23 ms·

Greece

236 points by biehl 11y ago

seliopou 11y ago
Interfulidity is one of the best economics blogs out there. Last year he did a five-part series on welfare economics[0] that, while quite lengthy, was very well-done. Anybody that's interested in political economy, but has a more traditional Econ 101 background, it's a good place to start. [0]: http://www.interfluidity.com/v2/5149.html http://www.interfluidity.com/v2/5149.html
- tjradcliffe 11y ago
  I'm not encouraged by statements like this: "There is nothing inherently more scientific about using an ordinal rather than a cardinal quantity to describe an economic construct. Chemists' free energy, or the force required to maintain the pressure differential of a vacuum, are cardinal measures of constructs as invisible as utility and with a much stronger claim to validity as 'science'." Utility is ordinal not out of some deep desire on the part of economists to "appear scientific" but because it reflects a simple empirical fact about humans. "Utility" is a measure of value to someone, and human values are ordinal: I value my children more than my cats, and no number of cats will ever equal the value of my children. It would be incoherent and wrong to say I value my children ten times more than my cats, and no cardinal relationship between them could possibly represent reality. This is not mysterious or esoteric. The ordinality of human values is what makes rational choice under uncertainty such a difficult problem, because we can't compute expected values from ordinals (unless there happens to be a market in the things we value, in which case we can get cardinality through prices... but there is no market in children or many other things we value.) By making it sound like economist's interest in publicly testing ideas by systematic observation, controlled experiment and Bayesian inference--which is what the discipline of science actually is--is some kind of inexplicable fetish instead of a perfectly reasonable goal for anyone who wants to say anything meaningful or interesting about the world, the author does everyone a great disservice.
  - RockyMcNuts 11y ago
    I believe Von Neumann showed that any consistent ordinal utility can be mapped to a cardinal utility. As long as you can rank your preferences, for cats, children, or whatever, you can come up with an equivalent cardinal utility. So I think Waldman's statement is technically correct, the two are equivalent, and one isn't more scientific than the other. There is this notion that it's bad form to say, a rich person gets less marginal utility out of a dollar than a poor person, or sum up utilities across people. And it's bad form to quantify the value of a human life for instance. You can, however, say the rich person values leisure at more dollars than the poor person. If you could sum up utilities across people I'm sure it would lead one to very bad conclusions, unlike some of the other simplifications economists make, which only lead to useful conclusions. <cough> Actually, I'm not really certain what it would change, if anything. In any event it would appear that humans aren't very consistent with their preferences, c.f. behavioral economics, hence the notion of utility may lead one astray whether one views it as an ordinal ranking or cardinal quantity.
  - crdoconnor 11y ago
    >Utility is ordinal not out of some deep desire on the part of economists to "appear scientific" but because it reflects a simple empirical fact about humans. "Utility" is a measure of value to someone, and human values are ordinal: I value my children more than my cats, and no number of cats will ever equal the value of my children. Utility is a bullshit non-measurement that is defined self-referentially. It's not better than phlogiston.
telepheron 11y ago
This article is far from objective, let alone 'best analysis'. It is a perfect example of cherry picking data.
- bildung 11y ago
  > This article is far from objective, let alone 'best analysis'. It is a perfect example of cherry picking data. Then you surly are able to expose those flaws and give us better numbers?
pvg 11y ago
This can probably use a neutral title. 'An analysis of the situation in Greece' or somesuch.
howabouta 11y ago
So today, we played the Greek themed version of the board game 'monopoly' - wow. It was quick - the bank was already empty, and it was already game over!
msabalau 11y ago
The entire thing is worth reading, but the key take away: "Regulatory mistakes and agency issues within banks encouraged poor credit decisions. Spanish banks lent into overpriced real estate, and German banks lent to a state they knew to be weak. Current account imbalances within the Eurozone — persistent and unlikely to reverse without policy attention — implied as a matter of arithmetic that there would be loan flows on a scale that might encourage a certain indifference to credit quality. These were European problems, not national problems. But they were European problems that festered while the continent’s leaders gloated and took credit for a phantom prosperity. When the levee broke, instead of acknowledging errors and working to address them as a community, Europe’s elites — its politicians and civil servants, its bankers and financiers — deflected the blame in the worst possible way. They turned a systemic problem of financial architecture into a dispute between European nations. They brought back the very ghosts their predecessors spent half a century trying to dispell. Shame. Shame. Shame. Shame."
- telepheron 11y ago
  So we just ignore the fact that the Greek government misrepresented their economic state, failed to implement the necessary changes and then puts up a completely bogus referendum?
  - konceptz 11y ago
    I think what msabalau is saying is that there are many issues at multiple levels of this system and instead of addressing them as a whole they turned on a single instance. The implication is that Greek's issues were used as a scapegoat for a systemic problem.
  - jeltz 11y ago
    I am leaning towards yes, because it was well known a long time before the crash that Greece was messed up. The incentives were wrong and encouraged irresponsible ledning. The Greek government just happened to be the worst borrower.
  - DangerousPie 11y ago
    Yes, pretty much. The author's argument is that everybody knew that their economic state was misrepresented, so the banks should have never lend them money in the first place. The mismanagement leading up to the financial crises was of course the fault of the Greek government. However, the reforms that the EU has proposed/enforced since then seem to have been more about punishing the Greeks than about actually building a properly functioning economy. That might feel justified (and because of that it has the support of many voters) but long-term it is not a viable solution to the problem.
dnautics 11y ago
> "The world is full of unworthy and unscrupulous entities willing to take your money and call the transaction a “loan”. It always will be. That is why responsibility for, and the consequences of, extending credit badly must fall upon creditors, not debtors. There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree. But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors’ prison, metaphorical or literal. If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place." This is great. What, then, about a middle road? Absolve greece of its debts. Write off its liability as a sunk cost, let bygones be bygones. Then cut it off from the ECB. Let the government figure out how to run a sustainable economy, and when they're ready, bring them back in.
- reagency 11y ago
  That quote is silly, it completely justifies fraud. There has to be a balance.
  - icebraining 11y ago
    The quote says "emphasize", not "ignore the other view". The balance is implicit.
  - crdoconnor 11y ago
    The balance can involve slamming the individuals in jail who enabled Greece to misrepresent its finances before it joined. Unfortunately, actually prosecuting fraud seems to be a minority view, whereas punishing entire countries (primarily those on a low income, too) for the sins of a few is the norm in Europe.
    - Xylakant 11y ago
      Some of these individuals were greek and are under greek jurisdiction. None were prosecuted. It would give the moral position of the greek government a huge boost if they started doing that, just like Iceland did in its default.
kqr2 11y ago
This is a much better primer on the situation: http://faculty.chicagobooth.edu/anil.kashyap/research/papers/A-Primer-on-the-Greek-Crisis_june29.pdf http://faculty.chicagobooth.edu/anil.kashyap/research/papers...
- DangerousPie 11y ago
  It's a good primer to describe the facts, but it does not say much in terms of what should have been/should be done.
- dredmorbius 11y ago
  Yep, I just posted that myself.
- tdsamardzhiev 11y ago
  That was useful, thanks!
return0 11y ago
"Greece is a remarkable country full of wonderful people, but along dimensions of development and governance, the place is plainly pretty fucked up" Rehash of what we already know + strong words != Great analysis
- dylanjermiah 11y ago
  One sentence != Entire article
DangerousPie 11y ago
