Greek Bailout Same as Subprime Lending

[Martinghoul]

Quote from Ed Breen:

They used cheap debt obtained at German rates and used it to fund bloated payrolls and benefits that did not build an increase in productivity. This day of reconning is all of thier own making. However, they may not like the current remedy when they say that the benefit of thier auterity will really flow outside the nation.

I would expect members of past administration that lied about financial condition to be prosecuted, as in Iceland, and I would not be surprised the public rejected the austerity deals to avoid default, just as they did in Iceland. This does not make the Greeks victims it just acknowledges thier self interest in the ongoing crises.

Yep, agreed...

Quote from Debaser82:
You think individual countries have the mechanisms and leverage to really decouple themselves from international trends simply trough their political system?

No, as the European experience has amply demonstrated...

However, I have a lot more sympathy for the Irish and the Spaniards, who seem to be willing to acknowledge that a) some of the responsibility was, in fact, theirs; b) their citizenry reaped the various benefits during the good times. The Greeks, on the other hand, just want to push the problem onto someone else and keep livin' the good life.

 

[Misthos]

There's a lot of blame to cast around. The typical narrative that most people feel drawn to:

The lazy southern european trying to pull one over on the industrious, hard working northern neighbor.

Well, maybe the shrewd north tried to pull one over the southern neighbors, and in the end, it backfired?

After all, Germany had an undue influence on the Euro. In the beginning, Germany was facing some stiff competition from the Southern countries with lower, more competitive wages. So what did Germany, France, and benelux do?

They kept the Euro artificially low. There is evidence that many of the southern countries lost productivity during this period. Germany was able to maintain it's competitive edge, and beat down the southern countries in terms of economic output.

The low Euro not only gave Germany a competitive edge, but also contributed to the misallocation of capital in the south - speculation in real estate - which created a bubble.

As Industries left the Southern countries, government spending was the short term method used to maintain gdp. This is what the US is doing right now. I'm not saying it's a good thing - but I can understand the (misplaced) reason for it.

Bottom line - I think it's a lot more nuanced than a lazy/ sneaky south verse an industrious and honest north paradigm. The North was just as guilty in creating this situation.

And not all Greeks work for the gov't and not all greeks are protesters. I know many greeks in the private sector that are furious with gov't workers.

Anyway, I just wanted to add another dimension to the topic. And in the end, maybe Germany thought it would inherit a windfall by having ECB influence. Guess what Germany? You won the battle, but may end up losing the war once again. Be careful what you wish for. You may try to emulate the way the US manipulates latin america, but Club Med ain't no Latin America. (No offense, Latin America)

 

[psytrade]

The backdrop for global macro / fx trading in Europe has been these convergence trades... they supplied the capital to fuel this thing.

Except instead, they turned into Conned and Vengeance trades.

Where do you think this liquidity has slipped away off into the night towards?

It's a place called China...

 

[morganist]

Quote from Ed Breen:


With regard for renegotiating existing debt agreement to be paid under modified terms...Well, that is a default, that can only occur after a default, so it will have the same domestic economic effect as devaluation or austerity.

why can that only occur after a default?

if they can come to arrangement that benefits both sides with a better repayment system why does that have to constitute default?

 

[intradaybill]

Quote from morganist:

why can that only occur after a default?

if they can come to arrangement that benefits both sides with a better repayment system why does that have to constitute default?

It is default because the definition of default is not making a schedulled payment of a loan installment or of the interest/principal on a bond issue.

 

[morganist]

Quote from intradaybill:

It is default because the definition of default is not making a schedulled payment of a loan installment or of the interest/principal on a bond issue.

what if the payment is made but under a different agreement. for example a smaller payment for a longer period of time constituting the relative loss into the additional duration. the new situation may benefit both parties in the long run but allow alteration to the repayment. in short the repayment does not stop just changes.

even if it is a default in name it still allows the transfer from the lender to the borrower preventing complete collapse of the investment.

 

[Misthos]

Quote from psytrade:

The backdrop for global macro / fx trading in Europe has been these convergence trades... they supplied the capital to fuel this thing.

Except instead, they turned into Conned and Vengeance trades.

Where do you think this liquidity has slipped away off into the night towards?

It's a place called China...

Interesting you bring up China. At first China wanted to diversify somewhat out of dollars and into Euros. That didn't turn out so well.

I think China (as well as Russia and India)will play along with the IMF/SDR endgame solution. This solution, by the way, addresses potential Western sovereign defaults and currency collapse(s). You think OPEC, China, Russia, and India really have an interest in maintaining the status quo? The status quo of Westerners over-consuming everyone's economic output because of their debt expansion games?

