I find it quite amusing to read all the catastrophic headlines appearing on my news feeds, telly or old-fashion gossip, I really do. We have to realize something, though, this Greek business is a misleading event – it’s not new, it has happened before and more importantly it can be analyzed from another angle in another setting. You know, sort of like in 2008? Too big to fail sound familiar?
Well, it should. The reason nobody’s willing to take that stake and plunge it into “evil” Greek hearts is … it will come back to haunt them. Greeks don’t want austerity, don’t want to pay back the loans, don’t want to listen to other governments and financial institutions telling them they have to bail out foreign banks with local money and more importantly, they don’t want to be responsible for what the big global financial crisis brought. They’re right, you know. Nobody sane would want that, either, in this set of circumstances. You know why? Because it’s impersonal. Because somebody up the Greek political ladder was smart enough to recognize and is betting on what I’m about to tell you next.
I’m going to start on a little history here – why exactly did this financial crisis occur? The short answer, because governments were dumber than ever and stepped down from their role as preventers of abuse, because they took down some laws that restricted banks betting (this here word is quite reasonable in describing the financial markets) their shareholders money and loosening the laws about strict financial risk management. In other words, banks brainwashed everybody into gambling their fixed amounts of money and when that wasn’t enough, they lobbied successfully to be able to create more money in order to lend their clients as capital for more gambling. They created formulas to hide risk by bundling it with safer products. They created debt and if big profits are to be gained, it’s like Christmas shopping, get it while it lasts. Only it didn’t last. Now, think when it all went belly up, how many of the big sharks went kablooey? Very few, innit? They were so big that governments had to choose between sanitizing the financial system or the short term welfare of their citizens and you know exactly what a politician would choose in that particular scenario, right? They chose to keep their voters happy and their jobs safe, and to hell with justice. That’s how bailouts work. I still have no idea how it’s possible to have more debt than cash but that’s just me, the real question is if everybody is in debt and nobody is in the positive, to whom does that debt go? If I owe John 3 quid, John owes Caitlin 4 quid and Caitlin owes me 3 quid, why don’t we take the logical approach and simply compensate the debt? That way only John gets to owe Caitlin 1 quid and the rest of us are quite peachy, thank you… Why isn’t this used? Because the people owing money are also shareholders and expect profits from those shares and everything is connected so by basic psychology the political stuff doesn’t want to sanitize the system because the shareholders who vote them would lose money but those shareholders also owe money to each other and to other companies other people own. Nobody wants to give up on future gains when they’re also in debt.
That was history. The fact was, the banks knew that they were above the law, too big to fail so to speak, and they have placed that idea within the collective psyche – debts should be repaid in full otherwise banks default, insurers default, companies relying on insurance default, people lose jobs, money, cats and dogs become friends, pigs fly and there’s panic and pandemonium everywhere. So the best way to fix it is to do nothing and pass the buck to the next generation. Nobody is willing to undertake a global scale financial fix’er up plan. But now there’s Greece.
You see, politics works like this – Greek government won the elections by promising no more austerity. If they gave in, they’d lose their jobs and their political future so that’s out of the question. They’d probably default instead of doing what they’re told. Now the EU and IMF and the rest of the lenders have no trust in the Greek ability to bounce back but they’re also held nice and tight by the balls by their citizens – if they agree with Greece and cut part of that debt off, they’re challenging that unwritten rule that debt is supposed to be paid in full. How fast do you think they’d find themselves face to face with protesters demanding the banks take responsibility of the bad loans and remove the bailouts if another crisis looms? Cash is king, unless there’s inflation so … Who the hell controls all the cash? And what happens when people realize they’ve been paying banks for the priviledge of keeping their money and sometimes not losing it when they gamble it away? You think they’re willing to wait for their government to take part of it away like in the Cyprus situation?
It’s a lose-lose scenario. The only logical way to win is to do nothing at all to fix the problems, just keep lending until you can pass it to somebody else. Pay nothing back, roll the debt until it’s somebody else’s problem. Is there a way to get China to buy all the Greek debt? Or USSR, for that matter, maybe. Somebody in the Greek government knows of this and stalls because it’s the best thing for them. They’ll stay in the EU, they’ll keep the euro, they’ll be hated by everybody but who cares as long as they got exactly what they wanted – no change.
It’s quite nice, actually. Nothing gets solved but politicians still retain power while banks still put out big fictional profits. You know that banks finance a big part of the state debt, right? And if you owe the banks and another guy owes you it stands to reason the banks have a nice interest in the other guy as well… Only they get to bet on you or the other guy, making more money while you’re busy clobbering each other silly. Congratulations. Goldman Sachs all over again.
Need more? Well, I do believe it’s started: “the optimal policy involves living with the debt forever”. How’s that for an encore?