Greece: if austerity doesn't work... Try more austerity! | 287 comments (287 topical, editorial, 0 hidden)

Re: Outstanding balance: 75 billion (none / 0)

You're grasping at straws with your "follow the money".

Guilty as charged...

I'm still looking for a tangible villain. Given the mechanical inevitability of default for Greece (barring a deus-ex-machina from the ECB, which I think we can agree is not on the cards), the smart money is presumably gaming the ECB's stupidity for all it's worth.

The most obvious way of doing this is by buying CDS.

Therefore, anyone taking a major bet on Greek default, through a CDS position, may wish to influence outcomes by blocking off all alternatives to full payment (impossible) or default (jackpot).

Ratings agencies which declare "anything which is different from full payment (e.g. voluntary rollover) is equivalent to default" would seem to fit with such a strategy.

The head of a ratings agency who secretly held a massive CDS position might make a satisfying villain.

Just thinking out loud here.

_{It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II}

by eurogreen on Thu Jun 16th, 2011 at 05:23:16 AM EST
[ Parent ]

Re: Outstanding balance: 75 billion (none / 0)

Then you have to ask yourself who the sellers of the CDS are.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 05:25:25 AM EST
[ Parent ]

Indeed. They are the suckers (none / 1)

in a default scenario. If I have understood correctly, they are US banks, who must somehow trust implicitly that the ECB will not allow default. Or that the US government or Fed will not allow the ECB to allow default?

My head hurts.

_{It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II}

by eurogreen on Thu Jun 16th, 2011 at 06:53:19 AM EST
[ Parent ]

Re: Indeed. They are the suckers (4.00 / 2)

They are not the suckers. They are collecting CDS premia (16% annual rate on Greek CDS right now) without being capitalised for paying out and everyone is doing their best that there isn't a default so they don't have to pay.

If you sell insurance with no intention of paying out, is that not fraudulent?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 07:09:54 AM EST
[ Parent ]

OK, but they don't want to pay out... (none / 0)

so if they have any overt or covert influence to exercise over events in my ficticious world, it will be working against the interests of my hypothetical speculator/credit rater. They would NOT want "voluntary" bond rollover to trigger a credit event.

This is all a matter of parasitical side-bets on the main events of Euro liquidity/solvency matters, but the stakes are high.

It could all get quite violent.

_{It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II}

by eurogreen on Thu Jun 16th, 2011 at 09:08:56 AM EST
[ Parent ]

Re: OK, but they don't want to pay out... (none / 0)

I keep forgetting you're not trying to figure out what's going on but you're actually actively looking for a pulp fiction villain so you can write a crime novel.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 09:21:39 AM EST
[ Parent ]

Figuring out what's going on (none / 1)

would be nice, but way beyond my intellectual capacity.

Writing a crime novel is easy, comparatively speaking. But I would prefer that it were plausible and didactic in nature.

It's a variation on the old "insure and burn" scam. No, it's actually more like match-fixing : placing bets on outcomes, and reducing the uncertainties.

I would prefer if I could identify actors who stand to gain from the Euro crisis itself, rather than CDS side-bets, and who might therefore wish to influence outcomes. But I haven't identified anyone yet : it looks like a lose-lose-lose situation, a seriously negative-sum game.

_{It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II}

by eurogreen on Thu Jun 16th, 2011 at 11:59:24 AM EST
[ Parent ]

Re: Figuring out what's going on (4.00 / 2)

The you need to up your stakes and, instead of writing a pulp crime novel, writing a Twilight of Civilization epic tragedy.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 12:40:04 PM EST
[ Parent ]

I'm hoping for an epic farce actually... (4.00 / 2)

Playing to my strengths.

Götterdammerüng, and lots of humping among the ruins.

_{It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II}

by eurogreen on Thu Jun 16th, 2011 at 01:12:27 PM EST
[ Parent ]

Nitpick (none / 1)

Götterdämmerung :-)

_{*Lunatic*, n.

One whose delusions are out of fashion.}

by DoDo on Thu Jun 16th, 2011 at 01:21:25 PM EST
[ Parent ]

Re: Nitpick (none / 0)

I like the way Dammerüng sounds :D

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 03:42:35 PM EST
[ Parent ]

Re: Figuring out what's going on (4.00 / 2)

I would prefer if I could identify actors who stand to gain from the Euro crisis itself, rather than CDS side-bets, and who might therefore wish to influence outcomes. But I haven't identified anyone yet : it looks like a lose-lose-lose situation, a seriously negative-sum game.

In terms of money? Certainly.

In terms of goods and resources? Absolutely.

In terms of power? No. Power over others is a zero-sum game.

But of course this is a case where reality is unrealistic. It is hard to make a character in a book motivated by power over other people without having him become a caricature sociopath.

- 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 Thu Jun 16th, 2011 at 03:24:49 PM EST
[ Parent ]

Re: Indeed. They are the suckers (none / 1)

Migeru:

If you sell insurance with no intention of paying out, is that not fraudulent?

That is the advantage for the buyer of having insurance regulated. But since this is not insurance, I guess pretending to insure would be the correct name of the service.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Thu Jun 16th, 2011 at 11:24:23 AM EST
[ Parent ]

Re: Indeed. They are the suckers (none / 1)

Well, the CDS buyers are also only pretending to buy insurance since

the whole point of CDS swaps was to enable you to treat risky junk as though they were AAA investments and relieve you of the obnoxious reserve requirements

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 11:49:58 AM EST
[ Parent ]

Re: Indeed. They are the suckers (4.00 / 5)

Communism: The workers pretend to work and the state pretends to pay them.

Capitalism: CDS buyers pretend to buy insurance and CDS sellers pretend to sell it.

Hm, not as catchy.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Thu Jun 16th, 2011 at 04:16:06 PM EST
[ Parent ]

Greece: if austerity doesn't work... Try more austerity! | 287 comments (287 topical, 0 editorial, 0 hidden)

Top Diaries

Newspeak to English pocket dictionary

A Nomad's Life (A Farewell)

Quantifying Utopia: A UBI Calculator for the USA

Standing on the Shoulders of Giants - Europe and the Mongol...

Rail News Blogging #24

Simple Solar Principles

Ferguson hates on Keynes

The Brussels Consensus: economic disaster in EU candidate...

Recent Diaries

Simple Solar Principles

Quantifying Utopia: A UBI Calculator for the USA

Newspeak to English pocket dictionary

Standing on the Shoulders of Giants - Europe and the Mongol...

Rail News Blogging #24

A Nomad's Life (A Farewell)

The Brussels Consensus: economic disaster in EU candidate...

Origins of German Neo-Austerianism

Ferguson hates on Keynes

Dionysian revels: Nice, May Day 2013:

Anglo Or Not, It's A Disease

The UK and the Euro

Free Energy: Solar and Dynamo LED Keychain Lights

Kruganomics 101

Gold

Corporate Profits and Aggregate Demand

VC Investment: Then and Now

An Ambush of Wishful thinking and Cargo Cult law.

The Intellectual Foundations of Austerity destroyed

Spring is Sprung - Photoblog

Occasional Series