Question on Greek Financial Crisis

[Mihais]

I'd better hold my tongue about the barbarians

[DOR]

Doktor,

IMV It's not what is cheapest, but what is right

snapper,

DOR if you call 2-3 trillion Euros + bank refinancing and loss of democracy 'cheap' I would respectfuly suggest that you have too much money.

1. “Cheap” is always a relative term. A nice single malt whisky is “cheap” compared to a fine wine, especially after the 5-star restaurant adds their mark-up.

2. The alternatives to bailing out Greece, and whoever else comes along are so overwhelmingly crippling, for so many years to come, that any rational decisionmaker will avoid them at all cost. Please bear in mind that politicians are only very rarely rational decisionmakers when it comes to the choice between their own careers and the (inter)national interest.

3. Doing “what is right” is a luxury individuals have, and those making the decisions about the fate of Greece, the euro, the EU and Western Civilization As We Know It . . . don’t.

[Doktor]

DOR,

Again, it's not about cheaper, but what is right ie what should be done.

Doing the right thing, rather then the shortcut usually pays better in a long run.

Why not letting them default? Why putting more money in there? And why write-off their debts? Postpone them, or buy their property.

If I was German or French I'd be pissed. PIIGS living beyond their reach, just to say, sorry I can't pay, it's your choice, bail me out, write-off 50% or I will doom you all.

[Mihais]

DOR,with respect,not doing what's right led the world where it is.Essentially short term benefits trumped long term common sense.Of these you're without doubt more qualified to talk about.
Perhaps it's time to change the tune and do something right.Because either way,the citizens of Europe will suffer in the coming years.The question is now whether they suffer for for nothing,or there's a light ahead.This isn't about morality,but it is about the future of the Western world.The Western world as we know(if by that phrase you mean the world of the last 20-30 years) is already dead.

There's a long talk,but I could not put it in fewer words.

[snapper]

Doktor,



snapper,



1. “Cheap” is always a relative term. A nice single malt whisky is “cheap” compared to a fine wine, especially after the 5-star restaurant adds their mark-up.

2. The alternatives to bailing out Greece, and whoever else comes along are so overwhelmingly crippling, for so many years to come, that any rational decisionmaker will avoid them at all cost. Please bear in mind that politicians are only very rarely rational decisionmakers when it comes to the choice between their own careers and the (inter)national interest.

3. Doing “what is right” is a luxury individuals have, and those making the decisions about the fate of Greece, the euro, the EU and Western Civilization As We Know It . . . don’t.

Sir, I reply, if you will pardon me, by quoting an extract of an email to a friend who lives in Belgium.

"As for "you seem to have a foresight into the future" lol I certainly do, in a way... It is essentialy just logical analysis though. I am a philosopher and history buff more than anything else and certainly NOT an economist, who I have less and less regard for. My Sister (who we call Pippa - real name Catherina), who IS an economist and works for the World Economic Forum (this lot: World Economic Forum - Wikipedia, the free encyclopedia) says "I am relying on Italy to bust the system for good over the next 2 years".

They are currently speaking of a 'three point plan' to save the Euro:

A. Greek debt is written off to upto 50%. In other words they default in managed way.
B. Banks that lose from this write off of Greek debts get refinanced. Aprox 110-150 billion Euros for this.
C. The bailout fund is increased from 450 billion Euros to 2-3 trillion Euros!!! This will then be used on a 'first loss' basis for future bailouts.

I was puzzled about what 'first loss' meant so I phoned my pals in Rothschilde Investment Bank. This means that all losses come first from the bailout pennies (our money) and secondly, if all goes caput, from other investors. Well this is free money for all investors and I am certainly in! It's essentialy a give away and you can't lose as the tax payers money will be lost first before private money.

Naturaly the hope is that these measures will stop speculation against Italy and Spain etc... and reduce the costs of their borrowing. Short term this is certain - you throw 2 trillion Euros at their bonds and the private money and it's bound to lower their borrowing interest rates... might as well make it 6-7 trillion and buy the whole debt.

