Cockeyed Optimists

The Musical Chairs Economy

by Ian Welsh

2012 February 19

(T)here will be recessions and non-recessions (amidst what is an ongoing long Depression).  And in each recession those who fail to grab a chair will be cast out into the dispossessed.  Those who keep their chairs will be allowed to keep some facsimile of the “American lifestyle”.

The people who run the American economy and political system will continue along these lines so long as it continues to bring them money or power.  As noted, they do not have fellow feeling for other Americans, they believe they earned everything they have, and that if someone else isn’t prosperous, it’s because they didn’t earn it.  Such useless eaters are a drag on society.

I emphasize the thought process, which some will find polemical, because it is at the heart of the problem.  It is the most important part of the post.  There are other options, from the managed decline favored by environmental purists through to various types of smart growth.  They are not being pursued and will not be pursued because they are more work with less certainty of who will reap the profits and power than simply managing the current decline, and culling the herd from time to time, as necessary.

“The powerful do as they will, the weak suffer what they must.”

As long as you, the people, believe you are weak, you will suffer what you must.

The improbable Greece plan

By Felix Salmon, Reuters

February 21, 2012

The plan assumes that 95% of bondholders will accept this deal, which seems optimistic to me. Bondholders are by their nature a fractious and contrarian bunch, and Greece is not saying that it’s going to default on holdouts. As a result, bondholders have to guess what might happen if they fail to tender into the exchange: they might get defaulted on and receive nothing; they might get paid out in full; or they might get defaulted on while being offered, for the second time, the same exchange they’re being offered right now. Some of them, especially the ones holding English-law bonds, might well be tempted to hold on to at least some of their bonds, just to see what happens.

More to the point, the plan assumes that Greece’s politicians will stick to what they’ve agreed, and start selling off huge chunks of their country’s patrimony while at the same time imposing enormous budget cuts. Needless to say, there is no indication that Greece’s politicians are willing or able to do this, nor that Greece’s population will put up with such a thing. It could easily all fall apart within months; the chances of it gliding to success and a 120% debt-to-GDP ratio in 2020 have got to be de minimis.

Europe’s politicians know this, of course. But at the very least they’re buying time: this deal might well delay catastrophic capital flight from Greece, and give the Europeans more time to work out how to shore up Portugal if and when that happens. Will they make good use of the time that they’re buying? I hope so. Because once the Greek domino falls, it’s going to take a huge amount of money, statesmanship, and luck to prevent further dominoes from toppling.

Greek Bailout Secured, But Secret Report Shows It Won’t Work

By: David Dayen, Firedog Lake

Tuesday February 21, 2012 6:15 am

This is a recipe for endless bailouts, for more money, from the Eurozone. Greece will not have the ability to pay its debts and no other means of borrowing money. And that assumes that this deal WORKS, meaning that there’s no overthrow of the government, that a new leadership after elections in April doesn’t object to the plan, that creditors don’t revolt from the harsh terms of the haircut, etc. And this program only gets more expensive for the Eurozone over time. Even the fairly optimistic “downside scenario” from the confidential report shows that, saying that Greece will need €245 billion in aid.

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But the Germans were reluctant to agree to even this bailout, and will be more reluctant when it doesn’t work and Greece comes a-begging. This problem either gets bigger or is no longer seen as a problem. And somehow, I don’t think the richer countries in Europe will continue to accept these transfers. This buys nothing but time, and in the long run it’s fiscally stupid, if Greece will eventually leave the euro.

Satyajit Das: It’s All Greek to Me!

By Satyajit Das, Naked Capitalism

Tuesday, February 21, 2012

Everyone knows the amount of money available is insufficient to deal with the problems.

History suggests that a write-down of debt for distressed borrowers is frequently followed by others.

The entire trajectory of discussions, plans and negotiations largely ignores Greece. There is no longer any pretence of “assisting” Greece. It is about ensuring that German and French banks minimise their losses. It is probable that no funds will be released to Greece but rather placed in a special account from where it will be used to meet the country’s debt obligations.

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Subplots connect main plots in thematic terms or provide minor diversions or comic relief. The light relief in this instance come from a group of hedge funds who have threatened to take action in the European Court of Human Rights alleging that Greece has violated bondholders “rights”.

In the end, Greece may live to default another day. Other embattled European nations will be scrutinising the Athenian sub-plot extremely closely as to clues as to their future as they await the battles that lie ahead.

Nellie Forbush is a very flawed character.