All the business twitterers I follow are up in arms about Europe and in particular Greece. As usual, I have no idea what is going on but can sense panic. Here is one scenario if Greece leaves the Euro.
Anything you can explain in ENGLISH would be appreciated.
cleek
all fall down go boom
JGabriel
John Cole:
Greece is tired of getting screwed by Germany, France, and American banks — so, they’re gonna turn around and go Greek on us.
I’m not sure that’s entirely accurate, but it is in ENGLISH.
.
General Stuck
Bully Pulpit fall down go boom
Morzer
Greedy Greek mice ate lots of German cheese. German cheese-saving prudent mice now very angry. Greek mice unable to repay cheese any time soon, but need more cheese. German mice increasingly angry. Greek mice very hungry and angry. Much rioting on streets of Greek Micetown. World worried, because German Cheese Banks crucial to Yurpean Cheese Economy. If German Cheese Banks bust after Greek Cheese Orgy, double-plus un-good for Yurpean Cheese Economy. Yurpean Cheese Economy screwed, World Cheese Economy meltdown in prospect. World Cheese Economy melts down, we are all in the fondue.
JenJen
@cleek:
Precisely.
henqiguai
Economically speaking WE’RE ALL GONNA DIE!
Linda Featheringill
1. I think that he is saying that the Greek banking system would crash, even with new currency, and that would severely restrict trade with the rest of the world. Not good for Greece.
2. European bankers would clasp their pearls and reach for their respective fainting couches.
3. Investors in Greek govt bonds would lose their money.
4. Perhaps worse yet, if Greece leaves, other European Union members might get the idea that they could leave, too. Can’t have that, apparently.
Napoleon
I love how the guy from Citi is basically trying to bully Greece by telling them how bad it will be for them to leave the Euro when in fact it likely will be a good thing for them (relatively speaking).
Linda Featheringill
@Morzer:
LOL. Beautiful lesson in economics.
Morzer
@Linda Featheringill:
I was trying to put it into short-order cook language, just to make life easier on Cole.
Captain Haddock
Shit, I bet my retirements savings on Gyros Futures.
asiangrrlMN
@Morzer: Welcome back, Morzer. Oh, how I’ve missed your wit.
Chat Noir
@Morzer:
/stands up and applauds
Culture of Truth
K-THUG has a good piece about this, also apparently the permanent rescue fund will be not be done until 2013.
JGabriel
@Culture of Truth: Link?
Martin
Greece = Texas. Extrapolate.
Montysano
From what I’m reading, there is as much (or maybe more) concern about the credit default swaps attached to the Greek debt as there is the actual debt itself. If you’re a Greek creditor, you insured yourself against the considerable risk by buying a CDS, i.e. insurance against a default. However, since much of the derivatives market is unregulated, your insurance company may be wholly unable to pay off if the worst occurs. Once a Greek default begins, the ripples spread outward and affect… well, who knows, because it’s unregulated.
That’s my understanding. I’m happy to be corrected.
rob in dc
This is the biggest weakness of Balloon-juice, the complete radio silence regarding any economic issues is pitiful. Foreclosure fraud, Euro Detonation, Student Debt bubble, you guys don’t even talk about these things, all you can do is comment occasionally on unemployment numbers or gdp numbers, is that really all you guys can toss up about the economic problems surrounding us?
Tone in DC
@Martin:
No way the Greeks are that bad.
Sentient Puddle
I don’t think anyone has a particularly firm idea on what would happen if Greece left the euro, and that’s precisely why everyone wants to avoid it. But near as I can tell:
*They’d have a hell of a time trying to set up a new currency because they’d essentially be defaulting. If they even managed to get any trust in it, it’d likely be plagued with rampant inflation in the near term, perhaps longer.
*Any money that the rest of the eurozone had put in Greece essentially vanishes. That’s probably a bad thing.
*Other countries on the euro get knocked off balance because of the above, which will likely put the current countries on the edge (your Spains and Italys) into where Greece is now, and moves currently safe countries down to the edge.
*Go to step 1 and repeat with your newly-troubled countries.
That’s my take, which might well be 100% inaccurate.
Hunter Gathers
I have absolutely no idea what is going on, but I’m pretty damn sure it’s all Obama’s fault.
Wag
Cheeseburger, cheeseburger, chip, chip. No pepsi. Coke, coke
Hunter Gathers
@Wag: No chip, fry.
FormerSwingVoter
Greece can’t pay their debts because their economy is in the shitter. Europe is demanding that, in order to get the loans necessary to pay their debts, Greece must massively increase taxes and slash spending to the bone. This will cripple them, making an economic recovery impossible, meaning they won’t be able to pay their debts a few months down the line either and start the whole thing anew. Again.
And if the EU was willing to follow a monetary policy with the Euro that wasn’t explicitly “Fuck Everyone In Europe Who Isn’t Germany Because Fuck Those Assholes”, then Greece wouldn’t be in this situation. If Greece was off the euro, they could print more currency. But Germany is terrified of the invisible bond vigilantes and invisible hyper-inflation, so they continue following policies that doom the entirety of southern Europe to perpetual poverty and suffering.
So yeah. Germany demands suffering because their policies cause suffering. Fuck those assholes. If I were a Greek politician, I’d be speechifying about the tyranny of the EU’s backwards policies every day all day, and win leadership of the country on my platform of “Fuck those assholes, we’re leaving the EU and defaulting on our debts like any business or household would, and they can suck my dick if they don’t like it, those worthless fucks”.
Mark
Can’t beat this:
https://www.npr.org/blogs/money/2011/09/02/140148320/europes-worst-case-scenario
Martin
@Tone in DC: Well, it’s a relative measure. Greece:Europe :: Texas:USA.
They’re going to secede because everyone pisses them off, then they aren’t, then the Greek Prime Minister will grab his laser-sighted kopis off his belt, announce his candidacy to run for the head of the EU and declare that NATO is a ponzi scheme.
Uncle Clarence Thomas
.
.
Very well, then. In English:
Greece is the word,
Is the word,
That you heard.
It’s got groove.
