Greek debt and PIIGS

Politics International Politics
1

So a little different from the Euro blowout thread. I’m looking at what the Greek govt takes in and what it spends and I’m noticing that with it’s growth rates and shrinking population, you’d have to be clinically insane or a gambler to actually invest in their bonds. Then you get to Portugal, Ireland, Italy and Spain and you wonder whose idea was it to put all these basketcases under one fiscal house.

Now the geniuses decide that they should issue veiled threats to ratings agencies for doing their jobs: [quote]http://news.bbc.co.uk/2/hi/business/10097107.stm[/quote]

So let me get this, the Greeks who lied about their budget deficit and really have no means of getting it under control without trashing the whole island which has a grey market economy equal to 30-40% of GDP due to taxes, corruption and over-regulation. The unions are currently protesting, taxes are going to be raised again and the whole country is in a fiscal tailspin. The EU regulators decide that now is the proper time to “warn” the ratings agencies?

I can’t wait to see how this goes to Italy, Ireland, Portugal and Spain next. Only Ireland and Portugal seem to even have a clue. Italy is suppose to be a huge basketcase with an even more dire outlook than Greece. The Spanish were paying for solar electricity that was generated at night so I don’t have much faith in them either.

I expect riots and more riots this summer. It should be interesting to see who makes it out and who doesn’t. I wonder if it will effect the outlook on US Muni Bonds.

2

Ask and you shall receive.
Beware Of The Muni Bond Bubble: States And Cities Can Fail As Well

Here’s a look into the reason why Greece is so screwed up.

[quote]
A bailout will not address the fundamental causes of Greece’s fiscal problems. Greece has an expansive but highly inefficient civil service and an economy stifled by regulation, favoritism and rent-seeking. These policies have generated double-digit deficits and a debt-to-GDP ratio well over 100%. The situation is not even close to sustainable, so absent a bailout Greece will default on its debts.

A bailout, however, does nothing to fix the misguided policies that have generated Greece’s existing debt and ongoing deficits. Bailout therefore merely postpones the day of reckoning. Worse, bailout both rewards Greece’s bad past behavior and encourages such behavior in future. Greece will never change its misguided policies if the E.U. and IMF infuse it with new cash, just as no teenager who has overspent an allowance will reform if the parents merely expand that allowance.

Thus bailout merely transfers resources from other nations to Greece. This is presumably beneficial for Greece in the short term because it postpones painful adjustments like lower salaries for government employees. But a bailout harms the citizens of these other countries, who did not live beyond their means. And a bailout harms Greece in the longer term by delaying adjustment of the fundamental flaws in its economic policies.

The negatives do not end with the current bailout. Greece will be back for additional bailouts in short order, since under a bailout it will not fix its underlying problems. And once the EU and IMF have bailed out Greece, they will find it impossible to resist bailouts for Portugal or Spain. As the recent downgrading of these countries’ bonds suggests, they (perhaps along with Italy and Ireland) are also at risk of default in the near future.[/quote]

Here’s Dan Mitchell’s article about how high tax rates lead to high tax evasion. He includes a rough chart showing Spending vs Revenue in Greece.

Looking back at history leading up to the Great Depression, here’s a chilling parallel.

3

Lbksg, I’m familiar with all those sources, but what really surprises me was the threat to the ratings agency. Typical Euro response, when you don’t like the message, silence the messenger.

It would seem almost cheaper to bail out their own banks and let Greece burn. The only problem is what happens when the other countries go down that should never have been in the Euro in the first place. I just wish I had the means to really short them.

I’ve been following this and Christ Christie with a certain morbid fascination.

4

Euroland burning just when I am starting to pack my bags to go back.
:aiyo:

5

Let Greece be a lesson for anyone who thinks an over-regulated economy with generous benefits is the solution to proper economic policy. That goes for America and any other developed economy. We need more deregulation and a trimming of government role.

6

Thanks Fred! And to think I thought America was “the lesson for anyone who thinks an under-regulated economy with generous benefits to the top brass is a good alternative to proper economic policy.”

Thanks for putting me straight!

7

[quote=“Okami”]Lbksg, I’m familiar with all those sources, but what really surprises me was the threat to the ratings agency. Typical Euro response, when you don’t like the message, silence the messenger.