I largely agree with this article. It is still very dubious to me how anyone thinks that things like increasing VAT at the moment are going to help anyone. However I don't really understand the author's reasoning here: > I’ll end this ramble with a discussion of a fashionable view that in fact, the Greece crisis is not about the money at all, it is merely about creditors wresting political control from the concededly fucked up Greek state in order to make reforms in the long term interest of the Greek public. Anyone familiar with corporate finance ought to be immediately skeptical of this claim. A state cannot be liquidated. In bankruptcy terms, it must be reorganized. Corporate bankruptcy laws wisely limit the control rights of unconverted creditors during reorganizations, because creditors have no interest in maximizing the value of firm assets. Their claim to any upside is capped, their downside is large, they seek the fastest possible exit that makes them mostly whole. The incentives of impaired creditors are simply not well aligned with maximizing the long-term value of an enterprise. The argument he disagrees with here is that the creditors are actually not so much interested in getting back their money but in keeping leverage over the government to enact reforms [0]. He believes that this cannot be the case, because as creditors their incentive is not the long-term good of the nation, but only their short-term recovery of the debt. I don't think this is necessarily true. In the end, the goal of the EU should be (I hope) to allow Greece to become a prosperous nation with a sustainable economy, to form a stronger union overall. Whether or not the actual debt ever gets fully repaid should be secondary to that. So aren't the incentives in this case, unlike for corporate debt, actually quite well-aligned? To me the idea that the creditors do not want to give up all their leverage (the debt) makes perfect sense to me. The Greek government has shown time and time again that it is unable to enact the reforms it needs to. Properly reforming the political structures and getting rid of clientelism and waste is going to require some external factor forcing them to act. [0] http://www.vox.com/2015/7/2/8883307/merkel-nsa-wikileaks-greek-crisis http://www.vox.com/2015/7/2/8883307/merkel-nsa-wikileaks-gre...
lhl 11y ago
This is an interesting take on things w/ a lot of merit, but I think Vox actually summed it up better here w/ a short video and a longer article: http://www.vox.com/2015/6/30/8867939/greece-economic-crisis http://www.vox.com/2015/6/30/8867939/greece-economic-crisis Until/unless the rich European countries are willing to subsidize the poorer countries, as a financial union, the Euro is just a complete non-starter since the fiscal policies these states need are so far apart.
- mike_hearn 11y ago
  The notion that a country like Greece needs a different currency or fiscal policy to Germany isn't really true. Ultimately whether they print New Drachma and hyperinflate themselves into poverty or whether they accept massive pay cuts/import drops doesn't make much difference - they are two roads that lead to the same outcome. Greece could become competitive without leaving the Euro. However, it means actually telling people they're going to receive large and frequent pay cuts. As nobody likes doing that, easier to ignore the problem until the whole thing comes crashing down. Then when salaries are redenominated in ND and suddenly ND becomes worthless, it's not the bosses fault see - the boss didn't cut anyone's pay. It's just the darn currencies fault. Psychological tricks aren't what Greece needs right now though.
  - cgio 11y ago
    On a zero-based forecast the two are equivalent. It is different though to keep your stocks high while taking your flows down as if you keep a euro balance sheet and a de-valued euro p&l. They are two roads in the same direction but with totally different outcomes.
    - mike_hearn 11y ago
      Could you explain a little further? I didn't understand your point, I'm afraid. Sounds like you're saying it affects the accounting.
  - lhl 11y ago
    Devaluation actual has real, not psychological impacts in debt repayment and import/export. Whether printing more money would lead to a liquidity trap is above my pay grade, but empirically (the past 5 years, and every single austerity program in history), imposing austerity has been to shown, to not work, and it's a precondition if they want to keep using Euros. Based on current/future loan terms, Greece will never be able to grow their GDP to meet their repayment schedule.
Catalyst4NaN 11y ago
this would be much nicer if word spacing was like 5px!
twobits 11y ago
The basic idea: BMW wants to sell more cars to greeks. Greeks don't have enough money so they can't buy. Deutsche Bank (DB) gives "free money" in loans. (And of course DB knows that greece isn't exactly "strong" economically.) We are talking about a greek population that never ever had a loan before, while the prime minister talks about the "powerful (economically) greece". They also thought that the world "stock markedt" was some kind of chinese recipe. Greeks, with "free money", buy BMWs. BMW is happy. Profits. Eventually, of course, TSHTF. And then, would you expect that? THE PRIVATE DEBTS BECOME PUBLIC. That means the bad loans of DB become the burden of all the taxpayers of europe. Germans pay, greeks pay (decimated basically, with ~-20+% GDP, +5x taxation, etc), italians pay, french pay, etc. The TAXPAYERS. To put it simply: BWM: Happy. DB: Happy. Europe's taxpayers: F*cked. The billions that greece "got" as "help", it never saw. They went ~98% back to foreign creditors. Basically: The politicians (cue, under the table payments for Mrs. Merkel, Mr. Schauble, Mr. who-was-PM-of-greece-then), took money from all european taxpayers, and gave profits to BMW and DB. (With their cut.) Now, they sell a nationalistic "those southern states are lazy". PS: It was german and french private banks, and german and french industries. It's just that DB was the biggest, and BMW is big and symbolic.
- ams6110 11y ago
  Germany also never repaid the money that the Greek Central Bank was forced to lend to the occupying Nazi regime in WWII.
  - hueving 11y ago
    Germany is not the same thing as Nazi Germany.
    - foobar2020 11y ago
      Germany is the direct descendant of Nazi Germany, just like Russia is the direct descendant of USSR.
      - pvaldes 11y ago
dredmorbius 11y ago
Far better one that turned up in my G+ feed a few days back: http://faculty.chicagobooth.edu/anil.kashyap/research/papers/A-Primer-on-the-Greek-Crisis_june29.pdf http://faculty.chicagobooth.edu/anil.kashyap/research/papers... "A Primer on the Greek Crisis: the things you need to know from the start until now", Anil Kashyap, University of Chicago, Booth School of Business, June 29th, 2015 1) How did Greece get into such trouble?... To accompany that: "Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its True Debt" http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html http://www.spiegel.de/international/europe/greek-debt-crisis... Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit.
- hartator 11y ago
  G+ feed? Are you a google employee?
  - dredmorbius 11y ago
    No.
- foobar2020 11y ago
  Wait wait, how do cross currency swaps hide debt? Edit: these were not just regular cross currency swaps > But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.
AndrewKemendo 11y ago
The TROIKA GDP Forecast graph is great! I think from now on I am going to send it to any investor who thinks asking pre-revenue companies for projections is a reasonable thing.
- telepheron 11y ago
  Especially since it was largely caused by the failure of the Greek government to implement the required changes. Also the slow recovery in 2013 and 2014 was 'accidentally' left out.
- drxzcl 11y ago
  I had a good chuckle at that. It instantly reminded me of the Itanium sales forecasts[1]. It's like people are afraid to say "I don't know" (especially when money is involved) and just end up telling people what they want to hear. 1: https://commons.m.wikimedia.org/wiki/File:Itanium_Sales_Forecasts_edit.png https://commons.m.wikimedia.org/wiki/File:Itanium_Sales_Fore...
misterbarnaby 11y ago
"They had knowingly and purposefully brought weak states into the Eurozone, because they genuinely, even nobly, wished to build a large, strong, United Europe." For folks who know Europe/Europeans well, is this true?
- cbaleanu 11y ago
  Not an expert, but the popular culture some EU countries is that the greek and spanish work less than people from NW Europe. Personally I think this is highly subjective though.
  - Atropos 11y ago
    Not working less hours, but much less "productive" in an economic sense. See US Patent statistics: http://www.uspto.gov/web/offices/ac/ido/oeip/taf/cst_utl.htm http://www.uspto.gov/web/offices/ac/ido/oeip/taf/cst_utl.htm Even in the boom years of 1999-2008, Greece had like 20 patents / year, while Austria or Finland have 600-900, despite having a smaller population.
    - jacquesm 11y ago
      Patents are indicative of an IP based economy, Greece is much more dependent on tourism than on IP and technology than Austria or Finland. Economic productivity is not accurately measured by looking at the number of patents granted for any country, though it does reflect how large the tech/ip sector is for that country.
- hartator 11y ago
  I am from France and I've lived in Bulgaria for a while. It's true fortunately/unfortunately. Ie., one of the condition of Bulgary entry in Europe Union was the shudown of two nuclear reactor that was the same model than Thernobyl ones...
- saool 11y ago
