Does anyone have an idea what will happen when Greece runs out of last-minute stopgap tricks? I suppose it means that the major players in Europe all get their bets called at the same time. As I understand from Duncan Black (an actual economist!, but no link because his search function blows) almost everyone ‘hedged’ their position by selling each other insurance. That way when party A runs aground party B finds its insurance unexpectedly worthless, making its position untenable and putting party C in jeopardy since they bought insurance from party B. The only party in Europe that might have the power to move enough money around to change the current dynamic, the ECB, cannot do anything because fixing the problem might cause inflation. Those shiny bank vaults turn out to be full of cotton wads and shredded newspaper, and in a week or two ex-stockbrokers are beating each other with rocks over a can of beets.
Or maybe I am being too optimistic. Anyone?
***update***
While we’re talking about search functions, I am pleased to update my earlier negative review and report that Steve Benen’s site now has a search function on par with our own. That is to say, meh. But better.
Yutsano
The 1% will always come out ahead. Always. The rest of Europe will just go boom.
David Fud
My understanding and belief is that the Greek exit from the Euro is inevitable. The other periphery nations that are experiencing deflation will have the same eventual outcome.
Euro may survive, but only as a currency for the core of the EU. It looses its appeal, though, when it isn’t as universal.
JGabriel
Likely too optimistic. Instead of beating each other with rocks, they’ll probably find a way to make taxpayers in othter EU nations cover their losses, the way American financial institutions make US taxpayers cover their losses: “OMFG! The world economy will blow up unless you give us a 100 trillion euros!”
.
.
JGabriel
David Fud:
Only to the extent that the ECB refuses to consider any of the choices that would make it evitable instead.
.
Omnes Omnibus
Or you could just make the Germans accept some inflation. It isn’t 1922 anymore.
shep
@Yutsano:
But will they feel good about themselves?
Xboxershorts
Just hoping, for my sake, they can delay until after the 1st of the year.
Gonna clean out my 401k and pay off the mortgage. I have no faith the stock market here will go unscathed when banks start crashing.
Fraud Guy
No, if you were optimistic, they would be using pointed sticks.
cathyx
I’m thinking it could be an inexpensive vacation to Greece next year.
Southern Beale
Atrios’ search function really does blow. You have to use the Feedburner search function.
Commenting at Ballon Juice since 1937
I, for one, love beets.
Benjamin Franklin
All I know is you better have your food and water stores to keep you independent for at least 90 days.
junk silver, or ANY cash as a replacement. Barter is King.
Not to be apocalyptic……….
Villago Delenda Est
The bottom line is these guys are all way too clever for their own good, with these “I’ll cover your bet if you cover mine” things that are covered with paper that represents assets worth perhaps 10% of the face value, at best.
The blood of bankster assholes needs to run in the streets. Seriously.
Xboxershorts
@Benjamin Franklin: And ammo.
bystander
Maybe this one? How It Works
David Fud
@JGabriel: Fair enough, except that it keeps getting more expensive to keep them in the Euro. I don’t see the taxpayers of Germany allowing that to happen. I know it isn’t a direct line thing, but you know what I am talking about.
Ken
@JGabriel:
“No problem. We will need your hands and right eyes as collateral.”
Xboxershorts
@Villago Delenda Est: You should google search “re-hypothication” and “hyper-hypothication” if you really want to be scared out of your wits.
Never mind, allow me:
http://boombustblog.com/blog/item/5958-on-mf-global-hyper-hypothecation-that-creates-$6b-out-$2b-and-a-central-bank-that-couldnt-see-a-bankruptcy-staring-it-in-the-face
El Cid
__
austerity porn
Mr Stagger Lee
Man I don’t have any Leather Clothing to wear for the rest of my life. Hanging strips of venison in the express lane.
liberal
It’s not insurance, it’s “insurance”.
currants
A Fistful of Euros usually has good Euro-econ stuff, but I haven’t had time to read it lately.
liberal
@JGabriel:
Buhbuhbut TARP was a success!!1!
Benjamin Franklin
This whole cluster is too complicated for me.
