestos. But I wouldn't want to live in a country run by the Ten Commandments, despite their great simplicity. You can get complex and even chaotic behavior from the interaction of only a few variables, an outcome that you seem indifferent to.

I can't really get on board with the Modern Monetary theorists/Chartalists at UMKC. The idea that money exists as a medium with which to pay taxes back the government sounds like an intriguing sort of Keynesianism 2.0 at first blush, but it only makes sense in the context of a relatively closed economy. Unless I've badly misunderstood it, it's basically a strategy based on inflating one's debt away while ignoring the likely impact of this on a reserve currency.

Put simply, my objection is this: money does not exist for the purpose of paying taxes, but as a proxy for contractual claims on actual resources. This limits a government's power to devalue its currency to the extent that it needs access to external resources to maintain economic growth. When Keynes made his breakthroughs, he was able to take for granted the fact that Britain had abundant domestic supplies of coal and imperial control over much of the middle east, providing access to a great deal of cheap oil. Likewise, the US today enjoys substantial benefits from the use of the dollar as the reserve currency in international oil markets. Even though the US has to spend dollars to buy oil, so does everyone else, and this creates an (apparently) bottomless demand for US dollars and thus lots and lots of money circulating around the American economy much as blood circulates through a healthy body.

So far so good, but the less convenient it becomes for other people to hold US dollars due to depreciation, the less incentive sellers of oil have to accept payment in dollars. During the post WW2 economic boom it made perfect sense because the US had all sorts of economic advantages and thus the deepest markets. Nowadays, not so much. I guess I am basically a circuitist, insofar as I believe private sector demand drives central bank lending rather than the other way round.
posted by anigbrowl at 7:53 PM on June 15, 2011 [2 favorites]


Which is exactly what they do to credit card holders, too.

Actually, the best parallel is with a family with a big-ass interest-only mortgage. They lied about their income and total debt to get the mortgage, and the bank manager knew it, but so far they've always being scrupulously punctual about the payments. Until one day, the head of the family, in an unguarded moment, admits to the family, in presence of the bank manager, that they're going to have to trim the sails and spend less on restaurant outings:

"Guys, the mortgage payments are killing us. We must start saving."

Bank manager: "Wait a minute. According to your mortgage forms, you earn more than enough to make the payments."

(Embarrassed silence) "Well, you know, perhaps I wasn't altogether honest when filling out those forms."

(Feigned indignation) "WHAT?! I'm afraid I'm going to raise your interest. You are manifestly not creditworthy."

"How that, not creditworthy? I've always paid my debt. And you knew perfectly well I was lying. Heck, you even helped me do it!"

"Sorry, rules are rules. I'm doubling your interest rate with immediate effect."

"Shit, what can I do? I could hardly make both ends meet, and now this."

"Well, sell your car. Raid your retirement fund and your kids' college funds."

(Next month)

"What's this!? You've doubled my interest rate yet again?!"

"Of course! You're an even worse credit risk now."

"But why? I've paid this month's installment, even after it doubled."

"Right, but you sold your car, and raided your retirement fund and your kids' college funds. You are obviously circling the drain now."

"But you told me to do it! What can I do now?!"

"You've got some nice family silver, you know. And your girls are pretty..."
posted by Skeptic at 12:07 AM on June 16, 2011 [5 favorites]


Yeah, that doesn't sound much like "democracy", costas. All the "PIGS" need real democratic political change more than anything else, i.e. fire the existing political class. Austerity measures, new loans, defaults, selling assets, leaving the euro etc. are all irrelevant when nobody will ever have any confidence in your country's leadership.

Iceland's economy is recovering, not because Iceland let it's banks default, but because Icelanders are actually tackling the real problems, including instituting necessary regulations, radically expanding transparency IMMI, and crucially firing & prosecuting the powerful people who caused the problem.

