[np] Austerity is not Greece's Problem (Ricardo Hausmann)

Wed Jul 8 10:02:04 CDT 2015

http://www.thomhartmann.com/blog/2011/11/transcript-thom-hartmann-matt-taibbi-greed-greece-andgoldman-sachs-november-1-2011

*Matt Taibbi:* Well it's a fairly complicated story but essentially way
back in I think it was 2001 or 2002 Greece was facing a debt crisis, in
order to retain it's membership in the EU I believe the situation was that
their government couldn't exceed a certain number, it was something like
60%, of their GDP, or something like that. And so they were in danger of
exceeding the EU prescribed debt limit and they needed to get around that
problem. So what they did is they went to…

*Thom Hartmann:* Right, if I may interrupt. And the reason that was a big
issue was because if they got kicked out of the EU they couldn't use the
Euro, they wouldn't have access to all the resources of the rest of the
European Union, they couldn't sell and buy at no tariffs, those kinds of
things.

*Matt Taibbi:* Exactly, and again this all will end up tying into all the
problems that Europe is experiencing now, trying to hold the Euro together,
trying to hold the EU together economically, and so on. So Greece is in
sort of this economically a rogue state, it was exceeding it's debt limit.
And so what do you do when you have that situation if you're a sovereign
entity like Greece, you can go to the invest banks. And what they did is
they arranged with Goldman, they bought a series of what I call cross
currency swaps. It's essentially an interest rate swap, or currency swap.
And all it really did is, it's a derivative instrument that allowed Greece
to push more of its debt into the future as opposed to having to pay it up
front. Now there are some people who would contend that what Greece did by
essentially reworking its balance sheet to make it look like it didn't have
to pay off that much debt that year, that didn't actually change its debt
situation. It was still over it's debt limit, it had just rearranged the
deck chairs a little bit to look like it had less of a…

*Thom Hartmann:* Not only that, it made it worse. Because now they had fees
that they had to pay to Goldman.

*Matt Taibbi:* Right, right exactly. And that sounds bad enough, but what's
so incredible about this story is that after Goldman set up you know sold
Greece all of these swaps, and incidentally this is, we'll get into this
too, this is something that goes on not just in Greece but in countries all
over the world and locally here in the United States, places like Jefferson
County, Alabama. These swaps are everywhere. As soon as they did this, what
did they do. They went up and they set up an exchange so that you could,
they and other investment banks could short, in other words bet against
Greek debt. So they worsened Greece's debt situation and then turned right
around and bet against them. So all of this sort of leads directly to the
situation that we're in now, because these situations, all it really does
is you take a present group of politicians who have financial problem and
they just hire the investment banks to kick the problem to a future set of
politicians and that's what's happening now. The 2002 politicians created
the mess that we're in now.

*Thom Hartmann:* But it was basically the same scam. And these Wall Street
banksters who basically, just set up and now are bringing down Greece, are
absent from the news. They're just absent from the news reports. Just like
they're absent from the news reports when states talk about how their
pension funds are broke. Nobody ever mentions the fact that their pension
funds are broke because they were invested in CDOs and derivatives that
were sold to them by these Wall Street banks. I don't get it. How do they
get away with this invisibility?

*Matt Taibbi:* I don't know that. I think people don't understand how these
things work. You know, in the case of the mortgage backed securities, this
is just outright, you know, theft. I mean what these guys are doing on Wall
Street, you know, they would, you know, lend money to a company like
Countrywide or New Century, that would create a huge mass of really, really
dingy subprime loans. And then they would take those loans, chop them up,
turn them into AAA rated securities, using some hocus pocus math. And then
they would turn around and look for suckers who manage state pension funds
and they would take thes guys to the super bowl and to strip clubs and get
them to spend a billion dollars of taxpayer money buying this stuff. And
then when it all blows up, oh well suddenly it's the state is broke and it
can't pay its pension funds because we're paying too much in salary to
teachers and firemen or whatever it is. And somehow they forget this other
story that went on that actually caused the problem.