  Absolutely. The pro-European movement that's been going on for many many decades has as an ultimate goal to unite the peoples of Europe so we can live in peace. United in diversity, as the EU motto claims. A great % of Europeans you met before 2008 would agree with this. There's now —sadly— little left going around of the "Alle Menschen werden Brüder" that our shared anthem sings (all men become brothers under the gentle wing of joy). A bunch of unscrupulous cronies sold both northern and southern Europeans up the river just to make a profit for themselves and their friends. No damn statesmanship to be seen anywhere. Long gone are the times Schroeder and other much-more-respectable leaders, we now have to put up with the likes of Lagarde and Juncker. And, of course, Tsipras and Varoufakis, amateur hour, who have been absurdly reckless in their handling of the negotiations and PR.
Hello71 11y ago
The title was edited from "The best analysis of the situation in Greece" to "Greece". The former title, while baity, is a much better description of the article than just the name of the country. Might as well call it "Blog". It would have been much better to, for example, delete "the best" and leave "analysis of the situation in" so that readers understand what about Greece is being discussed.
- nbouscal 11y ago
  “Greece” is the title of the post, so this follows the standard HN norm. Also, anyone paying any attention at all to world news knows what aspect of Greece is likely to be being discussed.
  - mikeash 11y ago
    I saw it post-edit and knew it was surely some sort of analysis about the current situation in Greece.
namuol 11y ago
This was my main take-away: "There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree. But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors’ prison, metaphorical or literal. If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place."
- snitko 11y ago
  Unfortunately, it's neither. The debtors in this case are the people of Greece, yet the ones who got them indebted are politicians, who misled the population into believing that the expenses the government had were sustainable. Even more important is that the politicians were not voted in by 100% of people, which simply means that many people who lost their money didn't agree with the policy that led to them losing their money. I don't think anyone with a straight face can now say that democracy is the best solution to running our society, when it, in fact, leads to the situation in which half the population (the ones who vote for the policy) unknowingly oblige the other half (and themselves) to lose their money. This situation is not an exception. This is what's going to happen sooner or later to every other country which has a substantial debt. You can't spend more than you earn without consequences.
  - josephlord 11y ago
    Reasonable points about democracy but as Churchill said: "Democracy is the worst form of government, except for all those other forms that have been tried from time to time." > This is what's going to happen sooner or later to every other country which has a substantial debt. Actually where the country controls its currency the effects are totally different and if the ECB could certainly step in for tiny Greece if there was a will. > You can't spend more than you earn without consequences. Actually the reverse is true for Governments which are like banks and create/destroy money. If they run a persistent surplus they cause the private sector to shrink or increase borrowing. https://www.youtube.com/watch?v=jqzfOQXCwFg https://www.youtube.com/watch?v=jqzfOQXCwFg
jboydyhacker 11y ago
How do you call this an analysis? This is pretty blatant political polemic. It isn't an "analysis" but a rant. The Greeks lied about their financial condition in an effort to support a pension system that lets people retire far earlier than the rest of Europe. Bring the pension system and other spending in line in exchange for some haircuts on the debt- that's the fair answer. Not this crud about how the other European countries "betrayed" Greece. Man that' some offensive nonsense.
- the_why_of_y 11y ago
  > The Greeks lied about their financial condition in an effort to support a pension system that lets people retire far earlier than the rest of Europe. This is incorrect: the average age of retirement in Greece is not lower than every other country in the EU; in fact for men it is exactly the same as in Germany. http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/pensions-at-a-glance-2013/effective-age-of-labour-market-exit_pension_glance-2013-10-en#page4 http://www.keepeek.com/Digital-Asset-Management/oecd/finance... If you want to make the case that an EU country needs to raise its retirement age, make it for Belgium or France.
  - peterfirefly 11y ago
    The retirement age a country can afford depends to a large extent on the productivity of the workers in that country. (And of course it is too low in Belgium and France. Everybody knows that. Doesn't change the fact that it is /way/ too low in Greece.)
nbouscal 11y ago
Tyler Cowen responds: “Interfluidity has an interesting but quite wrong post on how to think about Greece. International relations simply could not be run on the principles he advocates, most of all in conjunction with democratic nation states. His weakest point becomes evident when he writes: ““Among creditors, a big catchphrase now is “moral hazard”. We cannot be too kind to Greece, we cannot forgive their debt with few string attached, because what kind of precedent would that set? If bad borrowers, other sovereigns, got the idea that they can overborrow without consequence, if Spanish and Portuguese populists perceive perhaps a better deal is on offer, they might demand that. They might continue to borrow and expect forgiveness, and where would it end except for the bankruptcy of the good Europeans who actually produce and save? “The nerve. The fucking nerve. Lenders, having been made nearly whole on their ill-conceived, profit-motivated punts, now fear that if anybody is nice to somebody who doesn’t deserve it, where will it end? I’d resort to that cliché about chutspa, the kid who murders his parents then seeks leniency ‘cuz he’s an orphan. But it’s really too cute for the occasion.” “That’s a non-answer, with anger filling in for the required substance as to why Germany and others should allow this. “Your government is making things much worse. If you want to borrow so much more from us, you have to play by the rules and also stop spitting in our face and calling us Nazis and terrorists while negotiating” is more relevant — and yes relevant is the right word here — than any point he makes. “A political program has to be something that voters could at least potentially believe, and international negotiations therefore cannot stray too far from common-sense morality, including when it comes to creditor-debtor relations. That is the point which today’s progressive economists are running away from as fast as is humanly possible. And for all the Buchanan-esque and public choice points about “rules of the game” this one about common sense morality unfortunately has ended up as the most important. “Look at this way: if you lost a public relations battle to Germany, you are probably doing something very badly wrong.” http://marginalrevolution.com/marginalrevolution/2015/07/greece-and-syriza-lost-the-public-relations-battle.html http://marginalrevolution.com/marginalrevolution/2015/07/gre...
- crdoconnor 11y ago
  "Among creditors, a big catchphrase now is “moral hazard”. We cannot be too kind to Greece, we cannot forgive their debt with few string attached, because what kind of precedent would that set?" They already set that precedent by refusing to punish the individuals involved in the fraudulent misrepresentation that led to Greece entering the Eurozone. Still not too late for the creditors to make amends for that mistake.
naveen99 11y ago
Nick Szabo's take on it: http://unenumerated.blogspot.com/2015/07/the-greek-financial-mess-and-some-ways.html http://unenumerated.blogspot.com/2015/07/the-greek-financial...
fiatjaf 11y ago
For those not wanting to read, just look at this image (from the post): http://i.imgur.com/c7IYmaY.png http://i.imgur.com/c7IYmaY.png
mistermann 11y ago
I really don't know that much of the details of this particular situation, I've grown tired of hearing about this sort of thing. I RTFA and it was interesting, but then it's always interesting, isn't it. I was surprised that a CTRL+F "Icelend" in this thread turned up nothing. While I'm sure there were many differences in their situation, I bet there were a lot more similarities. My crude analysis of this situation is, it is yet another example of "men behaving badly while playing with other people's money". And when I say men, I'm not using it in the gender agnostic sense. When this sort of thing happened to Iceland, they had the choice of "doing the right thing" (aka do what they were told by the international banking industry), or go it on their own. After some "public discussions", it was decided they would go it on their own. And a key learning that came out of that public discussion was to ensure females were involved in the process: http://www.theguardian.com/world/2009/feb/22/iceland-women http://www.theguardian.com/world/2009/feb/22/iceland-women And by most accounts, Iceland is now doing generally "ok". By the way, I have no idea if that article is at all authoritative on the topic of Iceland or females role in its recovery, I did a 5 second google search. My point is, as the author of the article (that is the topic of this post) clearly pointed out, the original deal with Greece was built on a fair amount of lies, that everyone knew were lies. I particularly liked the reference to this term: http://www.urbandictionary.com/define.php?term=IBGYBG http://www.urbandictionary.com/define.php?term=IBGYBG And my experience (as a man), dealing with other men for many decades now is: a certain subset of men have absolutely no moral qualms about lying in the pursuit of power; other men of the same personality type, even if seemingly enemies, are happy to go along, and the collusion between these opposing actors who share the same mindset often results in them all rising into positions of extreme power, and they eventually blow the whole place up. It's probably always been this way in a sense - in the good old days, it resulted in war - nowadays, it results in financial markets blowing up. I know there are all sorts of holes in my "theory of the world", and I don't even care, because this same shit will continue to happen indefinitely, and it will always be men running the show, but there's no way to prove causation because it will always be men running the show.