It’s got meaning.
Now I will go teach Ginni the lyrics to “Beat Me Daddy Eight to the Bar.”
.
.
Culture of Truth
This is more about Spain, but informative about where Europe is right now.
lacp
Greece is going to default whether or no, so it might as well dump the euro while it’s about it. A few years back Argentina defaulted, and they came out of it just fine.
Max B.
Greece’s economy sucks and it has a lot of debt. In a sane universe Greece’s currency, the drachma/SpartaBuck/whatever would decline in value, thus making Greek shit cheap, thus meaning more people buy Greek shit, thus making Greece’s economy less sucky.
But that didn’t happen because we’re in the insane universe where everyone in Europe thought it was a good idea to share a single currency and hand power over that currency to a bunch of Galtian assholes. So now Greece’s economy sucks but Greek shit is still expensive so they have no way out of the hole. So nobody wants to loan them more money because they’re a bad bet. And every time they try to do the whole austerity thing the economy gets worse which is a wash on the whole “let’s try not to borrow any more money” thing. So they need to keep borrowing money, their economy continues to suck, and nobody wants to loan it to them.
So unless somebody – Germany, the European Central Bank, Jesus – hands Greece a big pile of Euros, then they are totally fucked. And if Greece fucks itself then Europe is fucked because it’s kind of like Lehman Brothers.
Culture of Truth
Greece is small potatoes. It’s Spain and Italy, says the K-Man, and it’s not good:
patrick II
@Montysano:
I have read the same thing. What makes the problem even worse is there is no central knowledge of who owns, who is obligated by or who can pay off the cds. The scale is just unknown, and since the cds market is unregulated several people can “bet” on the same debt. Thus a 100 billion dollar debt can turn into an unsecured 500 billion dollar debt. No one knows if that has happened or the scale. Bankers playing with other people’s money for commission is no way to run international finance.
Gin & Tonic
@FormerSwingVoter: Not the same thing, I know, but Iceland said “fuck you” and the world didn’t end, not even in Iceland.
Morzer
@FormerSwingVoter:
This is much too kind to the Greeks, I am afraid. They’ve never had a strong economy at the best of times, and they’ve failed miserably to collect the revenues they ought to be extracting from the populace. They also decided to pay out ludicrously generous amounts of welfare and pensions, which in turn required excessive borrowing. To compound this mess, they proceeded to lie their way into the Eurozone, despite the fact that they couldn’t even put together a coherent and honest budget, because no-one really knew or wanted to know what the fiscal facts were. Instead, they fabricated the data, joined the Euro by fraud and have been utterly unable to keep up with the other Eurozone countries either fiscally or economically.
One has to wonder why the Eurozone countries ever fell for the Greek okeydoke or were bamboozled by the balance-sheets so lovingly crafted in Athens. It’s been a very badly kept secret for decades in Europe that Greece has a weak, badly developed and vulnerable economy. Why anyone would have believed in its miraculous transformation to fiscal stability and prosperity, God only knows.
fasteddie9318
*puts on the Mustache of Understanding*
I took a vacation in Greece maybe 6 months or so after they went on the Euro. Still the best vacation I’ve ever taken, but I’m a wannabe Ancient Greece nerd so it really scratched an itch for me. The reason I should have probably seen this all coming was that I literally couldn’t get into a cab in Athens without listening to the drivers, at least the ones who could speak passable English (which was most of them in my experience), complaining about what a terrible thing the new currency was.
This represents the one Tom Friedman-style story I can tell from personal experience.
wrb
@Morzer:
And Kraft and the Wisconsin money men who got the moon cheese discovered at American Taxpayer expense break their embargo, and make obscene amounts of money selling what should be the heritage of all Americans.
This has been in the works for 50 years.
Morzer
@Uncle Clarence Thomas:
Save Ginni the bother. I’ll beat you to both our hearts’ content – and I won’t even insist that you learn English.
stickler
The banks which loaned all that money to Greece are mostly German and French. Thus, Germany has a vested interest in helping Greece through this crisis.
But the only way to really help (slashing the Greek budget isn’t really “helpful”) would be for Germany and France to man up and use their own tax money to back Eurobonds. This would in essence begin the process of creating a real Euro system which could prevent crises like this from spiraling out of control.
But! Angela Merkel’s conservative party hates the idea of using German tax revenue to bail out those lazy Latins … uh, sorry, Greeks. The SPD-alists seem to be OK with the Eurobonds, but of course they’re the opposition. So how does Angela get legislation passed for Eurobonds?
Nobody has an answer to that question.
Han's Big Snark Solo
If you think, like Mittens does, that corporation are people because ultimately corporations are owned and operated by people, it is a very small step to say that governments and banks and all the holders of Greek debt are people too. And not just people, by their very nature the holders of the Greek debt are a very special, very important group of people: The Filthy Fucking Rich (FFR).
So what happens should Greece default? The FFR will lose a lot of money. There is nothing in the world worse than that! Why, all the world’s Poors – with their dirt soup, brown skin and cardboard houses – aren’t nearly as important as a single FFR! If the FFRs go down they will try to take the rest of us with them.
Elie
@rob in dc:
don’t come here then. we will figure out how to survive without you.
Maude
One of the main problems is the that they don’t know if the banks in Europe are stable. There may be tons of toxic assets not disclosed yet.
If the banks went, it would be a crisis. It’s one reason why there are so many sales of US Treasuries.
The Euro and the whole economic fusion of Europe may go belly up.
TARP prevented the US banks from hiding everything and they didn’t fail. The lesser of two evils.
KG
@Morzer: so basically, Greece = Citi… but the head of Citi doesn’t want Greece to do what Citi did?
Montysano
@patrick II:
Yes, I meant to add that. In today’s world of “financial innovation”, the notional value of the derivatives commonly exceeds the actual value of the debt.
This is what caused the credit markets to freeze in 2008. The best analogy I heard back then: you’re in a room of 100 people, an unidentified 10 of whom have a deadly contagious illness. What’s your strategy? Back then (as today), the banks knew there was contagion, they just didn’t know who had it. So they froze.
