Category: Current Affairs
One reason why Germany can’t play tough guy with Greece
In the first year of the German occupation of Greece, austerity and "wage cuts" were imposed on the economy; at least 300,000 Greeks died of hunger.
Here is one contemporary account of that occupation. The IMF, on the other hand, can't override EU strictures on currency policy and on fiscal policy.
Who then will play tough guy with Greece?
Derivatives are often disguised debt transactions
Felix Salmon points us to this new Der Spiegel article:
Now, though, it looks like the Greek figure jugglers have been even more brazen than was previously thought. "Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future," one insider recalled, adding that Mediterranean countries had snapped up such products.
Greece's debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.
Fictional Exchange Rates
Such transactions are part of normal government refinancing. Europe's governments obtain funds from investors around the world by issuing bonds in yen, dollar or Swiss francs. But they need euros to pay their daily bills. Years later the bonds are repaid in the original foreign denominations.
But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.
This credit disguised as a swap didn't show up in the Greek debt statistics. Eurostat's reporting rules don't comprehensively record transactions involving financial derivatives. "The Maastricht rules can be circumvented quite legally through swaps," says a German derivatives dealer.
From what I understand of the Maastricht standards, they are far less stringent than banking regulation, even in places where banking regulation is relatively lax. Is the premise that governments are more trustworthy and more transparent? Or is the premise that governments should be allowed to do what banks cannot?
Here is gloss on the Sophoclean chorus on debt; you may need to scroll down to the paragraph on lines 151-58.
The last words of Socrates (according to Plato)
Shortly before dying, Socrates spoke his last words to Crito saying, "Crito, we owe a cock to Asclepius. Please, don't forget to pay the debt."
Here is one relevant link.
Sentence of the Day
Why raise the cigarette tax when you can just tax breathing?
So asks Andrew Samwick in an effort to explain the illogic behind replacing a tax on gas with a tax on miles driven.
From my Inbox
Dear Friend of the Tocqueville Forum,
I regret to inform you that we will postpone the "Are the Suburbs a Mistake" lecture and the Great Encounter with Philip Bess to a later date due to adverse weather conditions. Apologies for any inconvenience this has caused. We are eager to host Professor Bess and are working to reschedule his visit for a later date.
All the best,
Dr. Brust
Beware of Greeks bearing gifts
In an interview in Ta Nea newspaper, Papaconstantinou also insisted that middle- and low-income earners would pay less tax.
The full article is here. Is that a sign they're not so serious? There was a recent poll:
…most Greeks back Prime Minister George Papandreou's plans to freeze civil servants' wages and cut their bonuses. But the majority of respondents also opposed a hike in the fuel tax and the introduction of new taxes.
Yet another Haitian worry
Most of the sanatorium’s several hundred surviving patients fled and are now living in the densely packed tent cities where experts say they are probably spreading the disease. Most of these patients have also stopped taking their daily regimen of pills, thereby heightening the chance that there will be an outbreak of a strain resistant to treatment, experts say.
There is a tuberculosis clinic in Port-au-Prince, but of the 20 doctors and 50 nurses who worked there, only one nurse is showing up for work. The others have either died, are injured, are dealing with family problems, fear the collapse of the building, or they fear the heavy work burden and the chance of infection. The full story is here.
Supply and Demand
The sex ratio on many U.S. campuses is around 60/40 and rising. The NYTimes has an excellent piece on the predictable consequences for dating.
North Carolina, with a student body that is nearly 60 percent female, is just one of many large universities that at times feel eerily like women’s colleges…Needless to say, this puts guys in a position to play the field, and tends to mean that even the ones willing to make a commitment come with storied romantic histories. Rachel Sasser, a senior history major at the table, said that before she and her boyfriend started dating, he had “hooked up with a least five of my friends in my sorority – that I know of.”
Only at the IVYs and universities with engineering schools does the sex ratio tend to even out (no doubt for obvious, albeit politically incorrect reasons), which in itself will have consequences for future sexual mores. A number of universities would like to institute affirmative action for males.
*On the Brink*
The subtitle is Inside the Race to Stop the Collapse of the Global Financial System and the author is (?) Henry M. Paulson, Jr.
I don't consider myself a member of the anti-Paulson brigade but this book is a boring whitewash. At least up through p.100, everyone is brilliant, charming, etc.
He explains that as a Christian Scientist he is comfortable relying on prayer rather than formal medicine. I guess that doesn't hold for the banking system.
So far the best line is had by Nixon, who on p.29 eviscerates the idea of a VAT. Everyone else sounds like a cliche. There may be revelations in the later chapters, but I probably won't get to them.
