Dear America, on the subject of Greece
Dear America. Yes, it's true that Euroland is not totally covering itself in glory and that, as you will know from numerous memorial sites, putting together a political and economic union of nominally sovereign states is a difficult job. But when you're writing your finger-wagging, chin-scratching opinion pieces, could we perhaps get a little bit of recognition of one fairly significant fact please? And that is, that we had a recession because of your mismanaged financial system. We suffered because of a problem you created. Not the other way round. Thanks for that.
Your pal, Europe.
PS: thanks again for saving our asses in the war, please send more chewing gum and nylons.
P.P.S.
ReplyDeleteSo America, how's the reform of your financial system going?
Dear Europe,
ReplyDeleteThe housing bubbles in Ireland and Spain were not our fault. Nor was the fact that many of YOUR banks were stupid enough to "invest" in US Real Estate. (Really, you want to pretend that was portfolio management? Your bad Greek and Irish loans were balanced by your bad US loans? Who taught you investment, John Merriwether or Myron Scholes??
We know that Europe is not unified; you have Sweden showing that spending 3% of GDP and throwing the b*st*rds out pays major dividends down the road.
Too bad your Jerrys and Vichy--er, German and French governments--haven't learned that yet.
P.S. Yes, we know Greece is the EU equivalent of Texas, a sinkhole for funds sent to criminals and con men. Which is why got shilled the first time (1980s) and changed the rules. What's your excuse?
The stupidity of Landesbanken investment managers is something that exceeds even the capacity of American bankers. (And this isn't anything new, either; in Liar's Poker, Michael Lewis talks about how "blew up" an Austrian commercial banker as part of his first deal.)
ReplyDeleteI mean seriously, just like the Japanese who were complete idiots when buying up assets in the U.S., the Germans and so on only have themselves to blame for their incompetent Landesbanken.
On the plus side, while Myles probably couldn't locate Germany on a map, he does know its in Europe. The benefits of an expensive education.
ReplyDeleteOh, and he wants everyone to know that the Cliff notes on Liar's Poker are just dandy.
I imagine his nanny made the Landesbanken point clear, in the style of yer average Friedman column.
ReplyDeleteActually, the Landesbanks[1] weren't really all that dumb - they were responding reasonably rationally to a completely perverse set of incentives. But that's a story for another day.
ReplyDelete[1] As with referring to "Das Kapital", it is IMO a bit pretentious to pepper your conversation with German plurals.
Dear United Kingdom, on the subject of the American roots of present European financial difficulties:
ReplyDeleteIceland.
Your Pal, America.
PS: Thanks for inventing us, please send more Beatles records.
Dear Robotslave, read Dan on Iceland.
ReplyDeletePS thanks for the R&B and the House.
Ah yes, proof by "please read this one person who blames America for X".
ReplyDeleteI forget how quaintly enamoured of appeals to authority you are in your monarchies.
Iceland was much more their fault than the UK's really; the FSA tried hard to regulate them, but kept being slapped back with accusations of protectionism and inability to handle their sheer Viking manliness.
ReplyDeleteOh, I didn't mean to accuse UKia of taking down Iceland; my apologies.
ReplyDeleteI just couldn't sit there and let Uncle Sam take the hit for every banking fuckup in Europe. Patriotism, you know. We can get a bit carried away with it sometimes.
Can't we all just blame China for driving down interest rates and fueling ponzi finance?
ReplyDeleteWhere did all the money in Greece go anyway? You hear a lot about the building boom in Spain and Ireland but not so much Greece.
Basically it went on ten years of "jobs for the boys" - well-paid sinecures for party members can really add up if there's lots of them, and so can a total failure to collect the revenues.
ReplyDeleteIceland was the holy land of the Mont Pelerin Society up to a certain point. Not relevent to the argument here, really, the Mont Pelerin Society is an international group, much like the Templars and the Illuminati except for the fact that it actually exists.
ReplyDeleteI was thinking about this a bit on the train in to work. Everyone goes "ah Landesbanks Landesbanks, the German banks were so awful ..." And in many cases they did some pretty dumb things. But when, precisely, was the Great Landesbank Disaster which brought Germany to the brink of bankruptcy? The Landesbank reform process is now more or less at an end, and they for the most part didn't even need to tap the EUR85bn federal reorganisation fund to do it, let alone making a call on the massive capital resources of the savings banks. Germany's banking system was amazingly far from bankruptcy.
ReplyDeleteAs for where the Greek money went, I thought it was a fair pile of Olympics graft and crony construction contracting, plus some very generous pension plans.
ReplyDelete"jobs for the boys" sounds like it would eat up a lot more, though.
