When the left and the right are at one about something, you know there is something odd happening. Both the left and the right believe that Greece should not be lent any more money and, interestingly, they both see the banks as the only real beneficiaries.
For right-wingers and those who, in economics terms, believe broadly in what is called the Austrian school, lending to Greece is plain stupid. They say that lending to any entity that has a debt-to-income ratio of 160 per cent and an income that has just contracted by 6 per cent is lunacy. Would you lend to someone with that type of profile? The right believes that bankruptcy is not just unavoidable, but essential. For them, bankruptcy is a crucial part of capitalism.
When they see French and German banks – which have been defaulted on already by the first Greek haircut – negotiating to give the Greek government yet more money, they despair. They see the Greek people being put on the hook for the profligacy of the Greek government.
Because they believe in the notion of small government (the smaller, the better), they see little connection between what the government spends and what the people receive. If you believe that the government is an illegitimate oligarchy lining its own pockets, then putting the average citizen on the hook for the oligarchs is a scam.
People who believe in the Austrian school of economics also believe in something called “creative destruction”. This means that, when companies go to the wall, they more or less deserve to. More importantly, you only prolong misery by keeping such companies alive.
They therefore contend that many banks in Europe should be wound down. In fairness, this might yet happen if you think about what is happening with Greek debt and what might be next.
Initially, the banks that lent to Greece said they would not accept any haircuts on their loans. They insisted on being paid in full. Then they said they’d be willing to accept a 30 per cent default. A few months later, they are now saying they would be prepared to accept 60 per cent. If you are a true capitalist, the banks should accept 100 per cent default and, if they have to be put into administration, so be it. Creative destruction will take its course, and other banks – new banks – with new capital will emerge.
So, for the right, keeping Greece in bonded servitude with yet more new loans and no full debt default simply keeps the banks open to keep financing a corrupt oligarchy.
For the left, the conclusion is similar: the banks are being protected at the expense of the citizen. But they come to it from a different angle. The left (broadly) sees the citizen being asked to suffer austerity, yet there’s no austerity for the banks. The left also see the default of the banks as essential, not so much to teach the banks a lesson in capitalism, but because it is not fair to reduce public expenditure on hospitals and social welfare, and pay the banks in full with scarce money.
They also see what is going on, which is that the next bailout of Greece will extend money to the Greek government, but that they will use this money to pay the banks. Now this means that, gradually, the EU is socialising the banks’ debts because, if you’re using public money from Germany and France to bailout out Greece again, what are you actually doing? You are putting the average German taxpayer on the hook for the mistakes of French banks and others that are up their necks in Greek debt.
So both the left wing and the right wing are in agreement – that plodding from one crisis to the next is the wrong thing to do. So why is it happening?
Maybe what we are seeing is an unholy alliance between the interests of the financial markets casino, mainstream politicians and permanent bureaucracy, all of whom are interested in stability – more of the same.
The casino is interested in this because it makes money. The more the game goes on, the more money the casino makes, and the more the crisis is prolonged, the less it affects the short-term needs of politicians to get re-elected. The reason bureaucrats like stability is because they have created the status quo that we describe as political and institutional stability.
Consider the reaction of these three crucial players at the end of the week to the news that, after a bit of haggling, Greece will get another chunk of money to pay the banks next.
The financial market experienced mini-euphoria. The Greek debt mess is to be ‘resolved’ for another couple of months.
Greece will continue to limp on, it seems, with unemployment at 20 per cent and rising, collapsing economic output, widespread social unrest, rising poverty and inflation running at 5.5 per cent on an annualised basis. This is not good for Greece, but it’s good for the markets and the banks.
The politicians avoided a big decision, and the bureaucracy got more of the same. All the while, the rules of capitalism are mangled, yet the people who are supposed to be über-capitalists on trading floors and in investment banks cheered. The people are being asked to put up with more austerity, yet the social democrats in Europe hailed more money for the Greek state as a victory. And all the while, the enormous European machine demands more centralisation, which will create an even bigger bureaucracy to be nourished.
