Thursday, February 19, 2015

Bridge loan to default or haircut is an oxymoron

No sane person deliberately builds bridges to nowhere

The new Greek Marxist prime minister didn't receive his bonuses for being at work on time which is why he only sent his letter, originally planned for Wednesday, on Thursday. As I described in some detail in a successful comment on LOL, what we got was a variation of Spoiled Little Joe's Letter to Baby Jesus. ;-)

Odds are 98% that you don't speak Czech. In his letter, little Joe is increasingly upset and obscene because he is not satisfied with what he found under the Christmas tree.

To summarize the letter, Tsipras wants to get a six-month "bridge loan", a kind of fellowship for himself and almost 11 million other Greeks dependent on the Greek state, before Greece and the ECB and the European lenders (and IMF?) will figure out an idea how to abolish or significantly reduce the debt and how to cut all the strings that were attached to the bailouts. During the six months, the Greek government will be allowed to continue in its insane Marxist policies, revert all pro-growth and pro-austerity reforms, stop privatization, rehire all the useless government employees, increase pensions, salaries, and so on.

That's a very amusing proposal to make the lenders happy, indeed.

The bridge loan is a kind of a temporary loan – lasting between two weeks and three years – to guarantee the funding before a more permanent funding arrangement acceptable for both sides is found. It's used for real estate and other transactions.

I wrote "acceptable for both sides" because Tsipras clearly wants to violate this condition. He openly says that the extra 6-month funding – with no strings attached – should be another stage leading to a default, either a dirty one, or a slightly negotiated one (a new haircut).

But this doesn't make any sense. If the lenders are told in advance that they will be robbed of their money, why would they pump new money to the borrower? If you're decided to default – i.e. to fail to fulfill the conditions of the loan – and you can't even hide it, perhaps you shouldn't assume that the lenders whom you negotiate with are complete idiots.

Under these conditions – if and when the borrower will be unable or unwilling to offer any plan that the lender would consider a fair compensation for the borrowed money – it is extremely obvious that the more money is sent to the borrower, the higher the loss of the lender will be. The more time one spends by paying the "fellowship" to the bloated Greek public sector, the worse the final tally will be for the lender. Isn't it self-evident that Tsipras' "bridge loan" means nothing else than the request that almost 11 million people will luxuriously live for 6 months for free – for other people's money? Why don't you want to make this bridge loan permanent so that Greeks may live without meaningful work forever? Or is your Marxist brain really so defective that you are incapable of figuring out that the world couldn't work if similar things were possible?

So of course that a lender must say "nein" or "non" to such a plan (no one cares about "ne" or "nie" but yes, Czechia and Slovakia would almost certainly say "no", too). Everyone who is not an idiot must know that. Unfortunately, the list of people who know that doesn't include the European Commission that described Tsipras' childish letter as a great step towards a compromise.

Fortunately, German finance minister Wolfgang Schäuble hasn't lost his mind so far and his spokesman simply said "nein". More precisely, they elaborated upon the word "nein" – by essentially saying "this letter doesn't contain any substance that would help to solve the Greek debt problem, it doesn't obey the necessary conditions agreed by the Eurogroup, and it therefore cannot get a passing grade". Germany sees Tsipras' vague letter as a Trojan horse. Germans understand that the bank recapitalization at this point is a hidden bailout, too.

(Off-topic: Top Czech actor Ivan Trojan shot a new ad – for an antivirus. To use [a] Trojan to promote antiviruses seems clever and the producers perhaps didn't even realize how clever it was LOL. In Czech, the origin of the name "Trojan" is probably closer to "Trojka", a triplet, than to Troy in Greece. BTW a suburb in Prague – around the zoo – is called Troja, a name originally used only for a palace over there, and I've lived there for 5 years, student hostels. The palace was named Troja because of its ancient Greek decoration, including paintings from the Trojan War.)

Their attitude is very clear. The discussion is not about any details but about the fundamental question whether Greece is willing and able to fulfill the bailout conditions negotiated in 2010 and 2012. If not, it's over. Tsipras' letter obviously wants to get something (well, billions of something) for nothing (unless we count their amazingly arrogant statements to the package that they are ready to pay).

I hope that the European Commission – a bunch of clueless morons flying in an ill-defined transnational organization without its own legitimate source of money and without a mandate – won't be able to "force" Germany to pay hundreds of billions of euros to cheeky parasites who are self-evidently trying to circumvent the law and to abuse all emotional and moral weaknesses of all other participants of the negotiations.