It would seem almost cheaper to bail out their own banks and let Greece burn. The only problem is what happens when the other countries go down that should never have been in the Euro in the first place. I just wish I had the means to really short them.

I’ve been following this and Christ Christie with a certain morbid fascination.[/quote]

The rating agencies are, to use someone else’s phrase, damned if they downgrade, damned if they don’t. They sat on the Subprime market for 2 years giving it AA and AAA ratings and you saw how that turned out. Now I understand the EU’s position, that it will accelerate the downward spiral for the PIGS (sans Ireland) because it makes it so much more costly to borrow money. That’s reality though when you are leveraged to your eyeballs.

Does it really surprise you that the EU regulators threatened the rating agencies for upsetting their apple cart? “Regulating” the ratings agencies really means controlling what ratings agencies assign debt and giving preferential ratings to government debt. That will allow the governments to artificially rate their debt safer than it actually is, lowering the costs of borrowing and letting them continue their social welfare system. The EU wants to turn the rating agencies into an arm of the propaganda machine. It’s would prevent them from having to take politically unpopular stances such as reducing the social welfare level to balance with the tax revenues.

If the Eurobank is really into Greece for 190 Billion, and and Greece defaults, they’ll be lucky if they get 1/3rd of that. Imagine the upheaval that will cause to the financial markets all over the EU and the world. The EU wants to try and avoid that by not having to take the loss until well after the markets have recovered. I think it’s throwing good money after bad, but we’ll see.

OT time:
Chris Christie is having fun stirring up the pot in NJ. The union memo with a prayer that Christie die was horrible publicity right before the vote on the school budget. That, and the published facebook postings by teachers comparing Christie to Pol Pot, may have had an impact on the voters when they rejected 59% of the school budgets. I can’t blame them when NJ has 6 of the 10 highest tax jurisdictions in the US. They have had a net outflow of 70 Billion in yearly revenue from 2004-08 as the rich and small businesses move out of the state due to higher taxation. California, Illinois and other states are watching what plays out carefully (I hope).

Ohh and on the judicial front, 5 of the 7 state Supreme Court justices will come up for reappointment during Christie’s term. He will be able to influence NJ for a long time to come. /OT

8

Somber update, 3 bank employees were burned alive when protestors torched a bank in Greece. Outraged demonstrators hurl paving stones and Molotov cocktails at police

Unfortunately this is only going to be the beginning of riots and turmoil. The Greek unions are not going to take this sitting down.

[quote]
“These people are losing their rights, they are losing their future,” said Yiannis Panagopoulos, head of GSEE, one of the two largest union organizations. “The country cannot surrender without a fight.” [/quote]

Today Moody’s is warning they may downgrade Portugal’s debt rating. That should piss off the EU regulators even more.

[quote]Moody’s Investor Services warned it may downgrade Portugal’s Aa2 debt rating in the next three months, a week after its rival Standard & Poor’s cut its rating and stoked market concerns that the crisis in Greece was spreading through the eurozone.

Moody’s cited a weakening in Portugal’s public finances as well as its long-term growth prospects.

“The review for possible downgrade will consider a repositioning of Portugal’s ratings to reflect the potentially lasting deterioration in the government’s debt metrics,” says Anthony Thomas a senior analyst at Moody’s.

“In the context of a small and slow-growing economy, such debt metrics may no longer be consistent with a Aa2 rating,” he added. [/quote]

9

The Euro’s central bank system is partly at fault, I remember reading last month. It buys and sells money at too low an interest rate, meaning that national central banks can borrow from it and arbitrage the difference to make money – literally, they are paid to increase debt, as I recall.

The Euro appears to be a case of a good idea badly executed…

10

[quote=“lbksig”]Does it really surprise you that the EU regulators threatened the rating agencies for upsetting their apple cart? “Regulating” the ratings agencies really means controlling what ratings agencies assign debt and giving preferential ratings to government debt. That will allow the governments to artificially rate their debt safer than it actually is, lowering the costs of borrowing and letting them continue their social welfare system. The EU wants to turn the rating agencies into an arm of the propaganda machine. It’s would prevent them from having to take politically unpopular stances such as reducing the social welfare level to balance with the tax revenues. [/quote]The thing was they did it so openly, that it would actually make me run screaming for the exits if I had anything in Greece. You kind of hope the adults are in charge and then you see this and realize they have left the house to their 15 year old son who hangs out with bad people.

