Wall of text incoming. Again.

Sorry. Again.

tl;dr:

Debt relief right away was proposed, was neccessary, and was skipped to protect the European financial system.



You are 100% correct, we both are as convinced as one can be that a disorderly collapse would have been much worse for Greece. Might have turned it into a failed state, if things went really bad.

But the situation in Greece at the time the Troika got involved suggested a textbook approach would work just fine. Greece was insolvent, no two ways about it. A debt restructuring, including a haircut, was required to stabilise the system. Yet it was decided against it, thereby creating an enormous debt bubble that keeps growing to this day, destabilising everything.

Why?

People in Brussels, Frankfurt and Berlin knew in May of 2010 that Greece cannot service its current debt, nevermind pay it back. I remember rather vividly how it was presented to us, as it stirred up a lot of dust in Germany. They pretended as if the problem was a shortage of liquidity, even though they knew it was in fact an insolvency. And to provide an insolvent nation with the largest credit in history (€110-130b) is... well, we can all pick our favorite in accordance to our own bias: madness, idiocy, incompetence, a mistake, intent. They threw Greece into permanent indebtedness(?), and also played one people against another. People in Germany were pissed, still are. Not at the decision makers, but the Greek people.

Again, why?

Every European government, pre-crisis, drank the Cool Aid of deregulation, particularly with regards to the financial sector. When the crisis hit, they had to bail out the banks, a very unpopular decision in Germany, given the scandalous way it was done (different story). Like I pointed out before, when Greece was done for, German banks were on the hook for €17b+, and the French for €20b+. So no haircut for Greek debt.

It gets even better. The entity most experienced in these matters is, of course, the IMF. But IMF couldn't get involved. Its own regulations demand debt to be sustainable for it to become involved in any debt restructuring. Strauss-Kahn had the rules changed in a very hush-hush manner (hidden in a 146 page document) to allow the IMF to lend vast sums to Greece, even though they knew it would not be payed back. Former EC members are on record saying the Strauss-Kahn decided to protect French banks this way as a part of his race for President in France. So they changed IMF rules and ignored European law to bail out German and French banks, using the insolvent Greek government as a proxy.

Several members of the IMF's board were in open opposition. The representatives of India, Russia, Brazil and Switzerland are on record, saying this would merely replace private with public financing, that it would be a rescue package for the private creditors rather than the Greek state. They spoke out in favor of negotiations of a debt relief.

And if that wasn't bad enough, there's an IMF email, dated March 25th, 2010, that was published by Roumeliotis, formerly IMF. They put it very bluntly:

"Greece is a relatively closed economy, and the fiscal contraction implied by this adjustment path, will cause a sharp contraction in domestic demand and an attendant deep recession, severely stretching the social fabric."

Even the IMF, who chose parameters according to their own ideology, thought the European program to be too severe. That's saying something.

All that is just about the initial decision. The implementation is another story entirely, with unelected and unaccountable bureaucrats telling a democratically elected government what to do. There are former Greek ministers on record, telling how Troika officials basically wrote legislation for them. Blackmail was common, bailout money held as leverage. The Memorandum of Understanding was to be followed to the letter, and the Troika program was as detailed as a government program, so they really had their hand in just about everything.

The specifics of the program are a discussion of their own, with all the corruption going on. The Lagarde list (2000+ Greek tax dodgers) was held in secret by order of an IMF official – that alone should trigger major investigations. The nationalisation and sell-off of the four largest Greek banks, or the no-bid sale of the Hellenikon area to a Greek oligarch – all enforced by Troika officials.

The haircut of 2012, ~€110b wiped out, came two years late. As a result, it didn't hit any German or French institutions in a serious way. Most of the debt was in the hands of these four largest Greek banks -- NBG, Piraeus, Euro, Alpha – who subsequently had to be recapitalised by Greece to the tune of €50b. Cut by 110, up by 50 right away. Banks were nationalised and shares later sold again, at 2/3 the price. Lost another €15b, because the Troika demanded the sale to appease the markets.