Unless something is really insane about the EU influence on the finances, Germany will be able to defend its "nein" tomorrow, whether or not the other nations are willing to send another "bridge loan" to Syriza. And I am confident that most nations in the Eurozone – and in the EU – agree with the German attitude. That includes traditional pro-austerity countries such as Finland but also some countries that were in debt problems a few years ago but who managed to do their homework very well and whose homework wasn't eaten by a dog – it means that even countries like Portugal, Spain, Ireland are likely to agree with Germany.

Needless to say, there are voices in Greece that openly speculate that Germany will be forced to forgive and pay hundreds of billions of dollars by the EU, no kidding. The arrogance of these people has no limits. Even if most of the European citizens or European nations agreed with the jerks in Syriza, and they don't, they would still have no power or moral right to force someone to "sacrifice" huge amounts of money simply because it's not their money.

The idea of a "bridge loan to controlled default" is analogous to a bridge that leads nowhere. Can such a bridge exist? Why would anyone build it? Well, such a bridge does exist in Avignon, South France: see the picture at the top. If you want to be sure how it's possible, well, let me tell you that there was a complete bridge over there in the 12th century that was destroyed. And they built a full new bridge later, in the 13th century, but it was gradually devoured by floods (especially the last important ones in the 17th century) and no longer rebuilt. See a 3D CGI reconstruction what the full bridge could have looked like.

Believe me or not but as fifth-graders, during communism, we had to learn (and the current fifth-graders still have to learn) the well-known French folk song about this bridge (where women and men are dancing) in Czech – and partly in French. At least, I can sing a part of the song in (Lumo)French, too. ;-) More music videos with the French song are available on YouTube.

In the 1960s, a professional extended version of the song – with slightly different Czech lyrics than those I learned at school – was recorded by Waldemar Matuška, a popular Czech singer who emigrated to the U.S. later, in the 1980s. The original catchy French music starts at 1:08.

As the Avignon example shows, a "bridge to nowhere" may only exist if it first leads somewhere, and then it's destroyed. Tsipras wants a "bridge to nowhere" that is designed to lead nowhere from the very beginning, and it's of course silly for anyone to pay a single Pfennig for such a bridge. If you are certain that you can't obey the conditions of the loans and bailouts, you should better go bankrupt as soon as possible. You should have gone bust many years ago, anyway.


  1. So, Lubos, communism did good to you after all, you learned a French song ;-). I remember singing this song in primary school.

  2. LOL, Shannon, it's still my popular one. I would insist that our music, mathematics, physics, chemistry, biology, ... education wasn't spoiled by communism at all.

    Czech literature, history, and of course civic education was compromised. But a vast majority of my basic school teachers in those subjects were actually staunch anti-communists so it didn't matter for me that the goal was that these subjects should have been compromised. ;-)

  3. Are Bulgaria, Macedonia, or Albania on sound financial footing. They should give the loan, but hold as collateral this land.

  4. Dear John, excellent lectures! Obviously, my contribution to his great work is almost exactly zero. ;-)

    I don't know which references are the best ones. But even the basic obvious consistency conditions – probabilities between 0 and 100 percent, adding to one; well-defined scattering amplitudes for gravitons without infinitely many unknown parameters; the same low-energy behavior of the scattering amplitudes as one derives from GR as an effective theory (plus the existence and unitarity of the black hole Hawking radiation) are enough to contain the possible theories massively.

    In this sense, I believe that the previous sentence is a sufficient answer to your question without any reference. Why these things are so constraining is "contained" in thousands of papers. One needs some experience to see it.

  5. I once wanted a bicycle, so I prayed to God. No bicycle. Then I realized God does not work this way. I stole a bicycle and prayed to God for forgiveness. Bicycle! God delivered.

  6. LOL, that's a transition to proactive strategies.

  7. It is funny because a lot of my teachers were all post-68ards ie socialists even communists a la Cohn-Bendit ! (except in primary school when they were nuns). Later, History had a great focus on USSR and its advent of communism etc, first and second World Wars... and not much on American History (mostly its geography). I remember thinking there was only sadness, cold, darkness and wars on the East and I wanted to hear about the exciting West ie the US !... across the ocean from where I lived (extreme point of Brittany).... but no, it wasn't on the program :-(. I loved movies with cow-boys and Indians when I was a kid so...

  8. When you say "god delivered" does it mean you got punished too ? :-)

  9. Dear Shannon, my understanding was that God was asked to forgive, so if He delivered, it means that God forgave Uncle Al, and Uncle Al could feel good again. Or, using the terminology of the atheists, Uncle Al is a thief with no conscience.