Rebuilding Haiti
Here is a new and very worthwhile short piece from Progressive Fix, authored by Jim Arkedis and Mike Derham. I am more skeptical of the UN than are the authors, but I agree with many of the recommendations and perhaps the UN is the only option anyway. Here is one excerpt:
Once order is established, the UN mission will essentially become a national police force in the absence of a Haitian alternative. To transfer power back to the local government, the UN mission should be tasked with building an effective security force and justice system. That means in addition to cops, the UN may solicit prosecutors and judges in a proxy judiciary. It’s a tall order, but it may be the only way that allows the remaining Haitian government to fully concentrate on reconstruction.
Here is a truly excellent article from the NYT, on the previous lack of Haitian openness and the need to mobilize Haitian expat expertise. Excerpt:
On an economic and political level, the Haitian diaspora could be threatening, said Harry Casimir, 30, a Haitian-born businessman who opened an information technology business there just before the earthquake. “Once the elites have money and power,” Mr. Casimir said, “they’re scared of people like me, the younger generation and so on. Because we travel around the world and see how other governments function, and obviously most countries are not corrupt like Haiti.”
Voodoo bathing ritual
The source article, by Wade Davis on voodoo (I don't agree with everything in it), is here.
Obligatory budget post
I keep on hearing about a "pivot," but where is it? Via Greg Mankiw and Arnold Kling, here is Keith Hennessey:
We can draw five important conclusions from this graph:
- At 8.3% of GDP, the proposed budget deficit for 2011 is still extremely high.
- President Obama is proposing larger budget deficits than he did last year.
- For 2011, the most relevant year of this proposal, the President is proposing a budget deficit that is 2.3 percentage points higher than he did last year (8.3% vs. 6.0%).
- Using his own numbers, the President’s proposed budget deficits will cause debt as a share of the economy to increase.
- Under the President’s proposal, budget deficits begin to increase as a share of the economy beginning in 2018.
Adding further detail to (4), the President’s own figures show deficits averaging 5.1% of GDP over the next 5 years, and 4.5% of GDP over the next ten years. They further show debt held by the public increasing from 63.6% of GDP this year to 77.2% of GDP ten years from now. I think it’s a safe assumption that CBO’s rescore of the President’s budget will be even worse.
Addendum: Brad DeLong objects.
Another idea for Haiti
Haitians in Canada proposed another excellent idea: government-paid leaves of absence to allow expatriates (employed in government or the private sector) to return and rebuild civil society in their place of birth.
There is more here. I am less sure about this one, largely for reasons of maintenance:
Instead of waiting for someone to build an expensive, centralized power grid, donors could think more flexibly on a smaller scale, using solar panels and LEDs to provide electricity and light cheaply, portably and quickly.
No Shoes Please and No Debt Relief Either
Sending shoes to Haiti is how not to help. Fortunately, with notable exceptions, this message is getting out. A lot of attention, however, is still being given to debt relief. David Roodman at the Center for Global Development argues that this is merely a more sophisticated version of sending shoes. Haiti's interest charges are on the order of $9 million a year. Sure, holding off on the interest charges is a no-brainer, but the effort going into debt relief far exceeds the potential gains from simple aid not to mention immigration and trade relief. Here, from Roodman, is his argument in a graph:
*The Cleanest Race*
This is a very interesting book about the ideologies behind North Korea. The author is B.R. Myers and the subtitle is How North Koreans See Themselves — and Why it Matters. Excerpt:
One searches these early works in vain for a sense of fraternity with the world proletariat. The North Koreans saw no contradiction between regarding the USSR as developmentally superior on the one hand and morally inferior on the other. (The parallel to how South Koreans have always viewed the United States is obvious.) Efforts to keep this contempt a secret were undermined by over-confidence in the impenetrability of the Korean language and the inability of all nationalists to put themselves in a foreigner's shoes. The Workers' Party was taken by surprise, for example, when Red Army authorities objected to a story about a thuggish Soviet soldier who mends his ways after encountering a saintly Korean street urchin — another child character symbolizing the purity of the race.
I liked this bit as well:
The lack of conflict makes North Korean narratives seem dull even in comparison to Soviet fiction. Rather than try to stimulate curiosity about what will happen next, directors and writers try to make one wonder what has already happened. Films introduce characters in a certain situation (getting a medal, say), then go back and forth in time to explain how they got there. Nowhere in the world do writers make such heavy use of the flashback. But we should beware of assuing that people in the DPRK find these narratives as dull as we do. The Korean aesthetic has traditionally been very tolerant of convention and formula. (South Korean broadcasters rework the same few soap-opera plots every year). According to refugee testimony, however, most North Koreans prefer stories set either in the "Yankee colony" or in pre-revolutionary times, with real villains and conflict.
I also recommend the new book Nothing to Envy: Ordinary Lives in North Korea, by Barbara Demick. Excerpt:
North Koreans have multiple words for prison in much the same way that the Inuit do for snow.
From the WSJ, here is a joint review of the two books.