- gonvaled 11y ago
  +1 for the Iceland reference -1 for the men / women reference: like there are no good men / bad women. Ha! =0
hughw 11y ago
I just read this Duke law paper[1] saying that in 2012 Greek creditors took a 64% haircut. I had not realized they had received such debt relief already. From the report: "Within the class of high- and middle-income countries, only three restructuring cases were harsher on private creditors: Iraq in 2006 (91%), Argentina in 2005 (76%) and Serbia and Montenegro in 2004 (71%). There are a number of cases of highly indebted poor countries, such as Yemen, Bolivia, and Guyana, that imposed higher losses on their private creditors. However, the Greek haircut exceeds those imposed in the Brady deals of the 1990s (the highest was Peru 1997, with 64 per cent), and it is also higher than Russia’s coercive 2000 exchange (51%)....the 2012 Greek exchange was exceptional in size, exceeding the next largest sovereign credit event in modern history, which to our knowledge wasRussia’s default on 1.7 billion British pounds in 1918, equivalent to just under 100 billion in 2011 Euros. The Greek exchange also easily surpasses the German default of 1932-33, the largest depression-era default on foreign bonds, comprising 2.2bn US$ at the time, or approximately 26 billion in 2011 Euros." [1] http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=5343&context=faculty_scholarship http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=...
- deleted 11y ago
  [deleted]
- zaroth 11y ago
  TFA is arguing the private creditors got off far too easily. Having made the loans of their own accord, pocketing the interest payments up to that point, you can be sure the private creditors were quite happy to have the debt off their hands in 2012. This is the largest transfer from private credit to public credit in history, right? These are the same loans Greece is now actually completely unable to service. The paper talks about creditors taking haircuts, but then in the next paragraph that this resulted in very little actual debt relief for Greece? If private credits really had to absorb 50% haircuts on $100 billion of debt, point me to the massive string of bankruptcies? If I understand correctly, the "haircuts" are projections based on net present value using some arbitrary high discount rates (the paper mentions 9% !!!) so you have to appreciate that with a different discount rate you could claim the private debt holders were actually being paid even > 100 cents on the dollar. Using this 5 per cent discount rate to compare old and proposed new debt flows, the debt relief implied by the July 2011 financing offer would have been approximately zero – indeed, slightly negative. Using the “risk free” discount rate of about 3.5 per cent (not shown in the table), would indicate an *increase* of Greece’s debt burden by about 11-15 per cent [over] the July 2011. That's from your quoted article! Doesn't sound like such a great haircut to me... Any time private banks are being bailed out, I'm going to assume that they are being well enriched in the process. Just the way of the world. People will just play with the numbers to suit a given narrative, so it's hard to even find a "truth" in all this. A 9% discount rate for sovereign debt is insane though. Almost any NPV analysis is going to look like shit against a 9% discount. EDIT: I read further down into the paper, and the actual discount rates used to arrive at the "59 - 64%" haircut range for the 2012 restructuring were 15.3% - 18.7%. Just WOW. So, yes, creditors were NOT paid the full NPV on over a hundred billion of dollars of debt being carried through maturity at rates higher than my credit cards. This should surprise exactly no one.
atmosx 11y ago
I would like to thank the author for putting together the words I would like to had put, but being out of skill and full of anger, I wasnt able to.
revanx_ 11y ago
I've meet a handful of young greeks(Age: 17-29) since 2010 and when asked about their situation, especially the unemployment rate they all said the same thing, young greeks don't want to work unless it's a high paying gov. secure job with 6 hours a day 5 days a week schedule. Ironically all of them were gamers but considering that the unemployment rate is about 50% with young greeks, it's hard to argue with that. Also one important thing was said many times, most of greeks try to avoid taxes or they don't pay them at all. They've told me this is especially rampant in tourism. It's hard to argue with that, depending on where you traveled you can experience this first hand. It's so easy to blame everyone else for your own problems, lets not forget how much money has actually been pushed to Greece since 2010 via financial injections and what have they done with it? What good is it to keep pushing more and more money into Greece when the people and it's gov don't want to change and without change how can you expect any progress?
- bcg1 11y ago
  You make good points but it is multifaceted. The money "pushed to Greece" isn't really available for them to squander as you're suggesting... it is used to roll over loans from private European banking institutions that were reckless and stupid to buy Greek bonds in the first place, and place them on the backs of taxpayers instead. Greeks are understandably ticked off that they are being choked out by the conditions of rolling over those loans, for which they see little benefit.
- pjmlp 11y ago
  It is so easy to tell people how they should behave from the outside. I am portuguese and my country is quite similar to Greece. I do know it quite well. Many of those behaviors have deep roots in our societies. It just doesn't work someone from the outside coming and shouting at us how 10 million people should behave. Try to leave in our countries for an year, then see how things are.
- spystath 11y ago
  Being greek in the same age group I dare to say that what you support is a blatant and dangerously ignorant lie. There are tons of people that have law or engineering degrees and would be grateful for a supermarket cashier job or flipping burgers. There is a serious problem with greek young people, they are basically a burnt generation, doomed to either chronic unemployment, ridiculously low-paying jobs (<500 euro/mo), or emigration, so I find your assertion deeply insulting. I'm getting tired of the "lazy, tax-evading, early retiring greeks" mantra being repeated everywhere. I expect generalisations from reddit, but I expected something better from HN.
yeureka 11y ago
You could say that the current Greek problems are a consequence of bad governance, but that alone is not enough. See Finland for instance: http://www.nytimes.com/2015/07/03/opinion/paul-krugman-europes-many-disasters.html?rref=collection%2Fcolumn%2Fpaul-krugman http://www.nytimes.com/2015/07/03/opinion/paul-krugman-europ...
gizi 11y ago
When the Greek government originally borrowed their debts, they did so mostly from commercial banks in other EU countries. Therefore, the first Greek crisis was systemically dangerous. It had the potential of dragging the entire EU banking system into the mud. In the meanwhile, these commercial EU banks have been able to offload their Greek debt paper onto their own governments and onto supranational EU organizations. Today, a Greek default would no longer put the EU banking system in jeopardy. It is the European Financial Stability Facility (EFSF) and similar organizations at national and international level that would see a hole appearing in their financial paperwork, if Greece defaulted. Therefore, the point of view of Alexis Tsipras, the Greek prime minister, makes a lot of sense. Let Greece simply default and let the current debt holders dump the Greek paper on the open market, where it will trade at cents to the Euro. Inasmuch as Greece finds more money in the future, the Greek government can try to buy back debt paper in order to destroy it. The current holders of Greek paper would indeed lose money but in fact they have lost that money already. If they simply had the courage to let the open market value their holdings, they would see today already that most of the value has already gone. Nobody has any hope of seeing the money back represented by the Greek debt paper. Why not just admit it? Historical lesson: Borrowing large amounts from EU banks is a one-way bet. Their governments will not let these banks go bankrupt and therefore, if need be, they will take over the debt. Since these governments cannot collect the debt either, they will eventually have to forgive the debt.
not-hacker-news 11y ago
How does this qualify as "hacker news"?