The legal aspects of all this are nightmare-inducing as well. They violated numerous European laws, side-tracked parliaments, used governmental decrees, etc.

Let me just say this: when they forced Cyprus to give away two banks' branches in Greece for a fraction of their worth, Cyprus lost €3.5b, at a GDP of €17b, and those two banks went belly-up. It was pure blackmail, do it or you're out. Piraeus Bank received those €3.5b, and its head honcho had €150m of personal bad credit wiped clean right then and there, all at the command of the Troika. Those €3.5b had to be taken from ordinary folks by "suspending" the deposit insurance, perhaps the most stupid decision they had made so far.

Why did they do it? Because Greece was more important than Cyprus, and Cypriot banks were involved in shady deals with Russian oligarchs. Still illegal, and massively so.

Edit: I cut my post in half and it's still too long.

@oritteropo

There is a long history of Latin American currency crises which I would refer you to as examples of disorderly collapse. That Tsipras would break most of his electoral promises in his recent 4 month extension agreement should tell you that he knows how catastrophic it would be. You can't quantitatively approximate these kinds of events but qualitatively* (TYPO) the following is likely to occur:

1) Bank run - You saw significant withdrawals even leading up to the meeting with the Troika because of the possibility funding will abruptly stop. A stop to euro lending will see mass outflows with the expectation of bank collapse which will itself likely lead to the collapse of multiple banking institutions.

2) Foreign flows of currencies will dry up - Greek bond yields will spike, in effect no one will lend to the Greek government from overseas. Since like any economy, Greece needs to pay its public sector workers and requires foreign capital for imports, to preserve what it has, it will rapidly convert back to using the Drachma which it can issue and print/create. It is likely the banks will follow in turn and convert deposits to Drachma (another reason why people will withdraw money from banks as soon as they think euro support is over).

3) Drachma collapse - The Drachma will then depreciate rapidly. Again, the expectation of depreciation pretty much causes the depreciation. If people expect their currency to be worth less in the future, they will sell it, causing it to be worth less. Any existing savings accounts remaining will be decimated in value. Wages will fall drastically for everyone. Suddenly the cost of anything that relies on imported products (hint, a lot in any economy, especially Greece) will rise several-fold. This will lead to further job cuts, collapse of industries, which will precipitate further job loss, unemployment, output loss etc etc etc.

The tl;dr version of this is that government funding crises whether caused by debt or currency collapse in the first instance are self reinforcing and the consequences of an unmanaged collapse are all but guaranteed to be much worse than austerity but order. There is some evidence that countries who have a massive collapse and see their currency depreciate are then about to recover faster afterwards (a cheap currency boost exports, tourism etc) but the human toll is much more sudden and much more severe.

As far as IMF estimates being unrealistic, sure. All I'm arguing about is what is likely to happen and which outcome Greeks should prefer.

Sure Syriza has talked about the good kind of reform, but he's also promised the rest of what I talked about. None of which the Troika will let him do if he wants retain their funding. Anyone following this should have known he would not be allowed any of these promises he made in his election. Surely Tsipras himself knew this. It was either posturing/bluster or pure politics. Now the stability of his government is going to depend on how he can manage down his unrealistic expectations.

http://www.theguardian.com/world/2015/jan/28/alexis-tsipras-athens-lightning-speed-anti-austerity-policies

The way a bank is supposed to operate is that it matches the terms of its loans and its deposits. A 5 year mortgage is funded by 5 year term deposits or bonds or whatever. This is what a bank that wants to make a safe reasonable profit does. Of course the big American banks aren't really banks any more. They're gamblers and what's worse they are the kind of gambler's that think they can recoup their losses by gambling more.

Not all do that by far.
Local credit unions don't do that. They allow their members to determine where and if they 'invest' deposits, and often specifically disallow investment outside a small area or with other large banks.
You just have to do a little research, you don't have to go totally bank/credit free to be rid of them (but debt free is always a good decision when ever possible).

Unfortunately, small local banks partner with big banks.

When you deposit money into a local bank, within minutes it's been shoveled off to god knows where. It changes hands every few minutes. There's a frenzy going on in the background. Nothing stands still.

