Galbraith on Greece

[thriftyandboringinohio]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Well, it looks like Greece has pretty much defaulted. Now what?

A great question verdo.
Over the years iTulip has had much discussion about huge notional values of complex derivatives cascading.
The event most worried about was some black swan event that the computer models failed to include so there was no hedge in place.
Does the failure of Greece to pay the IMF on time trigger credit default swaps and trigger the cascade?
.
.
.

[don]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Are the imperiled PR hedge funds a one-and-done loss or are they derivative triggers as well?

[don]

Re: Greece / Boots on the Ground in Piraeus

June 30, 2015
Piraeus, Greece
[Editor’s note: This letter was written by a Greek-American friend of Simon’s who is currently living near Athens.]





Since my arrival into the country late May, the topic of most discussions I overhear everywhere are naturally about the debt negotiations.

I’d call opinions in support or against the Tsipras governments’ activities pretty sharply divided.

Tsipras supporters are generally fed-up with 5yrs of blood-letting “from the Germans”.

Critics, on the other hand, see the euro as some sort of abstract membership in a club that must be retained at all cost.

A minority even criticize Tsipras for—get this—being too soft.

That’s especially true where I’ve been staying here in the port-city of Piraeus, which – being the country’s biggest port, is home to mostly blue collar, working class folks where unions more or less dominate.

To illustrate the political leanings around here, I hazily recall a headline in a newsfeed summing up their worldview quite accurately: “Piraeus – a neighborhood where Syriza is not quite left-wing enough.”

Enough said.

Like most locals, I’ve been steadily hitting the ATM for the past weeks to amass some emergency cash.

I ventured out today for the first time since the capital controls were installed yesterday to have a look around.

In Piraeus, I saw a queue of at least 30 people at a branch of Alpha Bank, and about 10 people at the Bank of Piraeus, where I waited.

The mood among the people waiting was pretty cool, friendly and even throwing a few funny comments around to address the obvious elephant in the room.

Older pensioners who were waiting, being used to getting their money from the window, had dusted off their debit card and received generous help from others on using it.

Experiences were shared on efforts to withdraw cash the previous day, where the published daily withdraw limit of 60 EUR/day for citizens was in effect (and confirmed by to me by the folks on line).

Today however, having presumably exhausted their supply of 20 euro notes, this ATM machine imposed upon users a de-facto daily withdraw limit of 50 Euros – since it was only dispensing 50 Euro notes.

As has also been reported, these capital controls do not apply to foreign bank accounts; and I can confirm to be true as my foreign bank card allowed me to withdraw my self-elected amount (of 300 EUR on this occasion) without issue.

There is certainly an unusual feeling of calm in the air. Car traffic resembles a quieter “Sunday” level than a typical summer weekday going into the high tourist season.

Citizens seem a bit more polite and helpful to one another than before, with no shortage of clever comments to break the tension on everyone’s mind being all in the same boat.

My first thought was to assume a newfound “keep calm and soldier on” state of unity among the populace.

But this is Greece, not Northern Europe. the words “quiet” and “calm” never share a sentence here.

No, this was something different, I believe, more of a “laugh to keep from crying” state of mind.

And being very experienced with Greece and Greek culture for my entire life, this realization was off-putting to say the least.

I’ll forward along any additional observations during my stay and leave you with one final, personal thought.

For all the talk and preaching of the risks one takes by placing all their “flags” into the blind faith and trust of one government in the abstract, it’s nothing like witnessing it firsthand.
Greece, right here – right now, is where that all “gets real.”

But more importantly, all the benefits of a multiple flags approach also “gets real” when you’re the guy who the crisis can’t touch.

I’m able to merely observe and participate without worry, sleeping tight knowing that all that what I’ve worked to achieve in his life is out of the reach of supranational, unelected & unaccountable EU autocrats.

[GRG55]

Re: Greece / Suicide Rate Surges 35% In 2 Years

A great question verdo.
Over the years iTulip has had much discussion about huge notional values of complex derivatives cascading.
The event most worried about was some black swan event that the computer models failed to include so there was no hedge in place.
Does the failure of Greece to pay the IMF on time trigger credit default swaps and trigger the cascade?
.
.
.

