Links 5/12/11

Solving The Greek Debt Crisis (from Credit Writedowns)

Below are four conflicting posts from Credit Writedowns on Greece that I didn’t write. I think they compliment each other well though. Here’s my own thinking tying them together. Greece is certainly going to take haircuts; everyone knows this. The outcome is less clear elsewhere. I agree with the first post that you can’t have a reasonable solution to the euro zone debt problem without making contingency plans. The IMF also warned of such this morning. Otherwise, you risk a Lehman-style bankruptcy in the euro zone; the second post points to the great potential for contagion from an uncontrolled default. Any plans will have to be made without roiling the markets i.e. probably in secret. On the fiscal side, Greece will have to move a lot further toward a primary budget balance before a restructuring is in place as the first post indicates. On the restructuring side, read the third post by Gary Evans and Peter Allen. They had experience during the LDC crisis that seems very relevant and present a Brady Plan for the euro zone they are calling a "Trichet Plan". All that said, there is only so much further the bailouts can go. These plans have to made now. Witness the editorial by the leader of the True Finns in the last post. There is great resistance to bailouts everywhere in Europe. And the first link in the section below in Spanish shows how much austerity will be resisted as well.

More on Greece from elsewhere



Other Links

P.S. – This is what a commodities crash looks like! (frightening video)

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward


    1. Glenn Condell

      Are there any hen-houses left without a fox in charge?

      They must get dizzy, these revolving door types, with their Jekyll and Hyding professional lives, one minute wallowing in well-remunerated evasion of the spirit if not the letter of the law along with the rest of their profession, the next having to don a white cape and re-learn their lines, in a pretence of regulation, a facsimile of proper authority, like all agencies of law from the Supremes down, set up to fail, staffed by offenders taking their turn on the stage, winking at the buddies they are wagging their finger at, knowing all the while that they are not only safe from the wrath of any higher authority because the appointments of these too have been brought under control, but also that they are working for interests of the real deciders, who will take care of their interests accordingly.

  1. Paul Tulloch

    I do believe many are making judgement errors in one factor of these bailout equations, and I am not sure why such bias is so consistently distributed.

    It is the weighting factor attributed to resistance. These people vote, these people are accustomed to standards of living and they simply will not lay down and take these “adjustments”.

  2. Jim Haygood

    From the El Pais article about the Greek general strike:

    Greek protester: “Ellos quieren eliminar las conquistas sociales de varios siglos.” [“They want to eliminate the social victories of several centuries.”]

    This phenomenon is also visible in civil liberties, where US constitutional rights have been suspended by the USA Patriot Act. And now they’re even chipping away at habeas corpus, going back to the Magna Carta of 1215.

    Neofeudalism sucks, don’t it?

    1. Sufferin' Succotash

      Feudalism wasn’t such a bad deal for the serfs. The only way to keep them producing for the lord was to guarantee them a plot of land for their own use. In today’s more complex society, the proposed neoserfs would be guaranteed zilch.
      And there are still some fools who insist there’s no such thing as progress.

    2. Ignacio

      Indeed. It has been a slow motion transition since the 80s but now it is accelerating so we notice.

      1. ambrit

        Dear Ignacio;
        Your name is so ironic in this context. Don’t the “Ruling Classes” have any memory? Have they forgotten “peasant revolts?”

        1. Glenn Condell

          There has been some ‘circulation of the elites’ since the last time the peasants revolted. Today’s top dogs have no family memory of revolt; the last time it happened most of their ancestors, spud-planters in Idaho or shoemakers in Galicia, would have been more like to be part of the riff-raff than the quality.

          They would know if they read some history, but if they were the type of people that steeped themselves in learning, they would not be the type who gleefully destroy their own civilisation.

    1. Jimbo

      What happens to China’s government when that happens?

      And more germane to the topic, what happens to tourism in Spain if Greece adopts the Drachma as its currency?

    1. Ken

      Ooops. I just noticed that is an video from April. I recently watched it and is a theme often seen on this blog so wanted to share. Sorry that it is a bit dated.

  3. Cynthia

    It was only a matter of time before one or both of the billionaire Koch brothers would get their tentacles wrapped around academics. And lo and behold that time has come:

    Economics has always been a fairly soft science, but thanks to Charles Koch, it will soon be so soft that it can no longer be regarded as a science. And it should be no surprise to any of us that economics would be his first victim in the rather insulated world of academics.

    No one needs any sort of degree in economics to realize that Koch’s goal is to take economics as an academic discipline and turn it into a propaganda tool to control and suppress the masses. That way it’ll be far easier for Koch and his team of economists-turned-propagandists to brainwash the masses into believing that if our rich don’t remain far richer than the rest of us, then our GDP will flat line and our jobless rate will rocket up to the moon.

    About the only thing we can do to prevent this from happening is to throw economics out of science departments across America. And since most, if not all, art departments won’t be foolish enough to add economics to their list of studies, those who are seeking a degree in economics will have no other choice but to settle for a degree in propaganda.

    Still, it’s my hope that we will have a truth-teller like Matt Taibbi around to expose the truth about how our undergraduate and graduate programs in economics are being taken over by a bunch of Koch-paid propagandists, thereby enabling our major banks to get away with being run by a bunch of sociopath criminals. As the good folks over at Zero Hedge have pointed out, Matt Taibbi does a masterful job of first translating the 650-page Levin report “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse” into simple English, and then weaving together an open-and-shut criminal case against Goldman Sachs for everyone to read, comprehend, and wonder why no one from the bankster world has been thrown in jail yet:

    1. FatCat II

      no longer be regarded as a science

      Economics was never a science and isn’t now. It is nothing other than political mathematical masturbation; voodoo in other words to keep the masses deluded.

