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teach me for the eleventieth time to comment without reading the article.

I still think, one Euro, with both Euro "Treasuries" AND forced haircuts will do less damage than what i really think most thinkers really think. (Couldn't Greece defaulting be spun as Euro policy "forced haircuts?")

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Mon Sep 12th, 2011 at 10:15:20 AM EST
[ Parent ]
remarkably close to one mention by Starvid in the diary text:


Another option, almost never mentioned but very reasonable and practical in my mind, is the periphery default solution. This means that periphery nations will partially default on their debts and institute haircuts on their bonds. This will not really cause any losses to the banks and others who hold periphery debt, as soon as they cease their make-believe and start marking their bonds to market. The losses have already happened, and the sooner this is realized, the earlier healing and de-zombiefication can begin.

And probably suggested by Jake S and Migs and others going back to the mezozoic, or at least a few years ago.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Mon Sep 12th, 2011 at 10:36:35 AM EST
[ Parent ]
That was probably Jerome's solution (he's repeatedly asked why would a Greek default be so terrible for the Eurozone?).

I was more in favour of something along the lines of this

Nothing will scare those betting against Europe more than unleashing the unlimited balance sheet. Only the ECB fits this bill. The ECB needs to turn the fire hose in support of the sovereigns on the firing line. They have already been pinning Spanish and Italian debt at around a 5% yield. They may soon need to support France. But rather than being stealthy about it, they need to commit to it up front. Worrying about undermining reform resolve in Italy and Spain, while understandable, is, at this point, a second order issue. There are other ways to scare the passenger without threatening to drive your own car over the cliff. The ECB should either state or heavily imply that until further notice they are willing to subjugate their single mandate to this objective. Those worried about inflation should take comfort from the experiences of Japan and the US. And, lastly, of course there must be continued liquidity support for the banking sector even after the recapitalization. This will be a hard, but necessary sell.
If they had done this with Greece in February 2010 (no, the bond purchases since then don't count because the ECB has been shy and apologetic about them, very much un-marketmaker-like) none of this crisis would have happened.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Mon Sep 12th, 2011 at 10:45:31 AM EST
[ Parent ]
Don't they get jealous of the Swiss bankers?

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Mon Sep 12th, 2011 at 11:03:12 AM EST
[ Parent ]
What is the objection to the ECB acting as market maker on secondary markets.

Is it:

  1. The ECB is acting outside its legal remit
  2. The ECB will be exposed to unsustainable losses
  3. It doesn't solve the fundamental problem
  4. Moral hazard - it rewards poor national economic managhement


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Sep 12th, 2011 at 11:27:19 AM EST
[ Parent ]
All of the above.

For reference, 1) and 2) are untrue as a matter of fact, 3) is excuse-making and 4) is an ideological rather than operational objection.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Sep 12th, 2011 at 12:17:29 PM EST
[ Parent ]
  1. is false, but it has been the primary argument. Recently the German President argued it was outside the spirit but not the letter of the law.

  2. is false too, but it is used. The ECB cannot become insolvent by buying Euro-denominated sovereign debt. At most it would have to use seigniorage or (as has already happened) ask the member states to recapitalize it.

  3. True, but hasn't been used as an argument against bond purchases and is neither here nor there as it confuses the resolution of the current crisis with the prevention of a recurrence in the future. It is not for the ECB to change the institutional architecture of the Eurozone and even less to dictate fiscal/employment/welfare policy to member states. But the ECB has a responsibility for financial stability today. And the unique ability to do certain things.

  4. That has been used as an argument, but we know this crisis has a moral dimension for many of the people involved.


Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Mon Sep 12th, 2011 at 12:20:02 PM EST
[ Parent ]
but we know this crisis has a moral dimension for many of the people involved.

And an immoral dimension for others.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 12th, 2011 at 02:48:40 PM EST
[ Parent ]
It's a very strange morality that considers riots and mass unemployment and/or wage slavery superior to equitable wealth redistribution and responsible behaviour by the financial classes.

In psychology, this is usually called projection - where one's personal failings are palmed off on others, who are then painted black and punished for them.

Once again it's obvious that the financial classes have some very serious psychological and emotional problems.

Unfortunately our 'moral' politics selects for and rewards those same problems.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 12th, 2011 at 03:16:41 PM EST
[ Parent ]
Yeah, it is too bad that the initials for the debt afflicted peripheral countries could not have been arranged so as to spell "GOATs". That would have been much more appropriate than PIIGs. But this does reveal where are the bases of our present religious institutions. The Holy of Holies is clearly the Banker's Bonus. And the bigger the bank the holier it is.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 12th, 2011 at 03:39:22 PM EST
[ Parent ]
I recommend: One Market Under God

One Market Under God: Extreme Capitalism, Market Populism, and the End of Economic Democracy is a 2000 book by historian and author Thomas Frank. It was published by Anchor Books. The book traces the development of what Frank calls "market populism: the idea that markets are a far more democratic form of organization than democratically elected governments." He also discusses many facets of the New Economy, "culture studs," and internet brokerages. An excerpt of the book was the cover story of the October 12, 2000 issue of The Nation [1]. It was reviewed in The American Prospect on December 18, 2000 [2], in The New York Times on December 21, 2000 [3]
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 12th, 2011 at 04:18:10 PM EST
[ Parent ]
A short, sweet column by Paul de Grauwe: Why contagion cannot be stopped in the Eurozone (Eurointelligence 28.07.2011)
Why has the ECB refused to take up its responsibility of lender of last resort in the government bond markets (while it has dutifully taken up this responsibility during the banking crisis)? A popular answer is that the ECB should not do this because it risks losing money. This is certainly the wrong answer. When there is confidence that the central bank will operate as a lender of last resort in the sovereign bond markets, the central bank does not have to act as a lender of last resort most of the time. And when it has to do so, we should not really worry about the fact that it loses money. What matters is financial stability, not the profit and loss account of the central bank. A central bank can always fill the holes by printing money.

A more serious concern is moral hazard, i.e. the risk that if the ECB guarantees that cash will always be available to pay out sovereign bond holders, this will lead governments to issue too much debt. But this risk of moral hazard is no different from the risk of moral hazard in the banking system. The way to deal with this risk is not to abolish the role of lender of last resort but to create rules that will constrain governments in issuing debt.

The ECB has been influenced too much by the one-dimensional theory of inflation targeting. According to that theory, all a central bank should do is to stabilize the price level. All the rest will then also be stable. Historically, however, central banks have been invested with another equally important task, i.e. to ensure financial stability, which includes stabilizing the government bond market.  By refusing this role in the Eurozone, the ECB has become the single most important reason why the Eurozone crisis cannot be stopped.




Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue Sep 13th, 2011 at 08:49:54 AM EST
[ Parent ]
Well, but I meant, rarely mentioned by Serious People.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Sep 12th, 2011 at 11:54:33 AM EST
[ Parent ]

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