Open letter to German readers: What you were never told about Greece

I agree with everything you say up to “panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works”

In todays fractional banking system where banks only hold a fraction of liquid assets to cover their liabilities, a run on a good bank could still put it under. (Lehman, Bear and others were both illiquid and insolvent, but runs can kill good banks too) This is why the FDIC was put up to guarantee commercial banks. Nothing similar existed to protect investment banks.

tl;dr: "This time it's different."

The piece was more persuasive than I thought it would be, and Tsipras' diagnosis of the cause of the problem is dead-on: this is a crisis of insolvency, not illiquidity.

The problem with what Tsipras is asking for is that markets get a vote, too, and the outright forgiveness of Greek debt would cause massive upheaval -- potentially to the point of making the EU itself unsustainable.

I think the only way the Germans will agree to debt forgiveness at meaningful quantums is if Greece leaves the Euro currency union and goes back to the drachma. That would send a powerful message to the financial markets -- "you get one mulligan, and the price of that mulligan is leaving the Eurozone".

Of course, Tsipras doesn't want that. He wants a "European New Deal", the details of which he provides rather sparingly. My guess is that if he were to flesh out these details, Germans would find them not only unreasonable but laughable.

The "wild card" scenario is if SYRIZA undertakes a project of massive wealth confiscation from the Greek elite. That actually might move the needle of German public opinion--one of the biggest points of outrage among the German people over the last 5 years has been the juxtaposition of media coverage of the excesses of wealthy Greeks (and their creative non-payment of taxes) with the math of how much each German family was being asked to give to rescue Greece. Start levying massive one-time luxury taxes on Greek-domiciled assets of Greek citizens (with asset seizures as penalty of non-payment) and maybe you get enough schadenfreude flowing in Germany to meaningfully alter public opinion.

I agree, but on the other hand Greece was taking the loans. It takes two to tango and it's both's fault.

But yeah, QE should go directly and equally to citizens. Everything else is transfer of wealth from the poor to the rich.

Sounds like the same end result to me.

BTW- I'm not disagreeing that giving Greece more money one way or another doesn't make sense, I'm just pointing out that I see nothing in OP where Greece is saying "let us go our own scrappy way without your money, we can fend for ourselves". Instead they want debt forgiveness, followed by more money.

What I don't understand about this type of logic is the refusal to acknowledge the damage being done by the forced depression. It's like a 19th century leech therapy, keep sucking out blood until they get better. If Greece's economy is allowed to recover everybody will be better off, the banks, the politics, the people living in Greece and even the German taxpayer.