Must-Read: Cathy O’Neil: Greek Debt and German Banks

Must-Read: I become more and more convinced as time passes that there is a deep design flaw in the human brain. We are much much too eager to turn expectations about how people will behave in normal times into obligations that they are morally bound to fulfill, and then much much too eager doing gauge and altruistic punishment of those who we decide have not fulfilled them…

Cathy O’Neil: Greek Debt and German Banks: “Are you fascinated by the ‘debt as moral weight’ arguments you see being tossed around and viciously debated over in Germany and Greece nowadays?…

…It seems like the moral debate has superseded the economic reality of the situation. Even the IMF has declared the current Greek deal untenable, but that hasn’t seemed to interfere with the actual negotiations…. We should look a mere 7 years ago, at the enormous German bailout of their own banks, which had invested quite recklessly in all sorts of the most risky financial instruments and, most relevantly, Greek bonds…. There are two ways to look at this story from a morality standpoint. One is that… it was a mistake of the Greeks to issue too much debt and to spend it unwisely…. The other way to look at it is that… the very reason Greek bonds had yield was because the market was differentiating it from German bonds. From this point of view it was a mistake of the German bankers…. If we’re looking for who deserves blame in this story, we might want to circle back to the German bankers who couldn’t resist subprime mortgages and Greek bonds back in the early 2000’s.

July 28, 2015

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