Is Greece going to set off the long feared next wave of the Great Recession?

It all depends on whether you want to consider the money the government owes itself to be "public debt."

I wonder how he rationalizes his repeated proposals for a major increase in short term borrowing and spending in this country, given that (states included) our public debt is now over 100% of GDP (Greece is at about 140%), and well into the danger zone.

... how do you say "This sucker could go down" in German?

...The ECB involvement has only just begun. Last weekend's bright idea is to "leverage" the €440 billion bailout fund by borrowing from the ECB, and using the fund to insure debt rather than to buy it. In this way the fund could "support" trillions of euros of debt. But risk can only be transferred; it does not evaporate. And the risk ends up at the ECB and, ultimately, with taxpayers.

This sort of scheme should sound familiar from the financial crisis. Take a fund designed to buy bonds, and goose its credit exposure by leveraging and writing credit default swaps (bond insurance) instead. This move just explodes the ECB's already large lending against rotten collateral.

German Finance Minister Wolfgang Schauble saw through the scheme quickly, calling it a "stupid idea" that would "endanger the AAA sovereign debt rating" of other member states. I think he misspoke a bit. The goal is stupid, but it takes clever financial engineering to turn a €440 billion fund into several trillions of credit exposure......

.....contemplating the means of privately levering the EFSF is a great exercise, because it brings home more than ever the correlated default risks between the guarantor pool and the asset portfolio of the bailout fund. Or by way of example, imagine investing in a CDO that had insurance on the tranches from AIG where the underlying assets were AIG stock.

And perhaps also assume no one was there to bailout AIG either.....

I cannot emphasise enough the role of policing and the media in this.


The streets of Athens on Sunday night were filled by protesters, tear gas and fires
On the ground, Sunday's demonstration felt massive. It was never allowed to assemble in one place but even the PAME contingent, where I stood on Stadiou Street, looked maybe 50-70,000 strong.

The organisers claimed 250,000 had tried to assemble. The police claimed 4,500. The media reported 15,000. Both of the latter figures were a joke.

What was no joke were the clashes between police and the hardline protesters - drawn from the anarchist black bloc, the fringes of the far left and in increasing numbers from right-wing, football-supporting groups on the fringes of LAOS and the fascist group Chrissi Avgi. Time and again, on the grounds of confronting the rioters, police made incursions into large masses of peaceful protesters.

This is hardly spoken of by Greek ministers and the EU doesn't seem to want to comment on it. But I can tell you from repeated experience, it feels like a process of collective punishment of a peaceful majority.

I think this week caught Greece on the proverbial brink of something. The anger could easily solidify into anti-German sentiment, but with the conservatives and Orthodox right implicated in the first bailout, anger can more easily flow to the left.

It may be of course that I am overestimating the dangers. But here is another problem of perception: in the three hours I spent at or close to the front of the rioting on Sunday night, I did not see a single other television crew. Ours was repeatedly harassed, verbally and physically, most harshly by a small group of right wingers who accused us of being German.

At the start of the demo I saw one other (foreign) TV crew and that was it. Parts of the Greek broadcast media have long since given up telling the story of the streets; for most of them it is too dangerous, such is the popular hostility to a media many believe is in the pocket of a corrupt political class.

That is sad, but here's the wider problem this creates. If you are Schauble, Rehn, Merkel, Lagarde, you are increasingly flying blind in this crisis. The Greek papers, heavily politically aligned, can only partially reflect what is happening. The Greek politicians you talk to spend their nights shuttered behind grilles in anonymous offices - they cannot appear in public, they cannot get a feel of the streets.

The Greek politicians in power cannot deliver the country they run to an austerity package they do not believe in. And after the election, power is likely to be even more fragmented.

Just as the combined might of the IMF and the Greek government is pulling economic levers that do not work, the more insidious problem is that they are pulling political strings that are broken.