236 points by biehl 11y ago

Interfulidity is one of the best economics blogs out there. Last year he did a five-part series on welfare economics[0] that, while quite lengthy, was very well-done. Anybody that's interested in political economy, but has a more traditional Econ 101 background, it's a good place to start. [0]: http://www.interfluidity.com/v2/5149.html http://www.interfluidity.com/v2/5149.html

tjradcliffe 11y ago
I'm not encouraged by statements like this: "There is nothing inherently more scientific about using an ordinal rather than a cardinal quantity to describe an economic construct. Chemists' free energy, or the force required to maintain the pressure differential of a vacuum, are cardinal measures of constructs as invisible as utility and with a much stronger claim to validity as 'science'." Utility is ordinal not out of some deep desire on the part of economists to "appear scientific" but because it reflects a simple empirical fact about humans. "Utility" is a measure of value to someone, and human values are ordinal: I value my children more than my cats, and no number of cats will ever equal the value of my children. It would be incoherent and wrong to say I value my children ten times more than my cats, and no cardinal relationship between them could possibly represent reality. This is not mysterious or esoteric. The ordinality of human values is what makes rational choice under uncertainty such a difficult problem, because we can't compute expected values from ordinals (unless there happens to be a market in the things we value, in which case we can get cardinality through prices... but there is no market in children or many other things we value.) By making it sound like economist's interest in publicly testing ideas by systematic observation, controlled experiment and Bayesian inference--which is what the discipline of science actually is--is some kind of inexplicable fetish instead of a perfectly reasonable goal for anyone who wants to say anything meaningful or interesting about the world, the author does everyone a great disservice.
- RockyMcNuts 11y ago
  I believe Von Neumann showed that any consistent ordinal utility can be mapped to a cardinal utility. As long as you can rank your preferences, for cats, children, or whatever, you can come up with an equivalent cardinal utility. So I think Waldman's statement is technically correct, the two are equivalent, and one isn't more scientific than the other. There is this notion that it's bad form to say, a rich person gets less marginal utility out of a dollar than a poor person, or sum up utilities across people. And it's bad form to quantify the value of a human life for instance. You can, however, say the rich person values leisure at more dollars than the poor person. If you could sum up utilities across people I'm sure it would lead one to very bad conclusions, unlike some of the other simplifications economists make, which only lead to useful conclusions. <cough> Actually, I'm not really certain what it would change, if anything. In any event it would appear that humans aren't very consistent with their preferences, c.f. behavioral economics, hence the notion of utility may lead one astray whether one views it as an ordinal ranking or cardinal quantity.
- crdoconnor 11y ago
  >Utility is ordinal not out of some deep desire on the part of economists to "appear scientific" but because it reflects a simple empirical fact about humans. "Utility" is a measure of value to someone, and human values are ordinal: I value my children more than my cats, and no number of cats will ever equal the value of my children. Utility is a bullshit non-measurement that is defined self-referentially. It's not better than phlogiston.

telepheron 11y ago

This article is far from objective, let alone 'best analysis'. It is a perfect example of cherry picking data.

bildung 11y ago
> This article is far from objective, let alone 'best analysis'. It is a perfect example of cherry picking data. Then you surly are able to expose those flaws and give us better numbers?

pvg 11y ago

This can probably use a neutral title. 'An analysis of the situation in Greece' or somesuch.

howabouta 11y ago

So today, we played the Greek themed version of the board game 'monopoly' - wow. It was quick - the bank was already empty, and it was already game over!

msabalau 11y ago

The entire thing is worth reading, but the key take away: "Regulatory mistakes and agency issues within banks encouraged poor credit decisions. Spanish banks lent into overpriced real estate, and German banks lent to a state they knew to be weak. Current account imbalances within the Eurozone — persistent and unlikely to reverse without policy attention — implied as a matter of arithmetic that there would be loan flows on a scale that might encourage a certain indifference to credit quality. These were European problems, not national problems. But they were European problems that festered while the continent’s leaders gloated and took credit for a phantom prosperity. When the levee broke, instead of acknowledging errors and working to address them as a community, Europe’s elites — its politicians and civil servants, its bankers and financiers — deflected the blame in the worst possible way. They turned a systemic problem of financial architecture into a dispute between European nations. They brought back the very ghosts their predecessors spent half a century trying to dispell. Shame. Shame. Shame. Shame."

telepheron 11y ago
So we just ignore the fact that the Greek government misrepresented their economic state, failed to implement the necessary changes and then puts up a completely bogus referendum?
- konceptz 11y ago
  I think what msabalau is saying is that there are many issues at multiple levels of this system and instead of addressing them as a whole they turned on a single instance. The implication is that Greek's issues were used as a scapegoat for a systemic problem.
- jeltz 11y ago
  I am leaning towards yes, because it was well known a long time before the crash that Greece was messed up. The incentives were wrong and encouraged irresponsible ledning. The Greek government just happened to be the worst borrower.
- DangerousPie 11y ago
  Yes, pretty much. The author's argument is that everybody knew that their economic state was misrepresented, so the banks should have never lend them money in the first place. The mismanagement leading up to the financial crises was of course the fault of the Greek government. However, the reforms that the EU has proposed/enforced since then seem to have been more about punishing the Greeks than about actually building a properly functioning economy. That might feel justified (and because of that it has the support of many voters) but long-term it is not a viable solution to the problem.

dnautics 11y ago

> "The world is full of unworthy and unscrupulous entities willing to take your money and call the transaction a “loan”. It always will be. That is why responsibility for, and the consequences of, extending credit badly must fall upon creditors, not debtors. There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree. But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors’ prison, metaphorical or literal. If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place." This is great. What, then, about a middle road? Absolve greece of its debts. Write off its liability as a sunk cost, let bygones be bygones. Then cut it off from the ECB. Let the government figure out how to run a sustainable economy, and when they're ready, bring them back in.

reagency 11y ago
That quote is silly, it completely justifies fraud. There has to be a balance.
- icebraining 11y ago
  The quote says "emphasize", not "ignore the other view". The balance is implicit.
- crdoconnor 11y ago
  The balance can involve slamming the individuals in jail who enabled Greece to misrepresent its finances before it joined. Unfortunately, actually prosecuting fraud seems to be a minority view, whereas punishing entire countries (primarily those on a low income, too) for the sins of a few is the norm in Europe.
  - Xylakant 11y ago
    Some of these individuals were greek and are under greek jurisdiction. None were prosecuted. It would give the moral position of the greek government a huge boost if they started doing that, just like Iceland did in its default.

kqr2 11y ago

This is a much better primer on the situation: http://faculty.chicagobooth.edu/anil.kashyap/research/papers/A-Primer-on-the-Greek-Crisis_june29.pdf http://faculty.chicagobooth.edu/anil.kashyap/research/papers...