I can’t see how anyone can take the Greek promise of austerity which still has to get through the Greek parliament seriously. They’re setting cars, buildings and people on fire. The German parliament will balk and I think Merkel is making all the right noises for the EU while quietly working on smothering any bailout in its infancy.

[quote=“ice raven”]Thanks Fred! And to think I thought America was “the lesson for anyone who thinks an under-regulated economy with generous benefits to the top brass is a good alternative to proper economic policy.”[/quote]America is a heavily regulated economy. Have you ever tried to start a legitimate business there?

[quote=“Vorkosigan”]The Euro appears to be a case of a good idea badly executed…[/quote]Considering what you think are good ideas, I’d stick with your bad ones. :wink:

OT:
The amazing thing about the Teacher’s union was they weren’t asking them to make cuts, just pass on annual raise that they get. Considering New Jersey has 500+ school districts iirc, there’s a lot of fat to be cut there. California is a slow motion feel good Greece. It will really depend on when the next budget needs to be passed on what happens. Illinois is a one party state, and that party is called “The Combine”. We’ll see Jesus again before they get turned around. Christie will have some problems because he is ditching a black guy for a woman and I expect to hear the ever present cries of racism over that one. I do like his outlook that he only has 4 years to turn the state around.

11

Simon Johnson:
huffingtonpost.com/simon-joh … 64023.html

[ul]
It is fine – even appropriate - to emphasize that big European banks have aided and abetted the irresponsible behavior of eurozone authorities. The profound stupidity of these banks-as-organizations is beyond belief, and it is deeply puzzling quite why leading figures in the US Senate would see them as a model for anything other than what we need to euthanize as soon as possible in the global financial system.

But do not fall into the trap of thinking just because “megabanks are bad” (undoubtedly true) that you can whack them with losses and not face the consequences - these people are powerful for a reason; they hold a knife to our throats. For all his hubris, missteps, and over-reliance on Goldman group think, Hank Paulson had a point in September 2008: If the choice is chaotic global collapse or unsavory financial rescue, which are you going to choose?

The Europeans will do nothing this week or for the foreseeable future. They have not planned for these events, they never gamed this scenario, and their decision-making structures are incapable of updating quickly enough. The incompetence at the level of top European institutions is profound and complete; do not let anyone fool you otherwise.[/ul]

12

[quote=“Vorkosigan”]
The Europeans will do nothing this week or for the foreseeable future. They have not planned for these events, they never gamed this scenario, and their decision-making structures are incapable of updating quickly enough. The incompetence at the level of top European institutions is profound and complete; do not let anyone fool you otherwise.[/quote]

Well, right now the plan is made to bail out Greece and support the others in need. I hope structural changes will be established swiftly to prepare for similar future events. The market will dictate a quick response time here. It is Germany which pays most and right now it looks as if the German gov. gave up its postponing decisions plan and seems to work on the problem***. Hopefully carrying the others behind.

You may hear me whistling in the dark cellar here.

***What is being prepared are bankruptcy regulations for countries and a financial support fond.

13

I’m currently enjoying the current opinions of EU politicians through the MSM:
Speculators: I don’t know how these fit into Marxist theory, but EU pols love these guys. I love how the MSM happily quotes them saying, “We need to rein in the speculators!” but they never ask the EU pol who they are or why they are doing what the EU pol believes they are doing. I think it’s because in the EU political patronage is important, but not mandatory as it would be in Latin America. I could easily see them silencing a critical news outlet by pulling their subsidies, tax audits and/or regulatory audits. I think having to explain that speculators are in fact people who are willing to bet their money in an investment scheme demand a reward comparable to the risk.

Integration: They love this one, but they never quite explain how it would be beneficial to them outside of the Euro. It’s especially funny when all national legislation has to come up to EU norms.

