Germans Insist Any Greek Debt Deal Must Involve Private Investors
Germany now want private investors to "participate" in any Greek debt deal proposals. Simon Nixon of the Wall Street Journal says that this has "spooked investors who fear they will be forced to take losses as a first rather than a last resort. A solution that avoided that would reassure bondholders" Spooked?
Let's get this straight. Bondholders - people who bought Greek debt - are spooked because they might actually stand to suffer losses on the crap they bought? Isn't that the way things should work? I know if I buy something and it turns sour, I take a loss. And I know that if I buy something that's a crappy investment (not that I would ever do that, of course!), I'd not only take a loss, but I'd kick myself and find out how to avoid ever doing something so boneheaded again. But that's just me.
Apparently the way things work for idiots who buy Greek sovereign debt (bonds issued by the Greek government) is that they don't take losses. They expect someone - for example the European Central Bank or the U.S. Federal Reserve Bank, or some government - to protect them from losses. And, I'll be darned, that's just what goes on.
In exchange, they'll keep buying the crappy bonds of governments who have no prayer of paying back their principal, maybe not even their interest, because some other government and/or central bank will step in and make them whole.
So now, if they're going to actually take some risk when they buy these bonds, maybe they won't come to the table the next time some of this crap is offered. Hey, you don't expect them to take any risk, do you?
Who are these "them"? Typically, they're banks. Banks buy this crap, with the notion that they won't take losses because some government of central bank will protect them from losses. And so irresponsible governments can keep borrowing money (issuing bonds) and continue to be irresponsible. They can continue to spend money they don't have. That "public spending" keeps them in power. They're happy, the people who get the money they spend are happy and the people who lend them the money are happy.
So who's unhappy? Well, if the governments who step in to save these idiot investors tax their people in order to come up with the money needed to buy up the crappy bonds from the banks who don't want to take losses, then the people who pay taxes suffer. Their tax dollars are supporting banks who made stupid investments.
And if the governments who step in to save these idiot investors don't tax their people, but rather create the money (out of nothing) to pay for the crappy bonds from the banks who don't want to take losses, guess who suffers then? Right, the people - the same people who would have suffered if their taxes were used to protect banks who made stupid investments, instead of for something beneficial to the people. Only the people won't realize their getting hosed by the creation of money out of nothing right away. It will take some time until they realize that the money created to protect the bankers will ultimately result in their (the people's) own money losing value.
And this is supposed to be a sane and healthy way to handle the Greek debt problem and all the other debt problems out there that have already appeared (Ireland and Portugal), or are now appearing (Italy) or are about to appear (Spain and - dare we say it - the U.S.)?
So it'll be interesting to see what happens to the Germans suggestion that "private investors" take some responsibility for their investments (a novel idea, don't you think?). I don't think it'll fly. I think that the Germans will have to back down and go back to the old way of doing things. They'll have to protect the idiot investors from their idiocy. The more interesting thing will be to see if the German people catch on and realize that, somewhere along the line, they're going to get hosed.
Then again, why shouldn't they join the party.
Let's get this straight. Bondholders - people who bought Greek debt - are spooked because they might actually stand to suffer losses on the crap they bought? Isn't that the way things should work? I know if I buy something and it turns sour, I take a loss. And I know that if I buy something that's a crappy investment (not that I would ever do that, of course!), I'd not only take a loss, but I'd kick myself and find out how to avoid ever doing something so boneheaded again. But that's just me.
Apparently the way things work for idiots who buy Greek sovereign debt (bonds issued by the Greek government) is that they don't take losses. They expect someone - for example the European Central Bank or the U.S. Federal Reserve Bank, or some government - to protect them from losses. And, I'll be darned, that's just what goes on.
In exchange, they'll keep buying the crappy bonds of governments who have no prayer of paying back their principal, maybe not even their interest, because some other government and/or central bank will step in and make them whole.
So now, if they're going to actually take some risk when they buy these bonds, maybe they won't come to the table the next time some of this crap is offered. Hey, you don't expect them to take any risk, do you?
Who are these "them"? Typically, they're banks. Banks buy this crap, with the notion that they won't take losses because some government of central bank will protect them from losses. And so irresponsible governments can keep borrowing money (issuing bonds) and continue to be irresponsible. They can continue to spend money they don't have. That "public spending" keeps them in power. They're happy, the people who get the money they spend are happy and the people who lend them the money are happy.
So who's unhappy? Well, if the governments who step in to save these idiot investors tax their people in order to come up with the money needed to buy up the crappy bonds from the banks who don't want to take losses, then the people who pay taxes suffer. Their tax dollars are supporting banks who made stupid investments.
And if the governments who step in to save these idiot investors don't tax their people, but rather create the money (out of nothing) to pay for the crappy bonds from the banks who don't want to take losses, guess who suffers then? Right, the people - the same people who would have suffered if their taxes were used to protect banks who made stupid investments, instead of for something beneficial to the people. Only the people won't realize their getting hosed by the creation of money out of nothing right away. It will take some time until they realize that the money created to protect the bankers will ultimately result in their (the people's) own money losing value.
And this is supposed to be a sane and healthy way to handle the Greek debt problem and all the other debt problems out there that have already appeared (Ireland and Portugal), or are now appearing (Italy) or are about to appear (Spain and - dare we say it - the U.S.)?
So it'll be interesting to see what happens to the Germans suggestion that "private investors" take some responsibility for their investments (a novel idea, don't you think?). I don't think it'll fly. I think that the Germans will have to back down and go back to the old way of doing things. They'll have to protect the idiot investors from their idiocy. The more interesting thing will be to see if the German people catch on and realize that, somewhere along the line, they're going to get hosed.
Then again, why shouldn't they join the party.
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