MR. STIGLITZ HASN’T BEEN TIPPED OFF

An English translation by Bernard Bouvet of my post: M. Stiglitz n’est pas au courant.

What caused it? Is it the one year 7% decline in Greece’s GDP in 2011, 16% altogether since the crisis began in 2007? Or perhaps the defections among members of the Greek parliament during Sunday’s vote, followed by exclusions from their respective parties, and to top it all, opinion polls in favour of the Left and the Radical Left? The Greek government giving thus the impression that it doesn’t represent the will of its citizens “anymore”, and so, rendering Sunday’s vote on austerity plan meaningless?

In any case, eurozone leaders are now hesitant. The postponement of the Eurogroup meeting scheduled for today (Wednesday Feb 15) – replaced instead by a conference call – is an indication that those at the top are all of a sudden starting to feel weak at the knees: yesterday morning’s triumphant mood faded into a flimsy excuses session by evening.

Earlier on Monday, I was musing how long that formidable immunity to facts would last, as shown by the troika now governing Greece for the last several months and poised to follow suit in the rest of Europe. Just to be clear, I mean the ultra-liberal, closed club involving the European Commission, the European Central Bank, and the International Monetary Fund. Last evening reactions seem to suggest that the vaccine may be wearing off after all.

In a recent interview, Mr. Stiglitz, whose analyses are usually excellent, is raising the question of what is behind this immunity to facts. He wonders if banks in the eurozone failed to cover themselves against an eventual default of Greece? Or whether anyone has the capacity to assess the ensuing losses? Perhaps the reason, Mr. Stiglitz reflects, is the basic inability of the CDS issuing financial institutions to cover the claims in the event of a default?

It certainly is a combination of all of the above, in particular the fact that by and large, CDS have probably been issued by some of the least solid German banks and even Greek banks themselves. (Human stupidity knows no bounds! Seriously, who could have ever thought-out (dreamed?) that a bank in a given country constitutes an insurer of choice against a default payment of that very country?) The real culprit is not at all a true mystery, there it is: private retirement savings accounts, the ultra-liberalism’s last bastion.

Private retirement savings accounts were meant to save the world. Once and for all, private retirement savings accounts were supposed to triumph over several grotesque values we had inherited from the 18th century, such as – ew! yuck! – solidarity. Private retirement savings accounts would rid this world of the shame of unfunded pension plan (pay-as-you-go, PAYGO) which turns parents into “ogres devouring their own children and grandchildren” (dixit). Most of all, private retirement savings accounts would bring retirement plans into the glorious and sacred realm of profit. But to fulfil this destiny, the portfolios of insurers required constant and ineluctable growth. The stock market had to rise steadily forever. At one time, the thinking was, some still do, that high-frequency trading could give a helping hand – invisibly! – without having to prosecute and/or convict too many whistle-blowing programmers. And above all, government bonds, and sovereign debts, could never ever depreciate.

Now with Greece defaulting, or rather with the fact that it is finally recognized that Greece is defaulting, the house of cards is collapsing. The demise of private retirement savings accounts puts an end to the myth – guarantor of social peace – that “We are all shareholders and investors”. It puts an end to the myth “that everyone can get rich, it’s just a matter of effort!”. That myth, also, has been contradicted by facts, for at least the past twenty years in Western countries.

No, Mr Stiglitz there never was anything mysterious about why the troika is immune to facts!