What do Greece, Ireland and the U.S.have in common?
Each experienced what was termed at the time a “new financial era” that produced an enormous expansion of its finance sector. This led to an intoxicating combination of aggressive lending, leverage and recklessness. In each case, the era ended in a financial crisis; perhaps most important, each crisis ended with a bailout of lenders, bondholders and bankers.
This hat trick of bank bailouts hasn’t gone unnoticed in Greece. Yanis Varoufakis, who just resigned as finance minister of Greece, might be a provocateur, but he is apparently no fool. Earlier Monday, in a blog post, he said “the Greek ‘bailouts’ were exercises whose purpose was intentionally to transfer private losses onto the shoulders of the weakest Greeks, before being transferred to other European taxpayers.”
This astute (albeit little known) insight has been echoed by a small number of insightful analysts. My favorite of these is Steve Randy Waldman. His take on the Greek bailouts includes an in-depth discussion of the 2010 assistance program as “largely a bailout of European banks, initiated to prevent a wider banking crisis.”
Alas, bailing out banks as a way to fix a financial crisis is standard operating procedure. What was called the “Mexican bailout of 1982” was, in fact, a bailout of the U.S. banks that made improvident loans to Mexico (as well as to Brazil and Argentina) that had gone bad.
As if to prove all parties were unwilling to learn from their experiences, a repeat of almost the exact same errors with the same players — bankers, Latin American borrowers and the U.S. — unfolded in 1994. The emerging market crises in 1997 weren’t identical, but displayed similar themes of leverage, recklessness and loans gone bad.
Continues here: Greeks Stand Up to ‘Lemon Socialism’
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