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Richard Koo: "Greece Was A Subprime Borrower"
The Nomura strategist shares his latest insights into Greece and the European contagion. As widely reported, the Western media blames the subprime crisis on “the bankers” for lending to American home buyers who lied on their loan applications and who clearly could not afford their interest payments. It is somewhat ironic that the same popular outrage (at least in core Europe) is now directed entirely at Greece for taking on debts it could not repay, while the bankers who lent the money remain without blame. Perhaps the media thinks the Greek government should have known better, while the average subprime borrower was too simple-minded to be culpable? Koo is happy to lay the blame with the bankers, in both instances, for not doing adequate due diligence. In the case of Greece, the economy’s structural problems were well-known, and he points out that both the subprime and Greek crises were the result of banks/investors chasing high yields and ignoring the inherent high risks. Koo thinks the Maastricht Treaty’s 3% ceiling on fiscal deficits is extremely problematic, as it does not allow for necessary fiscal stimulus when nations find themselves in a balance sheet recession. It is also unenforceable (as we have just seen); plus levying fines on Greece for its violations makes little sense at this point given that it has no money.
So what are Greece's optiona according to Koo?
- It can leave the Eurozone, but Koo thinks people would cling to their strong Euros and reject the reimplementation of the Drachma...
- It can announce an end to government bond sales to foreigners (in the private sector)—Koo thinks that putting the onus on the Greek populace to buy its own bonds would reassure the nation’s creditors in the short term, and would make it politically easier for the government to reduce fiscal outlays. “If you want more Greek government cheese then go buy some more Greek government bonds...”
Koo suggests that governments that elect to discontinue foreign bond sales should be exempt from the 3% rule, and this would in turn restore Greece’s fiscal flexibility during the downturn.
An interesting, if unfortunately, entirely unfeasible option, as Goldman would never back it.
Full note below:
h/t JG
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Iceland's economy collapsed first, as interest rates spiked and mass protests ensued.
Today they are putting their banksters in jail.
http://www.icenews.is/index.php/2010/05/11/yet-another-day-of-iceland-banking-arrests/
The US is a few years behind, but I am hopeful that it will happen here too.
i dont blame the bankers for lending more than could be paid back. i blame them for manipulating the elected oficials into covering the debt.
Nice. No, don't blame the public officials who were entrusted by the voters to act on their behalf and in their best interests. We couldn't expect nor should we demand any ethical behavior, now could we? Your argument holds about as much water as yesterday's "We can't reform Frannie/Freddie right now because it's too complicated."
You're right, don't blame the people who not only know the rules, but fucking wrote them, let's make them a victim in all of this too.
not sure who said that FRE/FNM thing but it sure was not me. they are a prime case of what bankruptcy laws were made for and then not applied. if you lend someone so much money he can not realistically pay it back, you must take a haircut. if you lend him so much money it threatens your existence, you are the sucker and have to go out of business. anyways, i think you are overestimating the intelligence of an average high level politician. majority of them are there for their social skills and have zero say on most things due to party policies and these policies are developed by experts who are in fact biased lobbyists. it has always been like this and it is not going to change unless we find a way of running the system into the ground.
The comment was made yesterday on CNBC (quick google search will lead you to much hillarity); I was merely pointing out the ridiculousness of blaming lenders in a situation when we're dealing with sovereign powers. You might be able to make the case of predatory lending if we're dealing with individual homebuyers, but we're not. Arguably these are people with access to the best information and are experienced with managing the issues of an entire country and its membership in the EU, otherwise they wouldn't be where they are. The buck stops with them. Hiding behind the excuse of supposed financial opacity is weak at best, and in and of itself an almost greater moral hazard. Because if those pulling the trigger aren't responsible, who is? It's like watching someone's house burn down, and then getting angry at the fire for doing it without so much as even trying to understand why it burned down in the first place. We might as well go back to living in dung huts, speaking with a system of grunts and clicks, and worshiping pagan gods and animal spirits.
I hear what you're saying though, and agree. But leading a country is no different than leading a company, and see no reason why the standards should be anything less than exponentially greater for the elected official.
I swear, it's like we got wrapped up in all the optimism and promise of the 1964 World's Fair, and have been daydreaming since.
