Wednesday, February 18, 2015

Players in Greece, Ukraine get tougher

It's been five days since the latest blog post about Greece and Ukraine. Since that time, people got increasingly used to negotiations but their positions toughened, too.

The screenshot above comes from CNN. Just a few days earlier, an on-screen text in the same station talked about arms for "pro-U.S." troops in Ukraine. Now, we got a map where Crimea and Ukraine finally belong to the same country again and the country's name is Russia. Either quality control must be completely absent at CNN or these blunders are a new strategy to increase their visibility.

More importantly, the Minsk 2.0 ceasefire has dramatically reduced the shooting on the frontline. There was one place where the shooting continued and probably escalated, the Debaltsevo cauldron. Novorussian officials say that this cauldron is a territory inside Novorussia, topologically disconnected from Ukraine, and it therefore doesn't belong to the frontline.

Yesterday, Novorussian Armed Forces (NAF) controlled about 80% of the pocket and it seems that today, they will be just cleaning the rest. (Few minutes after I was writing the previous sentence, a popup window announced that the Ukrainian army surrendered in all of Debaltsevo.) 300 pro-U.S. troops surrendered just yesterday. The rate could speed up. Thousands of Ukrainian troops should still be caught in a shrinking Western part of the town.

Is that a violation of the ceasefire conditions? I don't know. It depends how you interpret it. The Ukrainian side was denying the very existence of any cauldron, so if that non-existent cauldron disappears, nothing changes, right? One may argue that the People's Republics are just enforcing order in the bulk of their territory.

It's a sign of bad leadership that all these pro-U.S. troops were sacrificed because some Russian military experts estimate that around 50% of combat capable pro-U.S. units were eliminated from the war. That's a lot.

But the tension between the leaders of the army and the local officers and troops isn't new. The most famous German-Soviet battle of the Second World War, the Battle of Stalingrad, turned to a cauldron, too. Hitler insisted that the Germans would fight to the very end. General Field Marshal Friedrich Paulus surrendered at one moment, however, although he tried to obscure this fact for a while. He said that he had "no intention to shoot himself for this Bohemian corporal". That insulting nickname for Hitler (yes, it was an insult when someone suggested you were Czech) originally came from von Hindenberg, Hitler's predecessor as the German president, who (deliberately?) confused Hitler's birthplace Braunau, Austria with Braunau [Czech: Broumov], Bohemia.

The defeat is a big deal, I think. Two losses similar to the Debaltsevo defeat could be enough to eliminate all existing Ukrainian army. Those changes are likely to have some political consequences within Ukraine, too. Czech communist member of the European Parliament Ransdorf is enriching the Czech audiences with his "guaranteed" information that more nationalist forces are planning to remove President Poroshenko in Kiev. Well, I find it totally plausible but entirely "not guaranteed" as well. ;-) For certain sources on either side, just a "word" isn't good enough evidence for me. Russia's pravda claims that Russia possesses strong satellite etc. evidence that 9/11 was an inside job. Well, so far, I think this is nutty but I am "infinitesimally" open-minded.

A question is whether the anti-Poroshenko coup planners have a chance to succeed. Ukraine – which is also going to bankrupt soon but no one cares about it, it seems – is likely to become even more messy. In some Czech polls, about 80% of Czechs believe that the situation will turn into a "civil war of everyone against everyone else".


As I expected, no progress materialized in the negotiations between the Greek government and its lenders on Monday, another deadline. This brings the bankruptcy closer.

There are some suggestions that Tsipras et al. could suddenly surrender and extend the Samaras-era plan. The Eurozone and friends would only change some words. But I have serious doubts about this expectation.

First, Tsipras, Varoufuckis, and their comrades got more aggressive, not less aggressive, since the elections (or the campaign). These folks want the same money but reject all the strings attached to the money. But the money is a type of a D-brane, the strings attached to it are vital for the thing to work, and if you reject the strings, comrades, you're like a Shmoit or a Shwolin and you deserve to be kicked into your aßes.

