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Review of “Adults in the Room” by Yanis Varoufakis

theguardian.com

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Re: Review of “Adults in the Room” by Yanis Varoufakis

#51

Post by FabHK »

cafard wrote: post #5
Scea91 wrote: post #4

Earlier quoted context omitted.

Didn't Greece falsify data for years? That would explain the AAA ratings.

Were the banks truly deceived, or just hoping that they could cash in and be bailed out?

1. The incentives were just so aligned that I think a lot of people might have had their private misgivings, but held their nose and went ahead.

Apart from the AAA rating, government bonds also had a very low risk rating in the Basel accords (Basel I, and Basel II that just came into effect during the global financial crisis 2008).

Basically, the Basel accords specify a minimum capital adequacy ratio, that is a certain minimum capital level to support given risk weighted assets. (Capital in the bank context basically refers to equity - i.e. funding that can absorb losses without the bank going bankrupt due to debt obligations they cannot fulfil.)

Now, the risk weight for government bonds is zero! (in Basel II, they had to be AA or AAA, and it gets complicated quick, but basically...) So you can load up on them without having to increase your equity cushion.

2. This allowed banks to increase their Return on Equity, which influenced bankers' pay.

3. Furthermore, I think they were all implicitly banking on either bailouts (directed at individual banks) or a version of "The EU would never allow a member government to go bust".

So, I think everyone was in it to an extent (while formally "correct" and "safe"), cashing out merrily, and hoping for the best.

Another great book on this, by the way, is The Bankers' New Clothes: What's Wrong with Banking and What to Do about It by Anat Admati and Martin Hellwig.

(Funny side note: I searched "bankers new clothes" on Amazon to get the author names right, and got a page with dress shirts and briefcases.... :-)

Re: Review of “Adults in the Room” by Yanis Varoufakis

#52

Post by FabHK »

jandrese wrote: post #36
paganel wrote: post #26

Earlier quoted context omitted.

Probably both. I still remember a full-time ad in The Economist around 2006-2007 by a German Landesbank, where they were promoting themselves as the coolest of things when it came to banking and managing clients' money. Not 2 years passed and that same Landesbank was by then in very serious trouble because it had invested heavily in US mortgage derivates, I think there was also talk of its general manager doing priso…

AFAIK the only guy who did jail time for crashing the world's economy and wiping out retirement savings of millions of people was a guy who copied some utility code to dropbox when he quit Goldman Sachs.

Sergey Aleynikov spent a year in prison for copying some code over. Fabrice Tourre (self-proclaimed "Fabulous Fab", a nickname that ought to be mine! :) was indicted by the SEC for his role in selling dodgy mortgage backed CDOs.

https://en.wikipedia.org/wiki/Sergey_Aleynikov

https://en.wikipedia.org/wiki/Goldman_Sachs#Abacus_mortgage-...

> "The whole building is about to collapse anytime now," Tourre wrote to his girlfriend in 2007, the SEC charged. "Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!"

https://www.usatoday.com/story/money/business/2013/08/01/gol...

Re: Review of “Adults in the Room” by Yanis Varoufakis

#53

Post by Analemma_ »

mc32 wrote: post #11
IslaDeEncanta wrote: post #3

Varoufakis is a hero to the international working class. His most recent book before this one is also excellent.

He's an interesting guy no doubt, but accounts tell us he was just doing his job. When he went to Germany and tried to force their hands by feigning he might grexit, to his amazement the private response was more or less, how can we help you gtecit? Despite appearances, he did not want grexit and was a ploy to get better terms, but the ecb had already discounted Greece. At least he tried, for sure.

> When he went to Germany and tried to force their hands by feigning he might grexit, to his amazement the private response was more or less, how can we help you gtecit? Despite appearances, he did not want grexit and was a ploy to get better terms..

That's sort of my problem with him though. I don't think of him as either a hero, or a jerk, or a guy doing his job, but simply an idiot. He was trying to bluff with a hand that everyone knew was empty, and of course it didn't work.

Re: Review of “Adults in the Room” by Yanis Varoufakis

#54

Post by lakis2 »

elorant wrote: post #27
krona wrote: post #19

Earlier quoted context omitted.

> While in many occasions he had admitted the faults of the Greek economy he never took specific actions in correcting them. By doing what, exactly? The country was bankrupt. In such a situation, the only sensible thing to do is default. Instead, Greece will be a 3rd world country with almost no public assets, and mass unemployment for decades. Regaining competitiveness through decades of internal devaluation is, to…

Greece's problem isn't the debt. It's the competitiveness of the economy, or more precisely the lack of. Even if we had all our debt erased, the way the economy is structured we'd be back in the same place give it a couple of decades, at most. We spend so much money paying pensions that it's a given we'd default one way or the other. Furthermore, you can't just default on the debt just by saying so. There's a naivety…

> We spend so much money paying pensions that it's a given we'd default one way or the other.