That's right. But to blame the government's means to blame the socialist agenda, means to blame the unions, to blame the globalist, now we can't have that can we, the blame must be placed on capitalist the mortal foe, ...... Big Banks -Governments... whatever, it's all one in the same. A charade. Responsible lenders would have said... No. Responsible government would have said.. No. Many nations who would have never seen the modern world without the global ponzi scheme must now face reality, we are not all equal, at the cost of course to the progress of the modern world.
oh yes, the noble capitalists who had their losses socialized
If our modern bankers where capitalist you would be right.
So when for capitalism?When were the good old days of capitalism?
Capitalism is a way of life ,a way for responsible creative wealth producing productivity to advance those person's that respect individuality, for those person's born as individuals, who are/where born free... the good ole days are measured on an individual basis, whereever there is freedom and liberty....it is not to be measured in a particular era, capitalism cannot be measured as capitalism when existing within a taxing over bearing social order , within a captive agenda..Capitalism is what Free people do. It's not designed for the collective of a OWO. The world's peoples attempt's at nation building,or the elites empire building, these has plans of mice and men have had many bumpy roads , many chaotic ages, while true capitalism has not seen it's potential, has only seen rises and falls... free markets are always hijacked by socialist utopian BS.
Well, yeah... sort of. Not that ALL the banks were manipulating elected officals, though.
Sure, there's a problem with the Greek's elected leadership-- they promised WAY more than they could deliver, and likely worked to hide the significance of the debt problem.
The central issue is that banks took a calculated RISK by making these loans-- and these loans are failing. In the normal course of events in a purely market-driven economy, the bondholders (banks) take the haircut if Greece cannot make payment on its obligations. Of course, other asset values decline and the pain isn't localized. But the liquidation is a cold, hard, and efficient process.
Government (EU/IMF/ECB,etc.) intervention is circumventing that process, just as it did in the U.S. in 2008-09. Bondholders (banks, etc.) are kept whole, but the debt problem/burden just gets shifted to a broader population set. It delays the inevitable process of liquidation, but it's a terribly inefficient (an immoral) way of dealing with the problem.
Incredibly, though, it take a whole lot of effort and coordination to pull off.
If Greece is a subprime issue then clearly the problem is contained and we are well on the road to recovery. Rally on everyone.
Finally! A "Koo d'état" on Greece's debt crisis. This is the best thing ZH published on Greece throughout this crisis.
Won't work.
Would require re-ratification of an existing Treaty, which is a drawn-out political question and process.
The time for Koo's proposed economic response (which also requires a political action) was 6 months ago. The levee has already been breached. Too late.
Debt restructure is the only answer for Greece, otherwise the levee ultimately collapses...just wait until the ugly Q2 economic data for Greece is released in July/August. Bad, bad, bad..."and the hits just keep on coming"
And, I am saying that from an agnostic viewpoint (because I am not Greek, and neither do I have a position in Greek sovereign debt).
Bernanke has already acted on option 2, by default
On a separate issue, new HFT still firms keep popping up. I got the following email from a recruiter a day after the 1000 point drop:
I am writing today to let you know about an exciting ground floor opportunity with a new high frequency trading firm opportunity. Our client is a new firm, based in San Francisco, CA, that was started by some of the most talented people in the high frequency trading industry. They are employing all systematic, automated trading strategies, as opposed to just providing liquidity. This should provide for some very challenging and interesting work and some pretty strong long term rewards. This is a super low-latency C++ Linux environment, and we are looking for extremely strong programmers and quants to join the firm. Ex-Citadel, EWT/Madison Tyler, Jump, Renaissance, and DE Shaw candidates are highly desired here. We will move quickly and offer very competitive packages. This is one of the most exciting things going on in the industry this year! Along the way, we also have similar, senior roles in Chicago to discuss with some of our other clients.
Looks like fleecing continues....
Nomura should not use "Sub" and / or "Prime" in a sentence... Ever! for fear of, the penalty of death.
I don't want to hear they where never fully integrated... save that shit!
Fuck Nomura!
Can it be traced back from the banksters to Fanny and Freddie housing give-a-way? Just doesn't seem to matter at this point. Feels like we have already established they are both crooks. Now we are just trying to decide who is in first place.
