Greece adopts Spartan measures

(Warning: I had a beer or two before composing the following.)

I wish I could take full credit for my title. But alas, I must admit I culled it from Macro Man.

OK, first things first. Everybody knows Greece is going to default, because they’re Greek. Greece has been in a state of default for 105 of the last 200 years. Countries are like people. There are some to whom experience suggests you should never lend money, unless maybe you think you can sell the loan to somebody even more stupid than you are. (Bagholders play a vital role in the modern financial system. The purpose of most financial “innovation” is to obscure what is really going on in order to create more bagholders. But I digress. Where was I?)

Right. So Greece lied about their finances to join the Eurozone with a little help from your friendly neighborhood investment bankers. You might think that if you joined a club by falsifying your application, you would get kicked out, not bailed out. But you see, some of this bad Greek debt is on the books of Eurozone banks, and they cannot afford a second crisis at the moment because, let’s face it, the first one never really ended. As the old saying goes (apologies to J.P. Getty): If you owe Eurozone banks €100 million, that’s your problem; if you owe Eurozone banks €100 billion, that’s Angela Merkel’s problem.

So Merkel and Sarkozy want to bail out Greece, except they don’t because they would face riots in their own countries. (Well, not literally; Germans never riot because they’re German.) It is sort of funny. If France or Germany hands billions of Euros to Greece, their voters will go ballistic. But if the U.S. hands billions of dollars to the IMF and the IMF hands billions of dollars to Greece, Americans will not care, because who knows what the heck the IMF is and what it does, anyway? Americans are a wonderful people. If they understand what is happening, they will either panic or start shooting at you. So it is vitally important to make sure they always wander in a state of confusion long enough to run into a television set.

Now, Greece going to the IMF would be a little like California going to the IMF. (Hm, there’s a thought…) If only there were some kind of “European Monetary Fund” to keep Eurozone citizens as ignorant as Americans about what their governments are doing with their money.

Oh, hello!

German Finance Minister Wolfgang Schaeuble indicated that his government is already thinking about how another Greek crisis can be avoided, saying that the euro region should consider creating an institution similar to the International Monetary Fund.

“We shouldn’t rule anything out, including the creation of a European Monetary Fund,” he said in an interview with the Welt am Sonntag newspaper published yesterday.

Ding ding ding!

Of course, giving money to Greece is throwing it down a black hole. Default is inevitable. The only questions are (a) when and (b) who will be left holding the bag. Well, and (c), how many Greek bonds are gathering flies in the ECB’s discount window.

For the near term, the game is pretty simple: Create a short squeeze in Greek CDS by any means necessary so that Eurozone banks can offload Greek debt to some new bagholders. (Seriously, bagholders are what make the modern financial system go ’round.) Of course, this will ultimately make the problem worse. But if there is one constant among politicians of every nationality, it is their desire to kick cans down the road. I do not care about potential crises; can you just guarantee that most people will not understand what I am doing and the crisis (if any) will not occur on my watch?

Investment bankers love questions like that.

Sure sure, Greece has implemented some austerity measures. But these are just a drachma in the bucket, and we will see how long they last when they tip the Greek economy into depression.

On the bright side, this is just entertainment; the entire Greek economy is a rounding error. The real show begins in a few years when major countries face the same problems.