Bollitics - Ireland, the Euro and the future of the EU

[LondonLax]

Default isn't an easy option, and they would have to do many other things as well, like tackle taxdodging and other forms of corruption. Whether there is the political will to do that, I have no idea. The crowds on the streets are apparently calling for action on taxdodging, but as usual, it's the rich and well-connected who are both the greatest source of lost tax, and also the ones in the best position to block action

The money that was lent was lent in good faith and was squandered by the Greek government. You don't think the Greek government has any responsibility to pay it back?

The Greek government has let its people down, it is not the fault of the banks who lent them the money.

I'm sure it's true that many of these institutions run at a loss, or aren't very efficient - if you define efficiency as making a profit as a firm would, rather than in terms of overall contribution to the economy as a government would. That doesn't put off the asset-strippers, it just means they would require certain conditions, like being able to sack people, cut wages, sell off land and other assets, increase charges and all the other "value-creating" repertoire of the "efficient" private sector. The wider social cost of these measures won't concern them, they will just be there to strip as much value as they can before selling the thing on or closing it down.

I love the way you put these things like efficiency in quotation marks like they shouldn't be a concern to the public sector. Spending 7 times more than you take in on trains is irresponsible when you are spending your own money and down right reckless when you are spending other peoples.

[Awol]

The Greek government has let its people down, it is not the fault of the banks who lent them the money.

The Greek Government has let its people down but the bankers who lent to them also bear responsibility for their own actions. By completely ignoring the princples of due dilligence they have left themselves open to the kicking they will get. What is unfair is EU taxpayers being beggared to pay for their arrogance - led by the ECB.

Desperately trying to kick the can down the road with more bailouts won't avoid the inevitable default. It isn't Lehman Mk 2 coming, it's worse.

[drat01]

It isn't Lehman Mk 2 coming, it's worse.

Many differ with that reactionary view

link

Stephen Foley: Greece is not Europe's Lehman Brothers

US Outlook: There is a cliché emerging on this side of the Atlantic, which we should nip in the bud, that the threatened Greek government debt default is "Europe's Lehman Brothers". I'm as prone to the imperfect analogy as the next reporter, but raising unnecessary alarm in volatile financial markets will not do. It is also an insult to history.

The unexpected bankruptcy of Lehman Brothers in September 2008 pulled a significant cog out of the machinery of international banking, stopping that machine altogether.

Lehman was a major trader of credit-default swaps and other complex, legally-opaque and never-before stress-tested instruments. Its disappearance meant lots of other banks suddenly found themselves without a counterparty. It held billions of dollars of assets on behalf of hedge funds and other clients, who found that moneysuddenly inaccessible. None of this applies to Greece, which is "just" an issuer of debt.

Since it is now impossible to see the shrinking economy of Greece generating enough in tax revenue to pay its debts, only the timing and scale of its restructuring is unknown. The Fed's Ben Bernanke fanned a few flames this week when he said "a disorderly default" in the eurozone "would no doubt roil financial markets globally", and he highlighted how US money market funds hold considerable commercial paper from European banks, who face potentially billions of dollars in losses if Greece stops paying.

Except that disorderly in this case is not likely to mean a midnight bankruptcy of Greece, Lehman-style, but a political drama played out over weeks, beginning with a refusal by the Greek parliament to submit to further self-defeating austerity. That might not look particularly orderly compared to kicking matters into next year, but it ought to give everyone time to fess up to their exposures and for central banks to provide any emergency liquidity needed.

Defaults by issuers of debt, even governments, are of course not uncommon. The International Swaps and Derivatives Association has procedures in place to quickly settle the swaps written on sovereign debt, as it did for all the unprecedentedly large banking failures in the US over the crisis.

Barclays presented its latest quarterly outlook in New York this week, and the investment bank's research chief Larry Kantor made the point that while financial markets may well drop sharply, there is no likelihood of a crash. (Barclays' accompanying publication for investors was called Stay the Course, though it should have been Keep Calm and Carry On).

Crashes, Mr Kantor says, come after periods of financial market exuberance and complacency. Investors have been gaming Greek default scenarios for a very long time now, and rarely have political machinations in Berlin and Athens been so closely examined by traders in New York and Chicago.

The most disastrous consequence of Lehman Brothers' failure was that, all of a sudden, almost nothing was certain. That is what causes panic.

Ironically, by contrast a restructuring of Greece's debt might just do more than anything to end the dangerous uncertainty that exists in financial markets right now.

[Gringo]

The markets are pricing a haircut of c70% on greek debt, so that's why there won't be a lehman's style "the day after tomorrow" panic where the world was full of unknown unknowns.

