Lawrence Person's BattleSwarm Blog

Although Greece was slated to run out of cash on April 9, they seem to have “scraped together enough cash to meet the I.M.F. payment, in part by extracting liquidity from quasi state entities.”

One of the ways they did that was raising 1.1 billion Euros from bonds, all sold to domestic investors. And who would some of those “domestic investors” be? Would you believe Greek banks?

These short-term bonds, which have been issued by the country’s largest banks and carry the guarantee of the Greek government, are not being sold to foreign investors. They are being issued to the only entity that would dare buy them: themselves.

In the last four months, some of Greece’s largest banks, including Piraeus, Alpha and Eurobank — have self-issued more than 13 billion euros’ worth, or $14.3 billion, of these government-guaranteed bonds.

Wounded by vanishing deposits and bad loans, Greek bank bonds are about as toxic an investment as can be found. The banks are on life support via an emergency lending program overseen by the European Central Bank, via which they have access to short-term loans from their own central bank.

But to secure this credit line, about €71 billion (more than half the deposits outstanding in Greece), these banks need to provide collateral to the Greek central bank.

In essence, what Syrizia has done is carried out a similar maneuver to that the EU insiders have been carrying out since the European Debt Crisis broke: Dumping their bad bonds onto taxpayer-funded entities. But the problem for Greece is that their maneuver is like a Ponzi scheme that depends on getting more funds from people already in the Ponzi scheme.

That doesn’t strike me as a sustainable model.

No wonder Greece is drawing up plans to nationalize banks (rather than, of course, stop spending money they don’t have). That’s rather like selling your seed corn to buy heroin. (That piece also notes that “Greece spends a larger portion of its GDP — 17.5 percent — on pensions than any other country in Europe.”)

Hell, even recently bankrupt Cyprus is saying that Greece is screwed unless they implement actual reform. As opposed to Syriza’s current “reform” proposals, which include “no wage or pension cuts.”

Oh, and they’re flogging reparations from Germany yet again. Because it worked so well the last five times they floated the idea.

But Greek Prime Minister Alexis Tsipras seems to have only the faintest grasp of reality as it is:

Consider the case of a household whose members chronically live beyond their means. They have no savings and their bank account is constantly in overdraft. Rather than cutting back, they obtain multiple credit cards by hiding their true financial situation, but those credit cards are soon maxed out. In desperation, they turn to financially responsible cousins to help them through, again hiding the true scale of their spendthrift ways. Finally, the family defaults on its loans, triggering loss of home, car and other possessions. But instead of recognizing that they were the architects of their own misfortune, they consider themselves victims of the mortgage, car loan and credit card companies. And they even vilify their generous relatives for refusing to lend more money.

Greece’s problems have not been caused by austerity, but by decades of irresponsible spending and corrupt behaviour. Expecting that a debt problem will be solved by more debt simply defies common sense and reality. Believing this myth will only make the debt hole that Greeks have dug themselves even deeper, and the challenges of climbing back out ever more unlikely.