Devaluation: You can not devalue your way to prosperity, unless you have a population of world class savers. Can you imagine buying a Euro bond for $100US and then find out that it’s now only worth $70US through fiat currency manipulation from running the printing presses. Yes, that’s a country I want to invest in. :unamused:

What you will never hear:
Reform: They will constantly say that they need to make their labor markets flexible, have less regulations and a smaller public sector. When half of your population is on the govt teat, it’s quite difficult to tell them that they will have to work for their milk. Who in their right mind gives up free easy money, especially if you can vote to keep it through socialists or use the mob veto on reform

14

See this seems to me to be a false choice scenario set up by those in power, both in the US and in Europe: “chaotic global collapse”. I’d like someone to explain how 1. this is likely to happen, as opposed to just remotely-possible, and 2. why should the average guy in the US or Europe care i.e. how will it affect him/her?

Yes there will be large drops in retirement funding for those that have private retirement accounts, as many in the US do. But recall that only something like 42% of US adults are invested in any way in the stock market (rough number from memory about 5 years ago), and Europe’s safety nets are paid for mainly by their governments via taxes and debt (unless they are cut through “austerity measures”). I’d like to see an analysis by a neutral source - and I use that word pointedly to mean someone not totally enthralled by “that’s just the way it is” syndrome - that says YEP the average guy in the US/Europe is gonna get the shaft if we let Goldman, AIG, et al divebomb.

Not saying it isn’t true, I’m saying I can go through all the mainstream new sources (NYT, BBC, Reuters) and see plenty of articles about how the sky will fall, but I see no real evidence or explanation.

The average medium-rich (1 million+) investor is essentially gambling - they don’t have actual stakes in the companies and stocks they invest in, they are GAMBLING, and they are only able to do it because they have plenty of disposable, liquid assets to gamble with, in other words, rich get richer - and the super rich, if they go from 100 mil to 20 million, or 1 bil to 100 mil, but the economy gets back out of a bubble and the social services don’t need to get cut - well, fuck em, they took the risk, they lost, suck it up.

15

[quote]See this seems to me to be a false choice scenario set up by those in power, both in the US and in Europe: “chaotic global collapse”. I’d like someone to explain how 1. this is likely to happen, as opposed to just remotely-possible, and 2. why should the average guy in the US or Europe care i.e. how will it affect him/her?[/quote]To answer 1, the problem was the seizure in bank lending because nobody knew who was underwater and who wasn’t. While you may call lending companies money, gambling, there are risk models to estimate the likelihood of repayment. If you dont have accurate info for risk models, you wouldn’t loan money.
To answer 2, the average guy should care because the company he works for has probably borrowed money and most loan contracts have a clause that forces the borrower to pay up when given notice in the full amount. An even better scenario is a Costco supplier, who hits a liquidity crunch thanks to Costco’s policy of paying for orders received 90 days after they received them. They might be selling a whole lot of product but incapable of paying their own suppliers because Costco hasn’t paid up yet while in a 90 day period it has turned over a lot of inventory fromt hat supplier. That’s why when it hit the US, Costco and Wal-mart asked their suppliers to come to them if they needed help.

[quote]Yes there will be large drops in retirement funding for those that have private retirement accounts, as many in the US do. But recall that only something like 42% of US adults are invested in any way in the stock market (rough number from memory about 5 years ago)[/quote]The problem here is that a lot of unions and companies with defined benefit plans are underinvested. They are invested in stocks and bonds. You would see a ripple effect where profits and stock prices of large companies would crash as they had to divert resources to shore up their pension funds. You would also see unions coming under ever increasing pressure under a republican administration out to close loopholes that were given under a democratic administration. Union pensions are seriously underfunded.

[quote]Not saying it isn’t true, I’m saying I can go through all the mainstream new sources (NYT, BBC, Reuters) and see plenty of articles about how the sky will fall, but I see no real evidence or explanation.[/quote]That’s because most reporters are stupid and lazy. They’ve been caught being stupid and lazy so often that trust in them is at an all tme low and most of them are in the unemployment line. I like Francis Cianfrocca(sp?) and you can get his podcasts from itunes for free.

