Saturday assorted links


If I understand the Greek article correctly, Greek citizens are making leveraged bets that their government will fail to make a deal. Is that right?

I'd go further. The banks are insolvent but for the terms of negotiation. For anyone with assets in the Greek banks the only hope is to get it out quickly. The longer the negotiations the better.

The end point is obvious and has been for a long time. Varoufakis is accumulating serious political capital.

There is no way for Greece to meet its debt obligations. This has been obvious for a long time. There are two ways forward.

One is to have any asset not tied down along with a few that are taken or seized, leaving the country with nothing except a continued outflow of people, money and opportunity.

The other is to play the game to get as much as possible intact in the end. At the best point where it does the least harm to Greece they will pull the plug. The capital outflow already happened, the banks already are emptied. A Greek currency won't face any sudden unexpected crisis, it already has happened. The expectations of the population are already as low as possible. There is a huge political capital backed up by preventing people from losing all in the collapse.

Not to underestimate the challenges, but the possibility of Greece becoming a Balkan style failed state has diminished. Europeans can be profoundly stupid, and they would have blithely bleed Greece to death with it ending as an Isis outpost or something similar.

@Steve Fritzinger - I was going to say the same thing. I don't understand the reasoning behind the below* paragraph from the Greek article. If this is true, can somebody explain it to me? I have real estate assets in Greece. So if I take out a loan in Euro from a Greek bank, secured by these assets, then invest the Euro in US stocks, and the Greeks default, then what happens to my loan? I repay it in the new (grossly overvalued no doubt) drachma? Seems like some sort of a free lunch for me.


* "Capital flight does not mean that capital is moving abroad in net terms, but rather that private capital is being turned into public capital. Basically, Greek citizens take out loans from local banks, funded largely by the Greek central bank, which acquires funds through the European Central Bank’s emergency liquidity assistance (ELA) scheme. They then transfer the money to other countries to purchase foreign assets (or redeem their debts), draining liquidity from their country’s banks. "

> "what happens to my loan?"

A loan with a contract currency that corresponds to the local currency is called a local currency loan.
A loan with a contract currency that does not correspond to the local currency is a foreign currency loan, at least technically speaking.

For local currency loans, it is not possible to create any exchange rate gains or losses. However, due to the local currency changeover, a local currency loan automatically becomes a foreign currency loan.

So Varoufakis is making it so Greeks don't lose but the ECB does.

Drahgi knows he is being hosed, Bernanke didn't.

Considering the alternatives, pretty smart. Varoufakis makes friends and some justification for demanding a quid pro quo when he needs it. Greeks with some capital don't get cleaned out preserving a possibility of a future Greek economy.

A very rare commodity indeed. A smart socialist.

A 'Very Serious Person'.

So poorly played by the ECB and the EU member country's representatives. So poorly played in fact that agent problems are certainly the explanation.

It was clear that Greece was not willing to pay its astonishing debts, and further it was clear that with each passing second money was being transferred from the EU to Greece. The EU and the ECB had to cut the cord, but didn't. This is centianly due to the various agents not being held approperiatly accountable, and that they were spending OPM.

I hope that when this is all said and done that there are 'serious' investigations held and that, somehow, people's feet will be held to the fire. They should have to pay the damages, personally.

(6). Economics is a liberal art. Might newer universities, catering to less elite students, offer more business programs? Students not from elite backgrounds would likely choose business over economics. Elite universities might not even offer business programs at the undergraduate level (Yale refused to teach undergraduate finance until a few years ago). Consider students overall opting more and more for degrees that prepare them for the business world and finance. If elite, they must take economics. If not elite, they have a choice and will prefer business.

Re 1: didn't Coase discredit the Pigovian approach in "The Problem Of Social Cost"?

No. The point of "The Problem of Social Cost" is that economists fail to appreciate the importance of transaction costs. Coase argued that if you ignore transaction costs (and presume perfectly identified property rights), then that necessarily implies that externalities are not a problem because private agents will bargain appropriately and efficiently (an idea that has become known as the Coase Theorem). Coase argued forcefully that transaction costs are important; in particular, they explain why we don't see most externalities typically resolved by private bargaining.

Very good point. But it also means that Pigou can't be used lightly. Merely knowing that there are uninternalized externalities does not allow you to easily calculate the Pigou tax. If for example, cars emit one dollar of externalities for every gallon of gas used, the Pigou tax might still be substantially less than one dollar (or even negative) if there are limits on driving, expensive parking, HOV lanes, if cities have rearranged themselves to favor non-commuters, taxes on cars, subsidies for buses, and even if general (non-Pigou sales and income) taxes are greater than zero (see the reviews in the Handbook of Public Finance). And national defense costs to ensure steady oil supplies are also weak substitutes for Pigou taxes. As are wars in the Middle East or cartels (like OPEC) which constrain supply below competitive levels. You need to figure out how much has been internalized or negated before figuring out the net uncompensated externality for an efficient Pigou tax.

Ironically, in Minnesota, a citizen commits a crime if she finds money or property and fails to take reasonable measures to find its owner. Minn. Stat. sec. 609.52, subd.2(6).

Number 4 is presented as hand wringing over disparity but I read it that for some reason the market for human capital is becoming very efficient (people ARE different, after all) and saw that as a good thing.

It is an article of faith to all readers of mother jones that all people are exactly the same. Well except for white people, who are evil incarnate. But in terms of *all* other characteristics all people are identical, and if you disagree you are an evil racist who must be deprived of a job and sub-sequentially destroyed.

I was very excited when I read the title to number 6, and very disappointed when I read the actual article.

#1 Sports are very important to USAers. Perhaps black USAers are doing better that whites in what they want to do well in.


Given these findings it's ironic that the same group of people who worry about inequality tend to despise Glass-Steagall. Particularly because many of the 1% firms are in the finance sector. If the research is to be believed merging high-paid investment bankers into the same corporate entity as low-paid bank tellers should reduce income inequality.

Still no response to Paul Romer's recent outburst on mathiness?

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