Wall St. Helped to Mask Debt Fueling Europe’s Crisis
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Re: Wall St. Helped to Mask Debt Fueling Europe’s Crisis
#2Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal.
The banks not only enabled these countries to borrow beyond their means, but also loaned them the money. If anyone feels a populist fury that requires retribution against Wall Street then the course is clear: don't bail Greece out. The best way to teach bankers not to engage in this sort of behavior is to show them that their faith in "too big to fail" is not well founded and that moral hazard is really hazardous.
The other important idea in this story is that governments are just as eager as corporations and homeowners to engage in overspending and shadowy accounting, so it's not clear why anyone should expect regulation to be a panacea for any of these problems.
Re: Wall St. Helped to Mask Debt Fueling Europe’s Crisis
#3I wrote a more detailed explanation of what happened in a previous version of this article (explaining the particular derivatives).
Re: Wall St. Helped to Mask Debt Fueling Europe’s Crisis
#4The European whiners are looking for scapegoat for their overspending. The bankers themselves are on the hook for losing money if Greece defaulted. Greece politicians are democratically elected. This just means a breakdown of their audit and oversight ability. It was the EU regulars who were debating whether to call these "loans" or some other junks, and they decided to not call these "loans" to hide them from the book.
If they truly think the bankers are at fault, let Greece default, then the bankers would be hurt as well. The blame will spread evenly then. That's how capitalism works.
Re: Wall St. Helped to Mask Debt Fueling Europe’s Crisis
#5I wrote a more detailed explanation of what happened in a previous version of this article (explaining the particular derivatives). http://news.ycombinator.com/item?id=1117719
Oops - I hadn't seen that previous article. Thanks for the summary.
Re: Wall St. Helped to Mask Debt Fueling Europe’s Crisis
#6Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal. The banks not only enabled these countries to borrow beyond their means, but also loaned them the money. If anyone feels a populist fury that requires retribution against Wall Street then the course is clear: don't bail Greece out. The best way to teach bankers not…
You arguments make sense. What would you say to those who support bailouts and their logic, which if I understand correctly, is as follows:
if you dont bailout Greece, then the markets will get nervous about other bigger economies with debt (Spain, Ireland, etc) and call in the debt to these countries as well. Many of these countries are likely to default, which in turn would lead to more panic and more debt being called in, leading to a repeat of the financial crisis of 2008 (ignited by the bankruptcy of Lehman), where banks trust no one, every debt obligation is called on immediately, and everyone hordes cash out of panic. A vicious cycle like the great depression develops and even relatively healthy economies, banks and companies go bankrupt.
Then what? Yes, this process does weed out the weak banks/companies/economies. But it also destroys everything else, including social and political institutions and the worse case scenario is you have global anarchy, unrest, wars etc, etc.
I think moral hazard is important. But is it so important that we destroy the whole system? There must be a more balanced approach, but not sure what that should be.
Re: Wall St. Helped to Mask Debt Fueling Europe’s Crisis
#7Greece got about $1b from 85 Broad via a swap.
They had approximately $300b in additional debt.
This article exists because many readers like to pretend that bankers are the root of all evil.
Re: Wall St. Helped to Mask Debt Fueling Europe’s Crisis
#8Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal. The banks not only enabled these countries to borrow beyond their means, but also loaned them the money. If anyone feels a populist fury that requires retribution against Wall Street then the course is clear: don't bail Greece out. The best way to teach bankers not…
If anyone feels a populist fury that requires retribution against Wall Street then the course is clear: don't bail Greece out
As a non-Greek European, however, I'd rather Greece was in fact bailed out because if Greece collapses, my own economy, which shares a currency with Greece, goes along with it even though there is not all that much wrong with the financial practices of my own government (I'm Dutch).
This is probably one reason why banks (and Greece itself) got away with what they got away with for so long: if Greece collapses, Germany and France and a whole lot of other economies with which there really isn't all that much wrong, will go along with it.
Which just isn't worth it.
So what will probably happen is that the EU will force Greece to swallow a draconian austerity package that will clean up their government finances but that will bring comparative hardship to 11 million Greeks. This way they avoid causing economic misery for the rest of the 328 million inhabitants of what is known as the Euro zone
Re: Wall St. Helped to Mask Debt Fueling Europe’s Crisis
#9Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal. The banks not only enabled these countries to borrow beyond their means, but also loaned them the money. If anyone feels a populist fury that requires retribution against Wall Street then the course is clear: don't bail Greece out. The best way to teach bankers not…
You arguments make sense. What would you say to those who support bailouts and their logic, which if I understand correctly, is as follows: if you dont bailout Greece, then the markets will get nervous about other bigger economies with debt (Spain, Ireland, etc) and call in the debt to these countries as well. Many of these countries are likely to default, which in turn would lead to more panic and more debt being ca…
You make a lot of assumptions that are not necessarily true. Markets didn't collapse (went down 4% I guess) after Lehman went bankrupt and Lehman was at no point of systemic importance, which crucially, lots of proponents of bail-outs made it out to be. Some market players believed so, but it turned out to be wrong - people tend to overestimate such things because you cannot disprove them. This is exactly the same reason Greece should not be bailed out. Not every debt obligation is going to be called on immediately because lots of players are going to look for a save haven for their money, there will be contrarians etc. Lehman showed us that the whole melt-down scenario is probably (no one can be sure) overblown. And considering the social costs of moral hazard, one can make an equally valid argument, that it's no one's business to bail out any private enterprise or country.
Re: Wall St. Helped to Mask Debt Fueling Europe’s Crisis
#10Greece got about $1b from 85 Broad via a swap. They had approximately $300b in additional debt. This article exists because many readers like to pretend that bankers are the root of all evil.
When I read this article, I felt that hypocritical governments are the root of all evil here. Goldman just did the job it was paid for. But Greece duped the EU into believing it fulfilled its membership criteria, got away with faking statistics and hiding true debt levels for a long time and is probably getting away with it all by being bailed out. So who are (EU) governments to criticise banks for acting the way they do when they tolerate it amongst themselves?