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Comment by littletimmy | Hacker News Reader

What's most interesting to me in this entire crisis is the moral discourse surrounding debt. More often than not, you'll hear stuff like: "Of course Greece must pay its debt", "You mean to say you can just take money and not pay?", "Why should taxpayers bail Greece out?"...

All the while, there is absolute ZERO condemnation for banking entities making risky loans. There is not even a tacit nod towards acknowledging that if banks make loans that fail, it is their loss to eat. Not a whisper about how taxpayers have been surreptitiously bailing out banks, and not Greece.

Somehow, a creditor is deemed morally superior to the debtor. What repulsive rhetoric!

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> All the while, there is absolute ZERO condemnation for banking entities making risky loans. There is not even a tacit nod towards acknowledging that if banks make loans that fail, it is their loss to eat.

Not sure you really understand the situation. Everything which you said "isn't happening" already happened. There was already a massive haircut on privately held Greek debt (but not the publicly held greek debt), and the banks already ate a huge loss. Something like 80% of Greek debt is now owed to the "troika", with much of the remainder held domestically.

The reason that EU governments focus on debt repayment, and why people talk about taxpayers is because they own the debt, and it's their taxpayers who will eat the loss.

> Not a whisper about how taxpayers have been surreptitiously bailing out banks, and not Greece.

Probably because that didn't happen. Private investors lost something north of 75% of the value of the loans they've made; what haircut has the IMF or French government taken on their holdings of Greek debt? (Hint: Zero.)

Do you have a citation for this? I looked on Google and didn't see any evidence that creditors were asked to take a haircut on Greek debt. In fact this article on cnbc seems to suggest that Europe is resisting any suggestion of a haircut:

http://www.cnbc.com/id/102371294

I could definitely be wrong, just want to know where you're getting your information from.

From the wikipedia overview[1]:

"A year later, a worsened recession along with a delayed implementation by the Greek government of the agreed conditions in the bailout programme revealed the need for Greece to receive a second bailout worth €130 billion (including a bank recapitalization package worth €48bn), while all private creditors holding Greek government bonds were required at the same time to sign a deal accepting extended maturities, lower interest rates, and a 53.5% face value loss."

When you do the math (the maturity extension and interest rate cuts were steep), the total haircut was 75%+, with the bulk of the losses absorbed by French banks. It got a HUGE amount of press back in 2012—at least in the financial press. Google for "greece", "2012", "bond swap", "haircut", "debt swap", etc., you'll find hundreds of articles. Many of which boiled down to "um, if the troika doesn't take a haircut too, it won't fix the core problem, and we'll be right back here in another 2-3 years". They were right too. :(

Edit: Your link is part of that. All that's left is government held debt, and they STILL insist on avoiding any haircut, just as they have been this entire time. They were happy to see other people lose their money, but by now we're out of people with skin in the game. All that's left is the troika. Their insistence on avoiding a haircut is why everyone else had to have a 75%+ haircut..and why even that wasn't enough.

[1]: https://en.wikipedia.org/wiki/Greek_government-debt_crisis#2...

No, I think you are being too charitable to banks here. Just answer this: where did the bailout money go? Who has it now? Describe to me the flow of money and you'll see that it went to service debt that was held in large part by private institutions.

Even if I agree with your argument, I guess what we should say is that the haircut wasn't enough. The lenders should have lost all their money because they debtors are insolvent. There was no reason to involve taxpayer money in this mess.

The debt is held by public institutions, and what money Greece receives from those institutions is going overwhelmingly back to those institutions.

> The lenders should have lost all their money

"The lenders" are mostly the Troika, and always has been. You seem to be working on a mental model where most Greek debt in foreign hands is owned by private banks (or was owned by private banks, or was originally lent by private banks). Not so.

> There was no reason to involve taxpayer money in this mess.

Also untrue. A currency union ABSOLUTELY requires large fiscal transfers from richer to poorer regions, probably in the neighbourhood of 30% of GDP for a region like Europe. This has been known for decades. EU taxpayer money was on the hook from the moment the Euro project started. (If EU voters were never told that, that's a separate issue.)

You are simply wrong.

You have not done what I asked, which is to mark the flow of money to establish your point, nor have you cited a single source apart from Wikipedia. Let me do it for you. Here's an article from WP that claims most bailout money went to pay off bondholders who were in large part european banks and pension funds. http://www.washingtonpost.com/business/economy/most-greek-ba...

Do you have an agenda here? You seem to be repeating the same thing over and over without providing any sources.

To your second point, sure. Why are taxpayers in Germany crying about it now? Let them lubricate their eyes instead with the inevitability of fiscal transfer.

In any case, I am not interested in debating this issue. My concern in the original post was the moral discourse surrounding debt, that treats the rhetoric of the moneylender to be the dominant rhetoric.

I've provided several sources, which you haven't bothered to try and dispute. Your WaPo link disagrees with nothing I've said.

You asked why people are talking about taxpayers having to bail Greece out, and why we don't try and punish the banks. The answer is because the debt is overwhelmingly owned by taxpayers, not banks[1]. (Which, in turn, is in large part because in 2012 we punished the banks still holding Greek debt pretty severely.)

