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Intro: "Ever since Greece hit the skids, we've heard a lot about what's wrong with everything Greek. Some of the accusations are true, some are false - but all of them are beside the point."]

Portrait, New York Times columnist Paul Krugman, 06/15/09. (photo: Fred R. Conrad/NYT)
Portrait, New York Times columnist Paul Krugman, 06/15/09. (photo: Fred R. Conrad/NYT)

Greece As Victim

By Paul Krugman, The New York Times

18 June 12


ver since Greece hit the skids, we've heard a lot about what's wrong with everything Greek. Some of the accusations are true, some are false - but all of them are beside the point. Yes, there are big failings in Greece's economy, its politics and no doubt its society. But those failings aren't what caused the crisis that is tearing Greece apart, and threatens to spread across Europe.

No, the origins of this disaster lie farther north, in Brussels, Frankfurt and Berlin, where officials created a deeply - perhaps fatally - flawed monetary system, then compounded the problems of that system by substituting moralizing for analysis. And the solution to the crisis, if there is one, will have to come from the same places.

So, about those Greek failings: Greece does indeed have a lot of corruption and a lot of tax evasion, and the Greek government has had a habit of living beyond its means. Beyond that, Greek labor productivity is low by European standards - about 25 percent below the European Union average. It's worth noting, however, that labor productivity in, say, Mississippi is similarly low by American standards - and by about the same margin.

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+8 # jlohman 2012-06-18 09:35
If we were talking about the U.S. I'd say one thing: Get the politicians off the take and they'll do the right thing with their votes. How corrupt is the political system in Greece, because that's what drives the economy?
-5 # gcavener 2012-06-18 12:06
The ONLY way to get the politicians off the take is to take power away from government. As long as governments have power over the people, they ALWAYS sell access to the power to the highest bidder, whether corporate or union.
+2 # tonywicher 2012-06-19 20:17
Anarchy is not the answer. We need a government that has power and honest people to run that government. Either honest people will run the government for the benefit of the people who put them in office, or crooks will run it for their own benefit. There can be no power vacuum. Anarchy is not an option.
+24 # DPM 2012-06-18 09:38
The conservatives can (will) never accept that they may be to blame. So, the finger pointing will continue and the "man-in-the-str eet", will pay as always.
-17 # jlohman 2012-06-18 10:03
Yea, and I'd say even the reverse is true, with the liberals. This country's political system has turned into a totally corrupt battle between the crime families. Lefties are no cleaner than Righties, and the politicians leading the two should be in jail.
-13 # John Locke 2012-06-18 12:38
jlohman: you hit a cord there, and the deniers are after you!
+5 # BradFromSalem 2012-06-18 13:44

Corruption is neither left wing or right wing. Also, it is not universal. Corruption is law breaking.

jholman, you sound like one of those that proclaim that "they are all in it for themselves" ad nauseum.

Aren't you in it for yourself? Don't you work to make life better for yourself, your family, and your friends. And if you are able to accomplish that wouldn't you want to make life better for your community, your nation and for future generations? Unless you have some sort of psychosis you do. And, even the Righties do, as well as the Lefties and the billions in-between.

Being wrong is not a prerequisite for corruption. In fact, corruption is just a tool used by many to improve their lives, even to nth degree as I described.

So, when someone calls out Conservatives as being unable to accept blame, that is not equivalent to calling them corrupt; allowing you to twist that into a double accusation.