Unlike the European banks, the IMF has virtually unlimited ability to absorb "losses"...or keep rescheduling them to avoid having to formally book them. Let's remember that unlike even the ECB, the IMF's largest "shareholder", and therefore Greek creditor (for the IMF loans), is the USA. There is no chance it is going to advocate pulling the rug out.

At this point the fuss about Greece seems more sound and fury than anything substantive. All politics, no economics...

[thriftyandboringinohio]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Thanks GRG55

[GRG55]

Re: Greece / Suicide Rate Surges 35% In 2 Years

It's a good read, but ignores the dysfunctionality that exists here in Greece. Practically non existent tax collections enforcement, rampant corruption, bloated government sector, etc... It's not just about dollars and cents.

If Greece was forgiven the debt without reforms, what would have happened?

I also agree that the banks got off scott free. The 2012 haircut was not enough, IMO.

But Greece still has a long way to reform itself.

No doubt. But Greece is far from alone, even within the EU, in that respect.

[gnk]

Re: Greece / Suicide Rate Surges 35% In 2 Years

No doubt. But Greece is far from alone, even within the EU, in that respect.

Agreed, and to be fair, even Germany shares a lot of the blame in terms of not recycling its trade surplus into higher wages. In a global economy, large trade deficits are just a dangerous as large trade surpluses. Furthermore, Germany should have long ago addressed the bribes going on in Greece. It takes two to tango.

[thriftyandboringinohio]

Re: Greece / Suicide Rate Surges 35% In 2 Years

... It takes two to tango.

Indeed it does.

That's why I think it's important to remember the role the banksters played in amplifying Greece's problems.
The fact the Syzera and Tsipras are horribly inept communists does not erase the role of the banksters in this tragedy.
There can be more than one villain.

Here it looks like we have at least four villains

-the early corrupt Greek oligarchs who operated an unworkable and corrupt system
-the banksters who hid Greece's true problems to get them into the EU and then lent Greece even more money they knew could not be paid back
-the Syzera gang that is making a bad situation worse
-and the EU gang in Brussels that moved the debt onto the public books and are now insisting that Greek pensioners and wage earner pay back every penny with interest

[ProdigyofZen]

Re: Greece / Suicide Rate Surges 35% In 2 Years

A friend of mine that does business in Russia once told me a story.

He was at a bar talking to a Russian semi-oligarch. Not billionaire, but very rich, and well connected with the government. As they were talking, he looks at their waitress, and for some reason, throws a punch and knocks her out cold. She is carried out of the restaurant, and then its back to business as usual as if nothing happened.

But hey, maybe Moscow is clean.

I cannot vouch for the respectability of Russian men in general.

[jpatter666]

Re: Greece / Suicide Rate Surges 35% In 2 Years

It's a good read, but ignores the dysfunctionality that exists here in Greece. Practically non existent tax collections enforcement, rampant corruption, bloated government sector, etc... It's not just about dollars and cents.

If Greece was forgiven the debt without reforms, what would have happened?

I also agree that the banks got off scott free. The 2012 haircut was not enough, IMO.

But Greece still has a long way to reform itself.

That's very true and one of the clear takeaways I've gotten from your on-the-spot postings. It's also one of the points that convinced me that Greece and the EU were going to seriously butt heads in the end.

Everyone sees the world in their own image -- Greece and the EU have *VERY* different images they are working from.

[vt]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Who will be the last to crash?

http://www.zerohedge.com/news/2015-0...-be-last-crash

[gnk]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Indeed it does.


-the early corrupt Greek oligarchs who operated an unworkable and corrupt system

Corruption was rampant at all levels of society, it wasn't an elitist thing. It was (is?) part of the culture. Someone in another post mentioned tragedy of the commons, which is a good description. That's the root of the problem.... the banksters, government, EU, etc... are all after effects. Actually, I would lump government (both parties) with the people. To me, they are one and the same, each feeding off the other, even though most Greeks won't admit it.

[don]

Re: Greece / Suicide Rate Surges 35% In 2 Years

The Birthplace (Greece) v. the Farce (the United States) of Democracy

by PAUL STREET

Democracy is among other things the rule of majority public opinion. Plutocracy is the rule of the wealthy few over and against the popular majority. To understand the different meanings of these two terms, you can consult a dictionary. You can also look at the very different decision-making processes on display regarding major political-economic policies in Greece (the ancient homeland of the Western democratic ideal) and the United States (the self-declared homeland and headquarters of contemporary democracy).

