Breaking Greece

[Axulus]

So you basically admit that forcing down Greece is economically unsound political grandstanding and yet try to rationalise it. WTF?

If Syriza is successful in getting a huge write-down in the debt, it will significantly empower anti-austerity parties in Spain, which is 6 times larger, and Italy, which is 9 times larger. They'll try to obtain a similar deal for themselves. Thus, the troika and the related stakeholders will consider this in any sort of self interest calculus that you were attempting to do in your post.

As far as I know, forcing a debtor to default in order to make a point towards other debtors is not something that happens in the private sector credit market precisely because it is economically unsound. I may be wrong about that, though - could you provide example? Does it have a name?

The private market is governed by very straight-forward bankruptcy law, with an orderly liquidation of assets or a forced debt restructuring under chapter 11. Additionally, rarely is it the case that the group of creditors are the same, as is largely the case with Greece, Spain and Italy (comprised mostly of the so called troika, European Commission, European Central Bank, and IMF). Some sort of specialized deal with one party will mean that the other parties will want a similar deal.

 

[Jokodo]

If Syriza is successful in getting a huge write-down in the debt, it will significantly empower anti-austerity parties in Spain, which is 6 times larger, and Italy, which is 9 times larger. They'll try to obtain a similar deal for themselves. Thus, the troika and the related stakeholders will consider this in any sort of self interest calculus that you were attempting to do in your post.

As far as I know, forcing a debtor to default in order to make a point towards other debtors is not something that happens in the private sector credit market precisely because it is economically unsound. I may be wrong about that, though - could you provide example? Does it have a name?

The private market is governed by very straight-forward bankruptcy law, with an orderly liquidation of assets or a forced debt restructuring under chapter 11. Additionally, rarely is it the case that the group of creditors are the same, as is largely the case with Greece, Spain and Italy (comprised mostly of the so called troika, European Commission, European Central Bank, and IMF). Some sort of specialized deal with one party will mean that the other parties will want a similar deal.

So it doesn't have a name because it doesn't exist anywhere else?

 

[Axulus]

If Syriza is successful in getting a huge write-down in the debt, it will significantly empower anti-austerity parties in Spain, which is 6 times larger, and Italy, which is 9 times larger. They'll try to obtain a similar deal for themselves. Thus, the troika and the related stakeholders will consider this in any sort of self interest calculus that you were attempting to do in your post.



The private market is governed by very straight-forward bankruptcy law, with an orderly liquidation of assets or a forced debt restructuring under chapter 11. Additionally, rarely is it the case that the group of creditors are the same, as is largely the case with Greece, Spain and Italy (comprised mostly of the so called troika, European Commission, European Central Bank, and IMF). Some sort of specialized deal with one party will mean that the other parties will want a similar deal.

So it doesn't have a name because it doesn't exist anywhere else?

Name of what? These kind of bailouts of bankrupt countries by other political entities has never happened anywhere before. Why would you expect there to be past examples of it?

 

[Jokodo]

So it doesn't have a name because it doesn't exist anywhere else?

Name of what? These kind of bailouts of bankrupt countries by other political entities has never happened anywhere before. Why would you expect there to be past examples of it?

I'm looking for examples a creditor knowingly ruining a debtor when he could hope for a partial return to make a point to other debtors.

 

[Axulus]

Name of what? These kind of bailouts of bankrupt countries by other political entities has never happened anywhere before. Why would you expect there to be past examples of it?

I'm looking for examples a creditor knowingly ruining a debtor when he could hope for a partial return to make a point to other debtors.

It wouldn't happen because the debtors in the private market can't ruin the creditors without severe consequence - the complete liquidation of the business or the transference of ownership of the business or other underlying assets to the creditors. The country of Greece will not go under the control of the creditors. Therefore, Greece can default and the creditors won't get a penny. Greece has the option to do what it wants and completely shut out the creditors without losing a penny to them. So do Italy and Spain. The only leverage the troika has is to kick them out of the EU.