Let the unregulated Status Quo fulminate the next Ponzi solution.
I’m heading for the Hills….
spartacus
Here’s your Eschatonblog link, I think:
http://www.eschatonblog.com/2011/12/game.html
(And here’s how I found it:
https://encrypted.google.com/search?&hl=en&q=site%3Aeschatonblog.com+europe+insurance )
Villago Delenda Est
@liberal:
Similar to health “insurance” where, unless you get pre-approval for your heart attack, you’re not covered.
Benjamin Franklin
Comment at Atrios;
“Pardon me for thumping my bible here, but I think Someone created a better plan as outlined, e.g., in Deuteronomy 15:1-11.
PurpleGirl
@shep: Sure they will. As long as they do not lose anything (or very much), they will feel good about themselves. They’ll take out any emotions on the poor and middle classes. After all, they (the 1%) didn’t cause the problems.
patroclus
In the post-WWII era, we’ve seen numerous sovereign defaults (or partial defaults)(or about to be defaults) from numerous countries on their external indebtedness. This list includes Mexico, Brazil, Argentina, Russia, South Africa, South Korea, Malaysia, Bolivia, Peru and many many more. There is no pre-fab way of handling these situations and usually it has been done by an ad hoc combination of moratoria, bridge loans, restructurings, haircuts, debt-to-equity deals, debt-to-debt deals, securitizations, public offerings, dissolution and winding up of SOE’s; strategic investors, partial privatizations; together with more traditional fiscal and monetary policy implemented via conditionality by the IMF and other multilaterals.
Greece is a special case because it is not only in the EU but also the Eurozone – therefore the EU and Eurozone institutions, as well as the EU governments, are already intimately involved in the process, with potential backstops from the IMF and other multilaterals. With Argentina and Russia, for example, defaults actually occurred and there were no federated institutions to deal with it.
The Greek situation is significant, to be sure, but it isn’t that much different from all the other preceding situations. The main diffeence seems to be that Greece is getting far more attention than those other situations. My guess is that some sort of a combination of some or all of the above will eventually be worked out with the ESSF, an additional or similar fund, the ECB and the Eurozone members, with possibly more from the non-Euro EU countries, the IMF, other multilaterals and the U.S. We’ll see.
Bago
@David Fud: Damnit! When will people learn the difference betwixt loose and lose. One describes the tension of a rope, and the other calls forth the very known and aquireable existence of said rope.
Sorry if I lost it there, but loosely defined, it’s a pet peeve of mine.
some guy
the Greeks should follow the steps the Icelanders took, and the Argentinians before them.
Tell all their debtors to pound sand. “Fuck off, bankster scumbags, and we mean it.”
this is not rocket science.
Raven
@Bago: It’s not knowing the difference it’s just a typo.
PurpleGirl
@Benjamin Franklin: but, but, but… that would be imposing our religion on everybody and we can’t do that.
/snark
kindness
What is this ‘search function’ of which you speak?
patroclus
@some guy:
Well, the Icelanders eventually negotiated a British-led bailout/restructuring and the Argentinians eventually negotiated an IMF-led bailout/restructuring – each with their creditors. The Greeks will probably do the same. As you say, it’s not rocket science.
PurpleGirl
Here is a link to an article at DemocraticUnderground from 2005 about debt forgiveness and Sen. Charles Grassley’s response to an idea from a Christian lawyers group.
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=104×3244251
They were suggesting a version of the jubilee year debt forgiveness in the Bible.
patroclus
What is needed is the creation of a Sovereign Debt Restructuring Mechanism, which would serve somewhat like an international bankruptcy court. Which would have rules for standstills on payments, voluntary and involuntary petitions for protection, appointed trustees in bankruptcy, differentiations between senior and junior creditor rights, formal procedures for presentations of claims and a fair system of determining the legality of claims and the distribution, amounts and interest on future payments. It could be an amendment to the IMF Articles and could function within its ambit, but would have a far different role than stabilization, or reconstruction and development.
It would be a logical and helpful multilateral to create; using the IMF, IBRD and IFC as models.