You'll recover if you flush the current bastards and replace them with a bunch of clever Greek "kids" who've studied & worked in Germany, France, Belgium, etc. during the early days of the E.U. You need people for whom corruption isn't a way of life running the show.
posted by jeffburdges at 6:24 AM on June 16, 2011


jeffbrudges First of all, the "PIGS" acronym is incredibly demeaning for those countries. It's also rather fuzzy: what does the "I" stand for? Italy, Ireland, Iceland even? Also, those countries do not have that many things in common, apart from being sort of poor and Southern (if you don't count Ireland and Iceland). They're also in completely different sorts of financial trouble: Iceland, Ireland and Spain had exploding bubbles and now must cope with large private sector debts, whereas Portugal, Italy and Greece had lethargic economies throughout the last decade, and large public sector debts. Ireland having nationalised its banks, its case has become more similar to those of Portugal and Greece, but otherwise the difference between those two groups of countries is similar to that of the US vs. Japan.

As for the political class, agreed. But which country wouldn't benefit from a serious political shakeup? Belgium, which has been without a federal government for one year and counting? Britain, where a preposterous electoral system has just been confirmed in place by a ridiculously slanted referendum? The US, where Congress is not above playing debts with the debt ceiling? Germany, where politicians can't make the difference between a (Spanish) cucumber and a (German) sprout?

As for replacing the current bastards in charge in Greece and replacing them with foreign-educated Greeks, it's worth noting that the current Greek PM, George Papandreou, was born in St. Paul, Minnesota, from a Greek father and an American mother, and was educated in Canada, the US (Amherst and Harvard), Sweden (Stockholm University) and the UK (LSE). It hasn't helped, has it?

If the protests in Greece have been taking a nasty nationalistic undertone as of late, it's also a reflection of Northern attitudes towards "wogs" and "dagos", now renamed "PIGS".
posted by Skeptic at 6:55 AM on June 16, 2011 [1 favorite]


Iceland's economy is recovering, not because Iceland let it's banks default, but because Icelanders are actually tackling the real problems, including instituting necessary regulations, radically expanding transparency IMMI, and crucially firing & prosecuting the powerful people who caused the problem.


or arguably devaluing their currency and not cutting spending to the degree the Euro-crisis has been the reason why its already recovering.

First off its "PIIGS" secondly, anyone who gets offended by it is reading way way too much into it. Its either PIIGS or GIIPS - which seems like a pit shot at Roma.
posted by JPD at 7:06 AM on June 16, 2011


JPD The acronym PIGS existed long before the current crisis and long before anybody added an extra I (and it's still more often than not used with a single I). It associates countries in completely different situations for no other reason than Northerners' prejudices. So, excuse me, but, as a Spaniard who has been living in Northern Europe for a quarter of a century, I really don't think I'm reading too much into it.
posted by Skeptic at 7:16 AM on June 16, 2011


Also, is Iceland recovering? Or are we just not talking quite as much about them now?

Anyway, forget devaluation, Iceland has refused to honour a debt of USD 15,000 per Icelander. That helps.
posted by Skeptic at 7:28 AM on June 16, 2011


PIGS is an acronym based on the names of the countries with the biggest debt problems. The I stands for Ireland, since it is in vastly worse shape at the moment than Italy and Iceland has already chosen a path to resolve their version of the crisis.

Getting your feelings hurt over this acronym seems a little odd to me.
posted by Aizkolari at 7:40 AM on June 16, 2011


OK, OK, fine, let's abbreviate it ISPGI then.

Wait, there's still a "piggy" sound there. Howzabout GSPII?

No, sounds a bit "gaspy". Implies drowning.

IISGP? Kinda like "gyp" at the end. Not cool yo.

GIISP? Eh, not really sure on that one. Maybe too "gyp"ish though.

SGPII? Mmmh, not sure there either.

Alright, maybe CWAHEDAPAABSIE? Countries Which Are Having Economic Difficulties At Present And Are Based Somewhere In Europe?

Sounds like a Star Wars character name. Could be a bit longer too.
posted by aramaic at 7:47 AM on June 16, 2011


Aizkolari, the term PIGS goes back to 2000, at least. It designated the Southern countries poised to join the euro, and has always been very definitely pejorative in intent.
posted by Skeptic at 7:49 AM on June 16, 2011


Also, is Iceland recovering? Or are we just not talking quite as much about them now?