 

[Jokodo]

I'm looking for examples a creditor knowingly ruining a debtor when he could hope for a partial return to make a point to other debtors.

It wouldn't happen because the debtors in the private market can't ruin the creditors without severe consequence - the complete liquidation of the business or the transference of ownership of the business or other underlying assets to the creditors. The country of Greece will not go under the control of the creditors. Therefore, Greece can default and the creditors won't get a penny. Greece has the option to do what it wants and completely shut out the creditors without losing a penny to them. So do Italy and Spain. The only leverage the troika has is to kick them out of the EU.

Not every private debtor has assets that can be profitably liquidated. I repeat my question: In private sector credit transactions, is it routine for creditors to knowingly ruin debtors (nb: ones with no substantials assets) who might otherwise recover and pay back at least some of their debt, thereby harming themselves financially, in order to make a point towards other debtors? Would you consider such behaviour rational? Or is it just political grandstanding?

 

[laughing dog]

If Syriza is successful in getting a huge write-down in the debt, it will significantly empower anti-austerity parties in Spain, which is 6 times larger, and Italy, which is 9 times larger. They'll try to obtain a similar deal for themselves. Thus, the troika and the related stakeholders will consider this in any sort of self interest calculus that you were attempting to do in your post.

And if Greece is forced to swallow a severe austerity package, it will embolden and strengthen the growing anti-EU sentiment in Spain and other countries, thereby endangering the increasing fragility of the EU.

 

[ksen]

It wouldn't happen because the debtors in the private market can't ruin the creditors without severe consequence - the complete liquidation of the business or the transference of ownership of the business or other underlying assets to the creditors. The country of Greece will not go under the control of the creditors. Therefore, Greece can default and the creditors won't get a penny. Greece has the option to do what it wants and completely shut out the creditors without losing a penny to them. So do Italy and Spain. The only leverage the troika has is to kick them out of the EU.

Not every private debtor has assets that can be profitably liquidated. I repeat my question: In private sector credit transactions, is it routine for creditors to knowingly ruin debtors (nb: ones with no substantials assets) who might otherwise recover and pay back at least some of their debt, thereby harming themselves financially, in order to make a point towards other debtors? Would you consider such behaviour rational? Or is it just political grandstanding?

I think it's called loan sharking.

 

[Loren Pechtel]

Why should Greece be allowed not to pay back their debts?
Why should Greece be given more money if they refuse to enact any of the necessary reforms especially to their entitlement system?

If Greece goes broke, the money's gone. All of it.
If Greece recovers as a consequence of a 75% debt cut, 25% of the money goes back to the creditors.
If Greece sort-of recovers as a consequence of a 25% debt cut, 75% of the money might eventually go back to the creditors
Playing hardline is the most stupid possible move to make from a creditors perspective.

The decision to "not let Greece get away with not paying its debts" is, at this point, an economically irrational decision.

You don't understand. The issue is whether they will loan more money. It's not 100% loss vs perhaps 75% loss, but rather perhaps 120% loss vs 100%.

 

[Jokodo]

If Greece goes broke, the money's gone. All of it.
If Greece recovers as a consequence of a 75% debt cut, 25% of the money goes back to the creditors.
If Greece sort-of recovers as a consequence of a 25% debt cut, 75% of the money might eventually go back to the creditors
Playing hardline is the most stupid possible move to make from a creditors perspective.

The decision to "not let Greece get away with not paying its debts" is, at this point, an economically irrational decision.

You don't understand. The issue is whether they will loan more money. It's not 100% loss vs perhaps 75% loss, but rather perhaps 120% loss vs 100%.

Mostly wrong. The reason the crisis is so acute right now, the reason why is talking of Greece defaulting this week after several months of a hiatus where the topic was simmering somewhere in the background is that it's payday for several big loans, not that it's payday for Greece's running expenses.