Nathanael
There are always more stopgap tricks for any merely financial problem — after all, it’s all just accounting entries, and they sure aren’t enforcing the accounting rules any more. And they never *were*, in Greece.
The question becomes, what happens when the people of one of these countries get sick of the real pain being inflicted on them in the name of accounting entries? Revolution is the usual answer.
The second question is, at what point do the accountants in charge of the rest of the EU decide that Greece’s accounting is too corrupt even for their own corrupt standards? And what happens then? But I think that will never happen!
Nathanael
FYI, the reason Greece is getting so much attention is to distract from the mess in Germany, France, the UK, Spain, Italy, Ireland, etc…. not to mention the totalitarian government which just took over Hungary.
KG
@Benjamin Franklin: eh, the trick they’ll use is to have all their lending institutions be “foreign”.
Gex
@Omnes Omnibus: While the US demonstrates that the high inflation rates aren’t necessary to get the brown shirts gathering.
Omnes Omnibus
@patroclus: World Government! Eek!
Gex
@Southern Beale: I often just use Google to search blogs. Most times you can get the entry you want with the correct search terms.
Omnes Omnibus
@Gex: Sure, you can find anything if you know where to look.
Gex
@Omnes Omnibus: You overestimate my ability to find my own nose at the end of my face, much less blog entries!
4jkb4ia
I think the ECB is refusing to save the banks, but is saving anything it can do for Greece itself. What was alarming about the link was that it was being calmly reported that Greece cannot pay its bills at all. That comes down to what patroclus said about Greece having to do triage in cooperation with the European institutions that are already watching them–the only similar thing I can think of was California, and they eventually did pay and sank into more and more austerity.
Penance for giving John a hard time on this subject has now been done.
patroclus
@Omnes Omnibus: Yeah, yeah, yeah. I know. Hence, a non-starter.
Nonetheless, a SDRM institution would ameliorate this rolling series of country defaults that we’ve seen post-Bretton Woods. The IMF wasn’t really set up to deal with it – exchange stabilization is it’s mission. And the World Bank focuses on reconstruction and development. An international bankruptcy court, focusing specifically on sovereign debt, would be very helpful in not only dealing with the messy debt issue, but also by stabilizing currencies and markets because people would know that there’s actually a system for dealing with it.
Until something like that is created, you know, an actual civilizing international institution, we’re just going to have deal with all this wild speculation and instability that has bedeviled the entire world ever since debt was first created (and sovereigns started using it foolishly).
some guy
the Greek people need to simply get the Socialist Party to tell the bondholders and the lenders they will be willing to pay a full 6 cents on the dollar for every loan and bond currently existing, and that payment will occur over the next 30 years.
if French and German and American banks go under then all’s the better
Suffern ACE
@patroclus: Well it beats the old system where, if your quest to be named Holy Roman Emperor or to annex some Swiss canton failed, you just invaded the Italian city state that lent you the money.
carpeduum
Oh for petes sake. A possible Greek default has been baked into the system for over a year now. Nothing will happen except for a bunch of chicken littles running around (like you) and speculators causing some swings in the markets. That’s it.
Omnes Omnibus
@Gex: it’s at the end of you face. Now you know where to look. See, it’s easy.
@patroclus: My snark aside, it would not be a bad idea. It is politically never* going to happen anywhere.
*”Never” meaning really fucking unlikely and pigs may fly first, but it could actually happen, I just don’t think so.
Suffern ACE
@carpeduum: Oh for goodness sake. What swinging markets are those where these events are baked? If they are baked, then whence the swinging?
Omnes Omnibus
@Suffern ACE: Are you sure it is a better system? That one gave us the Renaissance.
Chris
@Suffern ACE:
OT, but you referring to any conflict in particular?
