Joseph Stiglitz: how I would vote in the Greek referendum | Hacker News Reader

Joseph Stiglitz: how I would vote in the Greek referendum

theguardian.com

11 pointspaublyrne11 comments

Both the lender and the borrower have responsibilities when it comes to loans. I rarely hear people complain about irresponsible lending and the need for lenders to suffer too. In the case of Greece the suffering has all been one-sided. The so called bailout have been nothing more than a way to prop up French and German banks. The Greeks alone are suffering.

Isn't one big difference between a lender and an investor the default risk? If we were talking about investors taking a bath, then I'd agree - but screwing with the relative safety of loans... that could have much further reaching consequences. Also, the suffering of the Greeks - are we to just trot out the whole "will of the governed" when it is convenient for the position that we support? That is really the only good thing I see coming out of this, that a people who feels abused will retire the popular idea of where a democracy derives its power.

I'm not sure what you are referring to with the will of the governed part. As I understand the situation Greece was flooded with cheap money in the form of low interest loans from French and German banks. Not surprisingly lots of money was borrowed. So much money that Greece will never be able to pay it off as long as it remains part of the euro. Shouldn't the banks also take a hit alongside Greece? I think so.

> I'm not sure what you are referring to with the will of the governed part.

The idea that the government derives its power from the consent of the governed [0], or put another way, that the people are responsible for the actions of the state.

> As I understand the situation...

So "predatory lending", one of the sillier ideas that I've ever heard. It basically implies that people can't be trusted to enter into voluntary transactions. Except that we are talking about the state here, the nanny that is to protect the people from themselves. So what happens when people start complaining about red lining [1]?

> Shouldn't the banks also take a hit alongside Greece?

Contracts, they're pretty important. When you don't enforce contracts, businesses will start to wonder what advantage they have in trading with you over doing business in Zimbabwe.

[0] https://en.wikipedia.org/wiki/Consent_of_the_governed

[1] https://en.wikipedia.org/wiki/Redlining

The banks voluntarily lent money way beyond the means of the ability of Greece to pay. That was foolish. They shouldn't take a loss on their foolishness? Only one party of the transaction should suffer for the foolish loans?

Predatory lending is not what happened in the case of Greece. the validity of that concept is not relevant in this case.

I know what consent of the governed means. I don't know what it has to do with any of my comments. All I've said is that there are two parties in borrowing money. Both have responsibilities and both should suffer consequences for bad decisions.

Again, if this was an investment - where payoff is proportional to risk then this would be a different matter. But we are talking about more than that, as legally binding obligations and contingency plans where established long before any money traded hands. So what, everything leading up to that point should be ignored? There is a reason why bankruptcy is viewed as the option of last resort, it is because the consequences to the bankrupt party are long lasting - nobody trusts them anymore. What do you think would happen if you defaulted on a loan from your bank? Collateral would be collected, wages would be garnished, you wouldn't be able to secure credit, etc. Why is this any different?

Consent of the governed is relevant because you were waving about the suffering of the Greeks, who according to the popular political idea, are actually responsible for their own suffering. Also, if you think the EU isn't suffering over this - I'd like to direct your attention to the EUR/USD exchange rate.

A loan is an investment. Like almost all formal investments there are rules, laws, and contracts involved. When an investment goes bad both parties tend to suffer.

When I defaulted on my mortgage the bank got the house and I bought another one for a much cheaper price. The bank lost money. It happens with investments. That's part of the risk. I still secure credit and have a 750 credit rating even with a default on my record. My credit card company still trusts me. I've suffered no long term consequences other than that I can't get another mortgage for 5 years.

The point of me writing the above is try to show that defaulting on loans is not a black/white issue. It's not either or. There are shades of gray sometimes. And most certainly, when a bad loan is made both parties should suffer consequences.

It is strange that you recognize the bank's right to remedial action in taking your house, but don't appear to apply the same logic to the Greek situation. You even recognize the fact that the bank suffered due to their mistake of giving you money, but you don't see the rest of the EU eating the shit sandwich that is the Greek financial crisis? Your personal story, while interesting, is certainly outside the norm. We don't have debtors' prison, but this sort of thing can have multigenerational consequences.

Nowhere have I indicated that Greece shouldn't suffer for their profligate borrowing. I mentioned that the banks should suffer as well. Nothing more, nothing less. Implicit in my posts is the belief that the banks haven't suffered proportionate to their recklessness.

I think I agree. E.g. it could be argued that the creditors were making an investment judgement in lending the money - and in this case that judgement turned out to be wrong, i.e. your investment went bad, the money longer exists, tough. A more balanced view might be to split the 'hit' (as you say).

Its not hard to choose either. Hope v. No Hope.

Greece tried austerity for 5 years - its not working out.

Greece will hopefully try something new.

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