That contradicts the "give it a couple of decades, at most" sentence right before it. In a couple of decades you can expect a lot of the pensions you are referring to to not be payed anymore due to natural causes (deaths).

While you clearly have a point to make here, you lose in the details

> He can act as a smart-ass all he wants in his books, but we were here and we experienced first hand the results of his reign. Once we get rid of this charade of imbeciles that act as the government, he and many of his former colleagues will end up in jail for their actions. There he will have plenty of time to write memoirs.

And that's clearly belief/propaganda talking. Feel free to believe in it, but don't be surprised if it doesn't work out that way

Re: Review of “Adults in the Room” by Yanis Varoufakis

#55

Post by cinquemb »

elorant wrote: post #27
krona wrote: post #19

Earlier quoted context omitted.

> While in many occasions he had admitted the faults of the Greek economy he never took specific actions in correcting them. By doing what, exactly? The country was bankrupt. In such a situation, the only sensible thing to do is default. Instead, Greece will be a 3rd world country with almost no public assets, and mass unemployment for decades. Regaining competitiveness through decades of internal devaluation is, to…

Greece's problem isn't the debt. It's the competitiveness of the economy, or more precisely the lack of. Even if we had all our debt erased, the way the economy is structured we'd be back in the same place give it a couple of decades, at most. We spend so much money paying pensions that it's a given we'd default one way or the other. Furthermore, you can't just default on the debt just by saying so. There's a naivety…

>Furthermore, you can't just default on the debt just by saying so. There's a naivety among mostly Greeks that just by going back to drachma and defaulting on our debt will magically solve all of our problems. In a country that imports pretty much everything that would be catastrophic.

Well thinking from a trader perspective, by defaulting and going back to the drachma (and leaving the EU), Greece would have more flexibility wrt what goods they can import and from where compared to now with all the restrictions on trading that being within the EU imposes.

Combine that with land access to the rest of Europe, I can imagine a prosperous almost black market for such goods that would provide much needed inflows of capital to the Greek economy (outside of selling junk sovereign bonds and hoping pensioners die faster).

Re: Review of “Adults in the Room” by Yanis Varoufakis

#56

Post by sgift »

ricw wrote: post #46
sgift wrote: post #24

Earlier quoted context omitted.

Yesterday, there was a news that Greece has reached an agreement for a new round of money in exchange for further cuts to pensions and removal of some tax exemptions. So yeah, it is going to happen again. And again. And again. And all to save a few German and French banks, because politicians feared the results of telling them "you wanted to play in the casino and you lost, now the money is gone" after Lehmann.

Or rather it'll happen again and again until the casino is turned into a viable and competitive economy. I wouldn't blame the Germans and French for trying to contain a crisis at its origin..

> I wouldn't blame the Germans and French for trying to contain a crisis at its origin..

The origin is that banks can lend money without any risk. End of story.

Banks get interest for various reasons - one reason is risk of not seeing the money again and that has to be a real risk or banks will just lend money without thinking twice.

Re: Review of “Adults in the Room” by Yanis Varoufakis

#57

Post by therpe1 »

elorant wrote: post #27
krona wrote: post #19

Earlier quoted context omitted.

> While in many occasions he had admitted the faults of the Greek economy he never took specific actions in correcting them. By doing what, exactly? The country was bankrupt. In such a situation, the only sensible thing to do is default. Instead, Greece will be a 3rd world country with almost no public assets, and mass unemployment for decades. Regaining competitiveness through decades of internal devaluation is, to…

Greece's problem isn't the debt. It's the competitiveness of the economy, or more precisely the lack of. Even if we had all our debt erased, the way the economy is structured we'd be back in the same place give it a couple of decades, at most. We spend so much money paying pensions that it's a given we'd default one way or the other. Furthermore, you can't just default on the debt just by saying so. There's a naivety…

The idea that every economy can be hyper-competitive is absurd. There are winners and losers, those who produce surplus and those who produce deficits. The question is what to do with the "losers"?

Look at America. The American economy is not competitive. It is not efficient and there is no plan. What you have are a few faboulously wealthy and productive economies (the wealthiest and most productive economies the planet has ever known) and a lot of very uncompetitive localities. What ties it all together and makes it "work" is a surprisingly efficient but very opaque transfer union[1] which is, for purely legacy reasons, called the federal government and controlled by the largely un-educated legislative. Seriously, look at the numbers. Transfer payments to what is generously called "non-metro America" constitute 20-25% of income in some counties.

