Monday, February 22, 2010

Economic rule #1

Thou canst extract blood from a turnip.

Lenders are discovering a truth they routinely ignore which is, if someone cannot pay a debt, there is damn little you can do about it.  For example, if someone defaults on their mortgage, a bank CAN seize the house.  But as bankers are discovering, the last thing they want is a property to maintain and sell because the process is VERY expensive.

So now the moneychangers want their pound of flash from the Greeks.  Only the Greeks don't have any to give--see rule #1.  So the money guys want Germany to back them up, or maybe Brussels, or maybe the IMF.  What has seemingly not been considered is an international bankruptcy where the money changers have to take nothing for their worthless loans.
Europe's south refuses to downsize without a fight
The hard-hit 'Club Med' countries of Greece, Spain, Portugal and Italy once flourished within the eurozone. Now the financial markets have turned on Athens, and Greece's neighbours fear they could be next
Helena Smith in Athens, Giles Tremlett in Madrid, Tom Kington in Rome, andJulian Coman
The Observer, Sunday 14 February 2010
Nikos Strovlos has worked for the National Statistics Service of Greece – as the head of the service's accountancy office – for 21 years. He has seen some turbulent times, not least when desperate colleagues allegedly "cooked the books" that were used to parlay Greece into the eurozone in 2001.
Last week, as the chaotic state of Greek accounts and accounting became clear, and Europe's single currency endured its first serious crisis as a result, the sound of disapprobation from Berlin and Brussels became deafening. But Strovlos is not about to apologise on behalf of the Greek government's number-crunchers. more
Greece: It's Our Debt, But It's Your Problem
Paul Kedrosky | Feb. 16, 2010, 6:46 AM |
Good insider-y and cynical reading on Greece's debt non-problem problem that has been making the rounds, allegedly written by an anonymous in-country banker: 
If Greece defaults, it will be the biggest sovereign default in history. If Greece is bailed out, it will be the biggest sovereign bailout in history. That's what you get when there's EUR 250 billion at stake. The Russian and Argentinean defaults, both south of EUR 60 billion, were not even a quarter as big. Thing is, as a Greek I'm as worried about the whole thing as a resident of the fictitious "South Sea" would have been when the South Sea bubble went bust. Here's why: Debt is not dealt with very well by economic theory. Debts net out. For every lender there is necessarily a borrower.
Total wealth is the dollar amount it takes to control every home, every corporation every consumer durable and every privately owned resource. No mention of debt here (though if you want to get difficult, you will point out that to control a corporate you need to own both its stock and its debt, but bear with me) Thing is, if you add a bit of debt, you untie a lot of agents' hands. If a 35 year old heart surgeon has access to the mortgage market he can move into a beautiful house before he collects his first ever paycheck, and he's definitely good for the money.
That pushes up home prices. So a bit of debt definitely pushes up total wealth. On the other hand, recent experience indicates that a whole lot of debt leads to breakdowns. If we've all borrowed money to buy assets and for some reason they take a break from going up, marginal borrowers who count on selling appreciating assets to service interest on their debt will miss their payments. Their liquidator will sell their assets. This will drive down asset prices, which in turn will trigger margin calls to more people and the vicious cycle can start that Irving Fischer dubbed debt deflation. 2008 looked a lot like that and most people believe it had a lot to do with overindebtedness.
We also need to look at savings. If a country has a lot of savings, it can support a lot of debt. Japan has massive government debt, but equally massive private savings. Some countries, like China have massive savings and have to look abroad for investments. And some, like the US are the other way round. When it comes to debt, Greece is in a uniquely privileged situation. No, seriously! For starters, we Greeks are some of the world's richest people. more
Greek Finance Minister Begs Europe To Detail Its Bailout Plans
Joe Weisenthal | Feb. 15, 2010,  
It was just over a week ago that Greece wouldn't admit it was having a problem.
Then last week Euro leaders pledged some kind of bailout.
But as we pointed out, there was no bailout at all. Just a promise of one. And for investors who saw the way TARP went down, this was no good.
Now Greece is freaking out, and its financeminister is begging for hard details:
Here's the full report from the AP:
Greek Finance Minister George Papaconstantinou said Monday that a detailed bailout plan from other eurozone nations would be the best way to soothe market fears that Greece could default on debt payments.
European leaderes last week made a general statement support for Greece without saying what they would do to help if Greece neared default. more
Greek Finance Ministry Walks Off The Job To Protest Debt Crisis Austerity
Elena Becatoros | Feb. 16, 2010, 2:35 PM 
ATHENS, Greece (AP) — Greek customs officials and finance ministry employees walked off the job Tuesday to protest government austerity measures designed to pull the country out of a debt crisis that has shaken the entire eurozone.
The three-day customs strike will affect imports and exports, with a skeleton staff processing only certain items such as perishable goods and pharmaceuticals, and could affect the supply of fuel.
Finance Ministry employees — including those at Greece's much-maligned statistics service, which was accused by the EU of helping cause the crisis by faking the country's economic statistics — walked off the job for four days.
The strikes came as European finance ministers in Brussels warned Athens that it would have to prepare even tougher budget cuts if its current austerity program can't reduce its massive deficit from 12.7 percent of economic output to 8.7 percent this year. Athens has until March 16 to report back to the EU on its progress. more

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