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Comment by jfoutz | Hacker News Reader

I like the somewhat glib cliche, "If i owe you a thousand dollars, I have a problem. If i owe you a billion dollars, you have a problem"

It captures so much of the essence of the relationship. With small debt, a person or a corporation or a government can generally work something out. Skip some unnecessary spending, scale back a bit, and things all work out.

But debt chokes off options. Too much debt, and growth stalls. It's a really vicious circle. If we upgrade the factory machines, we can sell more, but we can't afford to. If we move closer to work, we'd save some expenses, but we can't afford to. Opportunity becomes rare, and it's demoralizing.

I totally understand creditors need their money back. Presumably there was something magical about Greece, some golden egg it was producing that enticed the lenders. I don't see how they can get their money back without killing the goose though.

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> I don't see how they can get their money back without killing the goose though.

And that's the problem. They seem to be willing to kill the goose, uncaring that this involves real lives of real people.

If the Eurogroup really doesn't want a deal that Greece can live with, then Greece has no option but to default. And as far as I'm concerned, they may as well default on their entire national debt. Start with a clean slate. Reform the economy, and convince investors that this time you will be able to pay all the new loans back. And try to avoid getting so deep in debt this time.

Greek banks bought about 15B of this Greek debt, which is over half of Greek GDP. This is likely the savings and pensions of a lot of Greek people. There will be bank runs (much worse than now). There would be looting, burning, and massive chaos.

It would be like destroying 8 trillion in people's savings in the US and just hoping it all works out. It would be a catastrophe.

Then, once this destroys the economy, getting any outside investment to help will be impossible, because no one would want to invest or loan to a place that so willingly shrugs off repayment.

This is why the situation is such a problem. Just unilaterally ignoring repayment destroys the Greek economy much worse than it is now.

Go the Iceland route. Didn't they create new banks for the savings of the people, and let the old ones go bankrupt? That did set a lot of bad blood with foreign savers who'd just been lured in with high interest rates, but whose savings were not guaranteed by the Icelandic government. But in the end, that turned out alright.

They could create their own bankruptcy scheme with seniority.

> I totally understand creditors need their money back.

No they don't. They took a risk and lost. Other times, they get paid handsomely for taking the same risk. That's how it's supposed to work.

Exactly what I'm thinking. But when banks get in trouble, politics bail them out. They should have let them go bust, because now everyone is paying to keep them alive.

Letting banks go bust will be though at first, but it's the only thing that will let the economy work properly in the long run.

So what happens when I borrow money from a bank to buy a house and I default on my loan? "They took a risk and lost"? Hooray. I get to keep my home.

Well, your house is used as collateral for the loan, otherwise the bank would never lend you that money.

I'm not an economist, but I don't think that, in the case of Greece, the "house" (whatever it stands for) was used as collateral.

I don't think there really was any collateral. I guess lenders just hoped that Greece would pay back, or would be pressured into paying back.

Countries are not owned by banks in the way a mortgaged house is.

At least, I hope not.

Thing is, Germany took over the debt from the banks, and Merkel promised the (understandably skeptical) German voters that she would get all the money back.

> I totally understand creditors need their money back.

You wouldn't invest if you really needed the money. At least, you wouldn't invest in high risk investment options.

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