So ultimately Varoufakis was right. He understood -- despite being an economist, this is just plain old common sense -- that a Euro-dependent Greece is always going to suffer mightily against Germany. No amount of tinkering or restructuring the economy is going to fix this. The only "plan" was to play chicken with the Germans and potentially let Greece crash but at least take the euro with it. (This only works because, as indicated in the article, everybody was loathe to "force" Greece out of the union. It's not even clear whether this is legally possible.) Thus there was in fact a lot of money to be made watching Greece and the euro burn for a while there. Eventually order was restored but only at great pain to all parties and that order is hardly going to be lasting or stable. Such is politics. In the end while it looks like Varoufakis may have been doing nothing... he probably got Greece a much better deal than they deserved in the minds of the Germans. And the next time Greece needs a bail-out -- and it'll happen soon because Greece is literally shrinking as everybody who can flees -- the same game of chicken will need to be played and they'll need to find an outsider like Varoufakis to play it and take the fall.

[1] https://en.wikipedia.org/wiki/Transfer_payment [2] http://www.bbc.com/news/world-europe-33507802

Re: Review of “Adults in the Room” by Yanis Varoufakis

#58

Post by andybak »

drzaiusapelord wrote: post #30
Scea91 wrote: post #4

Earlier quoted context omitted.

Didn't Greece falsify data for years? That would explain the AAA ratings.

Greece has been cooking the books for a long time, even their entrance into the EU was fradulant. Greece is the blame here via its decades of fraud that finally caught up with it. As a Greek-American with an interest in Greece being successful I think all the finger pointing at Wall Street or Germany is asinine. Greece is horribly corrupt and tax dodging is like its national sport. Its like someone turned Chicago int…

> I think all the finger pointing at Wall Street or Germany is asinine.

1. They knew what Greece was up to. 2. They facilitated it - or turned a blind eye. 3. They benefited from it.

I don't see how it's unreasonable for everyone to share the blame for this. Sadly the cost can't be shared as equally as the blame.

Re: Review of “Adults in the Room” by Yanis Varoufakis

#59

Post by nickbauman »

drzaiusapelord wrote: post #30
Scea91 wrote: post #4

Earlier quoted context omitted.

Didn't Greece falsify data for years? That would explain the AAA ratings.

Greece has been cooking the books for a long time, even their entrance into the EU was fradulant. Greece is the blame here via its decades of fraud that finally caught up with it. As a Greek-American with an interest in Greece being successful I think all the finger pointing at Wall Street or Germany is asinine. Greece is horribly corrupt and tax dodging is like its national sport. Its like someone turned Chicago int…

This is a "moral hazard" line of thinking that distracts from the underlying fundamentals of the economics here. Even without the corruption, Greece would eventually be in this situation in the EU because of the structural trade imbalance. Nations like Germany, Sweden, Norway, etc, export far more than they import and do no share the profits. The EU has become a giant capital vacuum cleaner from the poorest nations to the wealthiest. Without fundamental changes to this, the EU is doomed. Greece is just a symptom.

Re: Review of “Adults in the Room” by Yanis Varoufakis

#60

Post by captainmuon »

Analemma_ wrote: post #53
mc32 wrote: post #11

Earlier quoted context omitted.

He's an interesting guy no doubt, but accounts tell us he was just doing his job. When he went to Germany and tried to force their hands by feigning he might grexit, to his amazement the private response was more or less, how can we help you gtecit? Despite appearances, he did not want grexit and was a ploy to get better terms, but the ecb had already discounted Greece. At least he tried, for sure.

> When he went to Germany and tried to force their hands by feigning he might grexit, to his amazement the private response was more or less, how can we help you gtecit? Despite appearances, he did not want grexit and was a ploy to get better terms.. That's sort of my problem with him though. I don't think of him as either a hero, or a jerk, or a guy doing his job, but simply an idiot. He was trying to bluff with a h…

He's a lot of things, but not an idiot. Varoufakis was one of the few finance ministers who is actually an economist (as opposed to e.g. a jurist), so he was very qualified. But he went into the negotiations thinking that everybody was trying to solve the problem amicably, that they were trying to find a compromize everybody could live with. But no, it was pure power play. Germany and co wanted to keep the status quo of a Greece close to bankrupt that they could boss around. And I think they wanted the left-wing "experiment" to fail under all circumstances, to set an example.
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