They really don't seem to understand what's going to happen when they continue to be these staggeringly obnoxious communist assholes. Second, there so little time – the program expires on February 28th – that even if they were suddenly open to surrender, it could be too late to do all the required paperwork in the Eurozone countries (including the "okay" from all finance ministers and, for example, the endorsement by several national Parliaments).

Tsipras and pals are claiming that German finance minister Wolfgang Schäuble and friends are "blackmailing" Greece when they offer Greeks to extend the existing program. In reality, this offer is a symbol of amazing generosity and if Tsipras and pals had good manners, they would offer to lick Wolfgang Schäuble's toilet with their tongues every day to show how grateful they are. Why should they be grateful?

Because the existing program – incorporating one bailout (2010) and one haircut (2012) – was negotiated with the assumption that Greece is led by a government that is at least slightly reasonable, which was especially true in 2012 (Samaras) and not so much in 2010 (Papandreou). However, with Tsipras and pals, the probability that they will actually fulfill the conditions and improve the Greek public finances dramatically decreased. Everything we have heard indicates that the Greek finances will become even worse – vastly worse. That's why the lenders should naturally insist on much tougher conditions to compensate their increased risk. Instead, they are offering the same deal to Greece.

Of course, the Syriza apparatchiks expect – and dishonestly promised to their brainwashed and parasitic voters – exactly the opposite: a softer program. But what they failed to tell their voters is that this change doesn't depend just on the opinion of the borrowers. Every borrower would like his or her conditions to become easier! But an important question is what the lender actually thinks. The change of a contract needs two sides to agree. Will the lender agree? Obviously, the opinion of the lender is much more important because it's the lender, and not the borrower, who holds the extra aces.

So I think that the Greek commies are totally detached from reality and don't understand the gravity of the situation. They don't even understand that it's them, and not the rest of Europe, who is facing an abyss. They increasingly scream hostile and insulting slogans against the very people who wasted quite some time and money to help Greece. I guess that Schäuble doesn't really like being shown in the Nazi uniforms – or to harassed in similar ways. His peaceful and polite reactions only show his professional attitude, not the lack of his underlying anger. ;-)

Even if Greece decided to continue in the Samaras-era bailout program, it could be too little and too late. The time is too short and the opinion that even this thing is way too generous and irresponsible given the Syriza's program has strengthened among all the lenders.

So I do think that the most likely scenario is that the negotiations won't lead anywhere, the funding from the ECB and all the European entities will stop on March 1st in the morning, and Greece will enjoy a few more days or weeks with cash. Then it will run out of cash and in order to make at least something working, it will have to print its own currency. I am not sure whether they're even capable of doing that and organizing such a transition today. They don't seem to care. They don't seem to worry about anything. They don't seem to ask anyone for any help.

The expulsion of Greece from the Eurozone – and perhaps the EU – will be just a minor event relatively to the default. You know, when you run out of cash, it doesn't matter whether you are a user of the euro. You know, I am a big platinum payer. This precious metal is my preferred storage of value. All my big amounts of money (above $1 million) are stored (and equally large payments are made) in platinum. So far, I have zero of them but I am a member of the Platinumzone. In the very same sense, Greece may continue to be in the Eurozone. But what will it mean if it will possess no euros? After the actual default, the expulsion of Greece from the Eurozone will be a de facto vacuous bureaucratic sleight-of-hand – just like my decision to leave the Platinumzone and join the Goldzone. ;-)

It's not just the Greek communists who are clueless. Joseph Stiglitz of Columbia University won a memorial Nobel prize in economics but when it comes to economics, he is another completely unhinged loon. We learn that both the lender and the borrower are equally responsible for what happens with the money.

This is not only a complete misunderstanding of the loans. It's a total misunderstanding of the money and of the society in the recent thousands of years.

The very point of the money is that the person or entity that possesses the money has the freedom to buy certain things or make other people do something. He who has the money has some freedom to rearrange the world and whoever is rearranging the world has both power and the responsibility that always comes with it. He can do good things or bad things, it's up to him. He may succeed or not.