There is still a serious settlement issue around the CDS trades and the capitalisation of some banks (french-belgian, german) will take big hits and probably lead to more govt (taxpayer) support. This could well lead to banks having to sell up stocks and shares to shore up their base. The QE fuelled equity bubble may then pop which would see a further hemorrhaging of confidence in the ponzi economy.

The large investment banks are all increasing their trading in commodities as an alternative to the bond and equity markets that have been the staple of their revenues - and as a result, the commodities business is also beginning to show bubble like properties.

[RunRickyRun]

The money that was lent was lent in good faith and was squandered by the Greek government. You don't think the Greek government has any responsibility to pay it back?

I disagree. The money was lent because the banks believed that government bonds were the safest bits of paper they could own (they thought no EU country could ever default) so ploughed their money into them.

It's their own fault if they have made a bad investment not the Greek people's fault.

They also should have made more of a provision for the bad debts on their balance sheets (this scenario has been predicted for the last few years) but this would have affected their profits and the bonuses/dividends they could pay out.

[Gringo]

Default isn't an easy option, and they would have to do many other things as well, like tackle taxdodging and other forms of corruption. Whether there is the political will to do that, I have no idea. The crowds on the streets are apparently calling for action on taxdodging, but as usual, it's the rich and well-connected who are both the greatest source of lost tax, and also the ones in the best position to block action

The money that was lent was lent in good faith and was squandered by the Greek government. You don't think the Greek government has any responsibility to pay it back?

The Greek government has let its people down, it is not the fault of the banks who lent them the money.

Banks don't lend money outy of the goodness of their hearts - it's a profit driven business. Indeed, they will tell you that they only make money by pricing the risk correctly. When they get it right they get paid brilliant bonuses, when they get it wrong they should get their fingers (and toes) burnt.

The banks have let the people down by mispricing the loans, it is not the fault of the people who are offered the choice of tweedle dee or tweedle dum at the elections.

[LondonLax]

The money that was lent was lent in good faith and was squandered by the Greek government. You don't think the Greek government has any responsibility to pay it back?

I disagree. The money was lent because the banks believed that government bonds were the safest bits of paper they could own (they thought no EU country could ever default) so ploughed their money into them.

It's their own fault if they have made a bad investment not the Greek people's fault.

They also should have made more of a provision for the bad debts on their balance sheets (this scenario has been predicted for the last few years) but this would have affected their profits and the bonuses/dividends they could pay out.

I understand why the money was lent but I'd like to know why was it asked for in the first place. There was some serious mismanagement going on by the accounting department of the Greek government which caused this.

[Gringo]

Because like most govt structures, the place is full of crooks lining their own pockets. Banks know this.

[LondonLax]

Because like most govt structures, the place is full of crooks lining their own pockets. Banks know this.

But obviously there were more crooks in that particular government than the average one.

[Gringo]

Well that's the only place the money could have gone - it's not like the billions have been spent improving the country's infrastructure and helping the economy become more efficient.

But even the politico leaders in the old established economies are not above the odd back hander to ensure the banks continue to thrive.

[LondonLax]

You live in the Euro zone don't you Gringo? What are you doing with your savings?

[Gringo]

You live in the Euro zone don't you Gringo? What are you doing with your savings?

Mostly investing them in fillies at newmarket.

My asset holdings are in property (market still looking at a 20% correction of 5 years stagflation ) and my only equity investments are in ozzie mining shares which could fall 30-50% when the commodity bubble pops, and so are looking for a new home.

[RunRickyRun]

I understand why the money was lent but I'd like to know why was it asked for in the first place. There was some serious mismanagement going on by the accounting department of the Greek government which caused this.

I'm no expert but if the Euro could potentially be brought down by some dodgy accountants in Greece then surely something is seriously wrong with our financial systems.

Not saying you are wrong, just trying to come to terms with the absurdity of the situation.

[peterms]

The money that was lent was lent in good faith and was squandered by the Greek government. You don't think the Greek government has any responsibility to pay it back?

The Greek government has let its people down, it is not the fault of the banks who lent them the money.

Yes, the Greek government is complicit in this mess. They should take the blame for what they did, and the banks should accept responsibility for what they did.

What did the banks do? Extend credit, basically tapping in some numbers on a keyboard, not transferring real tangible resources, in the expectation of making a large amount of money for doing nothing more than data entry. It's the way of banking. But they lent on a risky proposition, in the hope of vast profits and also in the hope that someone other than them would cover the risk - though they had priced for risk already. Risk-free profit for doing **** all.

So if the debt created by this data entry can't be paid, and the banks have to write it off, their figures look less good than they would have otherwise. If the debt is passed to the Greek people, they incur real hardship in order to funnel profits to the already super-rich, the same group who are already ripping them off in other ways.

It's a pretty clear choice which is the less damaging option.