Thoughtcrime
@Morzer:
I thought it was written for Tunch.
Next, you can tell him about the rabbits.
chopper
@rob in dc:
yeah, on economic issues this place is nothing compared to your blog.
fasteddie9318
@Han’s Big Snark Solo:
No, pinko, government is the enemy of people and wants to destroy us all! It’s totally different than corporations because of wow, and ALSO because of shut up, that’s why! That’s right, there are two reasons why! You can’t refute both of them!
KG
@Maude: no bank, anywhere, is stable. they have spent more than a decade selling and buying debt that everyone knew but didn’t want to admit was bad debt. they don’t want to take a bath on all that bad debt, but they will. basically, they all did this
cleek
@rob in dc:
damn right. for all we pay to be here, we should get expert discussion on every conceivable topic.
chopper
@Max B.:
exactly. being in debt, and financing more debt by selling bonds denominated in a currency you have no central control over is a bad scene.
greg
Germans (specifically German bankers) are absolutely terrified of inflation. Which you can’t really blame them for because of the hyperinflation they suffered back in the 1920’s, which was a major contributing factor to the collapse of the Weimar Government and subsequent rise of You Know Who.
So Germany essentially controls the monetary policy of the Euro zone, and they are also constitutionally completely bugfuck paranoid about the evils of loose money. Which is okay for them, since they combine that with sane governmental policy, so they don’t _need_ monetary policy to bail out their economy.
Everyone else in the Euro zone is then tied to the Germans and thus completely screwed because they can’t chart their own monetary policy, and they all have much crazier governmental policies. When you can’t devalue your currency (which hurts everyone holding it in proportion to how much they have), the only thing left is government austerity (which is vastly more inefficient and harms those in need much more than those well off).
daveNYC
Everyone in Greece has bank accounts that have Euros in them. If Greece leaves the Euro, a lot of people will attempt to withdraw their Euros from the banks. Big-ass runn on banks happens, banks crash, Greeks riot more than they already are.
Also, if Greece leaves the Euro, that means that all the banks that lent Greece and Greeks money will be being paid back in New GreekBucks. The New GreekBuck will be crazy weak against any currency that’s not from Zimbabwe, so chances are that nobody will be able to pay off their Euro denominated debt. Greeks get foreclosed upon and/or foreign banks go under because a pile of their loans are now worth squat. Oh, and Greeks riot.
That said, Krugman has come out saying that while leaving the Euro would cause a run on the banks, leaving the Euro might not be particularly bad (for the country, not those that lent it money) if there is already a bank run happening.
Morzer
@Thoughtcrime:
On reflection, the mice might have worked better for Tunch than Cole. Of course, it is possible that Cole wears a tail and whiskers and is chased around the house by the Furry Overlord, so maybe the mice work for both of them.
Quicksand
@rob in dc:
Yeah! And why the paucity of posts on modern neurosurgery techniques? Or organic chemistry?
What gives?!?
(EDIT: Ah, beaten. Repeatedly and viciously.)
slag
@rob in dc: That’s OK. I’m still waiting for that energy guy to come back.
mike s
why can’t the Greeks employ some version of the Brazilian miracle? http://magazine.magix.com/en/is-money-real-01218/
Bruce S
In plain English, this guy is holding a lot of bad debt from Greece and wants the Eurozone to bail him out, rather than have Greece tell him to go fuck himself and get out of the Eurozone, which it never should have joined in the first place.
JPL
Taxes, who needs taxes. Greece is just proof that the free enterprise system works.
Who knew that John Galt was from Greece?
Elie
@efgoldman:
Whaa — you think they are the only crooks?
Unfortunately, (as you know), crookery is widely prevalent in our kind and starts early. My sister stole all the cookies but left the outside wrapper in the cabinet so that Mom would not see her perfidy right away. She blamed both of us later when the discovery was made. My sister smiled slyly and wiped the crumbs from the corners of her mouth.
I am uncomfortable ascribing innocence to any of us. No halos in the world I see but there is always hope if we at least work from the knowledge that its always work to do right. Always.
Bruce S
#35 – Not terribly surprising that a cab driver in Athens had more of a clue than a banker in Zurich or Berlin…
Both the US and Europe have lamp posts that are underutilized in daylight hours which could provide an initial solution to many of our economic problems. Those and some rope…
daveNYC
@efgoldman:
In the case of complicated swap transactions that were used to hide the size of their deficit so that they could meet EU requirements, that is actually literally true. GS set those deals up for them.
shwabout
The Planet Money Podcast is a great resource and they recently did a story about this.
http://www.npr.org/blogs/money/
Specific Podcast…
http://www.npr.org/blogs/money/2011/09/02/140148320/europes-worst-case-scenario
All their stuff qualifies as easy to follow and in English.
Andysr
@daveNYC:
Zimbabwe no longer has its own currency, it uses the US Dollar or ZA Rand.
The Euro always was a political tool forced on the population by a elite based in Brussels. Outside of Germany, France and the benelux economies it made no economic sense to have a single currency. This is why Britain never joined. This is just a case of chickens coming home to roost.
Greece will default and drop out, a number of other countries (Portugal, Ireland, Italy, Spain) are likely to crash out once Greece goes. I imagine some of the other countries e.g Hungary might realize the the euro is not in their best interests.
This time it is not the bankers fault, rather the politicians in Brussels.
Alex S.
@slag:
I’d like to have more posts from a libertarian perspective…
Ever since I read an article on Greece by Michael Lewis (The Big Short) I’ve had no sympathy for the Greeks. There is too much corruption and too low tax morale. I still don’t know if all the involved parties are just playing some kind of game. I wonder if the Greeks are simply trying to extract as much money as possible from Europe to finance their black-market economy. Or maybe the Eurozone is just trying to keep Greece in because of the banks. If Greece returns to their old currency, they will never be able to pay back their debt in Euros, so the default will happen anyway. I wonder how many investors bought greek debt at 15% interest rate because they thought that the Greek bailout would continue indefinitely.