If you persist in thinking that foreign banks hold the bulk of Greek debt, or that no haircut ever happened, then EU politics will continue to be a mystery to you.

[1]: http://money.cnn.com/2015/01/28/investing/greek-debt-who-has...

Now you're just claiming I said stuff I never said. Conveniently, you stopped quoting me now.

There is nothing more to discuss. By all means continue posting if you are a last-word freak.

> > You asked why people are talking about taxpayers having to bail Greece out, and why we don't try and punish the banks.

>Now you're just claiming I said stuff I never said.

Oh really?

> More often than not, you'll hear stuff like: [...] "Why should taxpayers bail Greece out?"... All the while, there is absolute ZERO condemnation for banking entities making risky loans. There is not even a tacit nod towards acknowledging that if banks make loans that fail, it is their loss to eat.

Please.

Sure. The Washington Post link establishes that. That you refuse to read it is your problem. Google it.

Not to mention what is actually happening here -- publicizing private debts. Why should European taxpayers be on the hook for risky bets made by Deutschebank et al? That's what's really going on here. Nearly all of the bail out funds received by Greece have gone to paying back debt. Which sounds like a good, moral thing. But what that actually means is that public money (IMF or ECB loans, backed by governments and therefore taxpayers) is used to pay off the mainly private debt holders which hold Greek national debt. The banks which made the risky bets in the first place are getting their money back -- with interest* -- and the risk is being entirely taken on by taxpayers. So that when Greece does default -- and austerity is making that inevitable -- the bankers which made those stupid loans will have long since skipped the country, cash in hand.

TL;DR - the European bail out of greek debt is really a public bail out of the private banks -- Deutschebank, Goldman Sachs, etc. -- who made the stupidly risky bets in the first place. DB and GS are getting face value* for their worthless greek bonds, and the taxpayers are left on the hook.

But good luck getting that side of the story ever told in the media. DB and GS shareholders need their profits.

* There was a haircut by the private debt holders at one point in time, but interest on that debt has basically made up for it. It was still a profitable investment.

(Lesson for anyone aspiring for a profitable career in international finance: find the weakest member of an organization like the Eurozone, and offer them as much debt as you can get them to take. It will have stupidly high interest rates (e.g. >7%) because it will be so risky. But importantly, make sure that you take on so much debt that a default would ruin you. This is vitally important. Now wait for the inevitable to happen and your own government to bail you out because you are Too Big To Fail. Be sure to have a golden parachute in place in case a socialist is in power when it happens, but don't worry at worst you might lose one year's bonus. You will never go to jail.)

First, a minor point: The biggest holders of Greek debt were French banks by far, followed by UK banks and only then German banks. So when you say "Deutschebank, Goldman Sachs, etc." what you mean is BNP Paribas. But if you don't even know which banks—or countries—were involved, it raises questions. And I have no idea why you tossed Goldman Sachs in there; they never held significant amounts of Greek debt. They helped sell the debt; they were much too smart to buy it, much less keep it. The suckers here were, overwhelmingly, the French banks.

Second: "There was a haircut by the private debt holders at one point in time, but interest on that debt has basically made up for it." That's utterly wrong. It's so wrong, I'm not even sure how you could make that sort of error in good faith. Private banks lost 75%+ of the value of their Greek debt, in large part due to a forced reduction in interest rates. It's almost worthless because they have no ability to make it up via interest.

As a result, the private sector has basically written the entire thing off as a bad idea and walked away; the only real holders of Greek debt left are the troika and domestic Greek institutions.

We're discussing matters of public record. BNP Paribas loss on it's greek debt holdings is in their accounts in black and white. Who owns the debt, what the terms are, what the yield is; all of that is readily available, and none of it is what you imply.

If you want an example of publicizing private debts, look at the Irish bailout, not the Greek haircut.

Nice response, Lazare. It's great to learn from people with the competence to understand the facts, and the desire to stay objective.

1) The number of greek bond holders is numerous, obviously. I named the banks I thought people would know. There's a reason I tacked "et al" at the end. Any guesses why France is the strongest supporter of Germany in the Troika?

2) The haircut was in 2012. Interest rates in the decade-long run-up leading to the crisis was 5-7%. I'll leave it as an exercise to the reader to calculate how long it takes to make up a 25% loss at those rates (hint: less than the 10-year maturity period of the bond).

> the only real holders of Greek debt left are the troika and domestic Greek institutions.

Which was my point.

> I named the banks I thought people would know.

But not the ones who actually held significant amounts of greek debt.

> Any guesses why France is the strongest supporter of Germany in the Troika?

French banks already lost the money. At best this might explain why they supported Germany in 2010-2012, and that's assuming that France was acting in the interests of French banks and not the French government which, as already covered, they weren't. You're suggesting an explanation which makes no sense to explain things that didn't actually happen.

> 2) The haircut was in 2012. Interest rates in the decade-long run-up leading to the crisis was 5-7%. I'll leave it as an exercise to the reader to calculate how long it takes to make up a 25% loss at those rates (hint: less than the 10-year maturity period of the bond).

