Monday, June 20, 2011

Greece bankruptcy and markets

John Authers from Financial Times recently wrote a foolish article named “Little for it but to suffer Greeks’ democratic pain”. The article yet again shows how disconnected the economists from the facts and biased by the benefit of a small but powerful group of investors which they call "markets".

John Authers wrote:

“When the will of the market collides with the will of the people, there is nothing for it but to accept the pain. That was the story of the implosion after the Lehman Brothers bankruptcy nearly three years ago and it appears likely to be the story of the Greek fiscal crisis now.

After Lehman, there was initial shock and uncertainty – but the collapse of stock, commodity and currency markets did not happen for a few weeks. That was when elected politicians were forced to choose between the demands of voters and markets, and went with the voters.”

In fact, free markets rarely collide with the will of the people. Mr. Authers confuses markets with the financial institutions which dive from one wrong bet to another! In the Lehman case and in this Greece case, what collides is not markets and the people, what collides is the “free” market and financial elite who does same mistakes again and again but refuses to accept the pains of their own mistakes. What he calls “market” are these investors. The real market forces actually requires Greece to bankrupt in order to impose fair pain on all parties who did wrong again and again as it happened in Lehman case. Greece community with its corrupted politicians, bureaucrats, money sucking public sector, tax evading, over spending but less working masses,  over paid retirees did everything to bankrupt. And they will bankrupt. The question is not if, it is when and how. And maybe they should bankrupt now in order to replace the current corrupted network of economic activities earlier.

If Greece will bankrupt what is all this noise in the financial news? Well investors who have stupidly lended money to Greece wants Greece to bankrupt later so they can exit by IMF and EU money. These banks and institutions had ignored the risks (why to think about risk when you are always rescued by tax payer’s money) and given money to Greece and they should lose money. This is what should happen in a free market and market forces as well as people through democracy are mandating this. If Greece does not bankrupt now, they can borrow from IMF and EU and pay to them and they can again exit a wrong bet without any pain.

Greece with its people will pay for it anyway: either with bankruptcy or with long austerity measures to prevent bankruptcy. Bankruptcy now may be more painful but more healthy for Greece. They have a functioning side of the economy and a non-functioning side of the economy.  If they do not bankrupt then they will rescue the non-functioning part of their economy and greatly damage the functioning part. And of course if they do not bankrupt now they will rescue the long time non functioning side of world economy but continue to damage the functioning side of the world economy.

John Authers concludes his article by advising investors to accept the pain because there is no good alternative to democracy. Well I have a good and a better news for you and your "market" Mr. Authers. There is a good alternative for your investors: Banana Republic! There you can make taxpayers to take the pain while well connected avoids it. And better news is that it is already being implemented by Western politicians and bureaucrats. The economic philosophy of the banana republic "too buddy to fail" is well accepted in US (but name is changed to too big to fail) and national sport of the banana republics, money printing is eagerly adapted by FED (although renamed Quantitative Easing).

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