  10. Not so fast! What you are implying here is pre-forgiveness... It doesn't work like that. God has other cats to whip, Lubos. You have to make a formal request for forgiveness ; you fill a form with duplicates, attached copies, -no staples-, sign and initials etc...;-)... It takes time, it is to make you regret your gesture before you receive the punishment ;-)

  11. God especially forgives the very worst people. God crushes the devout and moral, re the trial of Job. (Sodom and Gomorrah were discriminatory standards liberalized in time for Hitler's camps.)

    Every act of giving fuels an act of taking. What sort of fool would feed the broad end of that funnel?

  12. Rather than Greece leaving the Euro, Germany and some other Northern states should leave the Euro to form a new Deutsche mark zone. They would still be able to pay their Euro debts and their money would appreciate while the Euro would fall in value. This would give the Greeks, Italians, Spanish and Portuguese and Irish a useful devaluation. The Germans are also smart enough to organise such a thing. When the Greeks leave the Euro I am sure it will be done corruptly as all the rich people have moved their money into Euros and will bring it back worth more. At that point Greece can discuss with the French and the Italians and the Spanish what to do. I am sure the EU will not be so friendly when they do not have the Germans to depend on.

  13. A psychopath is a sociopath with an agenda. Sign a pact with Lucifer! Delivery is immediate, quid pro quo is deferred, and all the pressure is off.

  14. Thanks for your answer. I really don't know what should I know about this topic, if you say Tom's notes are a good place to begin then I will study them.

    I was expecting that there were more constraints known. Probably this is because I really don't appreciate how strong these constraints are.

  15. Haha Lumo,
    this is an extremely cute way of dealing with a troll, LOL ;-D.

    I like both articles abou this cool stuff a lot, TRF and the one of Natalie W. To me it seems she has just cited certain people to make the audience not forget what true sourballs are, while the text is nicely fonused on nice things. In particular the cited remark of Carlo R makes him look like a troll who can not come up with a physics or mathematics argument, and Matt S has to find hairs in any soup to avoid having to admit that there are rather strings ...

    Also, featured on the pictures are exclusivly good physicists instead of sourballs ;-D?

    Maybe coming to terms with the dS/CFT issue would help generalizing certain proofs?


  16. Maybe he could loan forgiveness from some fool?

  17. I lent five thousand dollars to a friend who was going bankrupt. It was a pretty stupid thing to do financially, but he was my friend. Maybe Greece thinks Germany is his friend.

  18. Thanks and yes, Dilaton! All the pictures only contain good physicists - well, Witten and Mukund with a colleague.

    dS/CFT, if working, would almost certainly help in similar proofs, but this "would" doesn't mean that dS/CFT is actually true. ;-)

  19. Yes, it is stunning what kind of feces are being routinely printed in North American MSM media these days.

  20. Aleksandar MikovicFeb 20, 2015, 9:10:00 AM

    Hi John,
    I don´t know of a single reference where criteria for a good quantum gravity theory are succinctly described, but from my experience of working 25 years in quantum gravity, there are essentially 2 sets of such criteria, which I would call weak and strong conditions. The weak conditions are:
    (1) The theory has to be well-defined, i.e. no infinities, ambiguities or singularities.
    (2) One has to recover General Relativity in the classical limit.

    The strong conditions are (1) and (2) plus the condition to generalize the formalism of Quantum Mechanics to the case of the whole universe (i.e. no external observers and the meaning of the wavefunction of the universe, plus the role of time).

    String theory satisfies the weak conditions, but I would not agree that it is "the only game in town". However, I would say that string theory has been the "most popular game in town".

  21. Don't you mean a sociopath is a psychopath with an agenda?

  22. We had lots of western movies in France in the 70ies, Tony ;-)

  23. Just as Putin became an enemy for preventing the US invasion of Syria, so Merkel will be on the endangered list along with Hollande for stopping the US made war in Ukraine. They had both better watch their backs. If the US decides to go ahead and throw gasoline on the fire in Ukraine, it will be doing it by itself. It will get no help either from NATO or the EU, although a couple of overly Russiaphobic nations such as Poland and Lithuania might break ranks to assist.

  24. Who would have ever thought that the Golden Spiral (aka the Fibonacci Spiral) would appear in the Ukraine Parliament!

  25. lol, someone actually got points for that :D

  26. I will repeat myself: The Greek economy does not generate enough wealth to pay back the loans, and Greece will default. There are such things as economic laws equivalent to the First and Second Laws of thermodynamics and Newton's laws of mechanics, and outcomes must conform to those laws regardless of any moral/ethical/legal preferences we have.

    The current Great Depression in Greece is likely permanent, and might get worse, whether or not Germany kicks them out of the EU.

