The roots of the crisis lie far away from Greece; they lie in the architecture of European banking. When the euro came into existence in 1999, not only did the Greeks get to borrow like the Germans, everyone’s banks got to borrow and lend in what was effectively a cheap foreign currency. And with super-low rates, countries clamoring to get into the euro, and a continent-wide credit boom underway, it made sense for national banks to expand private lending as far as the euro could reach.
So European banks’ asset footprints (loans and other assets) expanded massively throughout the first decade of the euro, especially into the European periphery. Indeed, according the Bank of International Settlements, by 2010 when the crisis hit, French banks held the equivalent of nearly 465 billion euros in so-called impaired periphery assets, while German banks had 493 billion on their books. Only a small part of those impaired assets were Greek, and here’s the rub: Greece made up two percent of the eurozone in 2010, and Greece’s revised budget deficit that year was 15 percent of the country’s GDP — that’s 0.3 percent of the eurozone’s economy. In other words, the Greek deficit was a rounding error, not a reason to panic. Unless, of course, the folks holding Greek debts, those big banks in the eurozone core, had, over the prior decade, grown to twice the size (in terms of assets) of — and with operational leverage ratios (assets divided by liabilities) twice as high as — their “too big to fail” American counterparts, which they had done. In such an over-levered world, if Greece defaulted, those banks would need to sell other similar sovereign assets to cover the losses. But all those sell contracts hitting the market at once would trigger a bank run throughout the bond markets of the eurozone that could wipe out core European banks.
Clearly something had to be done to stop the rot, and that something was the troika program for Greece, which succeeded in stopping the bond market bank run — keeping the Greeks in and the yields down — at the cost of making a quarter of Greeks unemployed and destroying nearly a third of the country’s GDP. Consequently, Greece is now just 1.7 percent of the eurozone, and the standoff of the past few months has been over tax and spending mixes of a few billion euros. Why, then, was there no deal for Greece, especially when the IMF’s own research has said that these policies are at best counterproductive, and how has such a small economy managed to generate such a mortal threat to the euro?
—Mark Blyth
A Pain in the Athens
Did Jeb Bush really mean to say that Americans need to work more hours? It’s hard to say. But as
I remember during the 1988 DNC, there was conflict. Jesse Jackson got almost 30% of the popular vote. Michael Dukakis did not intend to have Jackson be a major part of his campaign. And so there was a meeting between Jackson and Dukakis. And Jackson came out of the meeting talking about how they had had a substantial discussion about important issues. And it was pretty clear that what he got was nothing. He was putting on the best face in a bad and extremely embarrassing situation. I felt bad for him and I was a Dukakis supporter. Wasn’t there any way that all those smart people in the Democratic Party could come up with a better way to support the man that came in a very good second place? (Dukakis only got 42% of the vote.)
On this day in 1804, the infamous
At one time, I was trying to write some children’s nonfiction. It was a book about “nice guys” who “finished first.” Each chapter was a biography of someone who was very successful who was also known to be a good person — “nice guys” (and gals). The problem was that whenever I did enough research on a person to write about them, they turned out not to be so nice. The best example of this was Milton Hershey. He is widely praised for being decent to his employees, and for making his company town, Hershey, Pennsylvania, into the town that had no depression, because he kept everyone working.
Lee Fang wrote a really good article over at The Intercept on Monday,
Fang provided some history of these clinics. I had assumed they went back forever. But that’s not true at all. They started in the early 1960s. Apparently, people who came to the south to work on voting and other civil rights were seen as “outside agitators.” As a result, the good doctors of these areas refused to treat them. (That’s one way of interpreting the Hippocratic Oath!) This lead to the formation of the Medical Committee for Human Rights (MCHR). They set up clinics. But the doctors noticed that the African American populations did not have much or any access to medical care. Eventually, this grew to providing clinics throughout the nation in poor communities.
Brian Beutler wrote a very insightful article,
Beutler provided two examples of politicians pursuing these options. Donald Trump is pursuing the “Screw you!” approach. But he isn’t alone: Ted Cruz, Rick Santorum, and Ben Carson are right there with him. Now, I don’t think it is any coincidence that none of these four is a serious candidate. The “Pretend” approach is exemplified by Rick Perry, who gave a campaign speech on the issue highlighting the fact that the Republican Party has been too focused on the Tenth Amendment (limit of federal powers) and not focused enough on the Fourteenth Amendment (equal protection under the law). I would quibble with the conservatives fetishization of the Tenth Amendment; they almost always mistake it for a similar sounding part of the Articles of Confederation. But Perry’s speech was good, and to some extent, the viable candidates are following in the same vein.
On this day in 1973,
The final issue has to do with the meaning of a cost of living index. The underlying idea is that we are supposed to have enough money to buy a basket of quality adjusted goods and services over time that will leave us equally well off through time. An explicit assumption is that the physical and natural infrastructure have not changed. This is seriously problematic.
I am well aware that I often appear to be anti-German. That’s not entirely an incorrect assessment. Germany reminds me very much of the United States. Both are countries filled to the brim with undeserved self-righteousness. They say to anyone who will listen, “If only you were more like us, you would be fine — or at least better.” I hate this attitude in individuals and when I see it in countries, it frightens me. But is it really the case that Germany is behaving so badly toward Greece because of their pigheaded self-delusions about the German work ethic and frugality? Let’s say that it is at least a bit more complicated.
Or course, the truth is that we all do know that these evil undocumented immigrants look the same. We are talking about Mexicans — or at least Latinos. That’s as clear as the fact that the “welfare queen” was black. (Even though
On this day in 1868, the