      Learn what “externalities” are.

      1. edwin

        noun \ˌek-ˌstər-ˈna-lə-tē\

        1.) the disgusting often toxic product of political mathematical masturbation.

  4. Tertium Squid

    What’s interesting about the volatility in oil is that it suggests a very widespread belief among investors that this is another bubble, and everyone wants to be the first one out the door when the getting is good.

    Nothing new about people trying to time the peak, but it is a useful reminder at how cynical commodity investment really is. They know it isn’t worth what they’re paying, they know it isn’t worth what they hope to sell for. But when the music plays, you dance.

    1. Jimbo

      Doesn’t Saudi Arabia need 85 dollar oil to continue to finance the commitments it has made in order to stave off the opposition?

    2. Straßencafé Lebenskünstler

      know it isn’t worth what they hope to sell for. But when the music plays, you dance.

      Buying into oil patch now is merely a matter of hedging. When you know that you will have a bill for heating oil, gasoline, natural gas for oven, and oil change then you figure, “What if price goes up? I need to pay for cost-over-run? Easy to pay if my CVX goes up. Hard to pay if my DUG goes down.” Telephone connection prices are now going up means you need stock in telephone company. Are tire prices about to come back down? Who knows! One thing for sure, whether to buy in becomes whether you will need to buy tires.

      Did I say this for gurus who blog and comment herein? Only for people around the globe, people who don’t come here to read each day.

      Share the knowledge of America!

      America the Beautiful

  5. Jardinero1

    Is it terribly far fetched to suggest that those who made the loans should take the haircuts? I know international finance is terribly sophisticated but doesn’t that seem like the simplest solution?

  6. Valissa

    Here’s some encouraging news on the torture issue!

    John McCain to Bush apologists: Stop lying about Bin Laden and torture

    This is getting really good. As noted below, John McCain in an Op ed this morning skewered the claim that the killing of Bin Laden vindicates torture. But just now, on the Senate floor, he uncorked a new broadside that is quite remarkable, taking direct aim at Bush apologists who are reviving this debate in order to claim Bin Laden’s death as part of the Bush legacy.

    McCain added new information that amplifies his case, and called on former Bush attorney general Michael Mukasey — whose recent op ed claiming torture led to Bin Laden has been widely cited by the right — to retract his claims.

    This is taking on the makings of an old-fashioned, barn-burning senatorial crusade, and it’s unclear if anyone of McCain’s stature is going to step up and make the pro-torture case. For all his flaws, McCain carries great authority on this issue because of his own past experiences.

    There are some great excerpts from McCain’s speech in the article, and a video of it is expected to be released soon.

  7. Tertium Squid

    Indebted Students from the WSJ:

    “Also, graduating with debt might not be all bad. If one buys the argument — popular among private-equity investors who buy companies using large amounts of debt — that the need to meet regular loan payments helps focus people on finding ways to make money, then high student-debt levels might help the country derive more benefit from its best-educated residents…”

    Get on that debt treadmill. When you make your decisions, make monetary value the principal criteria. Forget family, community, God. Be the best cog in the machine that you can. It may cost you sleep, relationships and your soul, but it will be good for some banker somewhere.

    Quick, somebody quote Wendell Berry. And maybe Ozymandius.

    1. edwin

      “I am Ozymandius, King of Kings [and your new boss]. Look on me ye [students-loan-slaves] and despair.”

      1. ambrit

        “Willingly do I leave them, for their undoing, a kingdom neither won nor deserved.” Andre Gide

    2. M.InTheCity

      Good to know that sociopaths still populate the WSJ. Holy shit. So, we DON’T want well educated people to become teachers (who earn less than others with the same level of education) or artists or anything that is enriches society. I thought even the rich liked having nice orchestras and good teachers.

  8. kevinearick

    Exxon says oil barrel should be in $60-$70 range…


  9. Capt'n Obvious

    “Health Care Is Expensive Because America Pays High Prices For Health Care Services Matt Yglesias”


    –Capt’n Obvious

    1. Ptaquiloside Pteridium

      Health Care Is Expensive Because America Pays High Prices For Health Care Services

      Tell me something! When you become king, the guy who taxes the health-care-delivery-system, do you get more tax from system with Wal✯Mart prices or do you collect more tax from system with Harley-Street-Prices? So what do you do? You regulate Wal✯Doctor out of business but subsidize Dr. Harley and Dr. Street. Got the picture?

      What is recourse for humble citizens? Stay healthy. Organize your community to support healthy exercise, healthy diet, freedom from drug abuse, beer abuse, snuff abuse. Enough abuse. Enough already.

      Your king has a conflict of interest. He wants for you to watch beer commercials during half-time. He wants for you to die of cirrhosis from beer, crippling accidents from wine, mental senility from whiskey. He likes the tax money. Your king will not do it for you. You have to roll-your-own-remedy. You have to organize against the king. Hey! It worked for George Washington. Now it works for you. Organize exercise groups according to age class, weight class, special needs class, etc. Don’t ask for permission from king. He will not grant permission. Do it the George Washington way. Just do it.

      You are number one, when you get the job done

  10. Philip Pilkington

    Looks like David McWilliams discovered MMT. Interviewed him a while ago, seemed like he was moving in that direction — he was talking points from Richard Koo’s ‘Holy Grail of Macroeconomics’.

    Glad to see there’s a major commentator in the Irish media that has a clue what they’re talking about. Morgan ‘Housing-bubble’ Kelly was advocating a balanced budget — which, coming from an academic economist and given Ireland’s situation at the moment is beyond laughable!

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