DangerousPie 11y ago
It's a good primer to describe the facts, but it does not say much in terms of what should have been/should be done.
dredmorbius 11y ago
Yep, I just posted that myself.
tdsamardzhiev 11y ago
That was useful, thanks!

return0 11y ago

"Greece is a remarkable country full of wonderful people, but along dimensions of development and governance, the place is plainly pretty fucked up" Rehash of what we already know + strong words != Great analysis

dylanjermiah 11y ago
One sentence != Entire article

DangerousPie 11y ago

I largely agree with this article. It is still very dubious to me how anyone thinks that things like increasing VAT at the moment are going to help anyone. However I don't really understand the author's reasoning here: > I’ll end this ramble with a discussion of a fashionable view that in fact, the Greece crisis is not about the money at all, it is merely about creditors wresting political control from the concededly fucked up Greek state in order to make reforms in the long term interest of the Greek public. Anyone familiar with corporate finance ought to be immediately skeptical of this claim. A state cannot be liquidated. In bankruptcy terms, it must be reorganized. Corporate bankruptcy laws wisely limit the control rights of unconverted creditors during reorganizations, because creditors have no interest in maximizing the value of firm assets. Their claim to any upside is capped, their downside is large, they seek the fastest possible exit that makes them mostly whole. The incentives of impaired creditors are simply not well aligned with maximizing the long-term value of an enterprise. The argument he disagrees with here is that the creditors are actually not so much interested in getting back their money but in keeping leverage over the government to enact reforms [0]. He believes that this cannot be the case, because as creditors their incentive is not the long-term good of the nation, but only their short-term recovery of the debt. I don't think this is necessarily true. In the end, the goal of the EU should be (I hope) to allow Greece to become a prosperous nation with a sustainable economy, to form a stronger union overall. Whether or not the actual debt ever gets fully repaid should be secondary to that. So aren't the incentives in this case, unlike for corporate debt, actually quite well-aligned? To me the idea that the creditors do not want to give up all their leverage (the debt) makes perfect sense to me. The Greek government has shown time and time again that it is unable to enact the reforms it needs to. Properly reforming the political structures and getting rid of clientelism and waste is going to require some external factor forcing them to act. [0] http://www.vox.com/2015/7/2/8883307/merkel-nsa-wikileaks-greek-crisis http://www.vox.com/2015/7/2/8883307/merkel-nsa-wikileaks-gre...

lhl 11y ago

This is an interesting take on things w/ a lot of merit, but I think Vox actually summed it up better here w/ a short video and a longer article: http://www.vox.com/2015/6/30/8867939/greece-economic-crisis http://www.vox.com/2015/6/30/8867939/greece-economic-crisis Until/unless the rich European countries are willing to subsidize the poorer countries, as a financial union, the Euro is just a complete non-starter since the fiscal policies these states need are so far apart.

mike_hearn 11y ago
The notion that a country like Greece needs a different currency or fiscal policy to Germany isn't really true. Ultimately whether they print New Drachma and hyperinflate themselves into poverty or whether they accept massive pay cuts/import drops doesn't make much difference - they are two roads that lead to the same outcome. Greece could become competitive without leaving the Euro. However, it means actually telling people they're going to receive large and frequent pay cuts. As nobody likes doing that, easier to ignore the problem until the whole thing comes crashing down. Then when salaries are redenominated in ND and suddenly ND becomes worthless, it's not the bosses fault see - the boss didn't cut anyone's pay. It's just the darn currencies fault. Psychological tricks aren't what Greece needs right now though.
- cgio 11y ago
  On a zero-based forecast the two are equivalent. It is different though to keep your stocks high while taking your flows down as if you keep a euro balance sheet and a de-valued euro p&l. They are two roads in the same direction but with totally different outcomes.
  - mike_hearn 11y ago
    Could you explain a little further? I didn't understand your point, I'm afraid. Sounds like you're saying it affects the accounting.
- lhl 11y ago
  Devaluation actual has real, not psychological impacts in debt repayment and import/export. Whether printing more money would lead to a liquidity trap is above my pay grade, but empirically (the past 5 years, and every single austerity program in history), imposing austerity has been to shown, to not work, and it's a precondition if they want to keep using Euros. Based on current/future loan terms, Greece will never be able to grow their GDP to meet their repayment schedule.

Catalyst4NaN 11y ago

this would be much nicer if word spacing was like 5px!

twobits 11y ago

The basic idea: BMW wants to sell more cars to greeks. Greeks don't have enough money so they can't buy. Deutsche Bank (DB) gives "free money" in loans. (And of course DB knows that greece isn't exactly "strong" economically.) We are talking about a greek population that never ever had a loan before, while the prime minister talks about the "powerful (economically) greece". They also thought that the world "stock markedt" was some kind of chinese recipe. Greeks, with "free money", buy BMWs. BMW is happy. Profits. Eventually, of course, TSHTF. And then, would you expect that? THE PRIVATE DEBTS BECOME PUBLIC. That means the bad loans of DB become the burden of all the taxpayers of europe. Germans pay, greeks pay (decimated basically, with ~-20+% GDP, +5x taxation, etc), italians pay, french pay, etc. The TAXPAYERS. To put it simply: BWM: Happy. DB: Happy. Europe's taxpayers: F*cked. The billions that greece "got" as "help", it never saw. They went ~98% back to foreign creditors. Basically: The politicians (cue, under the table payments for Mrs. Merkel, Mr. Schauble, Mr. who-was-PM-of-greece-then), took money from all european taxpayers, and gave profits to BMW and DB. (With their cut.) Now, they sell a nationalistic "those southern states are lazy". PS: It was german and french private banks, and german and french industries. It's just that DB was the biggest, and BMW is big and symbolic.

ams6110 11y ago
Germany also never repaid the money that the Greek Central Bank was forced to lend to the occupying Nazi regime in WWII.
- hueving 11y ago
  Germany is not the same thing as Nazi Germany.
  - foobar2020 11y ago
    Germany is the direct descendant of Nazi Germany, just like Russia is the direct descendant of USSR.
    - pvaldes 11y ago

dredmorbius 11y ago

Far better one that turned up in my G+ feed a few days back: http://faculty.chicagobooth.edu/anil.kashyap/research/papers/A-Primer-on-the-Greek-Crisis_june29.pdf http://faculty.chicagobooth.edu/anil.kashyap/research/papers... "A Primer on the Greek Crisis: the things you need to know from the start until now", Anil Kashyap, University of Chicago, Booth School of Business, June 29th, 2015 1) How did Greece get into such trouble?... To accompany that: "Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its True Debt" http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html http://www.spiegel.de/international/europe/greek-debt-crisis... Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit.

hartator 11y ago
G+ feed? Are you a google employee?
- dredmorbius 11y ago
  No.
foobar2020 11y ago
Wait wait, how do cross currency swaps hide debt? Edit: these were not just regular cross currency swaps > But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

AndrewKemendo 11y ago

The TROIKA GDP Forecast graph is great! I think from now on I am going to send it to any investor who thinks asking pre-revenue companies for projections is a reasonable thing.

telepheron 11y ago
Especially since it was largely caused by the failure of the Greek government to implement the required changes. Also the slow recovery in 2013 and 2014 was 'accidentally' left out.
drxzcl 11y ago
I had a good chuckle at that. It instantly reminded me of the Itanium sales forecasts[1]. It's like people are afraid to say "I don't know" (especially when money is involved) and just end up telling people what they want to hear. 1: https://commons.m.wikimedia.org/wiki/File:Itanium_Sales_Forecasts_edit.png https://commons.m.wikimedia.org/wiki/File:Itanium_Sales_Fore...

misterbarnaby 11y ago

"They had knowingly and purposefully brought weak states into the Eurozone, because they genuinely, even nobly, wished to build a large, strong, United Europe." For folks who know Europe/Europeans well, is this true?

cbaleanu 11y ago
Not an expert, but the popular culture some EU countries is that the greek and spanish work less than people from NW Europe. Personally I think this is highly subjective though.
- Atropos 11y ago
  Not working less hours, but much less "productive" in an economic sense. See US Patent statistics: http://www.uspto.gov/web/offices/ac/ido/oeip/taf/cst_utl.htm http://www.uspto.gov/web/offices/ac/ido/oeip/taf/cst_utl.htm Even in the boom years of 1999-2008, Greece had like 20 patents / year, while Austria or Finland have 600-900, despite having a smaller population.
  - jacquesm 11y ago
    Patents are indicative of an IP based economy, Greece is much more dependent on tourism than on IP and technology than Austria or Finland. Economic productivity is not accurately measured by looking at the number of patents granted for any country, though it does reflect how large the tech/ip sector is for that country.
hartator 11y ago
I am from France and I've lived in Bulgaria for a while. It's true fortunately/unfortunately. Ie., one of the condition of Bulgary entry in Europe Union was the shudown of two nuclear reactor that was the same model than Thernobyl ones...
saool 11y ago
Absolutely. The pro-European movement that's been going on for many many decades has as an ultimate goal to unite the peoples of Europe so we can live in peace. United in diversity, as the EU motto claims. A great % of Europeans you met before 2008 would agree with this. There's now —sadly— little left going around of the "Alle Menschen werden Brüder" that our shared anthem sings (all men become brothers under the gentle wing of joy). A bunch of unscrupulous cronies sold both northern and southern Europeans up the river just to make a profit for themselves and their friends. No damn statesmanship to be seen anywhere. Long gone are the times Schroeder and other much-more-respectable leaders, we now have to put up with the likes of Lagarde and Juncker. And, of course, Tsipras and Varoufakis, amateur hour, who have been absurdly reckless in their handling of the negotiations and PR.

