Top Diaries

Patrick Honohan has objected to some parts of Morgan Kelly's thesis but praised it as accurate in other respects. He has not objected to the part about Geithner - and he was a party to those discussions.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Sun May 8th, 2011 at 09:33:59 PM EST
[ Parent ]

I'd like to see something more specific: the US treasury does not have anything at stake here other than the possible collapse of a huge trading partner, but the UK govt. which is here claimed to by sympathetic has been actively defending UK banks and investors. Certainly Pat Honohan may have things he can and cannot say as well.

Yves-Smith has a serious grievance against Geithner -she'd believe any story - even one that nobody has told.

by rootless2 on Sun May 8th, 2011 at 10:52:24 PM EST
[ Parent ]

I'm much more inclined to believe this rather than rumors.

by rootless2 on Sun May 8th, 2011 at 11:05:28 PM EST
[ Parent ]

Are we supposed to compare by eye the area of the blue wedge with the area of the circles?

How to lie with statistical graphs...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 02:12:21 AM EST
[ Parent ]

Do you dispute the numbers?

Another way of looking at those numbers is by population, roughly:

Greece: 11 mil (28 bil)
Portugal: 11 mil (28 bil)
Ireland 4 mil (114 bil)
Spain: 46 mil (146 bil)
Germany: 81 mil (79 bil)

You can't be me, I'm taken

by Sven Triloqvist on Mon May 9th, 2011 at 03:20:45 AM EST
[ Parent ]

I dispute the graphical presentation of the numbers.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 05:13:17 AM EST
[ Parent ]

Perception... is in the eye of the bondholder (4.00 / 3)

...is in the eye of the bondholder

I agree that the size/area of the circles does not conform to the figures contained within, and thus has only a semiotic or perceived value.

If you really want to object though, the main point of the graphic is that the four yellow countries are rolling downhill, with the 'stable' slope as Germany. OR, alternatively, the greater 'weight' of Ireland and Spain are tilting the horizontal axis. However the first explanation seems more likely, as the numbers within the circles are slightly rotated to indicate rotation/rolling.

If this graphic comes from a newspaper, it is very likely to have been created by a sullen youth of indeterminate gender in Converse boots and a possible piercing, on the basis of a hurried email instruction by a sub-ed.

Scientists, as you well know, are barred from all publishers.

You can't be me, I'm taken

by Sven Triloqvist on Mon May 9th, 2011 at 08:16:16 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (4.00 / 2)

If this graphic comes from a newspaper

It says "Der Spiegel" on the right, in white on a yellow background (though I doubt they were actually trying to hide this). I suspect that the areas do actually conform to the figures, but they sure don't look at first as though they do.

by gk (g k quattro due due sette "at" gmail.com) on Mon May 9th, 2011 at 08:23:30 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (none / 1)

Well, I measured the areas of the circles and they don't!

You can't be me, I'm taken

by Sven Triloqvist on Mon May 9th, 2011 at 09:43:05 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (none / 0)

If you say so.... I estimated by eye that Spain had slightly more than twice the diameter of Greece and figured that it wasn't really worth more careful examination....

by gk (g k quattro due due sette "at" gmail.com) on Mon May 9th, 2011 at 09:49:37 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (4.00 / 3)

If you really want to object though, the main point of the graphic is that the four yellow countries are rolling downhill, with the 'stable' slope as Germany. OR, alternatively, the greater 'weight' of Ireland and Spain are tilting the horizontal axis. However the first explanation seems more likely, as the numbers within the circles are slightly rotated to indicate rotation/rolling.

Precisely. This is narrative-pushing, using the numbers as a poor excuse.

Maybe there's a third interpretation, a sort of domino effect/snowballing down the German deficit slope.

Whichever way you interpret it, the visual presentation has precious little to do with the data.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 09:03:43 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (4.00 / 2)

My point was purely to highlight the immense amount owed to German banks. The rest of it is something I don't have an opinion about.

plus 100B to UK banks just for Ireland and we start to get an outline of cui bono.

by rootless2 on Mon May 9th, 2011 at 09:32:05 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (4.00 / 3)

It is clear that this whole "rescue" mess is simply a way to transfer the losses to the public sector.

Under a default scenario the creditor countries still have to pick up the losses of their banks, so this is just a different way of achieving the same effect, just delayed so well-connected people have time to liquidate their positions...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 09:35:35 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (4.00 / 5)

And to hide the rescue from their publics.