Pretty much have to go cash and be debt free to actually be rid of them.

-scheherazade

It's obvious. Your ratio of loans (risk) to deposit (resource) needs to be capped at a sane ratio.
Additionally banks should never be allowed to gamble on derivatives with depositor money.

Warren is a smart woman who was HATED by the bankers she tried telling for 10 years that trouble was brewing; then she was right.
They hated her more.

Behind all this is a serious question: how does any institution that takes short term deposits (a bank) handle its long term obligations (loans) when the deposits (your money) has the right to leave at any time?

No one has really solved that one yet, as far as I can tell...Maybe she has a smart answer. Smarter than letting the banks trade meaningless swaps, which is what she opposes in this speech...

This thing is practically a Rube Goldberg machine.

A simple tilted chute with a slot that identifies which way the batteries that slide down it are pointing, separating them into forms that deposit them on a conveyor, would have done the trick without all that dancing.

(Yes, I know, I destroy the magic in souls frequently. Utility over aesthetics ho!)

Actually, the new theory is that the dinosaurs may have been 'wiped out' by an asteroid, but they were already far into an extinction event when it happened. This is proven well by the fact that there are not large deposits of bones in the K-P boundary layer. Climatologists and paleontologists are coming to understandings that the climate was changing on the dinosaurs, making most extinct long before the impact. It wasn't a dinotopia one day and wasteland the next.

Oh, and the rest of the first world IS on board with the theory, and most are more than alarmed. We are fairly alone in our stance that it's not our problem, odd since we (the US) created most of this problem. Our position makes us look like the least responsible country in history.

Jews have the old testament.
Christians have the old testament and new testament.
Muslims have the old testament, new testament, and yet a newer testament.

All 3 share the old testament.
The 'violence promoting' scriptures are found in the old testament - which all 3 have in common.

Reza is right.
If people want peace, the religious of them simply ignore the violent edicts of their religions.
If they want to be violent, the religious of them legitimize it with excuses from their religions.

He's also right about the national hypocrisy. Al-Qaeda at the time of 9/11 was a pet organization of members of the Saudi royal family.
But instead of going after the Saudis (who also today finance ISIS), we go after 2 countries that are unrelated to the attack.

Look at today's irony. Assad in Syria (who we wanted deposed because he was friendlier to Russia than the U.S., and allowed Russian bases on Syrian soil [in the middle east]) is now fighting ISIS, while we ally with the Saudis who are supporting ISIS.

We also didn't mind supporting the Mujahedin (Jihadi fighters) in Afghanistan when they were fighting our enemy. We had no problem throwing Afghanistan into the dark ages when it suited us.

Ultimately, extremist Islam is a foil, meant to rouse western people's emotions. As national policy, we don't _actually_ do anything to stop it, we just use it as an excuse to do whatever else is of national interest.
Who would be the boogey man if extremist Islam was gone? We need a boogey man if we want to keep excusing and paying for a large military. People simply don't have the foresight and patience to maintain a strong military without someone scaring them into support. Particularly now, when we don't have the manufacturing capacity to quickly build a large military.

However, Reza is ignoring Turkey's and the Pacific islander's Muslim problems. Indonesia and the Philippines have extremist Muslim organizations doing attacks home (Philippines also has Christian terrorists). Turkey is a large source of Muslim fighters pouring into Syria.



The various related religions also have historical developmental differences.

Jews were for a long time in such minorities that they did not have the political capability of waging any campaign of violence. They were either too small, or too busy being occupied by European powers (Rome, etc).

Christians did have a long period of majority, starting around 400ad when Rome decided that a good way to control/pacify any dissent within the empire was to make the empire 1 religion and make Rome the head of that religion. They elected Christianity as the state religion, forced everyone in the Roman empire to convert, and you had a continent's worth of Christians.
This included north Africa and Middle East - and is when Jews (by now called Palestinians) were forced to convert from Judaism to Christianity (**and few hundred years later forced to convert from Christianity to Islam).