Elie
so I guess I wanna know: what should Americans with any investments be doing? Reach down and grab the ankles?
You know the wave may start in Europe, but it aint gonna stay there. I am having to work now (instead of retiring), because of the last “cleansing”.
gene108
@Martin:
If Texas seceded…
jl
IMHO,
I think the plain English of the commenters who mentioned cds and bond valuation problems and connections to French banks, is better.
First off, Greece itself is a small economy, and their debt by itself should not cause humongous European continent destroying problems. Second, the crisis in Greece is not caused mainly because of the debt itself, but because it is in a rigid monetary union, so is not free to solve its debt problems through currency devaluation (which would be a workable solution for a small country, if not large countries, or all countries at the same time). And the Eurozone bosses do not want to provide the cross country fiscal stabilization that other large currency unions use to keep a monetary union working (for example, Canada or the US).
The problem is that if Greece leaves, or is effectively booted out, there will be an incentive for speculators to attack other PIIGs, and put them in the situation of Greece, even though their debt problems are almost entirely the work of the Great Recession. In fact Span and Ireland were glowing poster children for Very Serious Person macroeconomic management excellence before the housing crash.
The problem is also that totally opaque derivatives on Greek bonds connect this crisis to European banks, particularly in France. No one knows how to value the Greek bonds, and these are fundamental assets of all the derivatives. And know one knows how many derivative contracts are out there, or exactly who has them. There have been accusations of companies cooking the books to cover up the uncertainty and exposure.
Felix Salmon has more at the link below.
France’s banks lose their Street cred
Sep 13, 2011 12:02 EDT
http://blogs.reuters.com/felix-salmon/2011/09/13/frances-banks-lose-their-street-cred/
And the link in the Salmon article at “This kind of thing”, referring to the problems valuating Greek bonds, explains the connection to Greece.
Thing is that French banks are deeply involved in a couple of the remaining PIIGS bond markets, so if Greece goes, and the speculation gets heavier in the other bond markets, a Greek exit would be just the beginning of the nightmare for French banks.
So, i think this stage of the crisis is about a rigid monetary union, and the continuing consequences of an opaque unregulated derivatives markets, and banking, than debt, or lazy entitled Greeks.
And also, its about the US and European notion that saving rich buddies and their rich banks is more important than saving the banking system in the aftermath of a financial crisis.
Elie
@efgoldman:
heh heh heh
You could become the next ex…
Alex S.
@daveNYC:
Goldman Sachs is the root of all evil.
http://www.spiegel.de/international/europe/0,1518,676634,00.html
David in NY
@Maude:
I sort of thought that TARP allowed them largely to continue hiding the bad stuff, so they didn’t fail, yet (and probably, but not certainly, won’t).
But I am easily confused.
Dr. Squid
@Gin & Tonic:
Well, there is the fact that Iceland has fewer people than Omaha. Really, would anyone notice if they went “Fuck you”?
Morzer
@efgoldman:
My wife has taken a disappointingly negative stance on my plans to propose to Elie’s sister. I yield the field/floor/gavel/ring to a lucky man!
j low
In a few weeks Germany will foreclose on Greece, sending an army of men and women in charcoal suits to take possession and organize the bank auction that will be held to keep the peace. Germany will place the winning bid for Greece, and will have in Greece profitable in 6 months with Germans running the trains and
historical sitesamusement parks, and Greeks portraying “Authentic Greeks” for the tourists. Look out Portugal and Spain. You’re next.jl
Also too in addition and besides, I think Buiter had to toss in a casual mention that it might be better for Greece itself if it does leave was forced by the example of Iceland, which is doing pretty well compared to others, despite ignoring the VSP advice that the PIIGS have been following, with little or nothing to show for their efforts.
catclub
@efgoldman: “Learned everything they needed to know from Bank of America and Goldman Sachs, eh?”
Wasn’t there something about the previous government fiddling the books with the help of the banksters?
I was not sure if you were just joking or referring to that.
Orange County bankruptcy was one of the US examples of the benefits brought by the advice of the banksters.
ETA: and I am a slower typist than DaveNYC, plus more vaguely informed. I model my expertise on Megan M.
Scott P.
Those pensions were paid to the families of people who were murdered by the last dictatorship, as compensation. They may have been financially unwise, but I’m not sure avoiding another round of bloodletting and civil war counts as “ludicrous”.
Culture of Truth
Also Krugman and Al Gore are on Colbert tonight.
Elie
@efgoldman:
Yep indeedy…
sigh
At this rate, I may have to work into my seventies! (no hopefully not — exagerrating – but I had planned on making my escape about now before all the shit happened the last few years or so)
jl
For commenters who are complaining that BJ doesn’t have good econ commentary, all I have to say is, why should a miserable lefty blog try to do that when comedy shows do it better.
I got the heads up for this stage of the Euro crisis from a recent Daily Show skit.
They did a pretty good job, in plain English.
Hey, Cole, watch this:
Grecian Burn – Credit Default Swaps
Aasif Mandvi explains how Goldman Sachs helped Greek people to continue retiring a few years after puberty
http://www.thedailyshow.com/watch/wed-june-22-2011/grecian-burn—credit-default-swaps
Uncle Clarence Thomas
.
.
@Morzer:
Dear racist scumbag: your threats of violence against me, though perfectly in keeping with the balloonbagger “ethos,” are not appropriate. Get thee to a masturbatorium at your earliest convenience and concentrate on self abuse – your forte.
.
.
Cat
Greece should never have been let into the Euro and if the Greek politicians hadn’t been such status hounds they’d never have joined.
The euro is and will forever be a rigged deal where Germany,France,etc. loot the weaker countries.
Morzer
@Scott P.:
No, not true at all. Greece has made a thorough-going mess of its pension schemes, and that fact has very little to with avoiding civil war:
http://www.economist.com/blogs/charlemagne/2010/02/greeces_generous_pensions
http://www.guardian.co.uk/business/2010/may/07/greek-debt-crisis-jobs
Elie
@efgoldman:
She has had a varied menu — not all wealthy. Presumably each “tickled her fancy” in his own way, at the time.