There has been a lot of talk these past few weeks about the “squeezed middle”. Well, what about the “bloated middle” – the comfortable “insiders” in the financial markets, the banks and the political bureaucracy who, in the face of difficulties, never get fazed, never change and never pay? After all, why make a drama out of a crisis?
But what can the average Citizen do, we carry-on with our daily toil to feed our family hoping that our job does not go next. We are afraid that if we protest we will either make things worse or be singled out for sanction (especially the Public Sector employee).
It is now safer and less painful to look away and get on with our increaslingly desperate lives, that’s what the insiders want, they have beaten us hands down.
David: I respectfully disagree with your analysis. Creative destruction can have unintended consequences. An economic war in which devil takes the hindmost can be just as debilitating as a hot war.
The Greeks are real people who have suffered greatly in a multitude of wars. Their experience cannot be judged from the vantage point of Ireland, which hasn’t been invaded since the 12th century.
And don’t talk to the Greeks about Drama: after all, they invented it.
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Here is another 2 articles from New York Times last week which support Davids arguments
http://www.nytimes.com/2012/02/18/opinion/europes-failed-course-on-the-economy.html?scp=20&sq=Editorial&st=cse
http://www.nytimes.com/2012/02/20/opinion/krugman-pain-without-gain.html?_r=1&ref=opinion
David, why do you devide us in to left and right. i see both sides of your described view points. Banks are private businesses that should go to the wall like any other business when they make bad decisions. why should the taxpayer pay to support these business failures. That makes me a split personality by your reckoning. you still do not arrive at the only solution. You can not see it or you will not believe it. Revert to sound money. Revert to honest money. give the people back their birthright of comodity money. Commodity money protects against bank… Read more »
The ECB made its decision that it would protect the banks at the expense of the citizen, look what happened in Ireland , 70 billion of bank debt now sovereign debt. They chose to save the banks at the expense of the sovereign, this was Trichets legacy and Brian Lenihan carried out his order and now Noonan is doing the same . The banks have had all this cash and they just carry on as before in terms of salaries and bonuses, very few bank workers have lost jobs . Why they chose banks over the people is anyones guess… Read more »
David that is a good and fair synopsis of the Austrian viewpoint of not only the Greek situation but the whole banking system in the western world. What we have now is nothing whatsoever to do with capitalism. It is a crony fascist version where the banking elites are actually the ones really in charge and are dictating the policy through their unelected officials like Von Rumpoy. What we need to return to is an actual free banking system where there is ease of entry for new participants and failed entities are allowed to fail when they make stupid over… Read more »
I wonder if what is playing out is just a social phenomenon that needs to be properly engaged rather than distracting people with the notion that it is down to plain old economics and book balancing. It seems to me that what we are lacking is a professional distance among the specialist groups. We have half hearted attempts at purging conflicts of interest. But there is still too much opportunity to game the system to keep it stable for these groups (bankers/politicians/public servants). For example, there are very clear codes for maintaining professional distance in areas of accounting, law, medicine,… Read more »
Can anyone tell me what would have happenned to the money that savers had in the banks if they had been allowed to fail? I agree that they should pay the consequences but when the investment and savings arms are one and the same and as a saver there is no way for you to see what they are blowing your money on, where do you keep the nestegg?
IT CANNOT GO ON FOREVER…IT WONT
WHEN THE CRISIS ENDS.. WHAT NEXT?
WHAT WILL HAPPEN TO THESE BANKER-POLITIC-beuroCRAT BUNCH?
INVESTIGATION -> PROSECUTIONS.
HA
There’s High/Main Street capitalism and Bog Banks/Wall St capitalism and agribusiness capitalism and crony capitalism. Big banks/Wall St capitalism is a menace to High/Main Street capitalism. Big Banks/Wall St capitalism has bought the governments of the US and Germany/France, and the government bureaucrats now work for the banks’ best interests, that’s crony capitalism. Agribusiness, which has bought governments all over the world, is a threat to human existence.