As you can imagine there are problems with this:

A. From where do you produce this 1.5-2.5 trillion Euros of extra bailout funding? The IMF itself itself says it may need refinancing (see Christine Lagarde: IMF may need billions in extra funding - Telegraph) Will the markets lend it? Perhaps but this will weaken the richer eurozone countries that are bailing out the poorer. Essentialy the lending nations, by writing a blank cheque to the poorer ones endanger themselves. Their peeps have to make more pennies and pay more taxes to keep the poor nations. IF they do not have economic growth (make more pennies to send south) then it is unsustainable.

B. Essentialy the lending nations, by writing a blank cheque supporting the borrowing nations assume financial control of the those who they lend to. Where is democracy? It is already the case in Greece but with Italy and Spain thrown into this 'Bankers Dictatorship' as well you are stirring serious problems for later.

C. All these matters need national votes in eurozone Parliaments, which may not pass.

Basicly to keep the Euro going is a political project driven by a form of 'idealism', it neglects reality. Europe is NOT (mostly) competitve or making money and bailing out bankrupt countries for the sake of a political ideal will not change this. IF countries could devalue using their own currencies we may see a competitave and profitable Europe again in 5 years."

It is quite plain that the endless trillions of Euros thrown at a never ending political ideal a. destroys democracy and b. doesn't bloody well work!

Let me try to explain in Doktors analogy of your neighbour...

A few years ago, along Rich Street, Mr and Mrs A had new neighbours (they earn between them BIG), the new neighbours are also called A (for our purposes AB). AB buys big house and car etc because he goes to the bank and says "Look I earn not quite BIG but my brother lives next door and will help me if I get into trouble". Bank checks names of the neighbours and accepts this story lending pennies to AB for house etc... Well it turns out that ABs income was SMALL and he can't keep up the mortgage or car payments. In deperation he pops next door and asks Mr A, who does have BIG income "Can you lend me enough to make nextt payment? - I promise I will sell the car".
"How will you get to work?" asks Mr A.
"Well could you buy me a bicycle?" replies AB
"When do I get repayed?" ... "Hmmm... will you accept 50% of what I really owe you? I could keep up motgage payments for a few years then and promise-ish to stop eating steak or buying wine."
"How do I know I can trust you to sell the car and stop luxeries?" says the wise Mr A, whose Wife and children are telling him "This fellow is a loser".
"I will give you the same guarantee as the Bank" replies AB.
At this point Mr A erupts in fury "you conned the Bank in my name in the first place! Gerroffa my land pdq for I am a retired a Canadian Colonel with sword!".

I hope you appreciate the humour in this ridiculous situation. The point is that cheaper it is NOT, right it is NOT, democratric it hasn't been for some time.


I hope this makes

[Parihaka]

I'd better hold my tongue about the barbarians

Hell, I'm descended from cannibals on both sides of the family, there's always something to be gained in an empires fall.

[DOR]

snapper,

The basics of economics and banking are not that difficult to understand. What gets in the way of that very entertaining story you told is the simple fact that central banks, investment banks and all the other kinds of banks, lenders, investors and miscellaneous moneymen are not, and never have been, operating on a “can you lend me a few bucks ‘til payday?” basis.

Good story, but not very relevant.

o If the balloon goes up, the losses to everyone will be hideous.
o Therefore, preventing the balloon from going up is the top priority.
o That requires someone stepping up and taking one for the team.
o No one wants to do this, unless it is absolutely necessary and no one else volunteers.

That’s where we are today: waiting to see if someone else will volunteer to take the first loss.

- - - - -

Apologies for not raising this earlier: What part of this discussion requires that democracy be destroyed, or even undermined?

[RollingWave]

snapper,

The basics of economics and banking are not that difficult to understand. What gets in the way of that very entertaining story you told is the simple fact that central banks, investment banks and all the other kinds of banks, lenders, investors and miscellaneous moneymen are not, and never have been, operating on a “can you lend me a few bucks ‘til payday?” basis.