Morzer
@Uncle Clarence Thomas:
Clarrie, while delighted by your offer of a weekend at your little place in the country, I fear I must decline until you have settled your outstanding account for flagellations rendered.
FormerSwingVoter
@Morzer: You’re right, in that the Greek government has displayed levels of incompetence and corruption that would make Bernie Madoff blush for quite a while now, and had no business being on the Euro to begin with. But the ECB’s blatant mismanagement of the economic crisis in general (“We’re going to increase interest rates based on headline inflation rather than core, because we’re incapable of learning from past events!”) has ensured that a potentially disastrous situation has turned into a full-fledged catastrophe.
Greek debtholders are going to need to see their money go up in a poof of smoke. Yeah, it sucks when your ‘safe’ investments go into the shitter. Tell that to the Lehman stock I had in my 401k.
catclub
@jl: “Ireland were glowing poster children for Very Serious Person macroeconomic management excellence before the housing crash.”
Almost as highly praised as Bernanke and Greenspan. High praise indeed.
“Praise from the praiseworthy.”
There was a line in an article on the Irish banks (after their massive collapse) that whenever there was a particularly crazy real estate deal that the Irish banks were going in double on it.
Martin
@Dr. Squid:
Some libertarian in my neighborhood made the same assertion to me back during the debt limit fiasco. I pointed out that Iceland’s population was 10x the size of our homeowners association, and if he had 10 minutes to spare, we could drive over to the house of a guy with a personal net worth that exceeds Icelands GDP.
slag
@Alex S.:
Problem. Most libertarians don’t actually know anything about anything.
Elie
@jl:
Very funny!
Man, are we effed up…
Does anyone have a scenario for the US and what could happen to our banks, the market, etc depending on what happens there? (maybe I don’t want to know this)
Morzer
@FormerSwingVoter:
I absolutely agree, I think the Eurozone has confused political self-aggrandizement with economic reality for quite some time now. They should never have brought in the fringe countries like Greece and Portugal that have been notoriously weak economically for decades. They did so solely to make the European Union a bigger place with more prestige, and the results have been catastrophic – as they were always going to be when you insist on yoking together wildly disparate levels of economic performance under a single currency without anything like adequate political or bureaucratic unity.
daveNYC
And right now the people in Ankara are probably feeling pretty lucky about dodging the bullet.
@#96: That’s why all the Amero crazy talk is so funny. As if there is a snowball’s chance in Hell of getting anything going with Mexico currencywise.
techno
Greece isn’t the real story here–Germany is. Because if Greece defaults / leaves Eurozone then the big German banks are ALL bankrupt. The big German banks don’t want to go bankrupt so they are trying to get someone, anyone, to guarantee their bad Greek loans. Only a handful of European countries can co-sign for the bad Greek debt and Germany is the only one with a big enough economy. So the German taxpayers are being asked (blackmailed) into a host of really bad deals that means lowering their living standards so the banksters in Frankfurt do not fail.
And so poor Ms. Merkel is caught between the frugal, industrious, industrially sophisticated voters who are outraged that they must save either the Greeks OR the banksters, and the Neoliberals who are demanding that she “do the right thing” because nothing less than the European experiment is a stake. And right now she cannot decide whether she wants to represent German industry or finance–both of whom have a LOT of clout. But one thing is certain, if she sides with the banksters in the end, she will NOT have to worry about her political future—she will have none.
Elie
@Cat:
Well, looks like it might be payback time for the “looting”.
To me, there are no innocents in this. The EU exploited Greece but looks like the joke went round on them, eh? Its really hard to tell who had their hand in whose pocket deepest. We just see a contorted mess and I just keep hearing the word “RUN” in my mind — like one of those horror movies where the “innocent” bystander just realizes that the monster is about ready to turn his way — again..
jl
@Elie: Well, Buiter works for Citi, and he decided, or was told, to write a scare column about the problem. Maybe that is a sign that Citi is involved.
FormerSwingVoter
@Morzer: A lot of the pain could have been avoided if they had real labor mobility between countries – though I’m not sure how realistic that would be, given cultural differences and language barriers and the like. There’s a lot I don’t know about the realities of Europe’s economy, but I do know there’s plenty of blame to go around.
Alex S.
@daveNYC:
Hehe yes, Turkey is about to become a great power – on their own terms.
ed_finnerty
the world is overleveredged, greece just the most obvious.
two ways out
1. Inflation to depreciate principal value of debt, or
2. a lost decade or two.
the best course for 99% of people is 1.
1. is the worst short term course for the bankers so they are trying 2.
when it fails everybody loses
by the way, the greeks should have learned from Troy, “beware of Germans bearing currency unions”
catclub
@jl: great post.
It reminded me that three years ago many people were saying
that: ‘Although the US banks look bad, the Eupropean banks are _really_ bad.’ I remember that the bad ratio of assets to debts for some of the european banks were three and four times as bad as the US banks.
Duckest Fuckingway: Ask not for whom the Duck Fucks. . .
While the fiscal actions of Greek gov’ts could have been better, is anyone considering that the “lazy greek” story is just “Fanny & Freddy subprime” in German?
jo6pac
Greece leaves so do others and investors lose their investment that’s how the real world works. Greece becomes Iceland no debt and uses there own worthless paper.
But in the new world order the taxpayer cover the bad bet by investors so they can do it all over again.
Elie
@Alex S.:
I tell you, more evidence of how much better it is to be lucky than good. They begged to be part of the EU for years and years and were rejected over and over as too Mooslim.
Heh heh heh… they gotta feel that they really dodged it good…
Johann
Buiter’s way off the mark. If Greece left it would have the effect of making the Euro stronger. Greece leaving is not by the remotest stretch of the imagination a Euro collapse. A much more important economy (Britain) left the forerunner of the Eurozone the EMS and it barely created a wavelet.
jl
@FormerSwingVoter: Or an adequate fiscal aid system between countris, like the US has between states, and Canada has between provinces.
