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I feel sorry for the Greek people, but I personally favour throwing them out of the Eurozone if they default on the debt. It will be a very dangerous signal to

by Tehnix 11y ago

I feel sorry for the Greek people, but I personally favour throwing them out of the Eurozone if they default on the debt. It will be a very dangerous signal to send that you can borrow money, and not pay it back without any retribution. This is particularly important since more countries are going in the same direction as Greece (I think Spain and Puerto Rico are close, but I might be wrong). Besides that, it also hurts the confidence towards the Eurozone if the countries in it can behave this way. Also, am I the only one that finds it weird that they wait until after the deadline, to vote on whether or not to pay the debt back?

alexqgb 11y ago
What you don't understand is that a debt represents a risk to the lender, not a guarantee. If a debt were a guarantee, then there would be no basis for charging interest. In a well regulated system, the people who make bad bets are not entitled to retribution. They are "entitled" (read: expected) to go out of business. At the very least, they suffer embarrassing losses that they must explain to their shareholders. "Moral hazard", properly understood, is a term used to describe conditions that encourage reckless lenders. The threat of default is a good thing. That's what keeps otherwise rapacious lenders fearful enough to excercise good judgment and prudent restraint. Indeed, in advanced economies, the power of bankruptcy judges to wipe out debt is seens as an essential component of healthy capital markets. Bad lenders get wiped out, and take the money of their imprudent investors with them. That's what should have happened to the private lenders who originated the Greek debt. Instead, they got bailed out by EZ members who are following up one bad choice with another in promising their electorates that they can collect from a nation manifestly unable to pay.
- tsotha 11y ago
  >If a debt were a guarantee, then there would be no basis for charging interest. That's going a bit far. The borrower would still pay interest for the use of the money. Just not very much.
- johngalt 11y ago
  > If a debt were a guarantee, then there would be no basis for charging interest. Time value of money?
- vegabook 11y ago
  Well put. Yet all our banks who have been reckless lenders have simply been led to the trough of unlimited QE to short circuit this healthy mechanism that you cite. We'll pay more in the end because of it.
vegabook 11y ago
Pikkety's case is essentially that debt is not sacrosanct, and that treating it as you are is counterproductive. Sometimes the creditor must share some of the pain, in order to save (even himself) more pain down the line.
- peterfirefly 11y ago
  They did. They took a hefty haircut of more than 50% (some sources say 70+%) in exchange for near certainty of getting paid, i.e. basically the rest of the EU taking over the remaining debt.
  - tcbawo 11y ago
    I'm interested in the source(s) for these numbers, if you have them.
  - tytso 11y ago
    Private creditors took a haircut. Government owned entities, including the German and French national banks did not take any kind of haircut at all. And at that time, it was clear that the debt write down wasn't enough --- but for political reasons, the German and French national banks didn't take a writedown, but instead pushed the Troika to play a game of "extend and pretend". (i.e., let's pretend Greece will eventually be able to make the German and French banks whole, no matter what the cost to Greece.)

by Tehnix 11y ago

alexqgb 11y ago

What you don't understand is that a debt represents a risk to the lender, not a guarantee. If a debt were a guarantee, then there would be no basis for charging interest. In a well regulated system, the people who make bad bets are not entitled to retribution. They are "entitled" (read: expected) to go out of business. At the very least, they suffer embarrassing losses that they must explain to their shareholders. "Moral hazard", properly understood, is a term used to describe conditions that encourage reckless lenders. The threat of default is a good thing. That's what keeps otherwise rapacious lenders fearful enough to excercise good judgment and prudent restraint. Indeed, in advanced economies, the power of bankruptcy judges to wipe out debt is seens as an essential component of healthy capital markets. Bad lenders get wiped out, and take the money of their imprudent investors with them. That's what should have happened to the private lenders who originated the Greek debt. Instead, they got bailed out by EZ members who are following up one bad choice with another in promising their electorates that they can collect from a nation manifestly unable to pay.

tsotha 11y ago
>If a debt were a guarantee, then there would be no basis for charging interest. That's going a bit far. The borrower would still pay interest for the use of the money. Just not very much.
johngalt 11y ago
> If a debt were a guarantee, then there would be no basis for charging interest. Time value of money?
vegabook 11y ago
Well put. Yet all our banks who have been reckless lenders have simply been led to the trough of unlimited QE to short circuit this healthy mechanism that you cite. We'll pay more in the end because of it.

vegabook 11y ago

Pikkety's case is essentially that debt is not sacrosanct, and that treating it as you are is counterproductive. Sometimes the creditor must share some of the pain, in order to save (even himself) more pain down the line.

peterfirefly 11y ago
They did. They took a hefty haircut of more than 50% (some sources say 70+%) in exchange for near certainty of getting paid, i.e. basically the rest of the EU taking over the remaining debt.
- tcbawo 11y ago
  I'm interested in the source(s) for these numbers, if you have them.
- tytso 11y ago
  Private creditors took a haircut. Government owned entities, including the German and French national banks did not take any kind of haircut at all. And at that time, it was clear that the debt write down wasn't enough --- but for political reasons, the German and French national banks didn't take a writedown, but instead pushed the Troika to play a game of "extend and pretend". (i.e., let's pretend Greece will eventually be able to make the German and French banks whole, no matter what the cost to Greece.)