Hello71 11y ago

The title was edited from "The best analysis of the situation in Greece" to "Greece". The former title, while baity, is a much better description of the article than just the name of the country. Might as well call it "Blog". It would have been much better to, for example, delete "the best" and leave "analysis of the situation in" so that readers understand what about Greece is being discussed.

nbouscal 11y ago
“Greece” is the title of the post, so this follows the standard HN norm. Also, anyone paying any attention at all to world news knows what aspect of Greece is likely to be being discussed.
- mikeash 11y ago
  I saw it post-edit and knew it was surely some sort of analysis about the current situation in Greece.

namuol 11y ago

This was my main take-away: "There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree. But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors’ prison, metaphorical or literal. If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place."

snitko 11y ago
Unfortunately, it's neither. The debtors in this case are the people of Greece, yet the ones who got them indebted are politicians, who misled the population into believing that the expenses the government had were sustainable. Even more important is that the politicians were not voted in by 100% of people, which simply means that many people who lost their money didn't agree with the policy that led to them losing their money. I don't think anyone with a straight face can now say that democracy is the best solution to running our society, when it, in fact, leads to the situation in which half the population (the ones who vote for the policy) unknowingly oblige the other half (and themselves) to lose their money. This situation is not an exception. This is what's going to happen sooner or later to every other country which has a substantial debt. You can't spend more than you earn without consequences.
- josephlord 11y ago
  Reasonable points about democracy but as Churchill said: "Democracy is the worst form of government, except for all those other forms that have been tried from time to time." > This is what's going to happen sooner or later to every other country which has a substantial debt. Actually where the country controls its currency the effects are totally different and if the ECB could certainly step in for tiny Greece if there was a will. > You can't spend more than you earn without consequences. Actually the reverse is true for Governments which are like banks and create/destroy money. If they run a persistent surplus they cause the private sector to shrink or increase borrowing. https://www.youtube.com/watch?v=jqzfOQXCwFg https://www.youtube.com/watch?v=jqzfOQXCwFg

jboydyhacker 11y ago

How do you call this an analysis? This is pretty blatant political polemic. It isn't an "analysis" but a rant. The Greeks lied about their financial condition in an effort to support a pension system that lets people retire far earlier than the rest of Europe. Bring the pension system and other spending in line in exchange for some haircuts on the debt- that's the fair answer. Not this crud about how the other European countries "betrayed" Greece. Man that' some offensive nonsense.

the_why_of_y 11y ago
> The Greeks lied about their financial condition in an effort to support a pension system that lets people retire far earlier than the rest of Europe. This is incorrect: the average age of retirement in Greece is not lower than every other country in the EU; in fact for men it is exactly the same as in Germany. http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/pensions-at-a-glance-2013/effective-age-of-labour-market-exit_pension_glance-2013-10-en#page4 http://www.keepeek.com/Digital-Asset-Management/oecd/finance... If you want to make the case that an EU country needs to raise its retirement age, make it for Belgium or France.
- peterfirefly 11y ago
  The retirement age a country can afford depends to a large extent on the productivity of the workers in that country. (And of course it is too low in Belgium and France. Everybody knows that. Doesn't change the fact that it is /way/ too low in Greece.)

nbouscal 11y ago

Tyler Cowen responds: “Interfluidity has an interesting but quite wrong post on how to think about Greece. International relations simply could not be run on the principles he advocates, most of all in conjunction with democratic nation states. His weakest point becomes evident when he writes: ““Among creditors, a big catchphrase now is “moral hazard”. We cannot be too kind to Greece, we cannot forgive their debt with few string attached, because what kind of precedent would that set? If bad borrowers, other sovereigns, got the idea that they can overborrow without consequence, if Spanish and Portuguese populists perceive perhaps a better deal is on offer, they might demand that. They might continue to borrow and expect forgiveness, and where would it end except for the bankruptcy of the good Europeans who actually produce and save? “The nerve. The fucking nerve. Lenders, having been made nearly whole on their ill-conceived, profit-motivated punts, now fear that if anybody is nice to somebody who doesn’t deserve it, where will it end? I’d resort to that cliché about chutspa, the kid who murders his parents then seeks leniency ‘cuz he’s an orphan. But it’s really too cute for the occasion.” “That’s a non-answer, with anger filling in for the required substance as to why Germany and others should allow this. “Your government is making things much worse. If you want to borrow so much more from us, you have to play by the rules and also stop spitting in our face and calling us Nazis and terrorists while negotiating” is more relevant — and yes relevant is the right word here — than any point he makes. “A political program has to be something that voters could at least potentially believe, and international negotiations therefore cannot stray too far from common-sense morality, including when it comes to creditor-debtor relations. That is the point which today’s progressive economists are running away from as fast as is humanly possible. And for all the Buchanan-esque and public choice points about “rules of the game” this one about common sense morality unfortunately has ended up as the most important. “Look at this way: if you lost a public relations battle to Germany, you are probably doing something very badly wrong.” http://marginalrevolution.com/marginalrevolution/2015/07/greece-and-syriza-lost-the-public-relations-battle.html http://marginalrevolution.com/marginalrevolution/2015/07/gre...

crdoconnor 11y ago
"Among creditors, a big catchphrase now is “moral hazard”. We cannot be too kind to Greece, we cannot forgive their debt with few string attached, because what kind of precedent would that set?" They already set that precedent by refusing to punish the individuals involved in the fraudulent misrepresentation that led to Greece entering the Eurozone. Still not too late for the creditors to make amends for that mistake.

naveen99 11y ago

Nick Szabo's take on it: http://unenumerated.blogspot.com/2015/07/the-greek-financial-mess-and-some-ways.html http://unenumerated.blogspot.com/2015/07/the-greek-financial...

fiatjaf 11y ago

For those not wanting to read, just look at this image (from the post): http://i.imgur.com/c7IYmaY.png http://i.imgur.com/c7IYmaY.png

mistermann 11y ago

I really don't know that much of the details of this particular situation, I've grown tired of hearing about this sort of thing. I RTFA and it was interesting, but then it's always interesting, isn't it. I was surprised that a CTRL+F "Icelend" in this thread turned up nothing. While I'm sure there were many differences in their situation, I bet there were a lot more similarities. My crude analysis of this situation is, it is yet another example of "men behaving badly while playing with other people's money". And when I say men, I'm not using it in the gender agnostic sense. When this sort of thing happened to Iceland, they had the choice of "doing the right thing" (aka do what they were told by the international banking industry), or go it on their own. After some "public discussions", it was decided they would go it on their own. And a key learning that came out of that public discussion was to ensure females were involved in the process: http://www.theguardian.com/world/2009/feb/22/iceland-women http://www.theguardian.com/world/2009/feb/22/iceland-women And by most accounts, Iceland is now doing generally "ok". By the way, I have no idea if that article is at all authoritative on the topic of Iceland or females role in its recovery, I did a 5 second google search. My point is, as the author of the article (that is the topic of this post) clearly pointed out, the original deal with Greece was built on a fair amount of lies, that everyone knew were lies. I particularly liked the reference to this term: http://www.urbandictionary.com/define.php?term=IBGYBG http://www.urbandictionary.com/define.php?term=IBGYBG And my experience (as a man), dealing with other men for many decades now is: a certain subset of men have absolutely no moral qualms about lying in the pursuit of power; other men of the same personality type, even if seemingly enemies, are happy to go along, and the collusion between these opposing actors who share the same mindset often results in them all rising into positions of extreme power, and they eventually blow the whole place up. It's probably always been this way in a sense - in the good old days, it resulted in war - nowadays, it results in financial markets blowing up. I know there are all sorts of holes in my "theory of the world", and I don't even care, because this same shit will continue to happen indefinitely, and it will always be men running the show, but there's no way to prove causation because it will always be men running the show.

