08:14 – Spain has become the latest of the PIIGS to seek a bailout, leaving Italy the only remaining member of that original group that has not (yet) asked for international help to prop up its failed economy. The details, including the amount, are not yet clear, but what is clear is that as a sop to Spanish pride this won’t be called a “bailout”. Instead, it’ll be called a “recapitalization of Spanish banks”. But the duck walks and quacks.
What’s also clear is that, as always, the bailout will be much too little and much too late. More money down a rathole. The figures being bandied about are on the close order of $125 billion, which by even generous estimates are at most about 25% of what Spain needs to fix the immediate problems. Addressing the real structural issues would require at least $1 trillion, and probably much more. Spanish property values have, by official government estimates, fallen by about 20% since the onset of the crisis. The reality is that they’re currently down by 30% to 60%, with much further left to fall. In other words, every $1 billion in real estate loans that Spanish banks are carrying on their books at face value is actually worth only $800 million if you believe government figures. If you look at what properties are actually selling (or, more likely, not selling) for, that $1 billion is actually worth perhaps $500 million now and is likely to bottom out at $200 million or so. And that doesn’t include Spanish sovereign debt, nor the debt of Spain’s autonomous regions. $125 billion is not just a band-aid, but a tiny band-aid.
15:05 – One really has to have a sense of humor about these things. Spain, having been assured that its $125 billion bailout will be approved, is now concentrating on trying to convince everyone that it isn’t a bailout. Uh-huh.
Meanwhile, what no one talks about is that this bailout is to come from either the EFSF or the ESM, which supposedly have $500 billion to draw on. Not. They actually have literally only 1% of that amount to draw on. The other $495 billion is in the form of promises to pay by eurozone countries, including, ironically enough, Spain itself. So Spain, which doesn’t have the proverbial pot to piss in, finds itself in the odd position of being a partial guarantor of its own $125 billion loan. Not to worry, though. There are other guarantors. Italy, for example, is on the hook for something between a fifth and fourth of that amount. Of course, Italy is also potless. But, of course, there’s also France. Except that France is nearly as potless as Italy. Ultimately, it all comes down to Germany and Finland, neither of which are willing to pay.
The reality is that the European financial crisis is and always has been a gigantic game of three-card Monte, a pure shell-game designed to deceive markets about the reality of the eurozone economy. Every eurozone country has bankrupted itself by making promises it will never be able to keep. The costs of Europe’s social welfare programs never were sustainable, and that fact is now becoming abundantly clear even to the denialists. Twenty years ago, when Margaret Thatcher said the whole idea of the euro was fatally flawed, I thought she was stating the obvious. When the euro was introduced, I knew that it was doomed to a gigantic crash. I expected it to last a decade at most, and my estimate turns out to have been pretty accurate.
So now everyone is running around in circles crying that something must be done to save the euro. Wake up, folks. The euro can’t be saved. It never could have been saved. It was a terrible idea that apparently seemed to a lot of people to be a good idea at the time. It wasn’t. And now anyone can do is watch the euro collapse. All of the attempts to “fix” the problem are doomed to fail, and will ultimately just make the final collapse more painful.
Nothing significant is going to happen until the euro loses considerable value against other currencies. It is holding up well, and has a long way to fall before it gets back to where it started when the single currency was introduced—and it will have to fall further than that. Lots of people are still willing to hold the euro.
Anti-austerity is taking hold, but slowly. Austerity is an unmitigated failure, except to the catastrophically blind Germans. That means the can still has a long way to be kicked down the road before anything useful will be done. China has been doing more business with Europe than the US for a long time now, and Europe is beginning to hurt China badly. Chinese industrial output is falling rapidly—much faster, I believe, than current reports indicate. Manufacturing plants in China make their own electricity using oil-driven generators, and one reason for the worldwide fall in oil prices is that their plants are not demanding nearly as much oil as previously. Eventually, China will add pressure for a better resolution than Germany will currently allow.
Germany’s hate campaign against Greece will not succeed. Greece has enough support in the EU that—unless Greece decides on its own to withdraw—it will continue as part of the union. Even if Greece leaves the EU, it still owes all debts to the EU—IN EURO. With a forced devaluation of the drachma the repayment after converting a near worthless drachma to euro, would be overwhelming. Greeks are fully aware of this. It would be a terrific misstep on their part to voluntarily withdraw.