John, you know I agree with you on many points, but strongly disagree with you regarding how to fix it. Perhaps your opinion of what motivates people versus mine explains that divide.
+1 # John Locke 2012-06-19 14:18
LiberalLibertar ian: I believe we are both looking for solutions. Hopefully more will offer their opinions! and a consensus will prevail. This system can not go on like it has been, too many people are being hurt and I might add needlessly.
+6 # truthbug 2012-06-18 13:52
We need two Constitutional Amendments, to fix an out of date Constitution:
1) That all funds for political elections come out of public funds only (none from private funds), and 2) that all politicians in public office are limited to one term only.
+3 # truthbug 2012-06-18 13:58
We need two Constitutional Amendments, to fix an out of date Constitution:
1) That all funds for political elections come only out of public funds (none from private funds), and 2) that all politicians in public office are limited to one term only. This is a no brainer. It's not rocket science, and We the People will prove to be collectively stupid until we force the critters in government to add the amendments.
+1 # BradFromSalem 2012-06-18 14:42
I am with you on the public funding for elections, at least part way. How about if someone is civic minded enough to donate to an election, then they must make an in kind donation to a general fund. For example in the recent WI election where the Super Pacs donated 50 Million plus to the Scottie Walker, then they would have to supply 25 Million to Walker and another 25 Million to all other candidates. Any debate must be open to all candidates and reasonable equal time rules must be observed during a debate for all candidates. The effect of such laws would be to diminish the power of big money and empower outsider candidates. In turn, it could also prove a more effective tool for limiting the terms of bought for candidates. Thus allowing honest, effective legislators to have multiple terms in office.

I don't think we would need to change the Constitution; it may be possible to accomplish a lot within the framework we have now.
+2 # tonywicher 2012-06-19 20:19
Yup, Obama is as big a thug as Bush, but the "lefties" here don't know it yet. They may soon find out, if the bankers decide to dump Obama and bring in Romney, which it looks like they are.
+8 # Pickwicky 2012-06-18 09:58
Professor Krugman--your last word was a nice touch!
+21 # BradFromSalem 2012-06-18 10:10
When a nation defaults on a bunch of loans, the issue is not one person being a deadbeat or even unlucky. What has occurred is that a bunch of banks made poor investment decisions and/or attached impossible or counterproducti ve terms on the loans. Imagine if a bank's terms for a mortgage were for you to quit your job so you have time to maintain "their" house better. The bank naturally would not do such a thing since they could not get their investment back. This is what the banks have done to Greece. They have dictated terms that do not allow Greece's economy to grow turning the problems in Greece into downward spiral.
Without unifying law, the Euro is eventually doomed since economic policy is being dictated by banks. And banks always want to get paid back first, no matter what.
+13 # CoyoteMan50 2012-06-18 10:16
But our problems can't be solved by the criminals of Wall Street who caused it to happen in the first place.
Ditto for the Greek, Spain and Italian problems.
Those who caused the problems will never fix them. Then they lose lots of money.
-18 # Robt Eagle 2012-06-18 11:13
Wall Street did NOT cause this problem, theyt exacerbated it, yes, but the cause was not Wall St. Read "Reckless Endangerment" by Gretchen Morgenson and learn the facts. As to Greece and Krugman's assertion that they might not be at fault...prior to the euro establishment Greece was at approx 18% interest on their bonds. Horrible by any standard. Then after joining the EU there interest on their bonds, as Krugman reports, was equalized with the rest of the EU. Greece took off on spending uncurtailed and got out of hand even further. The Germans should have been all over this situation ten years ago, but the economy was good. But to make Greece out to be a victim, come on Krugman, get your head into the sunshine and stop being disengenuis (spelling might be way off, but so is Paul)?
+4 # BradFromSalem 2012-06-18 12:50

Not to let the policies of Germany off the hook, can you envision a case where banks victimize individuals, businesses, or political entities?

When a bank lends money, they are making an investment in whatever or whoever the money is lent to. An investment always contains a risk component, the more control as an investor you take the larger risk you take. In Greece's case the banks lent funds to the government, this is very similar to what Mr. Romney did at Bain, since with the investment came control.
Bain upon seizing control cut the costs of running the company usually by firing people and cutting back on benefits for the remaining people. The Banks are attempting to do the same thing in Greece. The problem is that Greece ain't a money making Corporation. A government is created to make and enforce rules while maximizing the standard of living for all its stockholder, aka citizens. So if Greece has tax scofflaws, lowering the standard of living of the general population does not solve the problem. The approach of the banks made the citizens of Greece into victims. Now the banks are blaming those victims, which brings us back to my opening question.
+2 # BVA 2012-06-18 16:02
Excerpts from "Reckless Endangerment" Gretchen Morgenson and Joshua Rosner.

