<story><title>Open letter to German readers: What you were never told about Greece</title><url>http://syriza.net.gr/index.php/en/pressroom/253-open-letter-to-the-german-readers-that-which-you-were-never-told-about-greece</url></story><parent_chain><item><author>vijayboyapati</author><text>This one sentence sums up what I think is the fundamental problem: &amp;quot;An insolvency problem was thus dealt with as if it were a case of illiquidity.&amp;quot; That is, the problem isn&amp;#x27;t some ephemeral panic where people are temporarily unwilling to lend. The problem is there are massive capital losses that have yet to be acknowledged. The problem is that Euro politicians believe that by continuing to bankroll Greece they will stem a wider panic. But as John Mills observed in a speech given to the Manchester Statistical Society in 1867, “panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its
betrayal into hopelessly unproductive works”&lt;p&gt;The losses must be acknowledged. The only question is by whom? By the people who made the loans? Or will the taxpayers of Europe be called upon, as the taxpayers of America were, to eat the losses?</text></item></parent_chain><comment><author>panarky</author><text>Why do news reports keep saying that Greece got bailed out?&lt;p&gt;Let&amp;#x27;s say you lend $100,000 to my startup. I have to pay you $10,000 a year until the loan is paid off. I hire a thief as a CEO who gives the $100,000 to his friends and family, and my startup has nothing to show for it.&lt;p&gt;Now my startup is bankrupt. I&amp;#x27;m working as a waiter in a restaurant to pay the rent. I can&amp;#x27;t make my annual payments to you, much less pay back the principal. You&amp;#x27;ve just suffered a $100,000 loss. That&amp;#x27;s the risk you take as a lender.&lt;p&gt;Surprise! Now the government steps in and gives you $50,000 to buy this bad loan from you. What a great deal! It would have been a total loss!&lt;p&gt;Then the government garnishes my wages from my waiter job for the next 50 years to reimburse the government.&lt;p&gt;Who exactly got bailed out here? Me (the Greek people), or you (foreign banks and bondholders)?&lt;p&gt;And what happened to the thieving CEO who stole the money in the first place?</text></comment>
<story><title>Open letter to German readers: What you were never told about Greece</title><url>http://syriza.net.gr/index.php/en/pressroom/253-open-letter-to-the-german-readers-that-which-you-were-never-told-about-greece</url></story><parent_chain><item><author>vijayboyapati</author><text>This one sentence sums up what I think is the fundamental problem: &amp;quot;An insolvency problem was thus dealt with as if it were a case of illiquidity.&amp;quot; That is, the problem isn&amp;#x27;t some ephemeral panic where people are temporarily unwilling to lend. The problem is there are massive capital losses that have yet to be acknowledged. The problem is that Euro politicians believe that by continuing to bankroll Greece they will stem a wider panic. But as John Mills observed in a speech given to the Manchester Statistical Society in 1867, “panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its
betrayal into hopelessly unproductive works”&lt;p&gt;The losses must be acknowledged. The only question is by whom? By the people who made the loans? Or will the taxpayers of Europe be called upon, as the taxpayers of America were, to eat the losses?</text></item></parent_chain><comment><author>mathattack</author><text>I agree with everything you say up to “panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works”&lt;p&gt;In todays fractional banking system where banks only hold a fraction of liquid assets to cover their liabilities, a run on a good bank could still put it under.  (Lehman, Bear and others were both illiquid and insolvent, but runs can kill good banks too)  This is why the FDIC was put up to guarantee commercial banks.  Nothing similar existed to protect investment banks.</text></comment>