Remember, the original sin here is depressing German wages in the name of competitiveness. Telling the German people that they have to bail out the German banks because they lent the money that should have been paid to them to cowboy banks is unlikely to do anyone's political career any good. I'm guessing German workers would have been much happier if it was them rather than Irish bankers who were buying the Mercedes.

by Colman (colman at eurotrib.com) on Mon May 9th, 2011 at 09:39:54 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (4.00 / 4)

Right - the German government can now tell the gullible German public that the trouble is the reckless spending of Irish and Greeks, not the need to bail out a failed German banking industry.

by rootless2 on Mon May 9th, 2011 at 09:54:13 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (4.00 / 3)

Take it from the German SPD: it's all been "crass keynesianism"...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 11:36:27 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (none / 1)

Do those numbers include money owed to German and UK banks by their subsidiaries operating from Ireland?

by Colman (colman at eurotrib.com) on Mon May 9th, 2011 at 09:41:19 AM EST
[ Parent ]

Re: Perception... is in the eye of the bondholder (none / 1)

i dunno - does it make a difference?

by rootless2 on Mon May 9th, 2011 at 10:45:32 AM EST
[ Parent ]

Thou shall not use pie charts (or any other representation using area).

by asdf on Mon May 9th, 2011 at 08:21:41 PM EST
[ Parent ]

Graphics, like statistics are important tools for conveying messages and can also be misleading. Critiquing their use can be an important part of appraising the validity of an argument.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Tue May 10th, 2011 at 05:43:25 AM EST
[ Parent ]

Except histograms (n/t) (none / 1)

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 10th, 2011 at 09:22:38 AM EST
[ Parent ]

And they're comparing a stock (debt outstanding) with a flow (GDP).

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 06:25:48 AM EST
[ Parent ]

The ratio is the interest rate at which you'd spend your entire GDP servicing debt.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 06:27:52 AM EST
[ Parent ]

The figure is budget deficit, not GDP.

by gk (g k quattro due due sette "at" gmail.com) on Mon May 9th, 2011 at 06:31:09 AM EST
[ Parent ]

Ooops, mea culpa (n/t) (none / 0)

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 06:34:54 AM EST
[ Parent ]

Doesn't matter. The claim made is that Germany/UK were happy to toss away many billions, that an Irish government that signed up to pay suddenly took a different path and that a US official with no apparent motivation except character defect prevented them from doing the right thing. Generally, I find it a good practice to be skeptical of self-serving rumors coming from such meetings.

by rootless2 on Mon May 9th, 2011 at 06:49:56 AM EST
[ Parent ]

Yves-Smith has a serious grievance against Geithner

His conduct as Governor of the New York Fed and then as Secretary of Treasury would account for serious disdain from Yves and many others, myself included. Do you have any specific reason why she has a personal grievance or a grievance arising from her professional activities against Geithner? And do you think Giethner has done a good job both as Governor of the NY Fed and as Sec. of Treas.?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 9th, 2011 at 12:10:06 AM EST
[ Parent ]

Her politics are libertarian/conspiracy and she's fixed on Geithner/GS as the axis of evil. The fact that e.g. DB was a bigger player in the US mortgage mess in key years than GS or that Geithner's team ruthlessly slashed bondholders to protect GM/Chrysler or that the approach taken by Geithner/Bernanke to the crisis required far less of a taxpayer hit than the ones Yves advocated - or the ones taken by the European central bank are facts that conflict with her stupid narrative.

I find proposed explanations of this crisis that are based on character defects and alleged criminality to be a lot less plausible than ones that are based on who makes money and whose interests are at stake.

by rootless2 on Mon May 9th, 2011 at 06:55:20 AM EST
[ Parent ]

Libertarian? I don't remember her advocating for unfettered free markets and goldbuggery.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

by generic on Mon May 9th, 2011 at 07:30:56 AM EST
[ Parent ]

there is certainly a lot of chatter about "fiat money" on that site and Yves nutty devotion to "market value" of bank assets plus her conspiracy mongering gives me a strong flavor of libernuttian. I could be wrong, but that's what i see. Certainly there is not a hint of a suggestion that there could be a systematic issue of finance capital not caused by the moral turpitude of Geithner.

by rootless2 on Mon May 9th, 2011 at 09:44:42 AM EST
[ Parent ]

She has self identified as having been a Reagan Democrat back in the early '80s. The core of her work as presented on naked capitalism, and, from reviews of her book, Econned, has been to show how the US government and, especially, the financial regulators have been captured and corrupted by big finance over the last 40 years and how that has been facilitated by the systematic take-over of academic economics by the Chicago School, Friedmanite-NCE approach, largely funded by libertarian billionaires. Over that time she has worked for many of the major Wall Street firms, including Goldman, some of whom are now "considered" to be TBTF.

A substantial part of those who regularly comment on her site ARE libertarian and some are goldbugs, but she has, at times distanced herself from them. Don't conflate the views of those who comment with her views. My sense is that she would be an Eisenhower Republican, were there such a wing of the current Republican Party.