Captcha: "flamwr"
That too; the success of the 2000 Olympics (after everyone had patronised Greece to hell for eight years saying it was going to be a disaster) gave the whole country a massive psychological feeling of "we've arrived! we're Euroland! No more poverty for us, ever! Yah, no need to collect the taxes, fuck that weak shit". And then they won the European Cup!
ReplyDeleteDear Europe,
ReplyDeleteWe sincerely apologize that our economic binge that precipitated the collapse in late 2008 allowed Greece's problem to exacerbate.
However we steadfastly deny a direct causal relationship between our woes and that of Greece's. Greece's collapse was an inevitable outcome of their uncontrolled spending. You simply can not have a social-welfare state without tremendous natural resources to sell to the world in order to fund it.
Please let us know when you have set a date for Greece's stimulus addiction intervention.
Sincerely,
The People of the United States of America
p.s. Prepare to take the lead in Space Exploration.
You simply can not have a social-welfare state without tremendous natural resources to sell to the world in order to fund it.
ReplyDeleteNot heart that bit of wing-nut wisdom before.
The other thing about Greece, was that they'd always been able to devalue their currency before. But it is astonishing how in denial they still are about their fundamental problems. Unlike the US of course, which would never do that.
Polybius (a Greek) ~160 BC:
ReplyDelete"At any rate, the result is that among the Greeks, men who hold public office cannot be trusted with as much as a single talent, even if they have ten accountants and as many seals and twice as many witnesses, whereas among the Romans their magistrates handle large sums and scruprlously perform their duty."
I have no idea why having 10 accountants to keep your books would be seen as a sign of probity.
ReplyDeleteEveryone goes "ah Landesbanks Landesbanks, the German banks were so awful ..." And in many cases they did some pretty dumb things. But when, precisely, was the Great Landesbank Disaster which brought Germany to the brink of bankruptcy? The Landesbank reform process is now more or less at an end, and they for the most part didn't even need to tap the EUR85bn federal reorganisation fund to do it, let alone making a call on the massive capital resources of the savings banks. Germany's banking system was amazingly far from bankruptcy.
ReplyDeleteWhat? I'm not too clear on the specific details, but a) German and French banks own Greek debt; b) they are some of the reason Greek debt isn't getting properly restructured; and c) if Greek debt was seriously restructured, the German and French banks would face some trouble.
I have no clue if the Landesbanks were among the ones that were hosed with Greek debt, but if they were then they are part of the current problem, because while you can get a relatively healthy creditor to restructure, creditors like Landesbanks in their current condition are probably a lot more delicate.
"I'm not too clear on the specific details"
ReplyDeleteAt this stage, assumed in advance.
http://ftalphaville.ft.com/blog/2011/06/01/581291/german-exposure-to-greece-a-landesbank-tale/:
"We’d say NordLB is relatively small fry for Greek exposure, if these figures of €273m GGB holdings are correct – Fitch said that NordLB exposure was €280m recently — even with (say) a 50 per cent cut to face value. Compare that with the quantum of risk facing Deutsche Bank, Commerzbank or (within NordLB’s peer group) Landesbank Baden-Wurttemburg, all of whom have billion-euro exposures."
Landesbanks are on the hook, but the big commercial banks are likely to be the main worry.
Vergangenheitsbewaltigung is a bitch.
Not sure how you'd say that in Welsh.
A billion euro exposure is not that much in the context of a trillion euro balance sheet.
ReplyDeleteA billion euro exposure is not that much in the context of a trillion euro balance sheet.
ReplyDeleteIt's not just Greek sovereign debt, though. Ireland, Spain, Portugal, etc. There's exposure all over the place and across a whole bunch of debt classes. And they all correlate to a greater or lesser degree, with the default in one security triggering another. Swedish banks hooked themselves on to random Baltic debt, and it's been a bit of a minor mess for them.
Landesbanks are on the hook, but the big commercial banks are likely to be the main worry.
Yes, but I recall that the Big 3 are much bigger, and probably have better risk mitigation and hedging strategies. Deutsche Bank will probably come out of it a bit battered but still fine no matter what, but you can't say the same about a lot of other German banks.
"It's not our fault you bought our fradulent products" kind of summarizes the whole thing.
ReplyDeleteCian, "the Scandinavian model doesn't work because they have oil" appears to be the new way for wingers to reconcile their cognitive dissonance around the numbers involved.
(Deutsche Bank has total assets of about 2 trillion, while the Landesbanks range from 200 to 500 billion.)
ReplyDeleteCian, "the Scandinavian model doesn't work because they have oil" appears to be the new way for wingers to reconcile their cognitive dissonance around the numbers involved.
ReplyDeleteThe Scandi model works perfectly fine, but Norway at the moment is much richer in every way (including living standards) than Sweden. Having oil is nice.