First, it was a 75%+ loss, not a 25% loss. Best case, if a bank made a 10 year bond, sat on it for 9 years and 11 months, and then went through a haircut, they still lost a bunch of money.

Second, even if it had been a 25% loss (which, again, it wasn't), they still wouldn't have come out ahead; you're ignoring their opportunity cost, cost of capital, etc. You're also ignoring the fact that the people who made the loans were mostly not the people holding them when the music stopped. It's the same mistake you made when you mentioned Goldman Sachs, who made money helping Greece cook their books but didn't hold Greek debt*

Third, BNP Paribas and the other banks lost billions of euros; it did not come out ahead, or even close to it.

>First, a minor point: The biggest holders of Greek debt were French banks by far

I was under the impression that the German banks were the biggest holders of Greek debt followed by France and Italy.

No. Back in 2012, French banks had about €30 billion in exposure, with UK banks holding €6.4b and German banks less than €5b ([1]). BNP Paribas alone lost almost as much as every German bank combined started with, to put it in perspective.

After the disaster that was the bond swap (more than 50% of face value removed, and swapped for bonds with 30 year terms, AND the interest rate slashed to almost nothing), most of the banks cut their losses and ran.

The exception is, yes, the German banks (along with US and UK banks). Their exposure has climbed, with each now holding around €10b, with Germany slightly in the lead ([2]).

So at the time of the 2012 haircut, French banks were most exposed (among banks) and lost a lot of money. Today German banks are most exposed (among banks), but it's a lot less than it was; private sector debt is way below its peak.

But keep in mind! Something like 80% of all Greek debt is held by public institutions, aka, the troika. All foreign banks, added up, are still something like...I dunno, 10% of total Greek debt. Greek is in hoc to the EU, the ECB, and the IMF; the €10b owed to German banks is peanuts in comparison, to the extent that the banks don't even have a seat at the negotiating table any more.

[1]: http://www.telegraph.co.uk/finance/financialcrisis/9125614/G...

[2]: http://www.theguardian.com/world/datablog/2015/jun/19/the-gr...

Why did the Uk/German holdings increase? When you say they now hold 10b I assume you mean face (redemption) value rather than market?

I don't really know. Some mixture of betting that Greece won't default and banks acting as a dumping ground for bad debts (someone has to end up owning it), I guess.

And yes, all numbers are face value. The market value of all that greek debt is...well, VERY much an open question right now. :)

Well, not exactly. The people are rather loud about it (at least here in the U.S. where we lock up petty drug offenders for life, but there's nary a single banker in jail for the 2008 worldwide economic collapse), but it doesn't matter if we make noise about it. As long as no one in government does, and the media mostly ignores it, the result is the same.

No, there was a huge amount of anger and condemnation directed towards banks who received a bailout. The difference is that a collapse of so many large banks would have wrecked the German economy. That is why they received a bailout - not because of any 'moral superiority'

It seems that these days corporations (banks, car manufacturers) can easily gain the magical exemption of "too big to fail" but countries can not. Megacorp SciFi is close.

I guess that depends on whether you see making a promise you have no reason to believe you can keep is better or worse than being dumb enough to believe it.

Don't discount the third option, that creditors are neither dumb or gullible, but predatory.

Well, they've "preyed" themselves into substantial losses. Even if the EU makes good on the principal on Greece's behalf, it was still a dumb idea to lend money to them.

Usually predatory lenders have more recourse over you: they'll take your car from the car title loan, etc. What do they gain from this situation, exactly? It seems to me like everybody loses here... and I'm not entirely certain they won't find some bailout and have it happen again.

Right now, I feel sorry for the people in Greece, it seems like they work long hours for nothing and their government is completely underwater.

>they'll take your car from the car title loan, etc.

they'll take your pensions from the pension pot, etc.

This deal is about giving predatory lenders political power over nation-states.

The point of this vote is that they can't take anything unless Greece agrees to it. They will have to control spending in order to get the economy back on track, just as you have to take in more money than you spend to get out of debt, but the whole thing is so broken, I don't know if anyone can fix it and I feel bad for the people who have to suffer from the effects of poor governing.

And with this rejected, who will give Greece money now? I mean, who's going to lend money to someone when you know they're going to tell you that you were a sucker if you thought they'd pay you back?

> I mean, who's going to lend money to someone when you know they're going to tell you that you were a sucker if you thought they'd pay you back?

It is perfectly normal for countries to default. That is an expected part of lending.

Here's the list: https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises

I'm not sure 'normal' is the word I'd use there, unless one counts the collapse of Russia, the Napoleonic wars or WW1 as 'normal'.

If you read the section under IMF on the Latin American debt crisis, you'll see quite a few parallels with the Greek situation:

https://en.wikipedia.org/wiki/Latin_American_debt_crisis

I thought default was always considered an option for Greece. The way I understood it, a "bailout" was a plan to give Greece a bunch of money so they could avoid default. Please correct me where I'm wrong.

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