gonvaled 11y ago
+1 for the Iceland reference -1 for the men / women reference: like there are no good men / bad women. Ha! =0

hughw 11y ago

I just read this Duke law paper[1] saying that in 2012 Greek creditors took a 64% haircut. I had not realized they had received such debt relief already. From the report: "Within the class of high- and middle-income countries, only three restructuring cases were harsher on private creditors: Iraq in 2006 (91%), Argentina in 2005 (76%) and Serbia and Montenegro in 2004 (71%). There are a number of cases of highly indebted poor countries, such as Yemen, Bolivia, and Guyana, that imposed higher losses on their private creditors. However, the Greek haircut exceeds those imposed in the Brady deals of the 1990s (the highest was Peru 1997, with 64 per cent), and it is also higher than Russia’s coercive 2000 exchange (51%)....the 2012 Greek exchange was exceptional in size, exceeding the next largest sovereign credit event in modern history, which to our knowledge wasRussia’s default on 1.7 billion British pounds in 1918, equivalent to just under 100 billion in 2011 Euros. The Greek exchange also easily surpasses the German default of 1932-33, the largest depression-era default on foreign bonds, comprising 2.2bn US$ at the time, or approximately 26 billion in 2011 Euros." [1] http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=5343&context=faculty_scholarship http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=...

deleted 11y ago
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zaroth 11y ago
TFA is arguing the private creditors got off far too easily. Having made the loans of their own accord, pocketing the interest payments up to that point, you can be sure the private creditors were quite happy to have the debt off their hands in 2012. This is the largest transfer from private credit to public credit in history, right? These are the same loans Greece is now actually completely unable to service. The paper talks about creditors taking haircuts, but then in the next paragraph that this resulted in very little actual debt relief for Greece? If private credits really had to absorb 50% haircuts on $100 billion of debt, point me to the massive string of bankruptcies? If I understand correctly, the "haircuts" are projections based on net present value using some arbitrary high discount rates (the paper mentions 9% !!!) so you have to appreciate that with a different discount rate you could claim the private debt holders were actually being paid even > 100 cents on the dollar. Using this 5 per cent discount rate to compare old and proposed new debt flows, the debt relief implied by the July 2011 financing offer would have been approximately zero – indeed, slightly negative. Using the “risk free” discount rate of about 3.5 per cent (not shown in the table), would indicate an *increase* of Greece’s debt burden by about 11-15 per cent [over] the July 2011. That's from your quoted article! Doesn't sound like such a great haircut to me... Any time private banks are being bailed out, I'm going to assume that they are being well enriched in the process. Just the way of the world. People will just play with the numbers to suit a given narrative, so it's hard to even find a "truth" in all this. A 9% discount rate for sovereign debt is insane though. Almost any NPV analysis is going to look like shit against a 9% discount. EDIT: I read further down into the paper, and the actual discount rates used to arrive at the "59 - 64%" haircut range for the 2012 restructuring were 15.3% - 18.7%. Just WOW. So, yes, creditors were NOT paid the full NPV on over a hundred billion of dollars of debt being carried through maturity at rates higher than my credit cards. This should surprise exactly no one.

atmosx 11y ago

I would like to thank the author for putting together the words I would like to had put, but being out of skill and full of anger, I wasnt able to.

revanx_ 11y ago

I've meet a handful of young greeks(Age: 17-29) since 2010 and when asked about their situation, especially the unemployment rate they all said the same thing, young greeks don't want to work unless it's a high paying gov. secure job with 6 hours a day 5 days a week schedule. Ironically all of them were gamers but considering that the unemployment rate is about 50% with young greeks, it's hard to argue with that. Also one important thing was said many times, most of greeks try to avoid taxes or they don't pay them at all. They've told me this is especially rampant in tourism. It's hard to argue with that, depending on where you traveled you can experience this first hand. It's so easy to blame everyone else for your own problems, lets not forget how much money has actually been pushed to Greece since 2010 via financial injections and what have they done with it? What good is it to keep pushing more and more money into Greece when the people and it's gov don't want to change and without change how can you expect any progress?

bcg1 11y ago
You make good points but it is multifaceted. The money "pushed to Greece" isn't really available for them to squander as you're suggesting... it is used to roll over loans from private European banking institutions that were reckless and stupid to buy Greek bonds in the first place, and place them on the backs of taxpayers instead. Greeks are understandably ticked off that they are being choked out by the conditions of rolling over those loans, for which they see little benefit.
pjmlp 11y ago
It is so easy to tell people how they should behave from the outside. I am portuguese and my country is quite similar to Greece. I do know it quite well. Many of those behaviors have deep roots in our societies. It just doesn't work someone from the outside coming and shouting at us how 10 million people should behave. Try to leave in our countries for an year, then see how things are.
spystath 11y ago
Being greek in the same age group I dare to say that what you support is a blatant and dangerously ignorant lie. There are tons of people that have law or engineering degrees and would be grateful for a supermarket cashier job or flipping burgers. There is a serious problem with greek young people, they are basically a burnt generation, doomed to either chronic unemployment, ridiculously low-paying jobs (<500 euro/mo), or emigration, so I find your assertion deeply insulting. I'm getting tired of the "lazy, tax-evading, early retiring greeks" mantra being repeated everywhere. I expect generalisations from reddit, but I expected something better from HN.

yeureka 11y ago

You could say that the current Greek problems are a consequence of bad governance, but that alone is not enough. See Finland for instance: http://www.nytimes.com/2015/07/03/opinion/paul-krugman-europes-many-disasters.html?rref=collection%2Fcolumn%2Fpaul-krugman http://www.nytimes.com/2015/07/03/opinion/paul-krugman-europ...

gizi 11y ago

When the Greek government originally borrowed their debts, they did so mostly from commercial banks in other EU countries. Therefore, the first Greek crisis was systemically dangerous. It had the potential of dragging the entire EU banking system into the mud. In the meanwhile, these commercial EU banks have been able to offload their Greek debt paper onto their own governments and onto supranational EU organizations. Today, a Greek default would no longer put the EU banking system in jeopardy. It is the European Financial Stability Facility (EFSF) and similar organizations at national and international level that would see a hole appearing in their financial paperwork, if Greece defaulted. Therefore, the point of view of Alexis Tsipras, the Greek prime minister, makes a lot of sense. Let Greece simply default and let the current debt holders dump the Greek paper on the open market, where it will trade at cents to the Euro. Inasmuch as Greece finds more money in the future, the Greek government can try to buy back debt paper in order to destroy it. The current holders of Greek paper would indeed lose money but in fact they have lost that money already. If they simply had the courage to let the open market value their holdings, they would see today already that most of the value has already gone. Nobody has any hope of seeing the money back represented by the Greek debt paper. Why not just admit it? Historical lesson: Borrowing large amounts from EU banks is a one-way bet. Their governments will not let these banks go bankrupt and therefore, if need be, they will take over the debt. Since these governments cannot collect the debt either, they will eventually have to forgive the debt.

not-hacker-news 11y ago

How does this qualify as "hacker news"?