[quote]The average medium-rich (1 million+) investor is essentially gambling - they don’t have actual stakes in the companies and stocks they invest in, they are GAMBLING, and they are only able to do it because they have plenty of disposable, liquid assets to gamble with, in other words, rich get richer - and the super rich, if they go from 100 mil to 20 million, or 1 bil to 100 mil, but the economy gets back out of a bubble and the social services don’t need to get cut - well, fuck em, they took the risk, they lost, suck it up.[/quote]I think it says a lot about your worldview that you would see lending cash to a company for a claim on the company’s future earnings as gambling rather than investing. People in this income/asset range often own their own business(es) and didn’t just stumble on a winning lottery ticket.

16

Well I sure hope it does say something about my worldview!

But the definition of gambling is to bet on an uncertain outcome (as of a contest), to play a game of chance for stakes, to take a risk in the hope of gaining an advantage or a profit. While stocks and commodities are hardly a game, the people doing the bulk of small to medium size stock investing, as well as the investment traders like Goldman etc, do not care what the stock produces or what the company does, whether the company fires 100,000 people to make the stocks go up, or pollutes the air to n extent, or the opposite. They could give two shits about that. I know this from relations with these guys, some day traders, some corporate investors. They are looking to take their money or their company’s money and make more of it by looking at a likelihood/risk model (however complex or simplistic that may be), and they are looking at it for the fairly short term. I am not talking about institutional investors with a long term strategy, though I am sure that happens to some extent there as well.

That is gambling, but it surely isn’t a game, it’s people’s lives and the country’s health that are at stake. Frankly, it’s sick. What you say Okami, about it being about people lending money for a company’s future earnings, seems to me to be too simplistic and doesn’t account for speculation or the spot trades that occur millions of times a day for the sole purpose of instant profit. Would you agree that curbing speculation, or the drive for immediate in and out profits, would be a positive?

As for your explanation about how it will cause a global collapse, I don’t really see how what you write explains why the global economy will collapse. Will large investment firms drop seriously, and some fail? Surely. And will many of their large institutional investors e.g. unions, universities, state pension funds, drop significantly? Yep, though that does not mean that the funds guaranteed by the pension funds, for example, will not get paid out - there is still a legal obligation for retirees to be paid those funds, now it’ll have to come from the state in other ways (e.g. tax increases, etc). Fuck the universities if they mismanaged their money, the government will have to make up for it somehow while they get fixed or replaced - bailout the universities, for example. I would argue that failure of some of these large companies would (finally) cause a serious rethinking about how these industries should be regulated, or be allowed to operate (beyond the little bite changes being made these days - and look how hard it was to get them through!).

Your explanation on how it would affect the average guy makes some sense to me, but it’s not clear to me that those companies (supplying Costco, for example) wouldn’t have recourse both legally and practically, to keep afloat. Would the government allow these large investment banks to fail AND institutional investors to drop significantly, and then further allow the large borrowers and corporate investors to take a direct immediate hit and crash out? Unlikely I would think, if the government is generally willing to keep the first set afloat. It would also cause a reexamination of what happens to people, and what should happen to people, when they get laid off through no fault of their own.

17

If I were to guess you think day traders make money on average and are a bane to the financial system. You tend to take a very one-dimensional view of one man’s profit is another man’s loss. You seem to have the liberal/autocratic “zero sum game” versus my “grow the pie” outlook.

What you choose or don’t see is that markets are made up of various actors with their own goals and investment strategies. In order for markets to work there has to be enough buyers and sellers to make them operate efficiently. There’s also choice. I could choose to lend to the US at 4% ROI versus 15% to Argentina in the bond markets. I might decide to open my own business. I may decide that the best value for my money is buying my wife a car. Each one is an investment with a different return, some of which may be financially negative yet psychologically profitable. While investing and gambling seem similar they are not the same thing. I can invest my money in risk free assets at a lower rate; you can’t do that with gambling. I really don’t expect you to buy that explanation due to your worldview.

I don’t see how people’s choice of time frame should effect whether they are investing or gambling.

Most businesses aren’t traded as stocks. If I were to buy Yuma’s, it wouldn’t be to sell people good food, but to make the money I invested plus a rate of return in relation to my perceived risk. Now if I bought it and trashed the menu for a quick buck word would get out and I’d most likely be out of business. When an investor buys a company loads it with debt and then sells it, that investor still needs to find a willing buyer in order to sell. The new management can invest their own capital to pay off the debt and try to make it work. That neither impugns the first or second seller nor the buyers, since they chose freely how and where to invest their money. Places that tend to restrict investment to do it for authoritarian(China, North Korea) and/or corrupt(Argentina, Venezuela, Zimbabwe) means.