Good story, but not very relevant.

o If the balloon goes up, the losses to everyone will be hideous.
o Therefore, preventing the balloon from going up is the top priority.
o That requires someone stepping up and taking one for the team.
o No one wants to do this, unless it is absolutely necessary and no one else volunteers.

That’s where we are today: waiting to see if someone else will volunteer to take the first loss.

- - - - -

Apologies for not raising this earlier: What part of this discussion requires that democracy be destroyed, or even undermined?

I'm guessing the part where their government are forced to pass budget / laws that are against their people's will.

I'm having a hard time believing that Greece and several of the others can be saved now, at the end of the day their basic economic base was simply too crap to begin with, that at this point by massively cutting budget AND adding taxes you'll just end up wrecking an already weak base. you can't pay back money when your not making any, and in Greece's case even if they cut their government down to near zero they'll probably be making very little money.

Let's take for example their railroad, currently their railroad is run by the states and suffering catastrophic losses. if they privatizee it now the company probalby just goes boom instantly and Greece will be left without train service for quite a while as I don't see how any sane company want to pick up this mess especially at the time of extreme uncertainty in Greece and in a country where there's still too many red tapes doing busniess. It's not too hard to see how a country suddenly losing it's train service will not exactly be improving it's economic outlook.

At the end of the day we probably need to face the music that the world economy over the last 30-40 years have been one massive bubble proped up by soverign debt that 99.9% of the investers massively overvalue (by under estimating it's risk) as soverign debt is not in fact backed by anything. you can't forclose a country's stuff if he default. and the # it is tied to is so scary that by the time any semi significant economy defaults it's already a major crisis.

[Laser]

Personally, I would like to see them go ahead and default. Get it over with. Why are people so convinced that defaulting is such a bad thing? It is the natural order, and the only thing that will be affected will be Greece's ability to borrow. So, don't borrow. Live within your means. Cold turkey. Then, innovate a solution, or perish.

Under these circumstances, I feel that mismanaged debt is not the fault of the borrower. It is the fault of the lender. Bailouts shift the risk from the people who caused it, to all the rest of us, and is wrong on every level. Bailouts only encourage more debt in a never ending cycle that only benefits bankers, politicians, and investors that are silly enough to buy the risk. Why is everyone so intent on protecting them, given the fact that they are the ones who caused this mess? Why doesn't the common man see that this is a giant shell game being perpetrated against them, their families and their future?

[DOR]

I asked: Apologies for not raising this earlier: What part of this discussion requires that democracy be destroyed, or even undermined?

RollingWave,

I'm guessing the part where their government are forced to pass budget / laws that are against their people's will.

You’re probably right.
People hate paying taxes.
Governments pass budgets / laws that require people to pay taxes, against their people’s will.

Damn government.


Laser,

Why are people so convinced that defaulting is such a bad thing?

Argentina, that’s why.

[Doktor]

They are the buyers of the risk?

Well let them buy it now, with THEIR money ;)

[Doktor]

I asked: Apologies for not raising this earlier: What part of this discussion requires that democracy be destroyed, or even undermined?

RollingWave,


You’re probably right.
People hate paying taxes.
Governments pass budgets / laws that require people to pay taxes, against their people’s will.

Damn government.

Well, form a party and promise no taxes and see what happens. That way you will know if people like the taxes or not.

Tho, I don't like to pay tax, I realize that we all need police and firefighters, so I am comfort to pay for them, not for the bureaucracy that worsens my life

Laser,



Argentina, that’s why.

What about Argentina? They corrected and now are back on track. Who lost money there?

[Mihais]

What about Argentina? They corrected and now are back on track. Who lost money there?

Who lost money in Iceland,if I may ask?

What I find ''interesting'' is that we fight fire with gasoline.We're talking trillions here,that must come from somewhere.Even if creating money can be done by typing some numbers in a computer(printing press is really obsolete),it's the rest that eventually pays them back,this time with real money,which reflect their productive work.We can kick the can for a while,but its either us or our kids that pay them back.Besides being horrible to tell your kids about how you enjoyed life while they have to be slaves on the plantation it's not supposed to be like that .
IIRC debt is used to create new assets,which will pay by themselves in time.At this time however,existing debt not only creates nothing,but actually hampers growth and will very soon influence negatively the standard of living.

