"EU boss lashes out at Stephen Harper"

[CPCFTW]

Default is an important and necessary capitalist institution. And when you invest money in a country or business, or person you risk losing it if its not a good investment. If theres no penalty for all this malinvestment it will continue unabated and these problems will get worse and more common.

Afaik there have been plenty of penalties for this "malinvestment" (I would argue most investors have enough diversification that a greece default would not significantly impact their portfolios were it not for the spin-off effects on global assets). The way I understand it.. But I have stopped paying too much attention lately.. Is that investors are lending MORE to greece to help them pay off already written down debt.

From my understanding it is like if I lent you $10000, then you said you couldn't pay, then I wrote it down to $5000 and lent you that $5000 (ie. Rolled over the debt) to pay me back on the condition that you stop eating out at restaurants every night and move into a cheaper condo. You may have to make some sacrifices that I don't, but just because I'm richer than you doesn't mean I should hurt more than you.

[dre]

Afaik there have been plenty of penalties for this "malinvestment" (I would argue most investors have enough diversification that a greece default would not significantly impact their portfolios were it not for the spin-off effects on global assets). The way I understand it.. But I have stopped paying too much attention lately.. Is that investors are lending MORE to greece to help them pay off already written down debt.

From my understanding it is like if I lent you $10000, then you said you couldn't pay, then I wrote it down to $5000 and lent you that $5000 (ie. Rolled over the debt) to pay me back on the condition that you stop eating out at restaurants every night and move into a cheaper condo. You may have to make some sacrifices that I don't, but just because I'm richer than you doesn't mean I should hurt more than you.

All you are describing is more malinvestment... A credit card company giving someone that cant make their payments another card to make the payments with.

I have already proven that I am not a good credit risk, and that I cant meet the financial obligations I have made, and your plan is to give me a bunch more money. Thats not sound investment... youre throwing good money after bad, and youre probably going to lose it.

Furthermore this money doesnt not come from traditional investors. No investor with a brain is buying greek bonds which is why the ECB has to buy them all. And the ECB/IMF simply siezes money from tax payers around the world to bankroll all this malinvestment.

[dre]

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Edited June 22, 2012 by dre

[CPCFTW]

All you are describing is more malinvestment... A credit card company giving someone that cant make their payments another card to make the payments with.

I have already proven that I am not a good credit risk, and that I cant meet the financial obligations I have made, and your plan is to give me a bunch more money. Thats not sound investment... youre throwing good money after bad, and youre probably going to lose it.

Furthermore this money doesnt not come from traditional investors. No investor with a brain is buying greek bonds which is why the ECB has to buy them all. And the ECB/IMF simply siezes money from tax payers around the world to bankroll all this malinvestment.

I wouldn't say it is necessarily a bad investment at this point. The initial investment was bad, but the subsequent "loans" are just attempts to mitigate losses.

Going back to my previous example, let's say you owed me 10k on jan 1. It's either take a bath on the 10k initial loan, or write it down to 5k and lend that 5k to you until july 1 (subject to above conditions). If you don't pay back that 5k, I'm no worse off then if I had simply written off 10k from the start.

That's my understanding of the situation (greece has already defaulted, but the question is if creditors lose 100% or x%).

I'm pretty sure banks and hedge funds have been buying greek debt as well. The purpose of the ecb purchases is to drive down yields so that the greeks can roll over their debts at lower interest rates. But that just pushes the marginal investor away from greek debt.. I'm fairly certain other investors are still in the game (I doubt ecb is rolling over 100% of greek short term debt).

Edited June 22, 2012 by CPCFTW

[dre]

I wouldn't say it is necessarily a bad investment at this point. The initial investment was bad, but the subsequent "loans" are just attempts to mitigate losses.

Going back to my previous example, let's say you owed me 10k on jan 1. It's either take a bath on the 10k initial loan, or write it down to 5k and lend that 5k to you until july 1 (subject to above conditions). If you don't pay back that 5k, I'm no worse off then if I had simply written off 10k from the start.

That's my understanding of the situation (greece has already defaulted, but the question is if creditors lose 100% or x%).

I'm pretty sure banks and hedge funds have been buying greek debt as well. The purpose of the ecb purchases is to drive down yields so that the greeks can roll over their debts at lower interest rates. But that just pushes the marginal investor away from greek debt.. I'm fairly certain other investors are still in the game (I doubt ecb is rolling over 100% of greek short term debt).

ALMOST all of their debt IS being bought by the ECB/IMF. Lets face it... If greece was a good credit risk there would be no NEED for the ECB to buy any greek bonds. Theres this thingy called a market place...

And greeces creditors wont lose 100% of their money in any scenario. What they SHOULD do is just unilaterally declare they will pay off their debts in drachmas, and lengthen the terms of outstand bonds. This was the root that Argentina went during its default, and once they revalued the peso its creditors got a lot of their money back.

In fact I would argue that Greeks creditors will probably have a BETTER chance of getting their money back from Greece if it defaults and leaves the economy wrecking Eurozone because greece will NEVER have a stable economy on a foundation of interest rates and monetary policy designed for larger european economies.

Edited June 22, 2012 by dre

[punked]

ALMOST all of their debt IS being bought by the ECB/IMF. Lets face it... If greece was a good credit risk there would be no NEED for the ECB to buy any greek bonds. Theres this thingy called a market place...

And greeces creditors wont lose 100% of their money in any scenario. What they SHOULD do is just unilaterally declare they will pay off their debts in drachmas, and lengthen the terms of outstand bonds. This was the root that Argentina went during its default, and once they revalued the peso its creditors got a lot of their money back.

In fact I would argue that Greeks creditors will probably have a BETTER chance of getting their money back from Greece if it defaults and leaves the economy wrecking Eurozone because greece will NEVER have a stable economy on a foundation of interest rates and monetary policy designed for larger european economies.

Again this solution is almost impossible because of the Bank runs it would cause. I feel like your simple solution doesn't take into account what happens when the Greeks, Spanish, and Italians start taking all their Euros out of the bank and loading up cars and start the race to Germany.

[dre]

Again this solution is almost impossible because of the Bank runs it would cause. I feel like your simple solution doesn't take into account what happens when the Greeks, Spanish, and Italians start taking all their Euros out of the bank and loading up cars and start the race to Germany.

Thats no different than what Argentina faced. They actually put legislated limits on bank withdrawals for about 18 months until the peso started to revalue.

But definately my approach would involve a lot of pain, but its the only approach that puts Greece on a path towards stability. The ECB/IMF plan will be a disaster for Greece and its not meant to help them in the first place. They are being forced to privatize the public assets that could have generated a lot of revenue in the future. There is absolutely no scenario where Greece prospers with monetary policy and interest rates designed for France and Germany.

Greece can reclaim its own currency and its democracy or prepare for a future of misery.

If it gets out of the eurozone they will do quite well given time. They can rebuild while the eurozone keeps falling apart, because Greece is just the tip of the iceberg. The euro is an extremely bad idea and theres nothing in its future besides constant bailouts.

Edited June 22, 2012 by dre