Will Europe Survive?

[Shapley]

As I've said, another Seisachtheia. They'll probably declare a holiday when it's all done.

[Giant Communist Robot]

I see the yield on two year Greek bonds is nearly 90%.

[Giant Communist Robot]

While reading the celebrity economist Kenneth Rogoff page on chessgames.com (I read it every day) I learned that the problem with Greece is they don't tax the rich enough. Spare me.

[Haggis@wk]

While reading the celebrity economist Kenneth Rogoff page on chessgames.com (I read it every day) I learned that the problem with Greece is they don't tax the rich enough. Spare me.

It looks like the referendum is dead. The G-20-crats are trying to come up with an option that has the best chance of being approved by--or even better, bypassing--democratic legislatures. I'm sure that Obama is already looking for way to shovel money into the gap without asking Congress.

[Giant Communist Robot]

On the other hand, I heard Obama stumble through an essentially correct explanation of the Greek crisis this morning. He appeared to be assembling his thoughts at the moment, and said words to the effect that Greeks have control over fiscal policy but not monetary. Who coached him on this?

[Giant Communist Robot]

The common expectation is for a full bore default by Greece before next summer. The big problem for the EU is Italy. Their bond yield is creeping up, and their debt is about 1.6 trillion Euros. Italy is too big to bail. Last week in Brussels the "talk" was of a fund of one trillion Euros for rescue, but even if the fund happens it won't be enough. An Italian default would end the EU.

So it appears the cultural differences in Europe lead to sharply different fiscal policies, and a "one size fits all" monetary policy, while good for France and Germany, won't work for the rest.

[Shapley]

I've heard rumblings from some of the Occupy supporters I've spoken to about a global Seisachtheia. They don't use the word (I doubt they even know what it means), but they are calling for a global policy of debt forgiveness. I have no idea where the idea originated, or if it is widespread. I reckon that, if I'm hearing it from them, it is being bandied about in some literature or 'tweets' from the organization, since that is what they tend to repeat.

I don't think the Occupy movement is really that strong, nor that well organized. However, they are a mob in search of a cause. The idea of a global Seisachtheia has appeal since, by their logic, 'the 1%' hold all the debt (not true, but they seem to think it), and thus a global Seisachtheia would 'break their backs'.

On the local level, with so many student-loan-endebted members included in the rallies, the idea would appeal to those who simply don't want to pay their own bills.

The far-reaching implications of such a move would not be pretty, but then neither is the Occupy movement. Nor do I think they look much at far-reaching implications. They appear to be solely about satisfying their immediate wants.

[dai bread]

On the local level, with so many student-loan-endebted members included in the rallies, the idea would appeal to those who simply don't want to pay their own bills.

I have no doubt this is at the back of this idea, along with forgiveness of mortgages, hire-purchase debt and car loans.

Hind-sight is wonderful. I now think that the banks should have been allowed to fail, and Governments should then have picked up the pieces. That would have been much harder for the Governments to do, but it would have squashed the bankers who caused this fiasco. As it is, they're still in business, and will repeat the destruction in a few years time, about 2019-2020 I think. I'll need to be cashed up by then.

[Giant Communist Robot]

they are calling for a global policy of debt forgiveness

So....the U.S. would get a 14 trillion dollar windfall? What are they thinking?

[Giant Communist Robot]

the Occupy movement is

...a kind of mental illness

[Giant Communist Robot]

they're still in business, and will repeat the destruction in a few years time,

This is exactly the moral hazard. We need some meaningful regulation in the banking industry. I'm gonna hold my breath until we get it.
In the meantime, I'm waiting for Corzine's movie "When Liberals Run the Markets".

[Shapley]

the Occupy movement is

...a kind of mental illness

: )

[Shapley]

they're still in business, and will repeat the destruction in a few years time,

This is exactly the moral hazard. We need some meaningful regulation in the banking industry.

That is correct. The markets can be self-correcting, but only if we let them. Bailing out their folly to prevent natural regulation, and then failing to impose artificial regulation to account for it, is a double fault.

[Giant Communist Robot]

We need some meaningful regulation in the banking industry

On the advice of Milton Friedman, Iceland deregulated their banks which ultimately resulted in the worst economic meltdown in history. Bankers' behavior makes them seem mindless. Why did so many bankers buy securities based on tranches of defaulting loans? Does a triple A rating make a defaulting loan a good investment? Their short-sightedness makes them irresponsible so the government needs to step in to tell them how to run their business.

Sticking with this theme for a moment look at how the market is reacting to news about Italy. It suggests trouble for our banking industry. Considering the MF Global fiasco I have to wonder how many U.S. banks are on the hook for Greek and Italian bonds. Their exposure may be much greater than expected. And they may be unprotected from loss. This could result in a second banking industry bailout. It looks like we need banks, but not bankers.

[Shapley]

"Their short-sightedness makes them irresponsible so the government needs to step in to tell them how to run their business."

...the government being so well known for its long-sightedness.

[Giant Communist Robot]

"Their short-sightedness makes them irresponsible so the government needs to step in to tell them how to run their business."

...the government being so well known for its long-sightedness.

Well, we trade quips. The fact is the government can do some things, and others it can't. All I'm saying is that if the banking industry is vital to the economy and bankers can't stay out of inappropriate assets then they need to be told what to do.

[Giant Communist Robot]

Merkels' call today for a kind of two tiered EU could be a signal for some countries to exit. This mess appears beyond repair; defaults to follow.

[Shapley]

All I'm saying is that if the banking industry is vital to the economy and bankers can't stay out of inappropriate assets then they need to be told what to do.

And I agreed, more or less, a few posts back. In essence, since we used the bailout to prevent 'natural selection' from running its course and weeding them out, we now have some sort of obligation to babysit them. It's sort of like rescuing baby deer from the wild. Nature has a way of taking care of them. By overruling nature, we assume the duties associated with keeping them alive and fit...

[Giant Communist Robot]

we now have some sort of obligation

Economies simply can't function without banks. To avoid bailouts and moral hazard we need more regulation.

[Shapley]

Economies simply can't function without banks.

True. And because the bankers know this, they know they can count on bailouts when their folly leads them to the brink.