I read a fair amount of Swiss history in school, and from what I remember, trying and failing (badly, REALLY really badly) to conquer some Swiss canton was a pretty persistent trend for a while (mostly for the Hapsburgs).
patroclus
@Suffern ACE:
Indeed, the refusal to pay debt, until after WWII, meant war. And it was usually really brutal and nasty. Bretton Woods was supposed to augur a new system whereby these things were negotiated and worked out over time. It’s kind of sort of worked in the 6+ decades since in that no wars have been started (strictly) over debt since. But it could work better because sovereign debt still impacts markets and currencies adversely. A regularized system for dealing with it (much like bankruptcy) – with a dedicated institution designed for it with a particular mission could do wonders to stabilize the system long-term.
If this were 1945, it’s conceivable. Nowadays, it’s pie-in-the-sky utopianism.
carpeduum
@Suffern ACE: You would have to understand how markets work first. Get back to me then….mmmok.
Montysano
@Villago Delenda Est:
Some of these guys are levered at 40 to 1 and beyond. With that sort of leverage, it only takes a slight burp and you’re wiped out.
The financial system is now entirely fraudulent. I suspect we’ll find out that MC Global wasn’t the only place where customer deposits have suddenly gone missing. In Greece, a haircut of over 50% to bondholders didn’t trigger a credit default swaps event, because the meaning of “default” is apparently subject to discussion. But you can only keep the plates spinning for so long….
Suffern ACE
@Chris: Oh, we’ll go with the Dukes of Burgundy. Because James Burke knows all.
srv
If I were wanting to protect the dollar long-term, I’d have a little agency paying the ECB folks to rat-fuck their own Union.
But apparently, they are so stupid they are willing to do it for free.
dead existentialist
@Suffern ACE: Ha ha. That was great. Thanks.
Sly
There are two salient points about the Eurozone mess.
The first point is that the ECB has transformed a crisis in the Eurozone’s financial sector into a sovereign debt crisis, because it is utterly beholden to major European creditors. They haven’t fixed anything at all, they just moved the problem somewhere else and have demanded that someone else fix it in a fashion that they believe won’t cause their benefactors to take a haircut on all the cheap credit they flooded into the periphery over the past decade or so. If anyone can be accused of kicking the can down the road, its them.
The second point is that Germany is apparently still pissed off about the Treaty of Versailles, because spite has become the animating principle of their response to this clusterfuck.
G
my recollection, faded though it is… debt collection by nations often involved sending a naval and marine force to occupy and collect tarriffs, usually done by a colonial type power to a client type state.
I’m not at all certain that invading the greek ports would be an acceptable solution to modern europe. europe circa 1840, probably
dmbeaster
Still trying to understand all of the issues here, and it seems there are multiple layers of issues. The key concerning a Greek default has been the conservative leadership on France and Germany acting to protect the private lenders from any haircut (even if the loans were overly risky). Part of the concern is the systemic risk created by all the credit default swaps or other bets concerning the debt. The analogy is AIG for the mortgage backed securities here. I don’t think anyone knows how bad it would be since there isn’t a clear data for measuring the systemic risk. Plus its hard to tell where private lender influence and government policy end, begin or overlap with these players. As for a Greek default, I suspect the ECB and the Greeks will implement all sorts of phony baloney to pretend there is no default. On top of this crap are all the other Eurozone issues and other countries in trouble. Who really knows what will happen – it is sui generis.
Robert waldmann
U evr hrd of google advanced search ?
My first effort (honest)
http://www.google.it/search?q=greece+cds+site:www.eschatonblog.com&ie=UTF-8&oe=UTF-8&hl=en&client=safari
Leeds to
http://www.eschatonblog.com/2011_11_13_archive.html
That is
http://www.eschatonblog.com/2011/11/insurance-fraud.html
Leads to
http://www.bloomberg.com/news/2011-11-16/jpmorgan-joins-goldman-keeping-investors-in-dark-on-italy-derivatives-risk.html
Yutsano
@Suffern ACE: U r not fair. I could watch James Burke until I had every syllable burned into my brain.
MikeJ
@Yutsano: Want to know what I found hilarious about that Burke clip? He said, “what if you stole a truck load of credit cards? It would be like having the keys to a thousand banks!”
