Yet Another Post on Sovereign Debt and Democracy
Dr. Oatley disagreed with my post on democracy and sovereign debt, and cited some of his own recent research to smack me down. I don't disagree with a word of what he wrote. (And believe it or not, I noticed that that paper -- which I had previously read -- had just come out, but was waiting to post on it until he had a chance to.) I also don't think anything he wrote contradicts anything I wrote. Why does he think it does? It's my fault
Categories: climate Tags: climate, democracy, document-has, greece, moved-here-, moved-permanently, permanently, sovereign debt
Now This Is How You Do Journalism
I spend more time bashing bad press work than praising good. I don't know if that's because there isn't very much good stuff, or because I'm mean-spirited, but today I can happily praise this article on Greece and the IMF by Sewell Chan and Liz Alderman of the NY Times . Let's parse it a bit: In the last two days, Greece’s finance minister has threatened to turn to the International Monetary Fund for a bailout if Chancellor Angela Merkel of Germany and other European politicians resist pledging aid to help Greece cope with its newfound frugality.
Categories: climate Tags: climate, document-has, greece, imf, moved-here-, moved-permanently, permanently, political economy, sovereign debt
A Little Light Game Theory (Greek Sovereign Debt Edition)
A few days ago I saw Jeffrey Friedman extend his "Basel thesis" -- in which the risk-weighting scheme in the Basel Accords created the incentive structure that led to the subprime financial crisis -- to Greece's debt crisis: So why did the bursting of the asset bubble in housing cause a banking crisis, freezing interbank lending and then bank lending into the "real" economy? Because, according to the Basel thesis, Basel I bank-capital regulations, enhanced in 2001 in the United States by the Recourse Rule, encouraged banks worldwide and especially in the United States to leverage into asset-backed securities, including mortgage-backed securities, that were either government guaranteed (by Fan or Fred) or were privately issued but had an AA or AAA rating. How did the Basel rules encourage this? By giving such securities a 20 percent risk weight. Translation: An AAA-rated mortgage backed security worth $100 required only $2 in bank capital at the 8 percent Basel rate for adequately capitalized banks. $100 x .08 x .20 (the 20 percent risk weight assigned to asset-backed securities by the Recourse Rule) = $2. By contrast, a commercial loan of $100 required $8 of bank capital, because Basel gave such loans a 100 percent risk weight. $100 x 8 percent x 1.00 = $8. Similarly, a $100 whole mortgage retained by the bank required $4 of capital, because the Basel risk weight for unsecuritized mortgages was 50 percent
Categories: climate, mortgage, trading Tags: climate, document-has, emu; monetary union, game theory, greece, mortgage, moved-permanently, permanently, pigs, sovereign debt, trading
Is Greece Too Big to Fail?
We've talked about the dire situation in Greece here before , and now the situation has come to a head: Greece has chosen austerity, much to pleasure of EU officials and displeasure of Greeks , who begun massive strikes. Whenever I hear about a macroeconomic development in the EU, I turn to the indispensable A Fistful of Euros for comment. Edward Hugh doesn't disappoint : [Public statements from EU officials] have been widely interpreted in the international press as a “no” from Germany and France to any EU bailout of Greece.
Categories: climate Tags: bailout, climate, ecb, greece, moved-here-, moved-permanently, pigs, sovereign debt
Sentences to Ponder
At least, I've been thinking about them for days: Sovereign debt defaults look like they will be the next part of the financial crisis, unless you believe that sovereigns are much more constrained now than there were during the 1980s. I'm sympathetic to the constraint view, but I make no claims about debt load analysis, and I am, after all, a lawyer. Anyway, if I'm right, it will be a triumph of international law and international institutions (particularly the World Bank and IMF). If I'm wrong (and many macroeconomists would bet against me), then it will be bad news, etc. That's David Zaring . Yesterday, Felix Salmon discussed Ecuador's default from last summer. Sovereign debt defaults have often occurred because of exchange rate volatility, where the debt is denominated in a foreign currency so an exchange rate depreciation can make servicing the debt painful or impossible
Categories: climate Tags: climate, document-has, moved-here-, moved-permanently, permanently, sovereign debt
When Bad News Is Good News Is Bad News
Greece's sovereign debt rating was downgraded by Moody's today, following similar downgrades by Fitch's and S&P's.
Categories: climate Tags: climate, document-has, greece, moved-here-, moved-permanently, permanently, sovereign debt
Could Greece Default?
Greece is in big, big, trouble : Most blatantly, Greece misled the world about the acuteness of its fiscal plight. Back in March, the situation looked bad – but manageable. The European Commission forecast that the Greek public sector deficit this year would be above the 3 per cent limit set under EU rules and “exceed 4 per cent in 2010”.
Categories: climate Tags: climate, document-has, european union, imf, moved-here-, moved-permanently, permanently, sovereign debt
Why We Shouldn’t Try to Inflate Our Way out of Debt
Chris Hayes has a policy paper out advocating moderately high inflation over the next few years to reduce the debt burden. Yglesias loves it : The idea is basically that if we could sustain a five or six percent inflation rate for a period of years, that would make it much easier to work off the debt overhangs—both in the public and private sectors—that otherwise threaten to hobble the economy for years.
Categories: climate Tags: climate, document-has, inflation, moved-here-, moved-temporarily, sovereign debt, temporarily