People should not forget the role of an opaque, unregulated, financial system in the crisis. For example, if the finance were more transparent, it would be very difficult to get an adequate financial transfer system, or a Eruobond market going. But I think it would be possible to make the case to European voters, if people knew where the money was going, and what was to be done with it, and what the arrangements were for eventually paying it back, and what the effect would be on their own economy.
But with unknown bad debts in mass quantities held by unknown big banks and even sleazier or more mysterious entities, I don’t think there is much hope of voters giving individual governments much slack in immigration, or mutual financial aid programs.
Edit: too much chance or banksters running off with money, or attempts to help causing huge unexpected messes that make their own countries’ situations worse.
Morzer
@Duckest Fuckingway: Ask not for whom the Duck Fucks. . .:
No, because there is abundant evidence that the Greeks screwed up badly at every level.
daveNYC
@Alex S.: Great power? Likely not. Not enough cash, still a lot of work to do on domestic poverty and the like. Not to mention that they really need a non-killy solution to the Kurd situation. They’ll get there though, the modern Turkish republic is a very young country.
Major regional power? Definitely. Really they were already a strong regional power, it’s just that it’s only recently that they’ve really been pushing their own agenda.
Nope. In fact the meme isn’t that they’re lazy (there’s actually studies done that show Greeks working crazy hours), it’s that they don’t pay their taxes. And there’s studies out there that show that to be a huuuuuge problem. Greek Tea Partiers are very proactive.
Morzer
@Johann:
No, no, no. The problem is not Greece leaving – the problem is the disastrous impact that this would have on French and German banks. Nor is the situation now remotely like the situation in which Britain left the EMS – which, incidentally, it did after trying desperately to fight off attacks by financial speculators and hardly of its own volition or gladly.
techno
@Morzer: But not NEARLY as badly as the German banks. In my mind, blaming the Greeks for this fiasco is a little like blaming ACORN for 2008.
Duckest Fuckingway: Ask not for whom the Duck Fucks. . .
Morzer: Then yer a fool.
catclub
@Johann: “If Greece left it would have the effect of making the Euro stronger.”
The Euro might be stronger, but the banks holding now worthless Greek bonds denominated in Euros would be weaker.
And the nightmare then moves to Spanish, Portuguese and ….
Italian bonds.
Alex S.
@Johann:
That’s what I thought as well. It’s in the best interest of the german export economy to keep the euro as weak as possible and that means, keep Greece in, and let the governments bail Greece out.
Xenos
Germany has still not paid its war reparations to Greece – these were postponed indefinitely when West Germany had to rehabilitate East Germany. Now some sort of deal may end up taking place, one default for another. And the really big losers are the French, English, and American banks that issued CDOs on the sovereign debt.
The EU will be fine. The European Monetary Union, not so good.
jl
Everything I have heard about the economics of Greece, from a couple of Greek researchers who have been here on an off for a few years, indicates to me that Greece is a real mess.
Everything from who owns what land to special interest groups getting lots of goodies, to retiring shortly after puberty.
So, maybe Greece does deserve some blame. But they should not be blamed for their own problems crashing the Western financial system again. That work was done in Washington DC, NYNY, and the swank sophisticated financial centers of Europe.
But, big finance wants to use everyone but themselves as the scapegoat for each new stage of the long financial crisis, so I think there will be attempts to unfairly scapegoat the Greeks, and if things go really bad, then the Portuguese, then the Spaniards, then the Italians.
In the future it will be easy to tell who is at fault for anything bad that happens. Only need to ask how much cash they have on hand.
Maude
@David in NY:
The US banks went through a stress test which showed if they were viable. There are bad assets that the banks are hiding, but nothing like Europe.
BoA is laying off 30,000 this year. Not a happy picture.
The whole thing stinks to high heaven.
Morzer
@Duckest Fuckingway: Ask not for whom the Duck Fucks. . .:
Well, after that searing and fact-rich critique, what can I possibly say?
Anne Laurie
@Morzer:
Miraculous is the right word. There is, as you know, a point where the ‘science’ of economics shades into ‘philosophy’, aka ‘religion’. Within that section of the metaphorical intellectual community, an individual national economy could salvage its standing if only it accepted its U-Chicago savior loudly enough, and permitted a full-immersion baptism in the warm, if beclouded, waters of European unity. As with so many other coersion-based religious conversions, the crafty Greeks professed fealty to their new pastors, but never gave up the private indulgence of their own cherished folkways — including, as I understand it, an addiction to extended-family-based economics and a strong taboo against telling the truth to Tha Gubmint in even its lowliest incarnations.
arguingwithsignposts
@fasteddie9318:
It’s not a Friedman story if you can tell it from experience.
Morzer
@techno:
No, the German (and French) banks have been profoundly foolish, but the Greeks are not innocent victims. They’ve refused to take any sort of responsible fiscal position for decades, they’ve lied to the EU – and now they want to continue living in financial never-never land. ACORN was guilty of some poor management and angering the right-wing by actually helping minorities. The two cases are radically different.
Morzer
@Anne Laurie:
By the way, what was your latest fight with Samara/Matoko/Hermione etc about? She mentioned it on another thread, but I lack the energy to scroll through and find her latest outrage.
Also too, any chance of a thread to celebrate Elizabeth Warren preparing to smite Scott Brown hip and thigh?
eemom
haven’t had time to read this thread….hope nothing’s been said that will force me to smite anyone with the thunderous curses of my Zeusian lineage.
Martin
@jl: Well, I think the problem is that the EU has an even more strongly decoupled monetary and economic policy than the US has. There’s only so much damage a US state can get into that the Feds would need to bail out, mainly because so much of the state economic policy is either controlled or directly influenced by the federal policy.
In the EU, there’s much less feedback between federal and state levels, so problems can grow larger, and they have fewer tools available centrally to solve them.
As I like to remind my employer – authority needs to follow responsibility, and the EU have a particularly mismatched arrangement.
JGabriel
Morzer:
As detailed in the Spiegel Online article that Alex S. linked above, Greece hid the bamboozlement from the other Eurozone countries through a series of currency swaps structured by Goldman Sachs (who else?):
.