In the 70s, if somebody stole a credit credit card, the bank was in trouble. Now, in the age of “identity theft” the entity that falls for the scam is fine and the little guy is screwed.
Yutsano
@MikeJ: Which of course Burke would just label as the normal course of change. But credit was seriously just getting its sea legs when that was made. It’s now such an integral part of our existence that we can’t imagine life without it. His statement about your entire worth being on your creditworthiness must have shocked a ton of folks back then. Now it’s normal life.
Suffern ACE
@Yutsano: But we have not really adjusted. If we are expected to be in debt our entire lives to keep the economy going, why lose sleep over it? Because if your credit score should fall you’ll fall out of the economy?
MikeJ
@Yutsano: It’s bizarre to think that if somebody held up a bank wearing a Richard Nixon mask Richard Nixon should be held responsible for it, rather than the bank eating the loss.
Chuck Butcher
If the American economy is growing at the snail’s pace of 2% crawling out of a cavern with the boost of UE/Payroll input it is going to take almost nothing to cave in the mine. A big hit in Europe would not be good.
Does anybody think there is the political will to bail out the US banksters again? If things go to hell in Europe I don’t think you’re talking about a delayed recovery.
Yutsano
@Chuck Butcher: There can’t be a bailout. The numbers are just too enormous. There really is only one course of action: a reset. Total debt forgiveness worldwide. If that doesn’t happen, there won’t be a world system left because all the value of just about everything will evaporate.
PeakVT
@some guy: Remember that Argentina and Iceland had and still have their own currency. Greece doesn’t. It can’t default and still use the Euro because it’s still running a primary budget (budget ex-interest payments) deficit and thus relies on the funding contraption that was set up to keep them going (or that was supposed to keep them going but didn’t account for austerity collapsing the economy further). If Greece defaults, it also has to switch currencies.
This mess would stand a much better chance of sorting itself out if the ECB would kick inflation up to 4-5%. But as it stands the ECB is imposing deflation on the periphery.
Ian
@some guy:
Thus ending the Euro, thus ending Greece’s chance at long term financial and economic growth, thus achieving victory? (PS, look at how Argentina is currently doing)
Jason
What is needed is the creation of a Sovereign Debt Restructuring Mechanism, which would serve somewhat like an international bankruptcy court.
We have that in place already. Greece is already on an Economic Adjustment Program, administered by the IMF.
Now, the agenda of the EAP is not the sort of thing progressives like, involving, as it does, reducing public sector wages and the standard IMF privatisation and “competitiveness” gospel, but it must be said, if Greece had ensured it was in a position to cover its debts, it wouldn’t have to endure IMF adjustment in the first place. I’m no economist but I’ve seen virtually no attempt to defend Greek economic management among progressives in the lead-up to this crisis.
Instead, there’s near-universal agreement that Greece had a dysfunctional taxation system with massive evasion, and spiralling public sector costs not funded through any means except further public deficit financing. Bushenomics, in other words. Instead of ranting about bankster conspiracies, perhaps we should acknowledge Greek agency and responsibility in all this, and accept that however much the EAP might be hated among the Greek people, they have only themselves to blame for its imposition.
Ian
@Suffern ACE:
But, But, The Jews! They are ok to invade I thought!
Ian
@Chris:
The former Swiss Provence of Tyrol has switched hands between Austria and Italy the past 200 years since Napoleon
JoeShabadoo
@Yutsano: I agree.
In the next couple of years there are going to be huge problems world wide and there isn’t anyone in power currently who has the desire or drive to really push to attempt to fix it.
The U.S. obviously isn’t going to be getting out of this hole anytime soon, the Euro may very well collapse (I say probably) and China, the country buying all of our debt, has a housing market that is going to go nuclear.
When you think of the consequences that will most likely result from these events hitting soon after each other the world becomes a scary place.
Ian
@JoeShabadoo:
I am fearful of China’s oncoming environmental collapse and the economic fallout thereof. However, I am hopeful that it will show the world the dangers of ignoring environmental issues
JGabriel
@JoeShabadoo:
Obviously that would be a bad thing from China’s perspective, but would it necessarily be bad for us (the US)?