THE NEVERENDING STORY:
http://williambanzai7.blogspot.com/2010/05/neverending-bailout.html
I agree that the average subprime borrower deserves a good share of blame, and the Greek creditors deserve plenty of criticism too (or at least no bailout for their speculative lending). But you don't have to patronise Subprime Mortgage Guy as a helpless man-child to observe that he probably wasn't a college-educated businessman or a professional financier either. He certainly didn't have the assistance of a fully-staffed central bank and department of finance in buying his house, nor did he receive counsel from Goldman Sachs and the European Union. By contrast the Greek state was the proverbial 'sophisticated investor' and it deserves to be judged as such.
For sure. There are plenty of parties that wanted to serve and drink the Kool Aid. Everyone at the party gets a hangover!
Once credit creation peaks(2007), everyone and everything is a subprime borrrower.
Credit creation peaked in 2007, went into decline in 2008, went negative in 2009.
You can't pay back with what doesn't exist. See Federal Reserve Z1 report.
There are no subprime borrowers. Only subprime lenders.
Also, the banks should have been able to predict the level of confiscation of wealth certain governments were capable of. Now all the other countries will have to use their excess wealth confiscation capacity to purchase the wealth confiscation promise notes of smaller countries off the books of the subprime lenders. Geez.
Sarcasm off.
'We are the fools of Europe'
-Bild Magazine
'History is a set of lies agreed upon.'
-Napolean
'And you will know the truth, and the truth will make you free.'
- John 8:32
WSJ : The European Union picked 440 billion euros as the size of the rescue fund because the sum of 440 billion euros and 60 billion euros available initially from an EU emergency fund "sounds nice", a European Commission official said with half a smile. Even better, said another, when the IMF's portion is included, the bailout would be rendered by the American press as $1 trillion.
Forbes: In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy. “It’s not based on any particular data point,” said a Treasury spokeswoman, “We just wanted to choose a really large number.”
And that folks is the new Goldilocks world economy in the new normal - wild ass guesses promulgated to save civilization on the basis of 'sounds just right.'
Better to guess up than fess up I suppose.
Snarkiness is running aground on the shores of institutionalized fraudulent conveyance that is becoming so ridiculous that one can only stare in Gaga'd disbelief...
To wit, WSJ: 'April marked the 27th consecutive month in which small businesses either shed more or the same number of jobs that they added, according to a monthly survey to be released Tuesday by the National Federation of Independent Business, a trade group in Washington, D.C. Since July 2008, employment per firm has fallen steadily each quarter, logging the largest reductions in the survey's 35-year history. Going forward, more small-business owners say they plan to eliminate jobs compared with those that expect to create new jobs over the next three months. The latest study was conducted during the month of April and reflects responses from 2,197 U.S. small-business owners.'
Compare and contrast that with the Bureau of Laborious Statistics Birth Death Model creating 188,000 small business jobs....
Oh but it gets even wackier..
Monday's The King Report : 'For April the fabricators at the BLS have ‘men, 16 years of age and older’ gaining 456,000 jobs. But ‘women, 16 years of age and older’ gained only 94k jobs. This is impossible!!! This is the fourth straight month of impractical imbalance of job gains between the sexes.'
To wit, as mentioned here on March 8th : "the Federales Household Survey showed that this month (Feb.) the category of 'Men 16 years and older' accounted for 297,000 of the 308,000 jobs gain and last month (Jan.) 'Women 20 years and older' produced 529,000 of the 541,000 jobs gain. Dude, stats happen! Don't blame the soothsaya."
Last month the King report revealed, 'Once again we see chicanery in the March Employment because the Household Survey shows a gain of 264k jobs but ‘Men 20 years & over’ accounted for a 290k job gain. ‘Women 20 years & over’ lost 42k jobs. This is absurd!'
What will be the title of the April Household Survey? 'Stats from Mars, B$%#*&@t from Venus?'
Well they didn't choose that appellation although well they should have especially in light of yet another tragedy- per Reuters; 'The Agriculture Department said 39.68 million people, or 1 in 8 Americans, were enrolled for food stamps during February, an increase of 260,000 from January.'
Sadness layered upon madness served up to a hamster-wheeled populace.
