It’s a party!
And I’m the host. Granted,
it’s a sovereign crisis party that only six people in the world want to attend,
but one of them is Anna
Gelpern (American, law) back for another
guest post. If you’re in a
public setting, such as a meeting, where laughing out loud would be
inappropriate, then stop right here.
Otherwise, sally forth my fellow Greek crisis aficionados and read the
funniest post to emerge from the mess so far.
Γκελπερν: So you
have joined the bailout crowd.
Pathetic, treasonous, and intellectually dishonest, if you ask me. What would Λη Μπουχαϊτ say? You dishonor him and disgust me.
Gelpern: All right already, I feel like κραπ
enough without this! Look, my
basic problem is that I just do not see the endgame. Let’s say Greece announces a debt exchange today at 50 cents
on the dollar, and let’s say it takes six months to carry off. What happens to the Greek banks? What happens to the German banks, the
French nonbanks, the Belgian pet shops?
What happens to Spain, Portugal, Ireland, the Euro? Do we even know who wrote the CDS on
this stuff? What if it is some
crazy corner of Pitygroup? What if
it is Grannie Mae? What if it is
China? What if China goes down????
Γκελπερν: This is the problem with you bailout
people—always the same scare tactics—contagion, externalities, extreme uncertainty,
Alien landings. And then the fat
cats who made stupid investments and fools who lived beyond their means all get
rescued, and us regular folks get stuck with the bill. The cats and the fools need to take
their lumps so they do not act stupid the next time. Ever heard of moral hazard?
Gelpern: You are speaking in generalities. “You always” is not an argument.
Γκελπερν: And you have been blowing scare
smoke. You want specific, here’s
specific – Ρουμπίνί says, “at the onset of its crisis, Argentina’s budget deficit, public debt,
and current-account deficit (as a share of GDP) were about 3%, 50% and 2%,
respectively. Those ratios for Greece are far worse: 12.9%, 120% and 10%.” There is no way Greece can avoid
restructuring. So why not do it
now for 50 cents? You are delaying
the obvious only to give the
creditors a 75 cent haircut, not to mention six months to three years of untold
pain for the Greek people – all for nothing.
Gelpern: We are both practicing economics
without a license. Κρουγκμαν
says the Greeks suffer no matter what. I am not saying 150% is sustainable, but let us not pretend
there is a magic number that tells you whether a country can pay. If there were, all the real economists
would not be arguing about sustainability and preconditions. I just worry that 50 cents will be more
like 90 cents if everything spins out of control. We have never had this sort of thing happen in a serious currency
block or with a G3 currency.
… Besides, there is a big
difference between six months and three years. You were short Argentina in 1993. They defaulted in 2001.
Γκελπερν: So what is your endgame, exactly? Let me guess. Recapitalize the banks, amend the EU treaties to get a
common fiscal authority and financial resolution regime, wait until the markets
are pristinely calm, then ask nicely
for a 75% haircut? And what do you
think the creditors will do in the meantime?
Gelpern: You are right, it seems disingenuous. But my preconditions are no less
realistic than the next guy’s, and they are good policy besides. Just read the small print—everyone is
assuming rational behavior under standard temperature and pressure! Policy makers do not get that luxury;
we do not give them enough credit.
Γκελπερν: Snap out of it. Tell me what should happen.
Gelpern: Look, I’m sorry. I think the
trillion-dollar caper is probably the right thing to do, for both of
us. It makes a restructuring
easier if you decided to go for it—even if I still don’t know who could go down
with Greece, I know there is enough money to insulate whoever it might be. And I am sort of impressed with the IMF
angle. This must mean Asia and the
rest are on board.
It helps you, but it also makes it less likely that Greece
will have to default. Bonds don’t
run—they sell, drop or mature. And
if there is a sell-off, the guys who buy Greece at a discount now might not
mind a haircut quite as much later.
So you are getting a bit of relief by the back door.
Γκελπερν: Is this worth a trillion dollars?
Gelpern: Well, I do not think they will actually
spend anything like a trillion.
Remember all those “second lines of defense”
that never got drawn?
Γκελπερν: Remember AIG?
Gelpern: Ugh.
Γκελπερν: Exactly.
*With apologies to Stephen Colbert.
– Anna Gelpern
Related
Posts:
Should
Greece Restructure? The Debate Continues
Buchheit and Gulati on How To Restructure
Greek Debt
When Will Greece Restructure?
Greece Gets Bailout: Are We Done Now?
The Greek Bailout: War Versus Dishonor
What Do Those Greek Debt Contracts Say?
Greece: Argentina, Uruguay, or Twin Engine
Plane?
Blame It On Derivatives, Blame it On Goldman
Sachs, Blame It On the Nazis. But Don’t Blame the Greek Crisis on Greece
The Greek Crisis: Economic Meltdown or Mental
One?
The Modern Greek Drama: Comedy, Tragedy, or
Both?
The Modern Greek Drama, Part 2
Verge of the Unböring (The Modern Greek
Drama, Part 3)
Is 2010 The Year of Odious Sovereign
Defaults?