Let’s say China’s housing market blows up and its production goes kaput. Bad for China, but does it give our local production a chance to compete and start growing again? Maybe. Plus, investments in the Yuan start to look bad, driving some capital back home to the US, potentially to be invested in production here. Finally, since the Yuan is kept artificially overvalued, a sudden drop could bring it in line with the US and other countries, further normalizing trade imbalances and competitive pressures with the rest of the world.
I could well be wrong, but I’m not entirely sure that China’s economic problems are problems for the rest of us.
.
BruceK
Here on the ground in Athens, nobody’s quite sure what’s going to happen next. There’s a bank run in progress – anyone who can shift euros to foreign accounts seems to be doing so – but Venizelos, the Finance Minister, is putting out calls for people to put their money back into the Greek banks, presumably to shore up capital reserves and such. Unfortunately, there’s not a lot of confidence that people who do that won’t get wiped out in the process.
There’s also a lot of resentment here for the Troika – a sense that Greece is no longer in control, that even if the government takes every step it’s told to, that it won’t make a damn’s worth of difference, they’ll get kicked out of the euro in any case, and be forced to go back to the drachma on the fly with their economy going into freefall.
And the Occupy movement’s got less chance to take hold here, because there’s already a long tradition of massive protests for everything down to government regulations that taxi drivers have to give receipts to their passengers, and whenever a major-league protest gets rolling, it gets infiltrated by hooligans with f***ing firebombs, which leaves the interesting dilemma that while the people in power make you afraid for your livelihood, the people on the street have you fearing for your life itself.
Not an exaggeration. The real riots started in December 2008, over an incident where a kid was shot by a cop (the cop’s now serving life in prison), and since then, three out of four deaths during the protests can be traced to the firebombers, not the riot cops. (One death, I believe, was due to a heart attack; the others were from a bank that got burned out two blocks from where I work. Suspects remain at large.)
So, uh, the social dynamic is a little different in Athens from New York.
Snarki, child of Loki
@G:
Hahaha, that’s it, take over the Greek ports of entry and sequester the tariffs from imports from the rest of the EU.
Oh, wait…
David Fud
@Bago: No problem – it was a typo. I promise not to inappropriately string two os together again.
RP
Remember when we used to call people on the right “bed-wetters” and make fun of them for overreacting to the threat of terrorism and islamofascism? Good times…
genghisjon
I look out my window and see men wearing suits gathering leaves.Never knew Hitchhikers guide to the galaxy would be prophetic.
chopper
@JGabriel:
meh. china’s recent economic strength has fueled half of the rumors propping up hope in the eurozone. china takes a huge shit and the rest of the world gets dragged down and that’s something we and especially the EZ don’t need. who will be the strong economy offering hope for the world when the US, the EZ and china are all in the shitter? japan, still reeling from a disaster of biblical proportions? maybe india?
OTOH, it would help drop commodity prices and oil. lower oil prices would give our economy some breathing room. of course it would put a dagger in the back of many of the high-cost oil plays in some places (think tar sands). plus there are a lot of producers of metals and fuel for china that would lose their shirts, like australia.
all in all it’s a bad scene.
chopper
@JoeShabadoo:
not only that, there’s nobody in power who even has the ability to make any substantive changes. you have to remember, the loosening of the rules in the banking system in america was done piecemeal, but recreating the old system would be very difficult in one fell swoop. we had the chance back in 2008, but (luckily for the bankers) the collapse happened on a gooper’s watch and congress was full of weak-ass titty babies so all we did was hand tons of cash over with no strings attached. remember when paulson was yelling high and loud that we just had to give the banks money and adding conditions would have ruined the whole thing?
made it pretty much impossible, after the big banks stabilized, to turn around and say ‘now we’re going to completely change the way you guys operate’. that’s one of the myriad reasons dodd-frank was such weak sauce.
of course, oil depletion is starting to hit the entire world like a ton of bricks. even if we make it through that problem with some semblance of dignity, the changing climate is going to fuck us come 2030. merry fuckin’ christmas!