Anne Laurie
@Morzer:
If Chicago-School economics are the true religion, then its pious practitioners are required to spread the Good Word to the infidel whatever the minor inconvenience to the peasants on either side of the crusade. As an economic peasant, born and bred, I’ve always found it useful to remember that our political/economic overlords are just feudal barons with bigger weapons… and that’s on a good day.
Morzer
@Anne Laurie:
There’s nothing wrong with Chicago-School economics that we can’t fix by razing the Unholy of Unholies to the ground, crucifying the shamans over their own altars and then sowing the site with salt. I admit this is a somewhat over-decorous and even timid approach, but I am a kindly soul at heart.
Also too: I can haz Liz Warren Thread, please, pretty lady?
http://2012.talkingpointsmemo.com/2011/09/elizabeth-warren-officially-launching-senate-campaign-against-scott-brown.php
Uncle Clarence Thomas
.
.
@Morzer:
Oh, I see. You’ve been drinking again. Thankfully I’ve forced you to step back from your debased threats of violence against me, at least for the nonce, so I now give you leave to sleep it off, layabout.
.
.
Jay C
@Johann:
Yeah, well send an email to that effect to Frau Merkel: she might like to have your input, since she has a somewhat less sanguine assessment of what a Greek “de-Eurofication” might mean.
arguingwithsignposts
@Morzer: I like the cut of your jib.
Elie
@Anne Laurie:
I would add that along with not telling the truth to the Gubmint, they may not actually be honest with themselves. THAT leads to never getting to real solutions for anything — you just do what you want to think will work or blame others. The Greeks will not be responsible for effing the world economy, but they sure do own their own irresponsibility.
Xenos
Key detail: the word ‘euro’, as commonly pronounced in most languages (yoo-ro) is the Greek verb meaning “to urinate”.
This may be why many Greeks believe whoever came up with the single currency idea must have been pissed at the time.
Morzer
@Uncle Clarence Thomas:
My dear Clarrie, how things have changed since you met young Markus clad only in your favorite fuchsia underwear and judge’s robes, revealed the source of your secret shame and begged him to beat you brutally with a 1957 Klingenthal bull-whip. I do hope you will not compel me to call in the bailiffs for non-payment of debt. I don’t think Ginni would like that, do you?
burritoboy
“Ever since I read an article on Greece by Michael Lewis (The Big Short) I’ve had no sympathy for the Greeks. There is too much corruption and too low tax morale. I still don’t know if all the involved parties are just playing some kind of game.”
Sure, but that’s not any surprise to anyone. Greece has always been that way, yet their internal economic/fiscal clown show never really had any size-able effect on the world economy (it’s a tiny country with a small economy). When Greece wasn’t in the Eurozone, everyone knew their fiscal situation was garbage, so nobody bought their debt, and their old currency was weak. Greece’s economy was never great, but that had no negative effects on anybody else.
The reason why banks in the Euro-core piled into Greek debt was EXCLUSIVELY that they thought the entire euro-zone wouldn’t let Greece default. It’s that action of the euro-core major banks that’s causing the problem, not the predictable fiscal idiocy that Greece has always engaged in.
The rest of the EU wanted the Greeks to join – Germany wanted yet another country to export stuff to. It’s not like the Greeks forced their way in or anything.
fuckwit
The simplest explanation I’ve seen is that the decision to have ONE currency and central bank, but MANY economic and fiscal policies, was fucking stupid.
In the USA, there’s one currency, one central bank (the Fed), and ONE fiscal policy (as broken as it is, at least there’s only one).
In most countries, each country has its OWN currency and its OWN fiscal policy. So if the fiscal policy fucks up, then you can adjust that with monetary policy (currency), and vice versa, if the monetary policy is fucked up, you can (theoretically– if you don’t have Repugs in the way) adjust the fiscal policy to fix that.
But what if there’s one currency? An individual country can fuck up its fiscal policy (as Greece apparently did), and there’s nothing that the central bank can do to compensate for it in currency and monetary policy to fix it, without screwing up the rest of the economies who use the currency.
Hence, the most obvious solution is for Greece to GTFO of the Euro, inflate is own currency, and recover.
Now, there are all kinds of reasons that would cause other problems, and those are outside of my expertise. But from my lay reading of this, the clearest answer is: the Euro was not completely implemented.
Sources: Kthug, Bonddad, DeLong, and others, as far as I’ve been able to understand what they’ve been saying.
ornery
Big insolvent banks are attempting to transfer their bankruptcy to the nation of Greece.
Quiet as its kept.
burritoboy
“No, the German (and French) banks have been profoundly foolish, but the Greeks are not innocent victims. They’ve refused to take any sort of responsible fiscal position for decades, they’ve lied to the EU – and now they want to continue living in financial never-never land.”
Sure, various elements in Greece are not only not innocent, but are con-artists on the largest scale. But that’s always been true of Greece. It was always well-known that Greeks never paid their taxes, that the government was highly corrupt and so on. This has always been true.
The major banks knew all this better than anybody else. They weren’t counting on Greece cleaning up it’s act or relying on whatever lies the Greek governments were telling them, they were figuring that they would get bailed out if the situation went upside-down.
patrick II
@efgoldman:
It’s even worse than that. After GS setup the deals, they bet against them in the credit default market — making it harder for Greece to borrow money.
Here’s an article from early 2010 describing the deal
PeakVT
Greece probably never should have joined the Euro, but more than that it never should have joined at an uncompetitive rate, which it did. Locked in the same currency with much more productive northern European countries and without the federal to state and local tax transfers of the US, it had the choices of causing deflation from the get-go or running up debt… and then causing deflation. Since people are always eager to put off the day of reckoning, it chose debt first and pain later because, hey, who knows what might happen, right?
At the risk of complicating things, here’s a piece on the concept of Germany leaving they Euro.
mclaren
Max B. has the best & simplest explanation. Essentially, Europe has got a fixed exchange rate system, which creates big problems when one economy declines catastrophically relative to another economy. In a variable-exchange-rate system, that country’s currency could lose value, but it can’t in the European union.