Greece: “The People Must Decide”

Let’s start with Greece. It has been under pressure from international, principally European creditors to slash social and other governmental expenditures in order to qualify for a five-months extension of the “economic rescue program” (bailout) that European authorities have advanced to keep the nation’s financial system solvent. The austerity (“reform”) proposals advanced by the European Commission, the European Central Bank, and the International Monetary Fund (the “Troika”) include deregulation of the Greek labor market, rollbacks in union power, pension cuts, and an increase in taxes on basic food products. The Troika give Greece until yesterday (I am writing on the morning of Wednesday, July 1, 2015) to accept their terms or face default.

The “reforms” demanded by the European financial power elite promise to further the economic humiliation of a nation that has been struggling for years to meet the outrageous debt payment and austerity commands of its northern creditors. As liberal U.S. economist Paul Krugman explained in the New York Times two days ago, austerity has been a dead end for Greece, denied (thanks to its membership in the Eurozone) the ability to reduce its deficits by devaluing its currency:

“most…of what [Americans have] heard about Greek profligacy and irresponsibility is false. Yes, the Greek government was spending beyond its means in the late 2000s. But since then it has repeatedly slashed spending and raised taxes [as required by the Troika]. Government employment has fallen more than 25 percent, and pensions…have been cut sharply. If you add up all the austerity measures, they have been more than enough to eliminate the original deficit and turn it into a large surplus….So why didn’t this happen? Because the Greek economy collapsed, largely as a result of those very austerity measures, dragging revenues down with it….And this collapse, in turn, had a lot to do with the euro, which trapped Greece in an economic straitjacket. Cases of successful austerity, in which countries rein in deficits without bringing on a depression, typically involve large currency devaluations that make their exports more competitive. This is what happened, for example, in Canada in the 1990s, and to an important extent it’s what happened in Iceland more recently. But Greece, without its own currency, didn’t have that option.”

A letter published yesterday by a number of international academics, including former Archibishop of Canterbury Rowan Williams, Slavoj Zizek, and Judith Butler, notes that:

“Over the past five years, the EU and the IMF have imposed unprecedented austerity on Greece. It has failed badly. The economy has shrunk by 26%, unemployment has risen to 27%, youth unemployment to 60% and, the debt-to-GDP ratio jumped from 120% to 180%. The economic catastrophe has led to a humanitarian crisis, with more than 3 million people on or below the poverty line…Against this background, the Greek people elected the Syriza-led government on 25 January [2015] with a clear mandate to put an end to austerity. In the ensuing negotiations, the government made it clear that the future of Greece is in the Eurozone and the EU. The lenders, however, insisted on the continuation of their failed recipe, refused to discuss a write down of the debt – which the IMF is on record as considering unviable – and finally, on 26 June, issued an ultimatum to Greece by means of a non-negotiable package that would entrench austerity. This was followed by a suspension of liquidity to the Greek banks and the imposition of capital controls.”

The Troika’s ultimatum has been rejected by the Syriza government. That government arose on a wave of anti-austerity sentiment fist expressed in years of mass street protests and then organized electorally in the form of the Syriza Party.

Telling the democratically elected Syriza government to sign off on the Troika’s “deal” is directing it to commit political suicide. Anti-
austerity has always been Syriza’s political raison d’etre, as the Troika knows quite well. So the ultimatum amounts to something of an attempted coup by the financial command of neoliberal bureaucrats in Brussels, consistent with the European “democracy deficit” that the left historian Tony Judt characterized several years ago as “a sense that that decisions were being taken ‘there’ with unfortunate consequences ‘here’ and over which ‘we’ have no say.”

In the name of popular and national sovereignty and with an honest understanding that rejecting the “reform” and bailout package offered by the Europeans will entail costs, Greece’s 40-year old Prime Minister Alexis Tsipras Syriza decided (imagine) to take the deal to the Greek citizenry. Hours after meeting with European “leaders” at a summit in Brussels last week, Tsipras announced that his government would put the European creditors’ proposals up to a yay or nay popular referendum on Sunday, July 5^th. “The people must decide,” Tsipras said. “We should respond to authoritarianism and harsh austerity with democracy, calmly and decisively,” Mr. Tsipras said. “Greece, the birthplace of democracy, should send a resounding democratic message to the European and global community.”