As for conspiracy theorists, see her recent spoof: Blacklisted Economics Professor Found Dead: NC Publishes His Last Letter

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 9th, 2011 at 12:09:15 PM EST
[ Parent ]

Re: This sounds like bullshit (4.00 / 5)

Well, this is not coming from Yves Smith, but from Morgan Kelly in the Irish Times (right before the bit that Frank Schnittger quotes in the diary):

On November 16th, European finance ministers urged [finance minister Brian] Lenihan to accept a bailout to stop the panic spreading to Spain and Portugal, but he refused, arguing that the Irish government was funded until the following summer. Although attacked by the Irish media for this seemingly delusional behaviour, Lenihan, for once, was doing precisely the right thing. Behind Lenihan's refusal lay the thinly veiled threat that, unless given suitably generous terms, Ireland could hold happily its breath for long enough that Spain and Portugal, who needed to borrow every month, would drown....

It was a complete mystery why Ireland capitulated so quickly as it did, assuming the very public claim was true that the Irish government was funded on a cash basis until mid-2011. So far, the only explanation for the capitulation was that the ECB threatened to crash the Irish banks, to a great cost to the Irish taxpayer in any case as the government had to make good on the €100,000 deposit guarantee (one question that posed itself, then, was doesn't Ireland have enough cash in hand to make good on the deposit guarantee?).

Ireland's Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: "You are Ireland's salvation."

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 07:12:55 AM EST
[ Parent ]

See also: Lenihan blamed ECB for forcing Ireland into bailout (Eurointelligence)

Here is a story we have so far refrained from reporting, but since it continues to make headlines here is what happened: In an interview with BBC Radio 4 former finance minister Brian Lenihan had accused the ECB of bouncing Ireland into a bailout, some days before Easter. Lenihan accused members of the ECB executive of "betrayal" and also criticises some ECB governing board members for the "damaging" manner in which they briefed some media about Ireland, according to the Irish Examiner. In a comment for the Irish Independent Gary O'Callaghan now supports Lenihan in his claim, saying that the ECB board's public frustration triggered the bank run in Ireland. Perceived as electoral rhetoric, the ECB's reaction was calm, the Irish Times reports. Yesterday, Jean-Claude Trichets dismissed again these claims saying that the facts prove that the ECB is siding with Ireland in the difficult circumstances.

(with links in the original)

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 07:31:18 AM EST
[ Parent ]

So the argument made is that the Irish architect of the bailout and the German and UK governments that have been faithful servants of their own banks which are the ones most exposed to Irish debt were ready to reverse course and make the bondholders pay, as the IMF had recommended, but that the American Treasury whose only role is as a member of the IMF also reversed course and vetoed any haircut?

"The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. "

Unlikely on both counts.

by rootless2 on Mon May 9th, 2011 at 07:37:26 AM EST
[ Parent ]

I'd very much like to see the expanded version. We have several claims here:

The IMF proposed a haircut plan

At a G7 finance minister meeting Geithner vetoed that plan

Osborne "spoke up" for the Irish. He was the only one to do so.

The ECB insisted on full repaiment.

The only positions we get are the US and UK. No one else had an opinion?

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

by generic on Mon May 9th, 2011 at 08:27:52 AM EST
[ Parent ]

I can think of one explanation: No single European country can veto an IMF decision. The US can. Geithner could just have been the one who formally killed the plan. Not necessarily on his own initiative, but on behalf of the creditor nations.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

by generic on Mon May 9th, 2011 at 09:12:23 AM EST
[ Parent ]

But of course the EU and UK are not constrained to follow IMF recommendations either.

by rootless2 on Mon May 9th, 2011 at 09:51:45 AM EST
[ Parent ]

Of course. But It would have been supremely embarrassing for everyone involved were the IMF to sing from a completely different hymn sheet.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

by generic on Mon May 9th, 2011 at 11:07:29 AM EST
[ Parent ]

Re: This sounds like bullshit (4.00 / 3)

The G7 consists of the US, Japan, Germany, France, UK, Italy and Canada.

Three of the 7 (Germany, UK, France) are home to major creditor banks of the Eurozone, Italy is the in the PIIGS but not in the PIGS, and Canada and Japan presumably wanted nothing to do with the Euro policy mess. The US happens to be the single country which can veto the IMF and has no skin in the Irish rescue game, so its position can be sold to the outside world as disinterested.

Germany, the UK and France politely ask Geithner during the G7 conference call to veto the IMF position on Ireland, and he obliges.

Is that an implausible scenario?

All the same, Frank is right that he chose not to excerpt this part of the story in his diary and Geithner has been brought in by an American quoting Yves Smith...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 02:05:40 PM EST
[ Parent ]

At a G7 finance minister meeting Geithner vetoed that plan

The claim was that this occurred during a telephone conference of G7 financial authorities.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 9th, 2011 at 12:12:49 PM EST
[ Parent ]

Re: This sounds like bullshit (4.00 / 3)

Well, then the US government should have a tape that could clear things up for us...

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 02:06:32 PM EST
[ Parent ]

We may hear or see a transcript of that conference call yet, but not likely from the US government.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 9th, 2011 at 03:33:31 PM EST
[ Parent ]