Simon Johnson has an excellent post
by Mike Kimel
An excellent post by Simon Johnson.
The managing director of the IMF is the impresario of any bailout. The big decisions must be negotiated with all significant stakeholders but this still leaves enormous scope for discretion.
If Ms. Lagarde becomes managing director she can directly influence the terms of IMF involvement – and based on her negotiating position to date within the eurozone, we can presume she will lean towards more money, easier terms, and above all no losses for the banks that made foolish loans.
Increasingly it looks like the eurozone leadership, under French guidance, will go for the Full Bailout option, in which all Greek debt is bought up by the IMF, by the European Central Bank, and by other eurozone entities. This debt will be held to maturity – and any creditor who did not yet sell will be made whole (those who already sold at a loss are out of luck).
This course of action will be expensive, in terms of nominal outlays and in real risk-adjusted terms, because whatever terms Greece gets must also be offered to Ireland and Portugal. The IMF may need to raise more capital or – more likely – tap its credit lines from member governments.
The French want to sway decision-making at the IMF in order to use US, Japanese, and poorer countries’ money to conceal from their own electorate that the eurozone structure has led all its members into serious fiscal jeopardy – some borrowed heavily, while others let their banks lend irresponsibly and thus created a large contingent liability.
The best way to hide the true cost is to have other people’s taxpayers foot the bill, preferably with the least possible transparency. There is a lot at stake for eurozone politicians. Ms. Lagarde will run the IMF.
The George Bush/Barack Obama bail-out policy writ larger…
The Euro at $1.45!!
Saving the banksters, making the taxpayer pay rather than everyone pay from inflation.
Go to DeLong’s live blogging WW II today Hitler writes about killing off the Red Army political commissars when caught by the Wehrmacht……………………………..
Will the new Germans occupiers have those so bold as to say ‘where is the hair cut for the bondholders’ held separately to be disposed of by the SonderKommando? The French…….Vichy.
Despite Brad DeLong’s complaint to the effect that we should defend any form of stimulus (he disagrees with Johnson) I find myself opposing Lagarde’s nomination on two grounds:
1) She’s completely unqualified
She has never studied economics. There’s perhaps a dozen other candidates that have PhDs in economics. This would be like putting an economist on the Supreme Court
2) She’ll merely enable the ECB to maintain its incredibly tight monetary policy by transfering other people’s money to eurozone peripheral countries crushed by that policy.
This is counterproductive on so many fronts. We need an IMF Managing Director that has actually taken Econ 101. And we need one who’s not just going to funnel welfare to take up the huge economic slack generated by the ECB.