The IMF and World Bank are showing themselves for what they are: nothing more than the loan department sales tool of US banks and financial interests. Calls for them to GIVE money to the troubled European countries are increasing, and Lagarde and newly-appointed Jim Yong Kim are really squirming to figure out how NOT to give money away, but still appear crucial to solving the EU’s problems. Lagarde is beginning to look incompetent as a result. Her ever-repeating claim that the IMF is ready to help with loans (at the usual usurious IMF rates), now makes her sound like a used car salesman, in addition to a broken record.
Meanwhile, just like in Disneyland, the cost of the ride is going up, but there is still a long way to go before it is over—thanks to Merkel in Germany for needlessly passing the pain around.
Chuck, I don’t care about whether the Greeks implement an austerity program or not, I just don’t want public money from other countries being slung down that rathole. If private individuals want to put their own dough into Greece that’s fine with me. But I don’t want to be forced to put up my money. Would you invest in Greece?
You sound like a typical American. Screw ‘em. If they can’t make it by pulling on their own bootstraps, hang ’em! starve ‘em! freeze ‘em! leave ‘em in the streets to die and kill ‘em!
You know, there is enough corruption in Chicago alone, and Illinois as a whole, that I’m sure it far exceeds whatever Greece is up to. I arrived in Chicago just as the Greylord investigation of judges on the take was starting the prosecution of corrupt judges. There were literally dozens of them that went to jail—the problem turned out to be far, far deeper than anyone had imagined. Nor is Blagojevich the first Illinois governor to be sent to the Big House. When I left Chicago for Boston, they were prosecuting MY alderman in my little suburb for corruption of some kind.
Do we throw Illinois, Chicago, and all of the people there out of the Union and never give them another red cent? No! We use the legal system to find and jail those who are doing wrong, and it is business as usual for the law-abiding citizens. So should it be for Greece.
I paid taxes in Europe. At a far higher rate than I did anywhere in the US, except Minnesota. I am sure that a percentage of those euro went to Greece. I have no problem with that and wouldn’t if I still lived there.
As far as investing in bonds of Greece, I do not invest in bonds at all, and never will, so I have no comment on such investments, because I do not even research them. But I do believe that all countries of the EU—not only need, but—deserve to have their bonds guaranteed collectively by the whole union—they agreed to go down this course together, and when the going gets rough, that means staying together and working it out together. In fact, during the last week, Dean Baker has been indicating that such a bond guarantee is now the ONLY way out for the EU as a whole. Any other course is a reckless waste of time, effort, and money.
Business does not want multiple currencies. And I mean it REALLY does not want them. As you know, I taught English in one of the world’s largest chemical firms, and the savings they achieved by eliminating currency conversion charges and the administering of hedge funds to protect themselves from currency fluctuations was nothing short of spectacular. And 8 years after the introduction of the single currency, they were still in the process of closing down accounting offices throughout Europe, whose only function had been dealing with cross-border finances. It took them that long to unwind and divest themselves of those incredible investment complexities. Regardless of what Merkel and her stupid stooges want, she is not going to win against business—even in dictator-prone Germany.
Lastly, you trust the mainstream media FAR more than I. I spent practically my entire TV career in the news department. Although I did my best to work only in arts and entertainment shows, there is so little of that, that I had to do 10 news-oriented shows to every 1 cultural, music, or entertainment show. The media is the last place to look for truth. I can tell you from my own experience that the people who are inclined to work in the media, are not only liberal, but they are liberals with a cause. Many of them come directly out of politics—or worse, partisan advocacy groups. Why ABC would EVER hire someone like George Stephanopoulos is beyond me. Anybody who works in politics should be barred from ever working in news and the media again. You won’t get truth from them.
But I can see that most here accept the mainstream media’s reporting that the cause of the EU’s woes is gigantic, humongous, out-of-control, irresponsible spending down rat holes. Come on, I have given enough links for anyone to prove to themselves that is an outright lie that the media keep repeating over and over and over and over. These countries were spending on the order of 3% of their GDP when things started going wrong. That is irresponsible? Really?
And if you are so concerned about pouring money down a rat hole, why aren’t you just as incensed about the bailout money that is being shoved to all these countries that absolutely IS money that might as well be burned, instead of advocating for what WILL solve the problem and allow everyone to get on with their business—by guaranteeing the bonds. The debt to GDP problem is getting far worse with austerity—no country I know of, ever saved its way out of economic depression as Merkel lies that Germany did. I LIVED in Germany during the 10 years she speaks of, and a society that spends at least 2 weeks abroad every year is not one that is suffering. Except for immediately after WWII, Germany has always been RICH.