2000 years ago,Rome.Every 2-3 generations there was a debt problem.People could not pay so they defaulted and that was usually associated with troubles.No growth,of course.So each and every time,the Senate,the proconsuls in the provinces or the emperors chose not to have a revolt and canceled the debts en masse.Too bad for the lenders.And those were real money,with flesh and bones loansharks that suffered.

I may be terribly wrong,but looking only in the near future,which these days means next 1-2 years at best is asking for troubles.

[Laser]

Sorry, but the majority of Argentinas problems stemmed from the inability of the powers that be, to allow the inevitable default from occurring, not from the default itself. The cure was worse than the disease. 10 fold.

Now, granted Greeses problems are a little different ( they are on the Euro, and Argentina was on their own currency, among other things; and which is why the Euro is a piss-poorly conceived and implemented idea in the first place) but the overall problem is exactly the same. In fact, what Argentina went through, should be the poster child for why Greece should default today instead of tomorrow, IMO.

Instead of investing so much time and energy in avoiding a default, mabey it would be more productive to focus on managing and preparing for the default itself, and in the monetary changes that will be required to keep it from happening again. The sooner THOSE measures are in place, the faster the economy will be able to recover. In fact, if the proper measures are in place, pre-default, I could see recovery in months, not decades, which is what they face now.

One of the biggest problems with the coming austerity measures, that many are not accounting for, is the inevitable rise of the Mafia and tax-dodging entities that will result, and will undermine the recovering economy. This is the most troubling. There is only so much austerity that a society can accommodate (or should).

[RollingWave]

What about Argentina? They corrected and now are back on track. Who lost money there?

Agrentina's story isn't really the default part, it's the buildup to the default. which basically spaned 4 decades including several spans of catastrophic hyperinflations.

On this point I think Laser might be right, if we're going by Argentina's logic then it's better to default now rather then 30 years and multiple hyper inflation / ridiculas economic contractions later.

Sorry, but the majority of Argentinas problems stemmed from the inability of the powers that be, to allow the inevitable default from occurring, not from the default itself. The cure was worse than the disease. 10 fold.

Now, granted Greeses problems are a little different ( they are on the Euro, and Argentina was on their own currency, among other things; and which is why the Euro is a piss-poorly conceived and implemented idea in the first place) but the overall problem is exactly the same. In fact, what Argentina went through, should be the poster child for why Greece should default today instead of tomorrow, IMO.

Instead of investing so much time and energy in avoiding a default, mabey it would be more productive to focus on managing and preparing for the default itself, and in the monetary changes that will be required to keep it from happening again. The sooner THOSE measures are in place, the faster the economy will be able to recover. In fact, if the proper measures are in place, pre-default, I could see recovery in months, not decades, which is what they face now.

One of the biggest problems with the coming austerity measures, that many are not accounting for, is the inevitable rise of the Mafia and tax-dodging entities that will result, and will undermine the recovering economy. This is the most troubling. There is only so much austerity that a society can accommodate (or should).

I generally agree with the logic here, with the general problem right now being that Agrentina was more or less an isolated case while Greece appears to be just the first domino. a Greece default in itself is not a huge issue, but if the entire Southern Europe and parts of Eastern Europe default then we're in for a hell of a ride.

International economics depends more then anything else on stability, it doesn't take a rocket scientist to see that if half of Europe defaults on it's soverign debt it's not going to do the stability part too much favor.

It should be noted, that in recent weeks due to the fear of Greek collapse the dollar's value have surged again, not exactly the best thing ever for the US . if the Euro blows up as a result of this it'll surely cause the dollar to soar due to the lack of other commodities avalible for the capital flight. which will more then anything else probably just cause the US trade deficit to look even worse.