So what are those who want capitalism to work to do at this point?
And what are those who want to replace capitalism to do at this point?
Last time round (e.g. Iceland, and several hundred US banks) , no one lost their savings when banks went down.
All European countries have systems in place to insure savings, up to a maximum amount. The maximum varies between countries.
When the US Prime Dealer MF Global went down, something like $1.2bn in client account funds vanished, and the financial services sector being what it is now, no one even got their wrists slapped.
Good article but I think the right wing, ‘Austrian’, interpretation, is quite mistaken (I support the ‘left wing’ view as outlined, although otherwise I have big differences of opinion with that world view and am appalled/ entertained by some of their wilful delusions). As I said last week, I see the Austrian approach as utopian, even more so than the believers in globalization, who at least could argue for a few years that they were right. I am persuaded by Polanyi (who wrote his Great Transformation (about 60 years ago), I think, largely to refute Schumpeter, whose policies he believed… Read more »
No matter which wing you play on certain fundamentals must be honoured. 1 If you make an investment and the vehicle for your investment devalues you lose money. 2 If a Bank loans money unsecured or its security falls in value below its loan you write off bad debt. 3 You restructure overdrafts and short term facilities with long term loans not as is now happening with overdrafts being given to pay off maturing term facilities. So for a solution to this across the Board you need to apply the old basic rules not the ones that have somehow come… Read more »
As always, follow the money. It isn’t the Greeks that are being ‘bailed out’, it’s the European (primarily French, UK and German) and US banks that lent to them. The money goes into Greece, stays there for a moment and then immediately flows back out again to the bondholders. in any business activity, there is a notion of co-responsibility. If I’m a billionaire and I choose to invest in cars made out of jelly in a company run by field mice, then the failure of the company may solely be down to the field mice and their unsuccessful product concept,… Read more »
Excellent article in the sense that it is mentioning things that nobody else is mentionining. However, I would not describe the Austrian Economists as the right, or those who are concerned about the citizens taxes as the left. Because neither have much in common, or would claim to have anything in common with the right and left. The left and right as a spectrum for policy analysis is essentially failing to grasp what is happening here. Both the Austrians, and groups who are against waste of tax money are essentially on the same point on a different spectrum – both… Read more »
Iceland is the evidence of how to resolve the crisis.
Life might be tough in Iceland, but Iceland can get out of the mess. We are going the same way as the Greeks, deeper and deeper into the quagmire.
Greece better get it’s self into the export market because they are like Ireland there domestic Market is screwed like Ireland ,the Irish government is only interested in exports and they don’t care about our domestic economic society witch use to be the back bone of Ireland ask anyone n the services sector.
‘So, for the right, keeping Greece in bonded servitude with yet more new loans and no full debt default simply keeps the banks open to keep financing a corrupt oligarchy.’ – DMcW
Says’ it all.
Question is so who are the oligarchy.
Where did they get all this power to be able to put a banking system and govt treasuries to work to fill their boots with endless swag?!
I know this is unrelated but did anyone see the model who drinks pregnant women’s piss and eats only 500 calories daily, but get this, claims it is the piss that is keeping her slim?
€200 a week for 14 drops of the piss. Im in the wrong business.
And the £60,000 sterling on the fight in last nights knuckles doc?
I’m definitely in the wrong business.
And last but not least Joan the Moan saving us €645 million in FRAUD! Those rotten bastards who lost their jobs. Criminals, the whole bloody lot of em.