Here’s the ballot measure that will be posed to the Greek people:

“Should the agreement plan submitted by the European Commission, European Central Bank and the International Monetary Fund to the June 25 eurogroup and consisting of two parts, which form their single proposal, be accepted? The first document is titled ‘Reforms for the completion of the Current Program and Beyond’ and the second ‘Preliminary Debt sustainability Analysis.’”
“Not approved/NO”
“Approved/YES”

It’s a very basic act of democracy, taking a policy decision that will impact millions of Greek workers and citizens to…well, to millions of Greek workers and citizens.
European financial elites have reacted with shock and horror. The Eurozone finance ministers’ Dutch leader Jeroen Dijsselbloem said he was “very negatively surprised” by the Greek referendum decision. “That is a sad decision for Greece because it has closed the door for further talks where the door was still open in my mind,” Dijsselbloem added.

Germany’s hardline pro-austerity finance minister Wolfgang Schaeuble said the Greek government had “ended the negotiations unilaterally.” The European Commission chief, Jean-Claude Juncker, said he felt “betrayed” by the “egotism” shown by Greece in failed debt talks. He accused Tsipras of playing “liar’s poker.”

“Stunned,” New York Times correspondent James Yardley reported yesterday, “[Tsipras’] fellow European leaders shut down negotiations, capped the lifeline they had been providing Greece’s banks, angrily denounced him as irresponsible and dishonest with his own people, and not so subtly suggested that Greece needed a new government if it wanted to continue drawing economic help.”

Jacob Funk Kierkegaard, a Senior Fellow at the arch-neoliberal Peterson Institute for International Economics, responded to Tsipras’ referendum call by saying that Greece was “joining countries we would normally regards as failed states” (NYT, July 1, 2015).

The Troika has refused to extend the deadline for its latest bailout out offer until the day of the historic Greek referendum. The vote will be held nonetheless, with it being understood that a “No” victory very possibly spells Greece’s exit from the Eurozone, that is, from the European Economic Union. Without the European bailout, Greece will have no choice but to pay pensioners and government employees and others in scrip, creating a parallel national currency.

A “yes” victory would signal national submission to yet more creditor-imposed Greek austerity, the very policy that has failed for five years running. It would also likely lead to the departure of Tsipras. Anti-austerity has always been his political raison d’etre. With Western (European and US) elites scrambling to prevent a “Grexit,” it seems possible that a deal of some sort will still be possible despite European elite’s chagrin at the horror of a democratic vote.

The key point for the purposes of this essay, however, is that decision-making power is largely in the hands of the Greek populace.

The United States: a Different Kind of Failed State

Things could hardly be different in the United States. Look now at the Trans-Pacific Partnership, a sweeping corporatist measure that U.S.President Barack Obama, big business, and top Republicans have been slowly but surely advancing in Washington. It’s a sweeping measure that would cover 40 percent of the world’s economy and negatively impact the lives of millions of Americans, their jobs, their quality of life.

Lawyers and lobbyists for giant multinational corporations have been working it up and promoting it for nearly a decade. Beneath standard propagandistic boilerplate about trade and jobs, the real thrust and significance of the TPP is about strengthening global corporations’ ability to protect and extend their intellectual property rights (drug patents, movie rights, and the like) and to guarantee that they will be compensated by governments for any profits they might lose from having to meet decent public labor and environmental (and other) standards, something certain to discourage the enactment and enforce of such standards. It’s all about what the Times calls “investor protection.”

No wonder Obama has done everything he can to keep the TPP’s details under wraps. The secrecy has been remarkable: U.S. Congresspersons and some of their staff can see the TPP’s text only if they agree not to take notes or discuss the details in public. No wonder Obama wanted Congress to give him “fast-track” authority to force a yay or nay Congressional vote on the TPP, with no time for careful consideration and no chance for revisions. (Under fast-track rules, there’s no chance for delays or alterations: the pact must be voted up or down in a very short time-frame.) And no wonder most of the U.S. population is (all too irrelevantly) opposed to the TPP and fast track.

How about a national citizens’ referendum on these key political-economic measures of great significance for “We the [American] People”? The very notion of such a popular vote is absurd in the U.S. as currently constituted. No such basic act of popular and national sovereignty is remotely conceivable under America’s reigning model of corporate oligarchy.