So yeah, they'll play aling with the IMF solution, but in reality, these three are gorging themselves on gold. China recently got the ICBC (largest commercial bank in the world) and the World Gold Council to partner together to urge the Chinese population to invest in Gold. Furthermore, Chinese miners are selling most of their gold supply domestically. Chinese gold production has supposedly surpassed South Africa's, and for the most part, that gold is staying in China!

The next 2-5 years will be very interesting.

 

[Ed Breen]

Morganist, any time you change the terms of debt contract you create a default, even if the lender agrees to modify the original.

It should be obvious that a modification of contract rather that performance and fulfilment of the original contract must favor the modifier, other wise there would be no modification. You obviously don't understand time value of money, the impact of debt rating as it relates to collateral value of debt and its usefulness maintaining a required capital ratio.

Just becuase a modification of a loan contract is agreed to, presumably to limit the downside of simple default, it does not mean that the lender is made whole by the modification. After all, the modification will result in an immediate downgrade of the loan rating which translates immediately into write off of bank Tier 1 capital, and the collateral value for EU Central Bank loans and repos. Don't assume your scheme of coerced modification will have no immediate results that are negative. This is another example of why 'economists' should study finance...Please don't ask me to explain it.

 

[morganist]

Quote from Ed Breen:

Morganist, any time you change the terms of debt contract you create a default, even if the lender agrees to modify the original.

Just becuase a modification of a loan contract is agreed to, presumably to limit the downside of simple default, it does not mean that the lender is made whole by the modification. After all, the modification will result in an immediate downgrade of the loan rating which translates immediately into write off of bank Tier 1 capital, and the collateral value for EU Central Bank loans and repos. Don't assume your scheme of coerced modification will have no immediate results that are negative. This is another example of why 'economists' should study finance.

I did study finance accounting too. The concept you are making humours me. I would not use a central bank. My work relates to paying a percentage of output so the interest rate is irrelevant. The central bank and lending does not apply. If you do not have an interest rate you would not change money supply with interest rate so I have developed another way.

In relation to the ECB it is a joke anyway. The concepts and the way it works are unsustainable I am writing a paper. It is for the Bruges Group.

To be fair you do not have my work to see the point I am making, if you did you may be able to see what I mean. Remember your understanding is based on the current system of lending, central banks, reserve requirements. These things are not related to my concept I have invented alternatives.

If you wish to see my work I could arrange it in the future a bit busy at the moment but you may hear about it somewhere else if not through me.

Any way thanks for the comments but you really can't comment until you have read my work. Just remember we have a system where repayment is based on the principle investment, as the market has been over invested the ability of the economy to provide expected return is diminished. The only way to get around this return expectations flaw is to base return on output this way the issues of short term repayment defaults is no longer there, this is due to default of contract if a small number of payments are missed.

I don't want to go into detail here I have a vast volume of work on the subject and it has been reviewed by think tanks. Well received too.

Finally. I respect you and your comments but I find your last comment a little unfair. Perhaps a little less harsh with your views. Sometimes you make comments I don't agree with but I do not criticise your working practice. You really can't comment until you have read my work.

I have posted my work here before and when I do even the more intelligent people act interested but then cannot comment. It is very advanced so I do not think you would gain the value of reading it.

 

[Ed Breen]

Morganist, Sorry, I was a bit tough. You deserve credit for having an opinion that you put out there, even if I couldn't disagree more with what appears to be your core point of view based on demand theory and demand metrics, that has never been the basis of confirmed prediction...Perhaps this will be the first time...although I doubt that Keynes would have prescribed profound deficit spending to promote consumption and not investment.

I was surprised that you ignored the legal basis and banking basis of default, or the balance of equities in the matter of breach of contract and insolvency law. I have for some time professed my point of view that economic theory and academics has suffered greatly from the seperation of Finance and Economic theory. It was unfortunate that the two were seperated in liberal arts curriculems. This deprives economic philosophy from being informed by the modern practice of finance. Shadow banking is, after all, only 30 ears old, SWAPs and modern derivatives are only 10 years old...and yet the Liberal Arts curriculm is using theory that relies on a gold standard context, pin factories, no progressive tax structure, private currencies, and that did not consider leverage or non-bank banking.

In any case, I appologise for being harsh, I just get a big testy when I see my economy being destroyed by economists who are ignorant of finance but have the ear of my idiot leader...I should not have focused my ire on you. In fairness I cannot even say that the criticism suits you.