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by tosseraccount 3992 days ago
Bad loans did not cause the crisis.

Bad loans are a symptom of a poor fiscal situation.

No one forced Greece to take out loans.

Consider this write up :http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-...

This was before the "Greeks as Victims" narrative gained wide currency.

“The way they were keeping track of their finances—they knew how much they had agreed to spend, but no one was keeping track of what he had actually spent. It wasn’t even what you would call an emerging economy. It was a Third World country.”

As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it.

3 comments

No one forced Greece to take the loans. No one forced banks to loan to Greece. Both parties are at fault. Both parties ought to take losses. Only one is in this case.
Lenders already took a 53.5% haircut in 2011. In return, the Greeks were supposed to implement structural reforms and privatization. They delayed implementing that until 2014 at which point they officially repudiated their side of the agreement (but kept the money).

https://en.wikipedia.org/wiki/Greek_government-debt_crisis#2...

So yes, so far, only one side (lenders) has taken losses.

Your view is quite selective. Greece can't repay the loans and never will. Their economy has shrunk and they are in the midst of a major depression. It is quite incorrect to say Greeks have not suffered.

Also, by the time of the haircut the banks that did the original lending to Greece were not holders of the private bonds. They had been unloaded. Ever since 2009 almost all money given to Greece from the so called bailouts have merely been transfers to primarily German and French banks. The bailout has been nothing more than a propping up of German and French banks while at the same time doing great damage to the Greek economy.

To be sure Greece has a pretty messed up government and they need to mature politically. The Greek people have suffered greatly and need to reform but further austerity is not going to help them.

Ever since 2009 almost all money given to Greece from the so called bailouts have merely been transfers to primarily German and French banks. The bailout has been nothing more than a propping up of German and French banks while at the same time doing great damage to the Greek economy.

In that case, Greece should be fine with no further bailouts - all they need to do is officially repudiate their debt. Then they can go on running Greece independently without any reforms and they won't need to beg the Germans and Bulgarians to send them money.

Given your previous comments with regard to your knowledge of finance you know this isn't such an easy thing. Their financial system is intimately tied into the euro and remaining part of the EU.
If the Greeks produce X euros worth of goods/serviecs and consume Y euros for Y < X, this should be a minor problem at best - paperwork, really. The actual problem is that Greece can't pay for their current levels of consumption. They haven't been able to pay for consumption in quite a while actually, but previously EU lending propped them up.

This is why Argentina's default wasn't anywhere near as bad - they were fairly close to consuming as much as they produced.

Unlike Greece, Argentina also instituted necessary reforms - for example, import substitution and breaking sticky wages via a 13% nominal wage cut for govt workers and pensioners [1]. Greece has steadfastly refused to do these things in spite of having ample time.

[1] Recall why Keynesians promote inflation - to inflate away real wages, which this cut also did.

Europe is taking losses. Banking is becoming a risk-free businees, I wouldn't call this capitalism.
So? Loans carry an inherent risk with them. Banks and other institutions chose to take that risk and sometimes it doesn't pay out. Why should we protect private institutions from a risk they voluntarily assumed?

Banking is not risk free, nor should it be.

So? Taking out a loan has an inherent risk associated with it that you may not be able to pay it back. How do we protect institutions who desire to loan money from losing it when they loanee can't pay back their debts?

Borrowing isn't risk free. Nor should it be.

Both sides have a responsibility in this. Actions have consequences.

>How do we protect institutions who desire to loan money from losing it when they loanee can't pay back their debts?

Why would we protect institutions from the effects of the free market?

Why suddenly when it's a bank in trouble, does free market ideology not provide the solution?

>Both sides have a responsibility in this

I dont see both sides making efforts to work this out at all. I see greece in headlines owing money; i dont see headlines about DB being forced to agree to forgive interest on loans, cut employee salaries/bonuses, or take any kind of belt-tightening measures.

Where exactly do you see both sides taking responsibility?

Socially liberal young Greeks are the main supporters of Syriza.

[ source : http://www.bbc.com/news/world-europe-18056677 ]

The banks and the politicians on both sides have a responsibility. The ordinary young Greeks who will be forced to pay back the debt don't.
You can't have your cake and eat it to. For the 20% (guess) of "young Greeks" that are getting the raw end of a stick because they didn't vote for the government/disagree with the borrowing, there are probably > 20% of Greeks that did vote for the government, and/or did agree with the unsustainable borrowing.

Or are we going to single out individuals that are responsible and saddle them with billions of debt? The alternative in this scenario to democratically-shared blame is ludicrous. Blame/consequences can't just magically disappear at this point.

Look, don't get me wrong, I'm all for politicians being accountable for their actions. As a freedom minded (Libertarian/Anarcho-capitalist), I think a simple act/rule such as that would put us straight down a path to true freedom from government. But this crisis/situation is not one of those times where I'd advocate such a course.

This came to light six years ago, and barring default or forgiveness, isn't going away soon. Young people who never voted for or against anyone responsible for the debt will suffer for it. People who haven't even been born yet might end up repaying the debt.

"Democratically-shared blame" is the ludicrous option.

But that's how voting works. People vote for who they want to represent them. Yes, there are going to be parts of the population too young to have a voice. But later, they will and there'll be a whole new population too you to have a vote. You can't change that.

The important part is this; if you live in a country where you're allowed to vote for your representation, you are part of the government and share in it's successes and it's failures.

That's why voting for the best candidate is so important. Your decisions today will affect your grandchildren. So, make very wise decisions.
Except we only see one side being forced to make sacrifices, not both.
Bad loans very much created the situation.

But not loans to governments, but loans to individuals, industry and finance.

What then happened was that the crash of '07-08 came and spooked the private banks issuing those loans. Only then did the various governments step in and underwrite the bad loans to effectively bail out the private banking system.

This, along with the number of companies etc that shut down, has put a massive economic burden on said governments.

Thing is that before the euro, Greece could have depreciated its currency to make its exports cheaper. But with the euro the currency is set to the export situation of Germany.