Hey Cooldude ,World Bank another also ,as you say,the IMF as well
The cat-fights between various castes of the economic priesthood are certainly fun to behold, but they fail to address the underlying issue. The banking systems and bond holding pension funds of mature industrial/post-industrial economies such as Germany, France, and the US-uk foolishly lent vast sums to laggard states such as Greece and Ireland: assuming that these countries would join the party and generate profits through growth to service and repay the loans advanced. Then reality intervened. Debt is a claim on future work. Work is dependent on current and future energy resources. Energy is going to get exponentially more expensive,… Read more »
Solutions anybody?
I’m not a great TV viewer but I must confess to being a bit of a Channel 4 News anorak. Tonight the great Yanis Varoufakis did a turn on Greece and the whole Euro-crisis. But he didn’t just give us an interesting perspective…….He also offerred the simplest of solutions. Enjoy;
http://www.channel4.com/news/the-eurozone-the-ant-and-the-grasshopper
Great article David. You are on the ball today bonnie lad “The reason bureaucrats like stability is because they have created the status quo that we describe as political and institutional stability” They love the stabilty of permanent chaos. Cruel sociopathic Fiedmanite bastards The banker always wins and that is why we must get rid of the bankers. Skint banks borrow at 1% and lend to governments at 5%. Where I come from that is known at ‘taking the pish’ Get out of the Euro, go back to punts, devalue and recover. Athens is on fire. Guess what? Dublin is… Read more »
Bank of Ireland reports losses of €190 Million euro and a “impairment” of almost €2 Billion ! Today B.O.Is dear leader Mr Boucher states the Bank is willing to lend to viable , strong business only………!!! Good job the Government didn’t take such a view on B.O.I with “our” bailout for him or “his” Bank would have went down the toilet………..where it belongs. Who deserves more to be marched off to Kilmainham jail ? Mr Boucher or the Auditor who came up with the spin that is “impairment”……… Impairment = non-functioning or not working fully……impaired.The Bank cannot get repaid on… Read more »
Europe seals new Greek Bailout
So, ‘Plucky Little Greece’ survives to fight another day.
Wonderful article, DMcW. In a concise piece you take on the Austrian School, Schumpeter’s “Creative Destruction”, and the Oligarchy. Then the Bureaucracy of the EU machine, the Right and Left. When Right and Left agree, something owns both. It is but an infinitesimal step to Empire, a small step for some, a giant leap for most. Empire always needs a “permanent bureaucracy”. Even the giant EU machine is a satrapy of Empire, all governments replaced by “governance”, itself not a state. There is only one Empire – the British Empire, reaching into every corner especially the Oval Office now. Is… Read more »
The next payment from Ireland is due on 31st March….are we all going to watch and talk rhetoric again…!! Maybe if the relevant office recieved a few hundred thousand e-mails every week??
One wouldn’t even have to get out and walk…!!!
Latest update from the Greek Drama. Europe agrees to second Greek bailout http://www.marketwatch.com/story/second-bailout-agreed-for-greece-reports-2012-02-20 1. Under Tuesday’s agreement, European member states will lower interest rates on their loans to Greece retroactively to a margin of 150 basis points from 200 basis points. 2. Private-sector bond holders will take a haircut of more than 53% on around €200 billion worth of privately held Greek government debt. I get the sense that what we will see from the clowns in Kildare Street in the coming days will be more unbearable nonsense. More new taxes coming your way to pay the Anglo Bond holders.… Read more »
If there is anything flammable left in Athens, don’t expect it to be there much longer!!!
“Why make a drachma out of a crisis”!!!!!!
When the money machine can just roll on and on and on……..
Creative destruction – Joseph Schumpeter.
This therory explains why;
Newpapers are dying – destoyed by Online forums.
Amazon/Kindle has destroyed bookstores.
Napster/downloads have destroyed CD’s etc
Old stuff gets cleared out New business and technologies spring up to replace.
Tough but brutally fair
Now why hasn’t this been applied to the Irish property market?
Wobble Dyson & Sucks
Today ( New Moon ) is the beginning of the journey to the climax of the Moon Wobble on the 28th only to be followed by another suck into the Full Moon a week later .