If someone borrows the money, it's because he wants to be able to buy or do or organize certain things that would be impossible without the money. He wants to have this increased power, control, and ability – and the responsibility is inseparable from these three – in a certain future period. He doesn't want something to be "up to others". For example, for 40+ years, the Greek governments wanted to pay high salaries to public sector employees and to have the freedom over that (not to mention bonuses, pensions, useless thousands of miles of highway, and thousands of other things) and that's why they were borrowing.

The increased power that comes with the money is a good thing for the borrower. That's why people, companies, and governments sometimes borrow money! But nothing in the world is for free. The negative side of the loan is that he must make sure that he will be able to repay the debt plus interests according to the contract because if he becomes unable to fulfill the conditions, something really, really bad happens.

It is only possible for the contract to "break" against the will of the lender if the borrower becomes completely broke. In that case, the borrower just doesn't pay the repayments – because he's unable to do so – but everything he owns (above some "modest survival" threshold) should be used to partly satisfy lenders' claims.

If a borrower goes bust, it doesn't mean that all the debt is forgiven so that the borrower's life may continue without interruption. It means that the borrower's life is over, at least from an economic viewpoint. To say the least, the borrower's economic life after the default should be just a shadow of his previous economic life. Various special laws allow borrowers who declare the personal bankruptcy to keep some things needed for the bare physical survival – or things up to MN dollars – and they also allow the borrower to get resuscitated and accumulate the wealth again after XY years. Companies that go bankrupt are usually liquidated "completely". Governments that go bankrupt are usually expected to "resurface" but their fate must still resemble the fate of the bankrupt individuals.

But the general point is clear. The post-bankruptcy life is hell and must be hell, at least for many years. If this fact weren't the case, everyone would be borrowing and almost everyone would be working hard to go bankrupt "deliberately". The "hell of the borrower that follows bankruptcy" is the only good reason that the lender has to believe that he is not acting stupidly when he lends the money. It's obvious that the whole system would completely collapse if the hell didn't exist. It's fundamentally important that people who don't (or can't) fulfill contracts they have signed are in huge trouble. The trouble may be "soft" if the borrower is de facto able to "mostly" satisfy the lenders in the near future, anyway. But if the gap between the expectations from the contract and the borrower's plans or abilities to repay something are huge, his post-bankruptcy misery should be huge, too.

Stiglitz's suggestions disagreeing with these basic principles also reflect some "paternalistic" optics. The financial institutions – lenders – are so sophisticated while the Greek government officials are just some Untermenschen, Stiglitz claims, borderline apes. So if the bankers have a respect towards wildlife, they must acquire the responsibility for the borrower's acts, too.

But that's simply not how loans work – or how they could work. It's not what the very word "money" means. While it's true that an average Greek government official is vastly less sensible than an average German banker, it is simply not true that this should imply that the banker won't borrow the money to the borrower. Instead, if the borrower is undisciplined etc., if the apparent plans of the borrower what to do with the money don't seem too robust, and if the risk of default – his not fulfilling the conditions of the contract – is high, the interest rates will be high, too.

Nevertheless, even less intelligent and less disciplined people or nations may want to borrow the money and everyone has the opportunity, for the price (interest rate) that is dictated by the market. When he or they borrow the money, they are doing so because they want to have the power over certain material decisions, and they have the responsibility for these decisions, too. So if the borrower is unreasonable or naive etc., it will simply mean that he will be offered loans with higher interest rates – not that he will be completely unable to borrow. And that's how things do work and should work in market economy (and in fact, even in many other economies the history has witnessed). It's common sense.

Stiglitz's idea that it's still the banks – the lenders – who are responsible for the fate of the borrowed money after it's been borrowed contradicts the very purpose of the money. By definition, the responsibility belongs to the person who possesses the money. The money is the responsibility. The loan is a transfer of the responsibility (from the lender to the borrower) over what is happening with the (borrowed) money up to the maturity date. When a lender gives a loan to someone, it means nothing else than that he is losing any control over it – and responsibility over it – up to the day(s) of repayment as defined in the contract. If the responsibility were still shared by the lender and the borrower, by the person who has the cash and the person who doesn't, then everything and all the responsibility would be shared by everyone, money would be meaningless, they could be completely abolished, and we would already be in rosy communism (which is what Syriza wants, anyway) for the few months before almost everyone would starve to death.