And those of us that cry for reason before farce are left to muse until the dancing stops.
The road ahead seeming to fork between destroy the middle class now (wafting asset values with the gentle lubricant of debasement) or destroy the middle class later (deflation being the midwife of hyperinflation where the path to $5000 gold goes through $500.)
A burnt offering to the tribes and their machinations.
The Black Swan, when it isn't being blamed for its' prescience, synthesized as the hope upon hope of just muddling through.
I fear that we will see things in the near term that we would have never ever imagined could ever happen.
Unless of course Santa Claus, the Easter Bunny, the Tooth Fairy, and a requisite choir of angles, descends down to present us with fusion, teleportation, room temperature superconductors or the like to further enable the game...
Someday this war is gonna end.
MathTerror... we're sorry but the numbers you've reached have been logically disconnected..
Nice post!
If the path to $5000 gold goes through $500 I might have to join up.
Like your avatar, one of my favorite characters from a misspent youth...he deserved a better fate.
We aren't bailing out Greece, we are making good on the side bets made by the usual suspects. Bundle shit loans to derelict governments, sell to rubes, short the paper, make side bets with CDO's. There is more money to be made in betting against these "loans" than there is in making the fees to "allocate capital".
Total horseshit.
Koo is one of the few guys who understands what the heck is going on. I love how people around here try to bash him as "dumb Keynesian". Completely wrong and uncalled for.
It's notable that the mega-doves like Koo (talk about bakers called Baker!) who are fully behind the Bernanke lost-decades strategy are in many ways a lot closer to the get-it-over-with liquidationists than are the moderates - like the optimists who worry that the Fed is about to tighten too slowly in the face of a strong recovery, or the Krugman types who praise fiscal stimulus for saving us from deflation at the same time that they claim to oppose the bank bailouts and accounting forbearance. From the liquidationist point of view, the mega-doves at least understand the problem and have a better awareness of what the real cost of the present no-more-Lehmans response is.
Koo does not support Bernanke nor is he a monetary dove.
I know Koo believes that monetary easing is not sufficient to overcome the US banking crisis, and he's aware of the risks of for example QE through bad asset purchases, but I didn't think he actually wants the US to, say, raise interest rates in the near future, or does he? I didn't mean to link Koo too specifically to Bernanke's precise preferences (and I shouldn't have done so) but doesn't Koo support all the elements of the present approach, in somewhat different proportions to others - obviously with a particular emphasis on the fiscal side?
Koo says monetary policy is ineffective in a what he calls balance sheet recession. It achieves nothing and can actually undermine the trust people have in the central bank. That's why he criticizes the Fed/BOE/BOJ for their ZIRP. In Koo's model, in a global depression central bank interest rates don't really matter much. If they set rates at 0% or 3%, the private sector does not want to borrow no matter what. Instead, the private sector is trying to pay down credit.
On top of that, Koo was been a very vocal critic of the expansion of the central bank balance sheets (which by the way is not only limited to the Fed). He argues these assets belong on the balance sheet of the treasury, not on the central bank's. Again, it's a trust issue.
Of course, what many here hate is Koo's idea of calling for public stimulus -- but ONLY (!) when private credit contracts and continues to do so when interest rates are already low. At that stage the impact on consumer prices is neglible because as Koo argues the government only deficit spends whatever excess (!) private sector savings are generated. Not more. Thus the government can stablize GDP until private sector borrowing resumes.
I oversimplified many things but that is it in a nutshell. Many of us in the West argue Japan's handling of their burst bubble is a giant failure. Koo argues Japan's two lost decades were actually a geniuine success. His book is well worth a read if one can keep an open mind, lots of interesting statistics and anecdotal evidence from Japan that one wouldn't find elsewhere.
Koo's Japan read was on Zerohedge a few months ago.
His Keynesianism is just a different deck chair arrangement for the Titanic. Blinded by the neutrality of money argument like the rest of them.
His "spending excess private savings" is eating the plant seeds. You cannot have private capital investment if you do not have a private capital stock to work with. His Japan ideas have been decapitalizing the country for decades.
There is one, and only one, solution.
Jubilee.
It will happen sooner or later, the easy way or the hard way, but whether by will or by course of events we will find our way to it; jubilee.