It appears to be. Certainly it is doing better than Ireland, which would be the best comparison. Granted, things aren't back to pre-crash times, but that was never real to begin with.
posted by JPD at 8:38 AM on June 16, 2011


Yes, virtually any country I know would benefit from a political shakeup, especially electoral reforms like STV, but the U.S., Germany, etc. aren't facing the same economic crisis. I asserted merely that a political shakeup looks critical to confidence & recovery, more important even than the specific measures taken.

There is also qualitatively deeper political corruption in the Southern European countries. Britain has internal party shakeups. Obama unseated Hillary. etc. Yet, Italian parties never change political leadership, even when the leader cannot get elected himself, actively prevents his party from achieving anything, etc. And costas explained the situation is even worse in Greece.

As for the PIGS-like acronyms, I'd imagine that ultimately it'll be northern European tax payers that bail out bad bonds issued by Greece, Spain, etc., even if southern countries keep the ball bouncing for a while by forfeiting assets. We are therefore not simply talking "attitudes" but an observable financial burden upon people who never benefited from the activities. Yes, all the money may ultimately land back up north, and average southerners may lose more than they've gained, but the average northerner sees literally no tangible benefits.
posted by jeffburdges at 9:39 AM on June 16, 2011


jeffburdges Nobody is going to bail out Spain or Italy, if it comes to that. Those countries are just too big. So, I don't see why Spaniards or Italians should be prospectively grateful, or Germans and Dutch prospectively resentful, for a bailout that just isn't going to happen. (I must repeat also for the upteenth time: Spain's has less public debt, in proportion to its GDP, than Germany. Spain's problems are, different, namely a private sector in the doldrums, but nobody is going to have to bail out "bad bonds" issued by Spain. This is just one example of the wrongness of dumping several rather different countries into the same basket).
On the other hand, while the bile seen in the German, Dutch or Scandinavian media against the Greeks and Portuguese is quite astounding, the same hostility isn't seen against the Irish (whose economic troubles can be traced back to truly egregious corruption and cronyism), the Hungarians (not in the euro, but also bailed out by EU and IMF, after its government lied just as damnably as the Greek government about its public accounts), or the Icelanders (who, after all, have fled the bar leaving an unpaid 5bn dollar bill for the Dutch and British governments to take care of). Then you also have quite unpleasant comments about "those lazy Southerners", even by Angela Merkel, despite statistics (and my own eyewitness evidence) that much longer (but, alas, not necessarily productive) hours are worked in Southern Europe than in, for instance, Germany.
Furthermore, if you look at the whole picture, while Germany and the Nordics are powering ahead, the economic and fiscal situation of the UK or the US isn't really much better than that of Greece or Portugal. Both the UK and the US have higher budget deficits than those countries, rapidly growing debt, and, in the case of the UK, low growth coupled with significant inflation. But the main problem of Greece and Portugal is one of perception. The more their debt is perceived as "risky", the higher the cost of servicing that debt becomes for them. The successive downgrades by rating agencies become self-fulfilling prophecies, as Greece's debt, for instance, falls from the same rating as Germany's to one notch below Haiti's. This is why cultural prejudices are not just demeaning, but even contribute to a great extent to the current crisis.
As for corruption and political cronyism, I am the first to complain about it in my country, but after living abroad for most of my life, I know all too well that it often thrives in supposedly "clean" countries. If anything, it is now more exposed in Southern than in Northern Europe, and corruption does not appreciate exposure, whereas it thrives under complacency.
What also worries me about the current crisis is that we are seeing very nasty forces purposely driving a wedge between North and South, feeding prejudice and resentment on both sides, with tactics very similar to those who have made Belgium ungovernable.
posted by Skeptic at 10:51 AM on June 16, 2011 [1 favorite]


On the other hand, while the bile seen in the German, Dutch or Scandinavian media against the Greeks and Portuguese is quite astounding,

What are you basing this on? I regularly read German and Swedish online papers, and I don't understand why you lump them together. I can't speak to Dutch or Norwegian/Danish/Finnish media, but I see a big difference between how German and Swedish papers portray Greeks/Portuguese. There is quite a bit of bile in some of the German papers, but I don't see the same kind of volume/vitriol in Swedish papers at all - maybe because the Swedish taxpayer doesn't see him/herself on the hook to the same extent that the Germans do. Plus, Sweden is not part of the Euro monetary union.