We will see what happens. But the honest people in Greece deserve the same chance honest people in Chicago and Illinois get. Get the FBI to work in Greece and put some people in jail, like they did with Greylord in Chicago and Blagojevich downstate. And let’s stop lying about what is going on in Europe and get to something that will deal with what the true problem is. That ain’t reckless spending, when the spending is only a tiny 3% of GDP. Take a cue from the US and spend some large amounts of money on quantitative easing, instead of its opposite: worthless, counterproductive austerity and so-called bank bailouts.
Guarantees are just that—no payout AT ALL unless there is a default. Every one of the troubled countries had positive GDP going into the tailspin Merkel and her stooges demanded. All of them can pay off that debt—especially if the super-destructive Merkel is shoved out of the way and into a rat hole. Guaranteeing those bonds in the first place would have cost far less than what has been paid out to date—even if they had to pay off all of Greece’s debt. But now the cost is considerably higher and rising every week. Meanwhile, the mainstream media is doing nothing but making the whole situation worse by lying repeatedly at every turn of the screw. I have always maintained that talk radio is a downward drag on America and accomplishes nothing but polarizing people to an extreme. I am ready to add the mainstream media in with talk radio. Thank gawd there is the Internet today, where one has a much better chance of finding truth than when there was no alternative to Brian Williams’ doom and gloom pronouncements.
Living beyond your means in Greece or corruption in Chicago. Different problems, so I don’t see the relationship.
If it is in fact true that Greece is living beyond its means should others be forced to bail them out? If I was living beyond my means would you bail me out? $200k would do nicely, for the time being, thank you.
I have no objection to the Euro, even though I don’t see how it could possibly work without political and fiscal union, but I seem to recall that that measures were/were supposed to be put in place to stop member countries overspending by more than a few percent.
Chuck, I *don’t* trust the mainstream media. Do you think I’m nuts?
“And if you are so concerned about pouring money down a rat hole, why aren’t you just as incensed…”
What makes you think I’m not incensed? I just want the problem fixed. When they autopsy this old carcass in 30-40 years time they’ll find tattooed on my heart “If it works it’s good, if it doesn’t work it’s bad.” That really is all you need to know about me to understand my point of view. I’ve seen people do very stupid things because their ideology required it. I have principals and beliefs, but I also have a very deeply non-ideological approach to problem solving.
If It Works It’s Good, If It Doesn’t Work It’s bad.
The elegant beauty of that statement brought a tear to this engineer’s eye.
Ahh, an engineer… Reminds me of a joke I heard many years ago.
One woman tells another “I hate dating engineers. Give them a centimetre and they’ll take a kilometre.”
Miles_Teg says:
Living beyond your means in Greece or corruption in Chicago. Different problems, so I don’t see the relationship.
I do not have enough information that I trust to agree with your conclusion. If Greece was violating EU economic rules on spending, and living over their means, then they should have been caught and punished. And is the general population writing the checks for such alleged overspending? I don’t think so. So, it IS a matter of corruption on the part of those in charge.
Clearly, the EU did not track Greece properly, so IMO, Greece gets a pass, because the lack of oversight was the EU’s fault, not that of the general honest population in Greece.
Even if the general population were to have known about the overspending by the corrupt, it takes time to deal with it. I disapproved of going into Iraq, and wrote my Senator from Germany to object. That was the Chairman of the Senate Foreign Relations Committee, Dick Lugar. He did nothing to investigate the existence of Weapons of Mass Destruction, nor to stop that war—which, in his position, he could have done—and I decided then that he needed to be out of there. But it took the recent primary election to retire him from the Senate. Another 9 years of bad decisions on his part, including supporting using food for conversion to ethanol fuel, which I object to. So when the wrongdoing is not caught, the cure is often not quick.
I agree that the EU deserves the strap for the negligent way Greece was supervised, but that doesn’t absolve the Greeks. If I had kids that I allowed to run riot then I am at least partly responsible, but the kids are too.
I do not agree. No honest-living person should have to pay for the sins of others. Are there no honest people in Greece? You lump them all together, just like racists do. Only a few people were in charge and signed the checks, but you are willing to condemn the whole population of Greece to hardship and extinction for that. Actually, my experience in the US over the years, with first generation Greek immigrants (of whom I have known quite a few), is that they are some of the hardest-working people I have met. And no, it is not at all the kids’ fault when they are riotous from never having been taught better. It is 100% the parents’ fault.
Blaming it on the Greek politicians is a cop-out. Sure, they made the decisions, but they made them with the full agreement of the voters. Basically, Greece is and always has been a third-world country. They enjoyed first-world living standards for a decade on borrowed money that they had no prospect (and probably no intention) of repaying. Ordinary Greeks have enjoyed a much higher standard of living than they could afford, and now it’s time to pay the piper.