As Daniel said upthread, banks' overall solvency probably ranks below other problems on Germany's worry list. And an individual Landesbank with a large Greek hole in it can expect Land or federal public funds in an emergency.
ReplyDeleteDear D-Squared,
ReplyDeleteThanks for the laugh. Love the denial, oh and thanks for giving us credit for all the hard work done on the eastern front.
ps. around here we called it the "spanish" flu, and you guy's called it the "american" flu, so assigning nationality is so old school, but enough about those nasty "french" std's.
I wish I was able to comment on the Landesbanks, but I'll have to content myself with pointing out that the Athens Olympics were in 2004, not 2000 . . .
ReplyDelete"... but enough about those nasty "french" std's."
ReplyDeleteHuh. Last I heard, they were Ayetalyun.
Marcel
I can't find any good data on pre-crash Greek spending. I thought it was more or less a deficit of 4% of GDP - hardly insane, and in keeping with y/o/y GDP growth. The real deficits started showing up in 2007 and were due to falls in revenue, not increases in spending. Is that wrong?
ReplyDeleteIf not, then isn't Greece's problem the same as everyone else's problem - they got hit with a massive worldwide economic shock? (Yes, triggered in america, but ultimately caused by 5% of US GDP being thrown at anything that could loosely be considered an "investment" to keep the renminbi cheap. Thanks for the delicious duck recipes, please send more small electrics - the last batch broke in the first 3 months.)
-msw
"Around here we called it the "spanish" flu, and you guy's called it the "american" flu" - no, we called it the Spanish flu too. But good work on the paranoid victimhood - it'll be helpful practice for the next century.
ReplyDeleteMSW - fairly sure the biggest problems for Greece came when it was revealed that the pre-crash government books were entirely fake (so while the historical series shows a 4% annual deficit pre-2007, it's actually larger). I may have misunderstood this.
How much CDS exposure is there to a Greek default, btw?
ReplyDeleteIf there are reliable figures on that, I've not seen them.
BenC, Polybius's point was that Greek grafters were able to outwit many levels of Greek watchdogs. Checks and balances are fine, but you do need some sort of assumed ethical baseline, which Polybius found in Rome. This strikes me as relevant to the present day, and not mostly in Greece. What is the ethical baseline in American finance, or American media, or American politics, or American academia, or anywhere else in American life?
ReplyDelete"You simply can not have a social-welfare state without tremendous natural resources to sell to the world in order to fund it."
ReplyDeleteSweden is clearly absolutely coining it in from all that iron ore and herring. New Zealand is a bit more puzzling. Oh, wait, sheep.
As with referring to "Das Kapital", it is IMO a bit pretentious to pepper your conversation with German plurals.
ReplyDeleteAgree with "Landesbanks", but pretty much everybody in the world calls it "Das Kapital". I would argue that the pretentious thing to do is to deliberately call it "Capital" rather than using the generally accepted term.
How much CDS exposure is there to a Greek default, btw?
ReplyDeleteVery little. It's a tiny market, making up like single digits in percentage terms in relation to the overall sizeof the Greek debt.
the pretentious thing is to call Marx "German Charlie"
ReplyDeleteDenmark's got those big furniture orchards, no wonder they do so well.
Germany - now there's a natural-resource treasure chest if ever a territory was. All those acidic, sandy soils and low quality coal deposits.
ReplyDeleteWhat do you mean, the German's have huge resources of smugness. Without it would people buy their cars, white goods, etc?
ReplyDeleteAnd, of course, simply enormous amounts of Esparto Grass.
ReplyDeleteI'm not too clear on the specific details, but a) German and French banks own Greek debt; b) they are some of the reason Greek debt isn't getting properly restructured; and c) if Greek debt was seriously restructured, the German and French banks would face some trouble.
ReplyDeleteApropos of this, Robert Peston points out today that "international banks' potential exposure to Greece is $61bn - including $44bn of guarantees extended and $7bn in derivative contracts. And as I've mentioned before, more than half of that potential exposure, or $34bn, is with US banks."
And as I've mentioned before, more than half of that potential exposure, or $34bn, is with US banks."
ReplyDeleteUS banks are often considerably bigger. And they seem to have somewhat better access to bailouts.
The problem with restructuring is that it won't be an one-off affair. Greek restructuring will lead to Portugese restructuring and then the Irish will scream bloody murder for a restructuring too, and onwards to every country and their cousin, and then everybody would be fucked.
This is probably why Europe is holding the line on restructuring and haircuts right now. It just ricochets through the system.
Well, every seriously indebted European country that simply no longer possess the fiscal capacity to pay back the debt at par.
ReplyDeleteI'm not convinced you could make restructuring work absent some hard stop on it.