I’m putting up the entire Boom/Bust show in which Yanis Varoufakis appears, in part because the introductory section discusses how stressed oil producers may use secured lending to borrow more money in an effort to ride out the price bust. That would lead to a further drop in the price of any junk bonds or market value of any existing loans on those companies, since the new secured borrowing would be senior to the existing debt.
And why were lenders so dumb as to let that happen in the first place? One culprit is ZIRP and QE: that investors were so desperate for yield that they’d take any opportunity that offered an high enough interest rate premium. But the second is the power of private equity. Many of these loans were made in connection with private equity firm acquisitions of energy related firms (let’s put aside how loopy it is to lever up companies in highly cyclical industries). PE firms are the biggest single meal ticket for the investment banking side of major Wall Street firms. So to accommodate their pet wishes, the financial intermediaries weaken (or in many cases, eliminate) covenants, even when it is not in the interest of the bank itself. It’s yet another manifestation of bankers trading against their employers. Those PE financings have big fees, while the greater losses due to lax covenants show up later. It’s classic “IBG, YBG.”
As for the with Yanis Varoufakis segments, which begin at 4:00, as much as I support his and his compatriots’ efforts to get the clearly unsustainable Greek debt load reduced, I suspect readers will share my frustration with the approach Yanis is advocating. As much as Yanis is correct strategically, that a Grexit is a massive lose/lose for Greece and the Eurozone, you don’t give the store away in negotiations by saying that want to be reasonable and aren’t prepared to use your leverage. Mind you, Greece does not need to threaten a Grexit, in fact, since no exit mechanism is specified in the Maastrict treaty, it’s not clear they can get out of their own volition (but trust me, if Germany wants Greece out, I ams sure the legalities will be papered over somehow).
Greece’s best chance of getting concessions from the Troika sooner rather than later is to persuade Greece’s foreign paymasters that Greece has had it and is prepared to take extreme measures, namely, default. But the Germans are trying to influence the Greek elections with scare talk that they will force the Greeks out in that case, so as to scare Greek voters into voting in more moderate, as in compliant, representatives. Whether that strategy works remains to be seen. So Syriza may be prepared to be more aggressive if it gets solid backing from the voters on January 25. But I am concerned that they really believe they can reason with parties who’ve bullied nation after nation in their efforts to protect the banks and now their own political hides.
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I didn’t sense from the interview that default is off the table. Yanis does say that he is willing to work within an existing European framework but at no point does he mention that default is not an option. Proclaiming to the four winds that you want to exit the Euro would probably play into Merkel’s bunch scaremongering. That does not mean that you can drive that point if the Modest Proposal is not entertained. It is probably very good that a person that actually understands what is going on as far as economic policy is concerned enters the ring, instead of relying on ex Goldman bankers for advice.
Strange as it is, i’d not realised that Yanis was standing for election. Further, I feel a complete fool know for corresponding with Yanis on a small project I’m working and forgot to enquire about the madness of ZIRP/QE.
I blame it the “toothache, and will not be able to get to my dentist for at least another 27 days, well thats unless I wish to fork out US$1,000 for a quick visit to an expensive US-trained dentist here in Hong Kong, roll on ACA is all I can say. Moral of this tale, it’s the NHS all the way, which means a comprehensive welfare state, which means no to austerity and monetary policies that favour the 1%. So go Yanis, go and here’s to a real left of centre victory in Greece – we’ve had enough of the disciples of neoliberalism and austerity.
Just a thought & a hope – Maybe Syriza being fully aware of the Greeks worry about leaving the euro due to their history, is playing a smart hand & as usually happens with the stated aims of politicians during an election campaign, once elected they might play some hardball with the Troika. It might be the first case of an elected party actually changing it’s spots in a positive way. I can still dream – good luck Yannis anyway – he will be a much better replacement for most of the present turds that make up the 300 – whatever the outcome.
So Yanis and his compatriots should envision an ecological investment in Greece. Clean up pollution and toxic dumps in a jobs, science and renewables program that all of Europe can get behind. This is the antidote to his “austerity ponzi” because it shakes down the usual expectations of 8% returns that Goldman Sachs is so fond of and looks to maintain if it is forced to actually invest any of it’s ill-gotten gain. Writing down Greek debt in conjunction with new investment should be based not on a smaller piece of the same rotten pie. Just throw that crap out the window. When the banksters can no longer make their extortion quota, what happens to them? What a lovely thought.
greece CAN withdraw with an article 50 notice to negotiate separation and if no agreement is made, can then at the end of the two year negotiation period, just go…2009 Lisbon agreement TEU
wish I could vote, but there is no at large representation in parliament, and skreemzira won the last election in Ithaki, so my vote there would not add anything.