For it is the Jubilee, and it is holy to you; your food will be the natural increase of the field.
In this year of Jubilee, let every man go back to his heritage.
And in the business of trading goods for money, do no wrong to one another.
Let your exchange of goods with your neighbours have relation to the number of years after the year of Jubilee, and the number of times the earth has given her produce.
Lev 25 12-15
Jubilee? it refers to times when humanity consumed peanuts.
Anyone in that Jubilee stuff should really start to put front to front the period of time starting when they want to 1950 to the period 1950~nowadays. Writing off debts would be a big failure.
Besides, writing off debts will also allow the countries that are the base of the pyramid of extortion/farming to walk away.
Currently, many countries are trapped because they are unilaterally in debt to the top.
What's wrong with peanuts? I love peanuts. Lets do it again. Wipe it clean, as of right now, all the way back. You got what you have, new asset backed currency. Clear enough?
Failure for who? Only for the haves brother, the other 90% wouldn't mind so much.
Good. Let the countries at the base of the pyramid be free.
One light, one mind, flashing in the dark
Blinded by the silence of a thousand broken hearts
For crying out loud she screamed onto me
A free for all, fuck 'em all, you are at your own sight
Green Day, Minority
http://www.youtube.com/watch?v=cDBlqu6KF4k
So when the US crosses over the debt to GDP% of 100% what does that make the US?...isn't that supposed to happen next year?
US Debt to GDP % is well over 300, my man.
http://2.bp.blogspot.com/_nSTO-vZpSgc/ScfNYcSLnMI/AAAAAAAAFwk/nf2WEo87pW...
If some contributor would be so kind as to post this I would appreciate it, thanks, in advance.
I was referring to the MSM number...the so called 'on the books' debt. If the average citizen woke up to the on and off the books debt...we might actually look like Greece outside with mass strikes and riots.
Hey post a bigger picture...I can barely read that one.
There you are kind sir.
http://www.murdockglobalinsight.com/wp-content/uploads/2009/01/total-us-...
Asian Captain Obvious strikes again!
Never blame on malice what can more easily be explained by stupidity. Napolean
We have a debt based currency because there were no economic statistics three hundred years ago to determine how much the money supply should grow and debt tended to grow along with productivity. Forty years ago productivity slowed and interest rates went up, further slowing productivity. Rather than formulate a more modern method of tying monetary growth to productivity, the financial industry was deregulated to increase lending and liquidity, as governments borrowed more to better manage the liquidity. Well, it's hangover time.
A fact should be faced: work/labour is a drain on resources. As resources are dwindling, labour/work can not but be reduced. IMF currently runs field tests to see how models favouring accumulation of wealth over acquisition of new wealth fare. This tells all.
Good example is one of the US during nineteenth century. Robbing from the Indians provided new land to be farmed, to be mined... increasing the activity support pool. When the west coast was reached and land transfer achieved, the ponzi scheme was over, people put out of work because of this. End of the story a few decades later.
Most observers brush off the French Revolution (1790-1794) as anarchy run amuck, but it serves as a focal point on what happens when the mass populace feels the ruling class has oppressed the underclass to a point of hopelessness. During the French Revolution, the ruling class was targeted not because of specific deeds but because in general they were the ruling class and at that time the good, the bad, the just and the unjust lost their heads by virtue, not of any specific act, but because of the actions of the ruling class in aggregate. What similarities can be made between the French ruling class of the 1790's the global elite of today? Perhaps those interested should investigate the French Revolution more closely.
I feel that, Historically speaking, we are heading for an amalgam of the American and French Revolution redux.
I did a write up of the above thesis over a year ago, and posted it somewhere, I'll see if I can find it.
BEN BERNANKE EXPLAINS THE FINANCIAL DOMINO THEORY:
http://williambanzai7.blogspot.com/2010/05/ben-bernanke-explains-financi...
Didn't Greece lie to the banks and the EU with the help of Goldman Sachs?
No it was the other way, no? Didn't Goldman Sachs lie to Greece with the help of the EU and the banks?
Hang on this is confusing. No, the EU lied, Greece lied, the banks lied & Goldman Sachs were just like..well caught. Yup GS was lied to and got stuck. Yup, thats it. -]