Can the lender be motivated to encourage the borrower to go bankrupt? Perhaps, in some cases, it is possible. But a necessary condition is that the bankruptcy is actually beneficial for the lender, at least statistically – if the lenders manage to get more money than what the borrowers have borrowed. If a bank is systematically looking for such vulnerable borrowers as victims, the bank may be considered a predator and certain standard or ad hoc laws may be employed to fight against such predator lenders.

But this situation is an "exception" of a sort, an artifact of the borrower's "excess" assets that he can still own but he didn't realize that he could lose them. He may have agreed with the loan because he wasn't clearly explained that he could lose these things. In such cases, one may argue that the lender's behavior was fraudulent.

However, none of these exceptions applies to the situation of the Greek government. It has always been a collection of adult people who claimed – and partly rightfully so – that they were chosen by a nation of 11 million as their top managers or financiers, or something like that. Obviously, they must be considered legally competent, they officially know what they were doing, and they are responsible for their acts. No predatory tactics by the lenders have existed. They couldn't have existed – the chance that the lenders get more than the debt if Greece goes bankrupt is virtually zero. The idea that the lenders share the responsibility for the fate of the money borrowed by the Greek government is an outrageous attack against the very concept of the money, it is downright preposterous, and it is an implicit attack on the sovereignty of Greece (or any other nation; or the independence of any person), too.

Greece may finally go bust in a month or so, after this event was artificially delayed so many times. But it must still mean that Greece is in huge trouble. That's what all the rules of loans, paragraphs in the contract, rules of the EU and the Eurozone, and common sense say. It must be so, otherwise everyone could prefer to choose the Greek path.

But if and when Greece goes bust, it won't mean that all the debt is forgiven, the Greeks instantly become clean angels, and they may automatically restart their life beyond their means. Instead, it just means that they have breached the contract. Every damn drachma that they will earn for many years should be demanded as a compensation by the lenders – in tons of lawsuits. The lenders should try to devour every piece of flesh that grows somewhere in Greece. This may be bad news for the existence of Greece and many people may feel compassion with this failed nation but if that fate were avoided, it would be a horrible news for the whole human civilization. It would mean that the human civilization gave up the defensive fight against the pests that devour all the crops in the fields.


  1. The true importance of Minsk is that Germany has displaced the US as the leader of western EU. Also, Merkel evidently has decided that Putin is a more reliable partner than Obama, and Merkel and Putin will guide Europe for the foreseeable future. Must bring back memories to all you Mitteleuropans.

    By the way, Wikileaks is claiming the Poroshenko is a US puppet, and has been since about 2006.

    As to Greece, it cannot repay the debt and will default on all of it. An economy based on olives and tourists cannot support a northern European lifestyle, and the Greeks will descend even further into abject poverty. It is not clear what the EU will do.

    If Syriza accepts anything like the EU proposal, there will be a coup d'etat in Greece and likely a military dictatorship. Will NATO intervene?

  2. Dear Lubos, Without disputing anything you say, isn't it true that in case of default it is also hell for the lenders?

  3. Dear Luke, if a lender lends "everything" or "almost everything" to a borrower that goes bust, it's bad for the lender, too. But this rarely happens. A lender typically spreads his money into many places so by bankruptcy, he only loses a small portion of his assets. That's also the case of Greece's lenders.

    Some companies needed bailout in 2008 because of 1) their leveraged investments, 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.

  4. According to the CNN map, Russian tanks are now in Lwow.

  5. "Every damn drachma that they will earn for many years should be demanded as a compensation"
    Management never works.