    Germany, however, needs a sacrifice to keep the rest of the EU in line, especially Portugal, Spain and Italy. To wit:

    The German finance minister Wolfgang Schaeuble says: "Elections change nothing. There are rules".

    The president of the European Commission Jean-Claude Juncker said "there can be no democratic choice against the European treaties".

    A bad outcome for Greece is inevitable.

  27. can't get blood from a stone.

  28. Dear Lubos,
    I was optimistic that they will kick out Greece out of the Euro, which would be the best for both parties. My feeling now tells me that it won't happen.

  29. For a proper assessment of what's going on in this line of research, please see the excellent posting by a competent physicist here

  30. Mikel MariñelarenaFeb 20, 2015, 10:04:00 PM

    It looks like the comedy will continue for some time. Deal reached with Greece. The EU has always been a grotesque set of institutions but they're definitely willing to lose any appearance of credibility left.

    And I don't care much about the specifics of the agreement that they've signed with the Athens marxists. That country will continue cheating, blackmailing and showing the weaker Euro members how stupid it is to abide by the rules. While the Euro was a bad idea from the beginning, at least it forced the least developed members to maintain budget discipline while having to grow through competitive advantage. Not any more, if you can accumulate huge debts and deficits and get away with it thanks to the Northern taxpayers generosity.

  31. And why Oh why the Maldacena, Zhiboedov 2011 paper provides “evidence that string theories are the only quantum gravity theories with a particular feature that reproduce general relativity at large scales.” as the article claims? This paper is evidence of Vasiliev’s HS theories.

    Or am I missing something?

  32. BTW the title is highly provocative. I don't like the word "fake". It implies that String theory is fake. In reality you can answer almost all QG questions in an asymptotically AdS space; the metric is dynamical.

    The author must be punished:-)

  33. IMO, the following paragraphs are quite questionable. If market is irrational, who is in charge of making it rational? Who was the lender in this case? Who is to say that some bank needs to be preserved because, otherwise, it would need to be recreated? Or are you saying that, since Hank Paulson, for example, was the Secretary of the Treasury, appointed by Bush, and people voted for Bush, it was therefore essentially people's choice to bail out the banks of his choice with taxpayer's money?

    "Some companies needed bailout in 2008 because of 1) their leveraged investments which was based on the flawed assumption that the risk was zero, 2) excessive irrational panic in the market (running to safe havens, selling assets, taking cash etc.) that was trying to "punish" almost everyone with any slightest risk even though he faced no new risk from a more objective viewpoint.

    The bailouts were partly done to stop this panic that was largely unsubstantiated, and to recover some banks etc. that would need to be created again, anyway."

  34. Dear Tony, fun comments of yours.

    1) First, no major territory in the world is a perfect, government-less free market, and you may have missed it but even in the U.S., they have something called the U.S. government.

    2) I am not responsible for the existence of the governments or the U.S. government and as a Libertarian of a sort, I am still among the least likely to be blamed for the existence of the government!

    3) Of course that a big part and probably a clear majority of the people in the U.S. and elsewhere was scared where the economy was going and they wanted a savior.

    4) Of course that Bush and Paulson were legitimately elected and they did the kind of the thing that the people had expected them to do when the elections were taking place; and even what the people actually wanted at the very moment when the bailouts were paid for.

    5) Some bailouts are loans, some bailouts are just gifts. It's the government or its individual part - and the government is just a "head" speaking on behalf of a whole nation - that is the lender or donor here.

    6) Of course that the system could recover and survive without any government at all, too.

    7) The government is paying many larger and more ludicrous expenses than a bailout.

    8) I say that such modern investment banks, if they didn't exist, would be invented again (as they were before!) because they are doing an immensely important work in the modern world, and people who are obsessed with one bailout event love to overlook how many important roles these people and companies play in the market.

  35. hello, do you need a loan to pay off your bills or solve any kind of financial problem, kindly contact me now via email:

  36. FWIW, I am not in "we don't need any goverment" libertarian camp. Let's say that I prefer 'creative destruction' and private lenders of the last resort to, what I see as, state subsidizing bad behavior on a massive scale.

  37. God can forgive and punish.

  38. "... they're definitely willing to lose any appearance of credibility left."

    Credibility loss would have happened if Greece had made no concessions. That does not appear to be the case, as the Greek negotiators seem to have backed down quite a bit from their original uncompromising position. This was to be expected in the short run, it's only the long run that isn't quite clear yet.

  39. Pre-forgiveness works. You must have heard the story of a chap in the 12th century who bought an indulgence for the crime of murder and then immediately killed the person who sold him the indulgence.