Meanwhile the unpopular TPP is marching its way through the halls of American so-called popular governance. After some momentary difficulties in the U.S. House, fast-track just sailed quietly through the U.S. Congress while the nation was focused on the gay marriage issue along with terrible racist and gun violence and the Confederate Flag issue in the U.S. South. All indications are that Obama and his Republican allies will succeed in passing the TPP.

Sadly enough, there’s nothing particularly unusual about a global-corporatist measure moving its way through the U.S. government over and against popular opposition. Over the past three plus decades, the mainstream political scientists Martin Gilens (Princeton) and Benjamin Page (Northwestern) calmly reported last Fall, the U.S. political system has become “an oligarchy,” where wealthy elites and their corporations “rule.” Examining data from more than 1,800 different policy initiatives in the late 20th and early 21st centuries, Gilens and Page found that wealthy and well-connected elites consistently steer the direction of the country, regardless of or even against the will of the U.S. majority and regardless of which party holds the White House or Congress. “The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy,” Gilens and Page wrote, “while mass-based interest groups and average citizens have little or no independent influence.” As Gilens explained to the liberal online journal Talking Points Memo (TPM) last year, “ordinary citizens have virtually no influence over what their government does in the United States.” And that is no small part of why the United States has entered a savagely unequal New Gilded Age in which the top 1 percent owns more wealth than the bottom 90 percent, along with a likely comparable percentage of the nation’s “democratically elected” officials.

Such is the harsh reality of “really existing capitalist democracy” in the U.S. —what Noam Chomsky calls “RECD, pronounced as ‘wrecked.’” Does this perhaps qualify the United States as a “failed state”?

[don]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Good On You, Greece—–But Don’t Waver Now (Part 2)

by David Stockman • July 1, 2015

Yesterday the embattled Greeks delivered still more body blows to the rotten regime of Keynesian central banking and the crony capitalist bailout state to which it is conjoined. By defaulting on its IMF loan, walking away from the troika bailout program and taking control of its insolvent domestic banking system, Alexis Tsipras and his band of political outlaws have shattered a giant illusion.

Namely, that the world’s debt serfs will endlessly and meekly acquiesce to whatever onerous, eleventh hour arrangements might be concocted by their official paymasters——even when these expedients are for no more noble or sustainable purpose than to forestall a Monday moring hissy fit among the gamblers in the world’s financial casinos.

So at midnight on June 30 the proverbial can was not kicked again as scheduled. Instead, Greek democracy kicked back. And it is to be hoped that the end result will be a mighty boot to the tyranny of the status quo in the form of a resounding “no” vote on Sunday.

The latter would clarify that everything at issue between the parties is false. There is no way to pay Greece’s debts, modify the troika austerity plan, save the euro, rescue Greece’ banking system or stabilize Europe’s hideously mispriced and distorted debt markets.

Its all going to blow and it should. The entire European mess has been concocted by statist politicians and policy apparatchiks who falsely and arrogantly believe they can defy the laws of markets, sound money and fiscal rectitude indefinitely.

The truth lost in all the meaningless “puts and takes” of the latest negotiations is that Greek state was bankrupt five years ago; it can not reform, save, skimp, or grow its way out of its crushing debt, and should stop looking for ways to accommodate its paymasters. It urgently needs to default massively and decisively, and is in a ideal position to do so.

That’s because the clowns who run the troika have taken themselves hostage.

That is, they have shifted virtually the entirety of Greece’s unpayable debts from private banks and bond funds to the taxpayers of Europe, the US, Japan and even the unwary citizens of Peru, Senegal and Bangladesh.

Here is the debt in 2009–mostly owed to private banks and bondholders—compared to Greece negligible private external debt today. In the case of the French, German, Dutch and Italian banks and other private lenders, for example, outstandings have been cut from $100 billion in 2009 to barely $15 billion today.


By contrast, here is the pea under which Greece’s massive debt is hiding today. Namely, almost all of it has been shifted onto the backs of the taxpayers of these Eurozone nations.


Moreover, as the New York Times noted with respect to this massive shift, the most aggressive punters have made a killing. One of them noted quite explicitly that when hedge funds started buying Greek government bonds in 2012:

“People made their careers on that trade,” Mr. Linatsas said.”