Nor without fault are the banks and EU institutions that loaned money to Greece. They were or should have been perfectly aware that Greece is so unproductive and corrupt that it would never be able to repay those loans. In that respect, those lenders did the same thing that mortgage lenders did here. Much of what we’ve seen, here and in the EU, has been a transparent shifting of private losses onto public taxpayers. Bank shareholders should have taken all of the losses, and those bankers responsible should now be in jail.
But none of that has anything to do with “saving” Greece and Greeks. There’s simply no way to do that. What Greece needs isn’t more loans. They need outright gifts on an absolutely massive scale. Who’s going to do that? Certainly not Germany. I remember back when you were telling me that Greek debt was rock-solid, I recommended that you sell everything you own and invest it in Greek debt to get the very high returns that were then available. Did you ever do that? I thought not.
Is tax evasion corruption? I would argue that it is. I’d also argue that welfare fraud is also corruption. I think the real problem in Greece is that taxes are so high and government benefits so generous, that it is socially accepted to defraud the state. It is much easier for the government to borrow money than it is to address the real problems like tax evasion. If a majority of the Greek populace is corrupt, then it should be no surprise that the Greek government is as well.
Non-payment of taxes was not a crime in Switzerland until recently. How can you call it corruption, unless you know it is illegal?
NEVER, EVER have I said Greek debt instruments were “rock solid”. In fact, from the very outset I have said exactly what you just described: Greece is a basket case that can only be reclaimed with gifts, not loans. And Germany WILL be paying that gift, if only from Greece’s non-payment of loans owed to the Bundesbank. In fact, I have been careful to separate Greece from my comments about Ireland, Spain, Portugal, and Italy, because—I noted—the books were cooked in Greece, and nothing is really known about it, nor will it ever be. I stated that long ago. And it wasn’t me that ever suggested Greek bonds were a good investment. More than once, I have repeated that I am no expert on bonds, have no intention of studying them, will never invest in them myself, and further, have never suggested that anyone else invest in them, either. My prime comments have been that the euro will not disappear, and the EU will remain united. And I still maintain that. If Greece withdraws or is ejected, my understanding is that both of those actions are not legal under the treaties everyone signed to create the EU.
The misquoting and mischaracterizations are why I am deciding to withdraw from these economics discussions. I enjoy debating, but do not have time to keep defending myself over things I never said and do not believe. I will respond to Brad’s comments tonight, but then, that’s it. Time will tell who was right.
There’s a reason they call it the ‘dismal science,’ and it ain’t even a science. I read Smith and Hazlitt and that’s as much as I wanna mess with it.
“Non-payment of taxes was not a crime in Switzerland until recently.”
You are right – for that matter, non-payment of taxes is *still* not a crime here, at least for Swiss citizens. Nothing has changed, though there is a lot of international pressure for us to do so. This may be worth an explanation
First: your tax bill is a civil debt like any other. If you owe taxes, you get a bill. If you don’t pay this bill, the governments takes you to court in exactly the same way the power company, or your landlord might. Ultimately, a court may decide to garnish your wages, but that’s no more than they would do for any other creditor. Switzerland has no IRS with special super-powers.
The other aspect is the distinction between tax evasion and tax fraud. Fraud is a crime, in whatever form. If you forge a document, that is fraud. If you simply fail to mention that bank account you have in Barbados, that is tax evasion. In both cases, you may owe taxes, and the government may send you a bill (see above). In the case of fraud, you may also go to jail.
In both cases, the idea is the same: taxes are a debt like any other. If you owe money to the grocery store, the store cannot throw you in jail. Why should the government be able to? This is somehow difficult for people from other countries to understand, because they are so used to the government treating taxes as a *criminal* matter.
The reason for the international pressure is simple: If tax evasion is not a criminal matter, then the police are not involved. When a foreign country comes to the Swiss authorities a criminal warrant for tax evasion, Switzerland says “but that’s not a crime, our police cannot help you.”. This pisses off the other country (especially the US and Germany) no end, because they cannot conceive that tax enforcement is not a matter for the police.
The American authorities just assume that American law should trump Swiss law, and begin their negotations from their. Germany took a different approach: when they could not get help legally, they bribed a bank employee to steal data. The Germans were then shocked, I tell you shocked when Switzerland filed criminal charges not only against the thief, but also against the responsible German bureaucrats. In both cases, greed for tax money seems to have completely trumped any sense of ethics or respect for national sovereignty.
BTW, here in the USA, not only are you civilly and criminally responsible for your personal taxes but you are also civilly and criminally responsible for any corporation taxes that you are an officer of. That includes income taxes and FICA taxes both.