I love the way you put these things like efficiency in quotation marks like they shouldn't be a concern to the public sector. Spending 7 times more than you take in on trains is irresponsible when you are spending your own money and down right reckless when you are spending other peoples.

Efficiency certainly should be a concern for the public sector. I put it in inverted commas because often, private sector organisations cut jobs and wages, sell off assets, and call it efficiency, though they've made no efficiency gains at all. A good example would be social care. The private firms in this area cut wages to the bone, employ less trained staff, reduce time for training, make staff do more in the same time. The outcome is lower quality care, and the occasional tragedy. Alongside that sits greater profits. But there's no efficiency improvement taken place, just the old, old story of pushing down wages in order to leave more to be taken as profit.

When we hear about how privatisation will "improve efficiency", it generally points to this kind of crude cost reduction and asset-stripping.

As for spending more on trains than you get in fares, that's a pretty sensible thing to do. The alternative is to have everyone using private transport, busily externalising many of the true costs of their journey. Whether the environmental and employment benefits from spending seven times fares is justified, I don't know. Though it might be worth noting that in Greece, the people most likely to pay tax are public sector workers, because it's deducted at source. Perhaps the private sector regards tax payment as an inefficiency that they should eradicate.

[LondonLax]

I understand why the money was lent but I'd like to know why was it asked for in the first place. There was some serious mismanagement going on by the accounting department of the Greek government which caused this.

I'm no expert but if the Euro could potentially be brought down by some dodgy accountants in Greece then surely something is seriously wrong with our financial systems.

Not saying you are wrong, just trying to come to terms with the absurdity of the situation.

No I've oversimplified there, mistakes were made by a lot of different people but the reason why Greece is so much more messed up than other Euro zone countries seems to be because the government there have mismanaged their economy more than other places.

[peterms]

I understand why the money was lent but I'd like to know why was it asked for in the first place. There was some serious mismanagement going on by the accounting department of the Greek government which caused this.

I'm no expert but if the Euro could potentially be brought down by some dodgy accountants in Greece then surely something is seriously wrong with our financial systems.

Not saying you are wrong, just trying to come to terms with the absurdity of the situation.

There's a great deal seriously wrong with our financial systems, starting with the way private banks are allowed to create money out of nothing, and demand repayment for it in real resources. It's a scam of breathtaking proportions. If anyone other than a bank did it, they would be in prison.

[Gringo]

No I've oversimplified there, mistakes were made by a lot of different people but the reason why Greece is so much more messed up than other Euro zone countries seems to be because the government there have mismanaged their economy more than other places.

The reason they are in debt is because the EU mismanaged it's currency. Selling eurobonds gave the banks a riskfree way of printing money, knowing that the EU wouldn't let greece break the currency.

And so the ECB and national banks have been buying the bonds off the bankers either directly or via the bailouts.

3 years ago, 90% of this debt was held by corporate bodies - now thanks to the generosity of the EU taxpayers, that is below 50%. So when lending goes well, the bank takes the profit - when lending goes badly, the sovereign funds take the hit.

The politicians screw up and line their pockets, the bankers post profits and collect bonuses and the taxpayers gets to pay for it all. Trebles all around.

[leviramsey]

[M]y only equity investments are in ozzie mining shares which could fall 30-50% when the commodity bubble pops, and so are looking for a new home.

Which metals?

If it's gold, I don't think we're going to see the gold bubble pop any time soon. While I wouldn't rule out a 50% plus drop in gold prices, I don't see confidence in the central banks of the world increasing to the point that gold comes anywhere near its industrial price (which is probably somewhere on the order of $100 an ounce).

Non-monetized commodities are another story, though.

[Gringo]

You live in the Euro zone don't you Gringo? What are you doing with your savings?

Mostly investing them in fillies at newmarket.

My asset holdings are in property (market still looking at a 20% correction of 5 years stagflation ) and my only equity investments are in ozzie mining shares which could fall 30-50% when the commodity bubble pops, and so are looking for a new home.

So come on LL - I've shown you mine, fair's fair - what's your picks - where are your savings going?

[Gringo]

[M]y only equity investments are in ozzie mining shares which could fall 30-50% when the commodity bubble pops, and so are looking for a new home.

Which metals?

If it's gold, I don't think we're going to see the gold bubble pop any time soon. While I wouldn't rule out a 50% plus drop in gold prices, I don't see confidence in the central banks of the world increasing to the point that gold comes anywhere near its industrial price (which is probably somewhere on the order of $100 an ounce).

Non-monetized commodities are another story, though.

Gold's a funny, anti-cyclical investment - I just don't like it at the moment. There is more gold flowing around the exchanges than being mined - it seems a little bubblistic itself (though I've said that whilst the price has gone up 20%). My main exposure though is probably copper and steel which will (could) halve in value if we see a major disruption to the major economies.