[quote=“TwoTongues”]Would you agree that curbing speculation, or the drive for immediate in and out profits, would be a positive?[/quote]No I would not. It’s the same as asking me if it is ok to take away the right to vote so I can enforce a minority position on a majority for my own personal gain. If Greece and other basketcase countries wish to run their countries into the ground, then it’s not speculation to invest in a way that brings you profit. It’s your God-given moral right to do so. Just because some politicians choose to use fraudulent means like the Greeks did to get into the EU doesn’t absolve them of the fact that they promised too much for too little and caused their country to go bankrupt. Basic accounting is not rocket science, nor should it be ignored because it interferes with your worldview.

[quote=“TwoTongues”]As for your explanation about how it will cause a global collapse, I don’t really see how what you write explains why the global economy will collapse.[/quote]basically it comes down to banks and liquidity. Since most companies and people borrow money, if banks freeze lending, then most economic activity stops. You get a barter economy like post-Soviet Russia because no one has the cash to buy your product, but their is a market then for a guarantor/marketmaker to work through the bartering till money is found.

[quote=“TwoTongues”]Will large investment firms drop seriously, and some fail? Surely. And will many of their large institutional investors e.g. unions, universities, state pension funds, drop significantly? Yep, though that does not mean that the funds guaranteed by the pension funds, for example, will not get paid out - there is still a legal obligation for retirees to be paid those funds, now it’ll have to come from the state in other ways (e.g. tax increases, etc). Fuck the universities if they mismanaged their money, the government will have to make up for it somehow while they get fixed or replaced - bailout the universities, for example. I would argue that failure of some of these large companies would (finally) cause a serious rethinking about how these industries should be regulated, or be allowed to operate (beyond the little bite changes being made these days - and look how hard it was to get them through!).[/quote]This reminds me of when Henry Waxmen was going to get all those companies to come to his Committee hearings to explain why they were doing write downs in relation to Obamacare, till he found out that the SEC requires companies to write down things that may effect their earnings immediately when they are realizeable.
The problem with the state taking over and raising taxes is you eventually hit a point where no matter how much you raise taxes you don’t get very much except for a large grey economy ahem just like Greece. People are also resentful when they see govt officials retiring at 55 with a great pension and they are trying to pick out their favorite can of dogfood for dinner. Politicians, for some odd reason, always seem to believe that they can beat off basic accounting and the laws of economics. It never works.

[quote=“TwoTongues”]Would the government allow these large investment banks to fail AND institutional investors to drop significantly, and then further allow the large borrowers and corporate investors to take a direct immediate hit and crash out?[/quote]Sure the govt can bail them out by turning on the printing presses, but then instead of sound monetary policy you get inflation and capital flight. This seems what is happening with gold going from $265/oz in 2000 to $1200+/oz in 2010.

18

That’s easy! Neither. I’ll have a precious metals standard and do away with the problems related to debt issuance, the need for an ever expanding population to service the devalued savings of the old and the monopoly of big banks. The value of savings will stick fast and there would be no need for a catastrophe.

19

That’s a good guess but in this case wrong - so many of the day traders (anecdotally) lose on average, I’d bet more than 50% at a given moment, but my point is larger than just the day trader, it’s about the game itself, the goal being immediate profit, not investment, not betterment, and so forth. I wasn’t referring just to day traders, I was talking about all of those individual investors who go for the short term bets, whether it be a few minutes, an hour, a day, a week, they are not there to “loan a company money as an investment”, though they are indeed making a small short term loan. I was also talking about those investment houses that support this type of behavior and participate in it themselves.

I hardly think “one man’s profit is another’s loss”, but the way the investment system, especially the stock market, the commodities exchanges, and the foreign currency market, is set up, it strongly encourages (and that encouragement is acted on) gambling i.e. short term trades for immediate profits, which in turn forces companies to constantly act towards short term profits and making investment-house generated profit goals, and in the end, to do that, they often act out of the best interest of employees, and take advantage of customers.