The Great Show begins now and any nominations can be handed in at the office box for the Global Awards that no doubt will be seen on your cable free TV very soon .
Just checked RT’s M.Keiser – the collapse of Lehman, MF Global, AIG, Madoff have not changed a single bankers rule. And it looks like London triggered all these, which it should – it is the epicenter. High time to Glass-Steagall the system. Goldman Sachs’s Blankfein says the insider trading is market-making following Sir Alan Greenspan. It is becoming much more explicit that Mandeville’s economics is in fact exactly what is going on. Nothing must get in the way of Private Vice (sorry market-making) – it might threaten the Public Good. This is an incredibly evil logic – Hayek was right… Read more »
Just watched footage of Spanish Riot Police dealing with students and the public in Valencia (Shocking)
Talk about the system turning fully on the people.
I suppose RTE will ignore and our politicians will now pretend that Spain in a third world country.’Ah sure you’d feel sorry for them but sure isn’t it their own fault.’
Apolgies for OT but I have to share this burnished prose from the Da Vinci Code (p22): “He turned and gazed tiredly into the full-length mirror across the room. The man staring back at him was a stranger – tousled and weary. You need a vacation, Robert. The past year had taken a heavy toll on him, but he didn’t appreciate seeing proof in the mirror. His usually sharp blue eyes looked hazy and drawn tonight. A dark stubble was shrouding his strong jaw and dimpled chin. Around his temples, the grey highlights were advancing, making their way deeper into… Read more »
I think to understand why Greece is being destroyed, almost all the “explanations” fall on their faces. Widen the view – Why did France/Britain/Obama murder a captive Ghadafi (and leave a totally destroyed country)? Widen the view again – why did Bloomberg publish recently a report on Putin (“days numbered”) with a blood-stained portrait on the ground? Now we are getting to the issue – Greece, Libya Eire, Portugal have no chance to stop this. Russia has. So Russia has become target number 1, and that means, well guess. Elections soon could mean Putin wins – will Obama bomb before?… Read more »
Afternoon all,
I will be writing on Greece in the Indo tomorrow. Dreadful deal. Retiring old debt and paying for it with new debt.
Nothing new there.
Best
David
RTE News discussing Moon Rock in dunsink dump……….!!!!
I could not make this stuff up.lol
Could this is the real reason why Greece is being bought off and suppressed http://coldfusion3.com/category/lenr
Just imagine if this had any traction.
What have you got to say about the ESM David?
http://www.youtube.com/watch?v=EPcWHBPYOSU&feature=g-vrec&context=G26e1162RVAAAAAAAAAg
Folks this link will click you over to an article on the global pOnzi banking scam.
The nuts n bolts.
Here it is.
All.
http://www.huffingtonpost.com/ellen-brown/greece-default_b_1287970.html
It is about to collapse.
World banking meltdown.
What to do?!
Fellow subscribers, Please study the attached; http://freedomfromalldebt.com/ Watch the video! And let me know what you think? I’d really love to see David to do an article about The Law and the Constitution – I mean if a persons home is inviolable under our constitution what exactly does that mean? Is it the same inviolable as claimed by the ESM or a watered down version for practical banking purposes? Is it my ignorance that makes me so angry? Because if we keep trodding on ordinary folk expecting them to take 100% responsibility for wreckless banking practices then we’re surely going… Read more »
http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9097219/50p-tax-rate-failing-to-boost-revenues.html
austrian economics 101…
what a suprise, okay, no not really…
calling art laffer, art laffer to the red telephone please.
Just a little light hearted, honesty…..
http://www.youtube.com/watch?v=rK0De210TBQ&feature=player_embedded
Iceland continues its remarkable economic recovery with debt relief policies:
http://www.businessinsider.com/another-awesome-fact-from-icelands-banking-recovery-2012-2?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Europe%20Select&utm_campaign=Europe%20Select%202012-02-22