On Tue, Jul 7, 2015 at 12:59 PM, Dave Monroe <against.the.dave at gmail.com>
wrote:

>
> http://www.washingtonpost.com/blogs/wonkblog/wp/2015/07/06/thomas-piketty-accuses-germany-of-forgetting-history-as-it-lectures-greece/
>
> On Tue, Jul 7, 2015 at 12:55 PM, Dave Monroe <against.the.dave at gmail.com>
> wrote:
> >
> http://www.zeit.de/2015/26/thomas-piketty-schulden-griechenland/komplettansicht
> >
> > On Sat, Jul 4, 2015 at 6:42 AM, Kai Frederik Lorentzen
> > <lorentzen at hotmail.de> wrote:
> >>
> >> When looking out a window, it is easy to be fooled by your own
> reflection
> >> and see more of yourself than the outside world. This seems to be the
> case
> >> when US observers, influenced by their own country's fiscal debate,
> look at
> >> Greece.
> >>
> >> For example, Joseph Stiglitz regards austerity in Greece as a matter of
> >> ideological choice or bad economics, just like in the US. According to
> this
> >> view, those who favor austerity must be obsessed with the theory, given
> the
> >> availability of a kinder, gentler alternative. Why would you ever vote
> for
> >> austerity when parties like Greece's Syriza or Spain's Podemos offer a
> >> pain-free path?
> >>
> >> The question reflects a lamentable tendency to conflate two very
> different
> >> situations. In the US, the issue was whether a government that could
> borrow
> >> at record-low interest rates, in the middle of a recession, should do
> so. By
> >> contrast, Greece piled up an enormous fiscal and external debt in boom
> >> times, until markets said “enough" in 2009.
> >>
> >> Greece was then given unprecedented amounts of highly subsidized
> finance to
> >> enable it to reduce gradually its excessive spending. But now, after so
> much
> >> European and global generosity, Stiglitz and other economists  argue
> that
> >> some of Greece's debt must be forgiven to make room for more spending.
> >>
> >> But the truth is that the recession in Greece has little to do with an
> >> excessive debt burden. Until 2014, the country did not pay, in net
> terms, a
> >> single euro in interest: it borrowed enough from official sources at
> >> subsidized rates to pay 100% of its interest bill and then some. This
> >> situation supposedly changed a bit in 2014, the first year that the
> country
> >> made a small contribution to its interest bill, having run a primary
> surplus
> >> of barely 0.8% of GDP (or 0.5% of its debt of 170% of GDP).
> >>
> >> Greece's experience highlights a truth about macroeconomic policy that
> is
> >> too often overlooked: The world is not dominated by austerians; on the
> >> contrary, most countries have trouble balancing their books.
> >>
> >> Recent advances in behavioral economics show that we all have enormous
> >> problems with self-control. And game theory explains why we act even
> more
> >> irresponsibly when making group decisions (owing to the so-called common
> >> pool problem). Fiscal deficits, like unwanted pregnancies, are the
> >> unintended consequence of actions taken by more than one person who had
> >> other objectives in mind. And lack of fiscal control is what got Greece
> into
> >> trouble in the first place (...)
> >>
> >> The problem is that Greece produces very little of what the world wants
> to
> >> consume. Its exports of goods  comprise mainly fruits, olive oil, raw
> >> cotton, tobacco, and some refined petroleum products. Germany, which
> many
> >> argue should spend more, imports just 0,2 % of its goods from Greece.
> >> Tourism is a mature industry with plenty of regional competitors. The
> >> country produces no machines, electronics, or chemicals. Of every $10 of
> >> world trade in information technology, Greece accounts for $0.01.
> >>
> >> Greece never had the productive structure to be as rich as it was: its
> >> income was inflated by massive amounts of borrowed money that was not
> used
> >> to upgrade its productive capacity. According to the Atlas of Economic
> >> Complexity, which I co-authored, in 2008 the gap between Greece's
> income and
> >> the knowledge content of its exports was the largest among a sample of
> 128
> >> countries (...)
> >>
> >>
> >>
> http://www.project-syndicate.org/commentary/greece-export-problem-by-ricardo-hausmann-2015-03
> >>
> >>
> -
> Pynchon-l / http://www.waste.org/mail/?listpynchon-l
>
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