Indeed they did. And now taxpayers around the planet have been stuck with the due bill. Specifically, $250 billion or nearly 80% of Greece’s $320 billion of fiscal debt is directly owed to the EU facilities and the IMF; and upwards of half of the balance is indirectly owed to European taxpayers because $45 billion of Greece’s T-bills and bonds are either owned or funded by the ECB.

If Tsipras were not so badly advised by his pro-euro Keynesian advisors like Varoufakis, he would realize that there is no point in negotiating with the troika at all because Greek concessions can not possibly lead to the only two things that count. That is, meaningful debt relief or reentry into world bond markets.

In fact, the sole reason for compromising—nay capitulating—-is to keep the euro, and that is a snare and a delusion.

Accordingly, a clean default on this massive burden of official debt is in order for two reasons. First, Greece’s government never asked for the giant bailouts of 2010 and 2012 which transferred their onerous debts to the world’s taxpayers. The $250 billion outstanding was forced upon them by Brussels and IMF officialdom in order to protect the German, French, Dutch, Italian and other banks; and to insure that when the markets opened on innumerable Monday mornings, there would be no inconvenient turmoil on the stock exchanges or in the bond pits.

Secondly, the troika cannot give honest debt relief anyway. That’s because officialdom is now petrified of their own taxpayers—-whom they have betrayed and baldly lied to from the very beginning. Thus, the IMF has now loaned Greece $35 billion in gross violation of its own credit standards and long-standing rules. Were it ever to take the huge write-offs that are objectively warranted by the actual facts of Greece’s economic and fiscal situation, it would be eaten alive in the legislative chambers of its member governments.

Indeed, in the case of the $6 billion share of the loss attributable to the US quota, the Republican congress would have a field day investigating the incompetence and misdirection underlying the IMF’s role in the Greek bailout. The IMF would never again achieve a congressional majority for a subscription funding increase—effectively putting it out of business.

And that’s nothing compared to the political explosion that would be unleashed in the national parliaments of the Eurozone itself—– were proper debt relief to be granted. As shown below, the Germans are on the hook for $56 billion of the direct fiscal debt, but that’s not the whole of it by any means. Through the backdoor of the ECB, German taxpayers have also loaned Greece another $36 billion in the guise of liquefying the collateral of the Greek banking system.

“Liquefying” my eye!

The Greek banking system is hopelessly insolvent; the so-called “Eurosystem” obligations shown below are nothing more than fiscal transfers. Accordingly, what the clueless Angela Merkel actually accomplished during five years of weekend Gong Shows was to bury her taxpayers under $92 billion of liabilities—–nearly all of which are off-budget and unacknowledged.

Her desperate and mindless temporizing in order to remain in power thus constitutes a monumental political lie and betrayal. Were this to be exposed by a major write-down of the Greek debt,it would lead to an instant fall of her government.

The same is true for the rest of the Eurozone—only the facts are even more egregious.

France’s share of the fiscal debt is $42 billion and its total obligation including the ECB exposure is $70 billion. But France has not had a balanced budget in 40 years; is suffering from record unemployment and a decaying economy that has been suffocated by socialist taxes and regulatory dirigisme; and will soon join the triple digit club on its public debt. Accordingly, its government is petrified by even mention of Greek debt relief.

Then you have Italy buried under a 130% debt-to-GDP ratio and an economy that is 10% smaller in real terms than it was 7 years ago. So it is not surprising that its paralyzed, caretaker government does not wish to contemplate even the prospect of a write-down on the $37 billion of fiscal debt owed by Greece or the $60 billion of total exposure.

Then there is the crook and fiscal phony running Spain. No wonder Mr.Rajoy has practically threatened to take out a contract on Alexis Tsipras’ life. Spain’s economy is still grinding away 15% below its boom time peak and its government is faking its fiscal accounts to a fare-the-well. Still, its public debt continues to rise toward 100% of GDP.

So its cowardly government would rather consign the Greek people to permanent depression and debt servitude than own up to the $42 billion it has loaned the Greek state and banking system in order to keep the European banks and bond funds afloat.


Source: @FGoria

After generations of fiscal profligacy the Greek government should not worry about re-entering the capital markets at any time soon. It should resign itself to running primary budget surpluses for the indefinite future based on whatever domestic political consensus it can cobble together on the matter of taxation, pension reform, divestiture of state assets and weaning its crony capitalist leeches and special interest groups from their stranglehold on the Greek state’s depleted coffers.