Again, why are you lumping those countries media all in the same category? Have you done a comparative study, or do you have one to cite? I suspect, that like all of us (myself included), you are only going with your own observations - in which case, you are doing the same kind of lumping you are accusing others of toward the Southern European countries.
posted by VikingSword at 12:02 PM on June 16, 2011


Skeptic - the difference between the US and the UK and Portugal, Greece, and yes Spain is that they can devalue their currency. That makes a huge difference. Also wrt to Spain I think to some degree no one believes their numbers - which is not helped by the bizarre presentations the BoS gives to the financial community, the weird statements politicians make, and the insane rumors you hear about the finances of the regions and localities. A few more years ago when I was much more facile with the data in Spain I remember the municipalities were generating an amazing % of their revenues from property transfer and construction related fees. That scares people. I think you are right about actual debt issued by the Spanish government, I think the issue is people perceive there being a ton a contingent liabilities.

Its interesting because on a per capita basis Spain's housing bubble was much bigger then the US', what it didn't have (to the same degree at least) is the financing excesses that we had here, so the collapse has been in some ways slower and more orderly. It will be interesting to see what happens.

(and as a neutral party I would totally agree about the Venom from northern eurozone members- they don't quite seem to get how linked their own economies are to the south, and how much of their growth in the last x years has been from faster growth on the Eurozone periphery. Hell Germany is gonna wake up one day and realize their economy is the derivative of China's growth rate)
posted by JPD at 12:23 PM on June 16, 2011


I plead guilty, VikingSword. I was thinking more of what's going on with the True Finns and the Danish People's Party. Not speaking Swedish, I can't really judge the public mood in Sweden, even if it seems indeed to represent a rare positive spot in an increasingly sour neighborhood.

What's strange about the mood in Germany and several neighboring countries is indeed how the taxpayer sees himself "on the hook" for the Greek and Portuguese bailouts. If you conducted a poll in Germany or Holland about how much of their tax money is going towards those bailouts, you'd possibly find a majority of people thinking that at least a tenth, possibly al much as one third of their tax money goes towards helping out "those lazy Southerners". But, in truth, not just are the amounts involved piffling compared with the German budget, as long as Germany's own credit rating remains unaffected, the German taxpayer is actually earning money with those bailouts, since Germany is lending money out at high interest which it gets itself at very low ones. Moreover, the continued turbulence keeps the euro comparatively low, whereas by now an independent D-Mark would have shot into the sky, with disastrous results for Germany's export-driven economy.

In my opinion, what happens in Germany, Holland and other neighboring countries is that recent drastic cuts in the welfare state have driven up inequality, so that most of the population actually isn't benefitting from their supposedly buoyant economies. The average guy wonders where all the money is going, and driven by some old atavisms, pins the blame on some handy foreign scapegoats, when the truth is that there are plenty of home-grown snouts in the trough...
posted by Skeptic at 12:37 PM on June 16, 2011 [1 favorite]


JPD I agree with some of what you say, but the competitive devaluation theory has, in my eyes, a mighty flaw, namely, that while the UK may theoretically be able to devalue its currency, it actually isn't doing so. After some gyrations in 2008, the euro/sterling exchange rate is stable, and sterling is, if anything, overvalued against the euro, despite considerably higher inflation than in the euro area. Why is that so? For several reasons, I guess. First and foremost, a devaluation could trigger a capital flight. With billionaires from around the world having invested their money in London real estate, such a run could make the Spanish and Irish bubbles look like a picnic. Secondly, devaluation could fuel the already high inflation in the UK. Last, but definitely not least, in a world where many voters still see exchange rates as virility symbols, the prospect of sterling falling below parity with the euro surely gives many a British politician nightmares. This was obvious in late 2008, when sterling was within two cents of parity, and the panic among the UK government ranks was palpable.
posted by Skeptic at 12:50 PM on June 16, 2011


London Real Estate is going to collapse no matter what the GBP does. NY and LON make no sense, but LON is crazy by another magnitude. The actual depreciation in the GBP is going to be childs play compared to nominal declines in the underlying. Saw an article the other day that one of the larger developers in London had sold 42% of its homes in 2010 to foreigners - all of those foreigners were chinese. Now I know new build is a drop in the bucket in that market, but that's still an amazing figure.