Nobody is sure what will happen if one of the European countries defaults or rebels against the austerity imposed on it by the EU eurocrats. The most likely outcome? The European Union breaks up.
That would result in the end of the Euro as a unified currency and a return to a set of different currencies with varying exchange rates. This in turn would probably increase friction and create barriers to international trade between former EU members, so that would probably result in lower overall economic growth in all of Europe’s member states.
Glen Tomkins
I can’t answer the question, but I can set some obviously needed limits on the extent of the consequences.
Just as Greece entering the euro zone did not bring on the Millenium…
Greece leaving the euro zone will not release the Beast from the Abyss for his thousand year reign of terror.
Comrade Mary
@patrick II:
So if I were to try to find a definition of “evil” in the dictionary …
Emerald
@Culture of Truth: A request:
If anyone is going to link to either DKos or the NY Times, please label the link as such.
Some of us are boycotting DK, and some of us only get 20 hits per month at the NY times.
Thank you.
Omnes Omnibus
@Glen Tomkins:
The next Justin Bieber album might.
eemom
hmmm…..perhaps a good thing I didn’t read all of this thread.
I’m no economist, but as the relative of actual, you know, PEOPLE who live in Greece, have worked hard all their lives, did nothing to create this mess, and now are suffering the consequences, I wonder how folks on this thread would react to a bunch of Greeks commenting about how fucked up and corrupt “THE AMERICANS” are.
baldheadeddork
In late, but hope I can add some light.
A couple of people mentioned the risk exposure through credit default swaps on Greek bonds. No one knows the dollars involved in CDS’s because all of the proposals to make these transactions public were killed in Dodd-Frank. But I don’t think its as large of a threat as it was three years ago. Someone has to sell a swap and the number of sellers for high risk debt has fallen off a cliff in the last three years. Are there a lot of outstanding CDS’s on Greek debt from prior to 2008? Maybe, but betting on a sovereign debt default isn’t as sure a thing as a bunch of bubble mortgages. I think this is mostly fighting the last war.
I think there are a couple of important things to understand about Greece. The first is that Greece by itself couldn’t push the EU this close to the cliff. Greece’s economics are a mess and have been for decades, but it’s a small player compared to the rest of the EU. This is a crisis for Greece, but it’s unfair to call what’s happening to Europe a Greek crisis.
The problem with Europe is an Irish, Portuguese and Spanish crisis, and those are banking crises created by the real estate bubble. Ireland is a great case. Their state finances were in good shape until the government said it would fully guarantee loans made to its largest banks, even though that put the Irish government on the hook for billions in losses. Much the same happened in Portugal and Spain. Their governments took on crushing debt to keep its banking system from collapsing.
These three economies are screwed for a period that is most likely to be measured in decades. They’re looking at carrying higher tax rates and being able to spend less on education and infrastructure to pay these debts, which will make them less competitive economically and further drive down tax revenues. Without bankruptcy and foreclosure laws that discharge debt, individuals in these countries who bought real estate during the bubble years are looking at being economically crippled.
The risk from Greece isn’t what happens if they default and pull out of the Euro. The risk is, if Greece goes because the pain of staying in the EU is too great, then what is to stop Ireland, Portugal and Spain from following?
The entire problem is made worse because the European Central Bank is prohibited from backstopping any of these countries. They can’t guarantee Greek debt or buy it to take it off the books of the banks, which is why you have individual governments trying to do the same thing outside the ECB in a way that seems doomed.
JGabriel
@eemom:
Can’t speak for the anyone else, but I would agree with them.
Maybe America isn’t best example: kind of hard to look at audiences for the last two GOP debates, or the Republicans in Congress for the last two decades, and not come to the conclusion that Americans are fucked up and corrupt. That it’s mostly on the right wing isn’t a hell of lot of consolation, nor is it exculpatory, given how frequently the GOP has been in power over the last 30 years.
.
Morzer
@eemom:
People might respond that just because you feel strongly about your Greek friends and family, that doesn’t mean that the Greeks are not, in many ways, responsible for their own economic disasters. Whether you want to call them – as a nation – corrupt, negligent or wilfully blind to fiscal reality doesn’t matter – they didn’t suddenly wake up and discover to their surprise that – as a nation – they had been evading taxes, living with unreal budgets and deceiving the EU. Yes, there are individuals who are blameless in this – but as a society it’s hard to see how the Greeks get off the hook for this one.
Also: strictly speaking, the corruption or not of the American people doesn’t actually change the situation in Greece. Rhetorically, it makes sense to appeal to emotion and ask how Americans would like being labelled corrupt, but ultimately it doesn’t establish that the Greeks are innocent – as a nation.
eemom
@Morzer:
You brilliantly miss the point.
The point is that pursuant to your thesis, and having nothing to do with the situation in Greece, we “the Americans” — as a nation and each of us as individuals, including you — are a corrupt plutocracy. That’s because we “the Americans” — as a group and each of us, according to your thesis — are accountable and responsible for the devastation our nation as an entity has wrought upon its people and the world. Which, were I to say that it dwarfs anything “the Greeks” have done, would have appeared to me as recently as yesterday to be self-evident enough to require no elaboration, but I guess I can’t assume anything anymore.
YOU, an American — regardless of how you voted or whatever else you did in protest — are equally accountable “as a society” for the 2008 financial crash, the global recession, the Iraq war, the Afghanistan war, the threatened hijacking of the global economy attendant to the “debt ceiling” circus of last summer, and the denial of global warming, to name just a few — not to mention the more domestically centered devastation of the war on organized labor, public education, Social Security, medical care, voting rights, reproductive rights….hell, anything that smacks of human decency ……and not to further mention the freak show of serious contenders for the office of “leader of the free world” that has made us a laughingstock throughout such world.
We, “the Americans” and each one of us, are equally complicit “as a society” in all of that. Right?
BruinKid
The Daily Show did a good job explaining what happened back in June.
eemom
@Morzer:
a very, VERY tired old sexist trope. Also.
daveNYC
@eemom:
We’d probably agree with them?