Under such an all-Greek fiscal regime, it need not worry about its $250 billion of official fiscal debt or even the $130 billion of Euro-system obligations. Here’s why.

None of the governments which foisted these obligations on Greece will survive a blanket default. The more likely scenario is that the successor governments—–almost certain to be anti-EU—- will disavow the guarantees undertaken by the EFSF and demand haircuts from the underlying bank and bond holder claimants. Stated differently, a Greek default on its $150 billion of EFSF funding would trigger a domino effect back to the status quo ante.

In any event, the only alternative to this sequential chain of defaults or punishment of Eurozone taxpayers is to send in the German and French armies. But unlike the Ruhr in 1923, there are no coal mines, steel mills or other significant industrial assets in Greece to occupy. The geniuses at the troika have essentially made massive unsecured loans that are uncollectible—–proof positive that, among other things, governments shouldn’t be in the banking business.

So if Syriza gets its “no” mandate Sunday and if meaningful debt relief is impossible, what is it exactly that it would negotiate for from an arguably strengthened position? The conventional answer, of course, is continued ECB support for its banking system and retention of the euro. But both of these objectives are invalid, and are just gateways back into subservience to the Troika.

Since Greece is already irrevocably knee deep in capital controls it need only complete the process and nationalize the banks since they are irreparably insolvent anyway. For instance, Greece’s three largest banks with available public data—–Alpha Bank, National Bank of Greece and Eurobank Ergasias—–have upwards of $60 billion of non-performing loans, which represent nearly one-third of their total book of $180 billion. In addition, they also have $50 billion of bonds and other investments—much of which was issued or guaranteed by the Greek state.

Against the massive imbedded losses in these totals, by contrast, the three banks have only $9 billion of tangible book equity excluding their worthless tax-deferred assets. In short, neither the stock or the long-term debt of these banks have any recoverable value at all.

As part of a housecleaning at these wards of the state, therefore, tens of billions of bad debts would be written off including the debt of the Greek state. And the massive $130 billion of ECB claims would be primed by the claims of domestic depositors.

To be sure, most of the deposits have already fled the Greek banking system and there is upwards of $50 billion in euro notes and coins in the billfolds and mattresses of Greek citizens and multiples of that in off-shore bank accounts. Nevertheless, under a proper state directed liquidation and clean-up of the Greek banking system, the remaining domestic depositors would be made the senior creditors of a shrunken but solvent banking system. The eurosystem’s $130 billion of claims, including the ECB’s lunatic extension of $90 billion in ELA funding to the Greek central bank, would be forced to take a deep haircut on the subordinated claims it would hold after a restructuring.

Given what needs to be done with respect to Greece’s massive fiscal debt and its insolvent banking system, why would Syriza want to make post-referendum concessions to the troika for the privilege of staying in the euro?

The short answer is that is wouldn’t and shouldn’t. After the necessary fiscal default and nationalization of the Greek banking system the euro is a club no one would want to join.
Stated differently, underlying the present fraught confrontation between Greek democracy and the troika’s financial oppression is an epochal catch-22. The sweeping debt relief on which survival of the Greek economy depends would unhinge European politics, discredit the so-called European project and shatter the flawed and unsustainable money printing regime underlying the euro.

Indeed, if the Greeks do not waver after a successful rejection of the status quo on Sunday they will not need to feel lonesome about returning to the Drachma. The Italian lira, Spanish peseta, Portuguese escudo, the French franc and countless more will be back in short order.

Think of that. The IMF out of business. Merkel and Brussels gone. The Bundesbank and D-mark restored. The Keynesian money printers discredited. The front-runners and speculators in the casino carried out on their shields.

Now that’s a referendum that the world desperately needs.

[gnk]

Re: Greece / Suicide Rate Surges 35% In 2 Years

This is getting old, and I am no longer responding to foreign "Intellectuals" applying North American analysis to a Balkan country they know nothing about. And why should these Intellectuals give a damn about the consequences, it's not like it affects them at all. To them, it's all a game.

Don, can't you find any Greek thinkers on the topic, and I don't mean Varoufakis. Why don't you read up on some balanced Greek analysis. Both sides, and see how they view it. You may learn something.

Here are some economists, mostly Greek, with their views:

Greece must sign a deal now