I suspect the reason why the GBP has stayed relatively strong (although on a PPP basis I'd disagree with your assertion that it is overvalued) is because no one can figure out if their austerity program is going to work or if they are going to abandon it. Right now they are attempting to avoid a competitive deval, but who knows if that works.

Also the % of income in the SE from the fin services industry is seriously scary if you think there is any chance at all for real reform. (Scary for home prices and tax revenues, probably a net good in the longer term)
posted by JPD at 12:58 PM on June 16, 2011


@Skeptic (and the mortgage comparison)

I don't think a comparison to a variable-rate mortgage is apt here. Aren't government bonds fixed-rate loans that usually end up revolving at a relatively low frequency? In that case the banker isn't changing the rate on the mortgage, he's changing the rate on their next mortgage.
posted by ilikemefi at 2:17 PM on June 16, 2011


@Skeptic & @ilikemefi

Comparing national economies to "typical" families is a very common analogy and rhetorical tactic in politics. It's also highly problematic and can be insidious as rhetoric - in the guise of simplifying things to an everyday "relatable" "moral" and "practical" level that "everyone" can understand (not the mention the dubious implication that the nuclear family should be the fundamental standard unit of political and economic discourse), it creates huge elisions and confusions in its conflation of family with state and national economy. Besides, the massive disparity in scale in making that analogy, states and economies can do many things that families can't, are different in the range of interests they have, and the moral calculus deeper in complexity.
posted by Bwithh at 2:30 PM on June 16, 2011 [1 favorite]


Bwithh That's an impressive array of polysyllabic words to say...nothing much, really. If you have a particular objection to this sort of economic analogies in general, or to my (not very seriously meant) analogy in particular, please express it. But just calling it "problematic" (why?) or "insidious" (how?), pretending that it creates huge "elisions" (which ones?) and "confusions" (between what and what?), and decrying that they have the "dubious implication that the nuclear family should be the fundamental standard unit of political and social discourse" (the horror!), does not make an argument.
I once had a philosophy teacher who used to write like that. He wasn't a good philosophy teacher, but he certainly was a vain, pretentious git.
posted by Skeptic at 3:38 PM on June 16, 2011 [1 favorite]


@Skeptic (and the mortgage comparison)

I don't think a comparison to a variable-rate mortgage is apt here. Aren't government bonds fixed-rate loans that usually end up revolving at a relatively low frequency? In that case the banker isn't changing the rate on the mortgage, he's changing the rate on their next mortgage.


yes. you are correct.the coupon on existing bonds does not reset even if the issuer becomes no creditworthy.
posted by JPD at 3:50 PM on June 16, 2011


isn't this willfully ignoring that bonds are tradable commodities?

The reason bond markets have such influence over nations is because they continually need to refinance their debt burdens.
posted by Shit Parade at 3:59 PM on June 16, 2011


I was just correcting a comment above that all of the outstanding debt repriced. Greece's debt is mostly pretty long-term - they got about 80 bil (assuming other projections are correct) to roll over the 4 years compare to total debt of 350 bil. So you only have to refinance pieces of it, but yes you are right, its just getting the small refinancings done that matters.

The tradable commodity nature of it matters for price discovery.
posted by JPD at 4:09 PM on June 16, 2011


From the little I know all the action is in the bond market, Washington Post June 16th and for fun interactive charts look at Bloomberg 3yr Greece bond market the 3 yr bond is trading near 30%, 30%, I think people should let that sink in, 30%, God I wish I had some money to invest in bonds.
posted by Shit Parade at 4:23 PM on June 16, 2011


Bwithh That's an impressive array of polysyllabic words to say...nothing much, really. If you have a particular objection to this sort of economic analogies in general, or to my (not very seriously meant) analogy in particular, please express it.

You should read through his post again, but more carefully this time.
posted by ilikemefi at 10:04 AM on June 17, 2011


Parade:

it's only trading at 30% if they give you all the money they owe back...

if they don't you can still make a loss from where it is trading now.
posted by fistynuts at 4:18 AM on June 18, 2011


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