Frank Kogan

Meanwhile, Spanish bonds are holding steady. Spanish government generic bonds, 10-year note, are the only ones I ever follow, 'cause at some point someone pointed me to the correct link for them. I don't know if this is the correct link to the equivalent Italian bonds; if so, they seem to have jumped nearly half a percent, but the number isn't (yet) dangerously high, assuming I can tell "dangerously high" from "a hole in the ground" when it comes to bonds, which isn't necessarily true.

My thought here (not knowing anything more about Pylas and D'Emilio, but guessing e.g. that they're college grads or at least people who've read up on and tried to understand economics) – and this applies pretty much in general, not just to reporting of economics – is that people trained to think don't actually know how to think. Or their thinking hits a wall, without their being aware that they're at a wall and have crashed to stillness.

CROSSPOSTS: HTTPS://KOGANBOT.LIVEJOURNAL.COM/384158.HTML

With respect to Greece, the precise thing that European elites did to set the current chain of events in motion was to replace private debt with public during the 2010 first "bailout of Greece." Prior to that event, it was obvious that blame was multipolar. Here are the banks, in France, in Germany, that foolishly lent. Not just to Greece, but to Goldman's synthetic CDOs and every other piece of idiot paper they could carry with low risk-weights. In 2010, the EU, ECB, and IMF laundered a bailout of mostly French and German banks through the Greek fisc. Cash flowed into Greece only so it could flow out to rickety banks. Now, suddenly, the banks were absolved. There were very few bad loans left on the books of European lenders, everyone was clean, no bad actors at all. Except one. There were the institutions, the "troika," clearly the good guys, so "helpful" with their generous offer of funds. And then there was Greece. What had been a mudwrestling match, everybody dirty, was transformed into mass of powdered wigs accusing a single filthy penitent (or, when the people with their savings in just-rescued banks decide to be generous, a petulant misbehaving child).

For the record, my sophisticated hard-working elite European interlocutors, the term moral hazard traditionally applies to creditors. It describes the hazard to the real economy that might result if investors fail to discriminate between valuable and not-so-valuable projects when they allocate society's scarce resources as proxied by money claims. Lending to a corrupt, clientelist Greek state that squanders resources on activities unlikely to yield growth from which the debt could be serviced? That is precisely, exactly, what the term "moral hazard" exists to discourage. You did that. Yes, the Greek state was an unworthy and sometimes unscrupulous debtor. Newsflash: The world is full of unworthy and unscrupulous entities willing to take your money and call the transaction a "loan." It always will be. That is why responsibility for, and the consequences of, extending credit badly must fall upon creditors, not debtors. There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree. But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors' prison, metaphorical or literal. If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place.

( More links )

( Tsipras capitulates? )

The big problem, however, is that it's not just large foreign deposits that are taking a haircut; the haircut on small domestic deposits is a bit smaller, but still substantial. It's as if the Europeans are holding up a neon sign, written in Greek and Italian, saying "time to stage a run on your banks!"

Tomorrow and the days immediately following should be very interesting.

The notion of scientific consensus is tricky, but the idea is that the opinion of the scientific community converges toward the truth as ideas are debated and new evidence is uncovered. Just as in the stock market, the steps are not always forward or smooth. The scientific community is often too conservative about adapting its paradigms to new evidence,⁶⁴ although there have certainly also been times when it was too quick to jump on the bandwagon. Still, provided that everyone is on the Bayesian train,* even incorrect beliefs and quite wrong priors are revised toward the truth in the end.

*And that they don't hold priors that they believe to be exactly 100 percent true or exactly 0 percent true; these will not and cannot change under Bayes's theorem.

64. Thomas S. Kuhn, The Structure of Scientific Revolutions (Chicago: University of Chicago Press, Kindle edition).

( More griping )

Or maybe head in the sand isn't the right metaphor — maybe it's deer in the headlights, with policy makers paralyzed as it all goes wrong. Anyway, I'm with Tim Duy: I'm losing confidence in European leaders, which is hard because I had hardly any confidence to start with.

The devastating train that is the debt crisis keeps rolling right along, currently crashing through Spain's economy.

( Whatever it takes )