The strategy to win and negotiate with northern europe is easier than might appear.
threatening to leave the euro is not the strategy.
insisting the northern european countries be forced to give up control of their government
run and controlled enterprises will bring them to the negotiation table…
comrades…we just want the european union rules to apply to everyone equally….
yes we know germans are more equal than others but frau urkel, you were raised as a
good communist…but now you love krapitalism….so do we…so why don’t we start by
selling that little brewery your finance ministers brother used to milk…we mean run…
you know…rathouse brewery…I probably misspelled that
you know us idiot greeks…
anyway, we are thankful the trakia…so sorry troika has set the valuation levels so low in greece
we will be more than happy to make sure the same gaap accounting valuation is used for that brewery and the rest of the government enterprises…
you have correctly stated…
every european government must let go of…must let go of its government backed enterprise
and we agree…why not just make sure we all walk down the aisle together then, ok yes my little urkelette ?
and then we can move over to all the landesbanks…you know the ones that lend all that
money to the mittelstad so that you can crush competition from government subsidized low interest rates…
yes, I am sure the folks at Regionsbank will not fire anymore than half the staff when their friend Senator Shelby gives his nod and wink…
as you insist, we must all deal with the required restructurings of our economy…all together now…
“we love the euro”
oh and one more thing…I know you keep insisting that somehow magically without the agreement of greece, the issue of world war ONE REPARATIONS and WW@… are all gone…
that is ok…
but…you know…
in 1929 there was this little organization that was created…I am sure you have heard of it…
the BIS….
yes and it was holding some annuity agreements and bonds for payments that were secured by the bonds attached to the german railway system…you know the one that was to pay 600 millions gold reichmarks per year for 37 years….
yes that thing….well…all we want is for the BIS to hand off the actual annuity paperwork and we will be happy to negotiate directly with your railroad…
again…it was not a direct government debt so any agreement you claim…where you say the “government” debts were “renegotiated and forgiven” by the UK and therefore, greece too…(nice concept…can argentina use that one…)
well….it did not include the railroad…
yes we know the price of crap steel is down, but, I am sure your voters will not mind walking…work off that wienerschnitzel…
as you have insisted…we MUST ALL follow the rule of contracts in the euro…and a contract is a contract…so, yes, we can all hurt each other…
but what else are friends for…????
now we will probably be appointing Mr. Panos as the lead negotiator for the matter…I am sure you will get along just fine…don’t mind any of that stuff we said before the election….we will just ride out the negotiations…let you “force” us to the table and then yes you to death for 18 months…and then we will not need any real money from you or the markets for another few years….
so you can force us to do it your way and we will say yes and then 18 months from now…when we insist you also follow the rules…oh wait…then you might say the rules need to be adjusted to deal with todays realities when it’s your turn….
yup…
we have a plan frau ur-kill…but most greeks don’t owe a mortgage on their homes…and most germans rent….who has the bigger problem if the euro falls apart….will your finance minister tell his landlord friends they will have just “wait” for the rents….greeks don’t really have that problem…less than 20 percent of the population rents in greece, less than 40 percent of germans own a home and only about thirty percent of those do not have a mortgage…very little equity in german households…
you keep your german people surviving month to month…we greeks have olive trees we don’t even bother harvesting…I might get boring after a while…be we don’t have winter…oh and we are not worried about ukranian pipelines…so two winters from now who will be happier….
First, thanks for the post. You can worry for Varoufakis and Syriza; you should worry, they have an almost impossible task ahead of them, but they know this as well as anyone. And they have to play two games at once, the election game and the negotiation game; maybe even three games. Even Ernie Banks wouldn’t want to play three.
Varoufakis’ remarks on this program were extremely general. In other venues I’ve heard him be much more specific. If Syriza can get actually get elected, a prospect which if you proposed it as recently as three years ago would have gotten you laughed off the Balkan peninsula, they still have to deal with the Bundesbank—which as you might remember broke Francois Mitterand back in 1981—and with an even weaker hand than the French had then.
Syriza and Greece need our solidarity and probably more importantly, the solidarity of Southern Europe. It’s literally the least we can offer. Who knows, win or lose, the world they save might be our own.