    Greece is liquidated and sold by the EU at discount to Turkey, as slaves. A society may "end" its ills by gathering up its dregs into horrible prisons. In theory, this warns those outside to behave. In practice, evolution rewards the most capable (vicious) prisoners with empire. Examples: Hitler and his boys, Northern Ireland's Maze Prison; the US imprisoning Black and Brown males. Stalin's gulags were productive; the inmates died - Bingo!

  6. Greece should do what Iceland did...default on the debt and jail the bankers/politicians who negotiated the derivatives mess with Goldman Sachs etc. The bailout money flowed back to the banks that promoted the mess, not to the people, and Greece will be unable to repay the debt in any case. The blame has rebound to the banks, to the IMF (and, of course, to the Greeks)
    Iceland is doing fine.

  7. Lubos,

    to quote newspapers like " pravda" in politically related issues is similar to Witten quoting Woit or Smolin in a string conference, which is something very strange and not quite understandable.

    This type of newspapers is even beyond the propaganda, I do not even know if there is an appropriate word. Anyway, taking into account your rather strange tastes I would also recommend you to read and I guess you will enjoy.

    Seriously, I would understand if you have quoted propaganda like Russia Today. That is fine, at least RT is a propaganda, but " pravda".. OMG

  8. FIW I had read somewhere, probably Financial Times, that the central banks has assumed roughly half of the loans owned by some of the big German banks, etc..

  9. We should have done the same thing in the US. The "financial wizards" and "masters of the universe" who thought this mess up shoud have gone bankrupt and hardworking plumbers or whatever should be living in their houses in the Hamptons.

  10. Please, Gordon, don't be silly with this amazing populist rubbish. Unlike Iceland, there are no magic bankers in Greece who disappeared the money through some mysterious paperwork or derivatives.

    The Greeks have *really* devoured these excess hundreds of billions of euros, and if someone should be jailed in analogy with some evil bankers, it's approximately 11 million of the Greek citizens.

  11. Mikel MariñelarenaFeb 18, 2015, 10:39:00 PM

    Yesterday I was quite shocked to learn through the BBC that 108 bn euros still exist in the form of deposits in the Greek banks. What are those depositors waiting for to recall their money? Don't they realize that they may lose access to it at any moment now?

    I don't know how much money the Greek government has left to fulfill its obligations. But surely, if the agreement is not reached by Friday, we'll not not need to wait until March to see the tragedy unfold. Like in Cyprus, it will all start with runs to the banks followed by the corrsponding deposit freeze.

  12. I found it pretty shocking, too.

    My guess is that the atmosphere in Greece is that "it can't happen". They live in a communist paradise and they are led to believe that the rest of Europe is living in the same system.

    Alternatively, it may happen that they would be paid Greek-labeled Y-fronted versions of the banknotes - Y###..### numbers is the standardized code for euros meant to be used in Greece - and those banknotes may be devalued when Greece is expelled from the Eurozone.

    This could be messy because there are non-Y euros in Greece as well, and there are Y-fronted banknotes outside Greece.

  13. Despite the fact that it all started there one has to ask whether Greece is ready for democracy. Their post-war history gives little reason for hope.

  14. Witten gave a lecture, it might be new I don't know.

  15. Then it will run out of cash and in order to make at least something
    working, it will have to print its own currency. I am not sure whether
    they're even capable of doing that and organizing such a transition

    Probably they are. A Greek-American guy my mother grew up with went to prison for counterfeiting. :-)

  16. Thanks, this is a very nice semi-popular lecture on string theory. I say "semi-popular" because he refers to anomaly cancellations and conformal field theory, so it's more like a colloquium level talk. It's apparently the talk Witten presented at the award ceremony for the 2010 Newton Medal.

    Note in this talk Witten is living in a space in which time has the periodic identification 8:42 ~ 29:00. (Later on he apparently traverses a wormhole at 42:25.) In other words, there is not 49:55 of content, only about 30 minutes, and the introductory remarks appear to be missing. It would be nice to find a version without these problems.

  17. I agree 100%.

    By the way, messages from Germano-European leaders:

    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."