I agree that time frame isn’t the sole determinant for calling it gambling, but it is a factor. Another factor is the intent - to build a company that does something neutral or positive, or solely to make money wherever it is to be found. Another factor is the sole concentration on the odds, though I think this ties into the previous factor.

As for your argument against reduction of speculation, in which you liken curbing speculation to taking away some rights to vote, that’s apples and oranges to me, the right to vote is enshrined in the constitution (and various amendments) and is the basis for our democracy. The “right” to invest, or better, the “right” to short term speculate, is no right at all, it is something that is to be decided, regulated, vetoes, as the nation sees it. I admit that the US anyway sees it right now as OK to speculate, or at least prevailing governments do, but it is hardly a right, and should not be compared to the right to vote. But if you see it that way, I believe that’s part of the problem.

I don’t think that just because places like Greece have screwed the pooch means that it can’t be done better elsewhere, it requires serious planning, but to me its sounds a lot like the argument that “socialism doesn’t work, just look at Russia”, as though that proves 1. it can’t be done and 2. Russia was somehow really socialist. But I am no economist, and I don’t have a silver bullet answer.

I wouldn’t be as worried about the capital flight and inflation if the government was seriously saving jobs this way, and reducing the imbalance between rich and poor. I’d like to see more meritocracy and less rich get richer, which is definitely what the current policy and atmosphere support.

To me, if a company or industry is too big to fail, then it needs to be nationalized. Put it another way: people shouldn’t be making profits - especially not exorbitant profits - off something that the government has to back if they fail. And if it’s not a one-off occurrence, people ought to consider making the nationalization permanent too. How about that: can we permanently nationalize the financial insurance and bank-loan industries, at least theoretically?

20

How do you define speculation and how do you distinguish it from risk mitigation? It seems to me a lot of your opposition to short term speculation is because it isn’t “investing”. I would disagree and say that short term speculation, such as risk mitigation, is essential to a well functioning marketplace. It makes investments less risky because you won’t lose everything on one deal that goes catastrophically bad. If you think stock A will go up you purchase stock A but also purchase a put option so that if the stock decreases in value, you cover some of your loss.

If you want to see more meritocracy, start with the Greek government payroll. One of their major problems was throwing money and better benefits packages at whichever public union was squeaking loudest. Why should the 2/3rds employed in the private sector be supporting better pensions, better salaries and earlier retirement for the other 1/3rd who work for the government? They have exhausted the ability to borrow their way out of this by borrowing in the past to expand salaries and benefits. Firing people is tough, but there isn’t an ironclad guarantee for government workers to have a job. If there’s not enough revenue to pay them and you can’t borrow any more money, then you have to start trimming.

[quote=“TwoTongues”]
To me, if a company or industry is too big to fail, then it needs to be nationalized. Put it another way: people shouldn’t be making profits - especially not exorbitant profits - off something that the government has to back if they fail. And if it’s not a one-off occurrence, people ought to consider making the nationalization permanent too. How about that: can we permanently nationalize the financial insurance and bank-loan industries, at least theoretically?[/quote]

Not unless you want to see perpetual bailouts. Governments are in a different business than finance and answer to different people. Politicians want to get reelected, bankers want to make money. Direct political control over the banks is a bad idea because it’s in the politician’s best interest to make it cheap to borrow money for houses. It’s in the bank’s best interest to make sure they don’t lose money. Banks are supposed to try and accurately assess risk of homeowners defaulting because they should be on the line if it fails.

One of the factors of why this housing bubble was so bad was that banks aren’t holding all the assets anymore. Instead of holding the title, they send it to Freddie Mac and Fannie Mae, get their money back immediately and make a new loan. Politically a great idea because then they can make it easier for people to purchase homes as the capital isn’t tied up for 30 years. The downside is it increases risk because Freddie and Fannie are holding the title without having met the borrower, evaluated their credit, seen what their job is like, what the local economy is like, etc. Then you have derivatives being written against the properties and them being chopped up into risk categories and it gets muddier and muddier.

Nationalized industries take riskier bets because they have full financial backing of the national government. If they fail its the taxpayers who pony up. If a private company fails, 99 times out of a 100 the stockholders lose their investment and the company goes out of business. A nationalized company won’t be allowed to close up. They don’t have the perpetual drive to improve so they can make profits.