Germany only pays 0.17% on bonds

[J]

No, J's situation does nothing but have us take on their debts without any safety net for us. As long as there still is some kind of contract backed up by secureties the risk is much slower. Lending other nation money in the hope that they repay it at some time in the future is different from that.

Question: Should Germany decide to purchase PIIGS bonds to reduce interest rates for those nations, what are the contracts or securities backing those bonds? In other words, what ensures that they'll actually pay you back in the future?

[KrauserKrauser]

Boots on the ground. It's what will have to happen eventually. Athens will promise the moon and deliver dogshit.

Maybe you can get the Acropolis pledged as collateral. How exactly does one collect on that when they inevitably fail finale the targets or flat out lie to your face again.

This time it will be different because you impose fines of some percent to Gdp on countries that are already hurting economically. I guess you like riots in the streets.

[S.L.Acker]

You force Greece to secure their bonds with land. They don't pay/meet expectations laid out before hand, the EU takes that section of land and sets up a new government. Suddenly the people in EU land have it better than the rest of Greece and things start changing. At this point Greece has made their bed and they need to lay in it.

[Simon_Jester]

This is folly.

One big problem of EU economic policy is the conflict between sovereignty and EU control. If a member state finds out that the great central powers of the EU are willing to coerce it into signing away chunks of its territory and citizens, that will provoke a huge crisis within the EU. The EU would be denounced as imperialist, and this wouldn't be unreasonable.

[S.L.Acker]

What should be done about Greece then? They're a cancer that only joined the EU by lying. You can't just feed them money forever and frankly the government and the people voting for these policies should be taking a big bite of the shit sandwich they made. Right now you can't be assured of getting any return on money invested in Greece. Besides, if Greece just nuts up and fixes things, they could start by charging actual taxes, they need not worry about losing land.

[Simon_Jester]

All I know is that I don't think any of the EU nations signed on for a government in Brussels with the power to say "if you prove too great an inconvenience, we will devour your nation and turn you into a foreign protectorate." I don't know what the solution is, but I foresee a lot of trouble from that- it takes the EU in a direction few would want it to go.

[bobalot]

What should be done about Greece then? They're a cancer that only joined the EU by lying. You can't just feed them money forever and frankly the government and the people voting for these policies should be taking a big bite of the shit sandwich they made. Right now you can't be assured of getting any return on money invested in Greece. Besides, if Greece just nuts up and fixes things, they could start by charging actual taxes, they need not worry about losing land.

I think it needs to be a mixture of debt forgiveness, budget cuts and higher taxes for the Greeks (or even at least efficient tax collection, tax evasion seems to be widespread).

One of the things that has pissed me off about the financial crisis is that governments aren't forcing banks to write off bad debts. For every asshole who borrowed too much there was an asshole who recklessly lent too much (with the expectation that that government would bail them out if something went wrong).

[S.L.Acker]

I think it needs to be a mixture of debt forgiveness, budget cuts and higher taxes for the Greeks (or even at least efficient tax collection, tax evasion seems to be widespread).

One of the things that has pissed me off about the financial crisis is that governments aren't forcing banks to write off bad debts. For every asshole who borrowed too much there was an asshole who recklessly lent too much (with the expectation that that government would bail them out if something went wrong).

This really isn't enforceable unless you hold a hammer over Greece and make them do it. Most of the hammers are going to be ugly just because of how bad the problem is.

[Zaune]

This is folly.

One big problem of EU economic policy is the conflict between sovereignty and EU control. If a member state finds out that the great central powers of the EU are willing to coerce it into signing away chunks of its territory and citizens, that will provoke a huge crisis within the EU. The EU would be denounced as imperialist, and this wouldn't be unreasonable.

A mere "crisis"? It'd start a bloody war!

[Skgoa]

I think it needs to be a mixture of [...] budget cuts and higher taxes for the Greeks (or even at least efficient tax collection, tax evasion seems to be widespread).

And how exactly do you plan to extract even more wealth from a place were almost none is created? And do you really think it's fair to fuck the poor over even more, when they did not cause the problem in the first place?

One of the things that has pissed me off about the financial crisis is that governments aren't forcing banks to write off bad debts. For every asshole who borrowed too much there was an asshole who recklessly lent too much (with the expectation that that government would bail them out if something went wrong).

Because the banks threatened to suicide bomb the economy.

[KrauserKrauser]

Because the banks threatened to suicide bomb the economy.

That and threatened to withdraw funding of election campaigns of sitting politicians. Banks own the political system, flat out. Bought and paid for with our own money.

Brilliant if you ignore the pure malice and sociopathic cruelty of it.

Bit of exaggeration but the fact is the world does need a banking system and 2008 was a genuine setup that could have taken down the system. Something needed to be done but what was done was for the benefit of the bankers, long term viability of the system be damned.