Although, Christians had the benefit of the Inquisition(s) to temper their enthusiasm for Christianity. A large part of the population was killed for consorting with the devil. Once it got so bad that everyone knew someone who had been convicted and killed - and everyone was sure that those killed were innocent, it cast a large doubt on Christianity as whole. People questioned if the devil even exists, or if it's all a sham. The distrust and resentment paved the way for the eventual birth of Deism and Empiricism. A time when the scientific method and physical observation started to take over.

Islam is still a young religion. They still have to experience their religion becoming all powerful, and the inquisitions that inevitably come from absolute power. The one good thing about Islamic extremism is that it makes the people living under those conditions more likely to suffer. Once the suffering becomes so pervasive that everyone is suffering, the people will start to dislike/distrust their religion, and the extremism will resolve itself from the inside out - like it did with Christianity.

The bigger problem would be if things are 'too tolerable', and the religion grows more extreme (no one is inclined to say 'no'). The biggest problem would be if the religious leaders 'solve' the balance issue, and manage to stabilize the oppression at a level that is as extreme as it can be while still being permanently sustainable. Then the religious leaders can live the life of power without the threat of deposition.

-scheherazade

If I was someone who had money to burn I'd seriously consider having people driving around with wads of cash and troll for these chuckleheads. Then when they try to run off with the cash I would take these criminal asshats to court and publicize it from coast to coast, this shit just keeps getting deeper and deeper.
On the other hand it does kind of mystify me why some people feel the need to drive around with so much cash on them, the one guy with the restaurant had some kind of excuse but if you score big in Vegas why wouldn't you just deposit your winnings?

Yeah... i feel a different sifter put it best the other week when he said the best way to eat any kind of food is exactly however the hell you want. Deposit the food into the stomach in your favourite manner and then let nature take over.

I see the parks and roller coaster makers getting into this idea once everything matures a bit. Want to ride the rides, buy a $60 ticket. Want Fast Pass, another $100. Want to augment the rides, that'll be another $80 plus a $150 deposit on the glasses (if you have the Fast Pass, or $120 without the fast pass plus the deposit).

The Basel 3 accords are essentially doing this. Basel and its previous incarnations are essentially non-binding guidelines established by an international agency for banks that domestic regulatory agencies in countries then enact. Even if they don't, banks follow these anyway because it's effectively an international standard.

Basel 2 (which we had prior to the GFC), had 2 tiers of capital that could be held. The actual shareholder stock capital that is rock solid (tier 1) and various loose definitions (including at the time AAA rated mortage backed securities) - tier 2. The last I heard, that 2nd tier has essentially been done away with and the overall capital requirements (%) required to be held, has been raised.

The problems though are:

1 - Unless you raise capital to stupendous levels (like seriously inhibiting bank lending), you wouldn't have anywhere near the buffer to prevent another 2008. The problem then was not insufficient capital. It's that the industry as a whole made a large judgement error in valuing mortgage backed securities.

2 - This also highlights the problem that breaking up the banks wouldn't solve the issue of groupthink because availability of credit and economic conditions are a universal thing. An analogy is the oil price. Even though the US is a major oil producer in it's own right, events like Iraq recently still heavily impact prices in the US because global prices don't change in a vacuum.

3 - As far Glass Steigel, even if investment and traditional banks were separate, operating in the same field, if credit dries up (say because a investment bank made a bad decision), that will still affect the traditional merchant banks.

All banks work through fractional lending. You take a deposit, keep a buffer for capital. You lend out the rest. Some returns back as a deposit, again you keep a buffer and lend out the rest. In bad economic conditions, regardless of whether caused by them or other players in the finance industry, some of their lenders default and there is potential for their entire capital buffer to collapse and the bank to default if the crisis is bad enough. Even if it's purely a merchant bank.

-

What splitting the banks probably would do is increase competition, and lower banking costs as well as salaries, which is generally a good thing and I would agree here that this is something that banks have lobbied heavily against (as well as things like the Consumer Protection Agency, for the same reason, margins). Having said that, there are a lot much more monopolistic companies with lower risk and much more stable margins (e.g. Wallmart).

I don't think their landlord is giving them their security deposit back.