When banksters are telling you that they should be restricted in teh bets that they make, they should have taken them up on it and broke the TBTF into smaller pieces via re-implementation of Glass-Steagall. But the time for that has passed and we are back to banks being in 100% control. Currently the Central Banks of the world are leveraging up in a race to the bottom to inflate away the losses that the banks are currently hiding on their balance sheets.

Greece is small potatoes but if you are Portugal or Ireland and see Greece get a 75% write down through gamesmanship, why would you bother with the austerity and just crash until you get the same deal or better.

Oh they won't because there will be consequences? There are already consequences, at least by this way they would get a 75% haircut on their outstanding debt.

The debt is not the complete problem. Japan and the UK are sitting well above 120% to GDP and are still welcomed into the bond market. Greece and the rest of the PIIGS are being taken to the woodshed because the structural limitations of the Eurozone are crippling them. Efficiencies in Germany and the Northern countries are limiting their ability to economically prosper and the common tactic for that, devaluation to achieve price advantage, is not available to them.

This is not a liquidity issue. This is a fundamental flaw in the current structure of the EMU.

[Zed]

One of the things that has pissed me off about the financial crisis is that governments aren't forcing banks to write off bad debts. For every asshole who borrowed too much there was an asshole who recklessly lent too much (with the expectation that that government would bail them out if something went wrong).

What are you guys talking about? Governments are intervening in the banks all the time, forcing them to reevaluate their debt holdings and checking whether they adhere to capital requirements. Just a few months ago, most French banks (include SG and BNP) wrote down a shitload of Greek debt (e.g. http://dealbook.nytimes.com/2011/11/03/ ... ngs-slump/).

[KrauserKrauser]

One of the things that has pissed me off about the financial crisis is that governments aren't forcing banks to write off bad debts. For every asshole who borrowed too much there was an asshole who recklessly lent too much (with the expectation that that government would bail them out if something went wrong).

What are you guys talking about? Governments are intervening in the banks all the time, forcing them to reevaluate their debt holdings and checking whether they adhere to capital requirements. Just a few months ago, most French banks (include SG and BNP) wrote down a shitload of Greek debt (e.g. http://dealbook.nytimes.com/2011/11/03/ ... ngs-slump/).

Right, the so called stress tests? Like the one that said Dexia was 100% A-OK and then had to be nationalized to avoid default a few months afterwards?

How about the suspension of mark to market for the TBTF that is still going on? Banks are holding foreclosed properties on their books at par from the peak of the market prices. People wonder why the banks are trading at well under their book values? That's because everyone knows their books are shit but no one wants to stop the ride and force them to reveal their true mark to market losses.

[Simon_Jester]

One of the things that has pissed me off about the financial crisis is that governments aren't forcing banks to write off bad debts. For every asshole who borrowed too much there was an asshole who recklessly lent too much (with the expectation that that government would bail them out if something went wrong).

Because the banks threatened to suicide bomb the economy.

Understandable that we'd bail out the banks then, but it's setting a very bad precedent. The banks can always threaten to blow up the economy, and if we're willing to give them a blank check on bailouts, then we wind up with government of the banks, by the banks, and for the banks. Not good.

[Teebs]

I don't know how bank bailouts worked in other countries, but I was under the impression the UK ones involved effective nationalisation. If that's the case then the bank's owners did suffer because they go from owning 100% of the bank to say 20%.

[J]

No, J's situation does nothing but have us take on their debts without any safety net for us. As long as there still is some kind of contract backed up by secureties the risk is much slower. Lending other nation money in the hope that they repay it at some time in the future is different from that.

Question: Should Germany decide to purchase PIIGS bonds to reduce interest rates for those nations, what are the contracts or securities backing those bonds? In other words, what ensures that they'll actually pay you back in the future?

So, would anyone like to answer this question?

[Thanas]

I think it should have been obvious that it would be the same contracts and securities backing the current bonds. Which btw the markets are still buying.

[J]

Yes, and what would be the contracts & securities backing the current bonds?
What I'm getting at is as follows: what backs a sovereign bond and ensures that it shall be paid?

[Thanas]

The binding legal agreement and the political situation. What else is there?

Note that if this is just one of your typical "but people are as sociopathic as me so I expect them to disregard the contract and screw me over like I would them" spiels I will disregard it as the idiotic crap it is.

[J]

The binding legal agreement and the political situation. What else is there?

Exactly, and how shall that legal agreement be enforced should a nation become unable or unwilling to pay?
For instance, suppose the economy of Greece continues to collapse to the point where its tax revenues are insufficient to pay the principal & interest on its bonds. Or suppose they have a popular revolution, and the new government refuses to honour previously issued bonds & obligations since they were "not made in the interests of the people". Then what?

[Zed]

They default and they won't be able to sell bonds again until they reacquire some amount of credibility.

Also, credit default swaps trigger and the world economy ends up in crisis again. Banks fail, etc. etc.