"Of all the partners in the homeownership push, no industry contributed more to the corruption of the lending process than Wall Street [banks]. If mortgage originators like Nova Star or Countrywide [unregulated non-banks] were the equivalent of drug pushers hanging around a schoolyard and the ratings agencies [S & P, Moodys, and Fitch] were the narcotics cops looking the other way, [Wall Street] brokerage firms providing capital [warehouse lines of credit] to the anything-goes lenders [non-bank] were the overseers of the cartel." (p. 263)

"Because higher-quality borrowers were still at this time the domain of Fannie Mae and Freddie Mac, Wall Street could not hope to compete in this arena. So the big investment firms [Wall Street banks] stepped up their interest in alternative mortgage products offered to sub-prime or near-prime borrowers." (p. 136)
0 # BVA 2012-06-18 16:09
Excerpts from "Reckless Endangerment" Gretchen Morgenson and Joshua Rosner.

"Years after the meltdown, investors began to understand what the due-diligence process had uncovered and how badly they'd been burned by Bears Stearns, Merrill Lynch, Lehman Brothers, Deutsche Bank, Greenwich Capital, Morgan Stanley, Goldman Sachs, and other smaller firms. Lawsuits against these firms alleging a dereliction of duty started cropping up in 2010 as investors began to realize that Wall Street's secret loan assessments had identified severe problems in mortgages well before they stopped selling them." (p. 265)

Wall Street had financed questionable mortgages before, of course. But it was a during the mania's climactic period of 2005 and 2006 that these firms' activities as the primary enabler to freewheeling lenders really went wild. No longer were the firms simply supplying capital to lenders trying to meet housing demand across America. Now Wall Street was supplying money to companies making increasingly poisonous loans to people with no ability to repay them. And the firms knew precisely what they were doing." (p. 266)

"Because higher-quality borrowers were still at this time the domain of Fannie Mae and Freddie Mac, Wall Street could not hope to compete in this arena. So the big investment firms stepped up their interest in alternative mortgage products offered to sub-prime or near-prime borrowers." (p. 136)
+3 # BVA 2012-06-18 16:14
I think the posted excerpts from "Reckless Endangerment" by Gretchen Morgenson and Joshua Rosner directly contradict Mr. Eagle's statement that "Wall Street did NOT cause this problem".

These quotes leave no doubt that Ms. Morgenson believes that the without Wall Street the subprime crisis would not have occurred.

Those are "the facts".
-3 # Robt Eagle 2012-06-19 07:29
Wow BVA, you cherry picked excerpts and forgot about the likes of Fannie Mae and Freddie Mac execs who did the damage that allowed Wall Street execs to use the crap to profit. BVA, you forgot to take the excerpts that showed that the heads of the SEC, FINRA, S&P, Moody's Fitch all failed to do the job, leading to the mess. BVA, you failed to present a real picture as portrayed by Morgenson...lik e all liberals, you just want to blame the "bad guys" without looking at the root cause of the problem. Fannie Mae and Freddie Mac were allowed to get to the state they were in, which was a disaster, because of Barney Frank and Christopher Dodd. Frank and Dodd should be in jail, as well as all the folks I mentioned above. Yeah, the Wall Streeters took advantage of the situation, but the root cause was the problem.
+1 # BVA 2012-06-26 20:37
The most effective rebuttal to an instance of "cherry picking" is to present some or all of the evidence or data that the "cherry picker" left out. It is a form of "confirmation bias", but to prove it you need to supply examples of the evidence or data that was ignored.

I think the quotes I cited are more than adequate to show the priorities she had. The first quote alone is powerful evidence that Ms Morgenson felt that the Wall St Banks were the most blame-worthy participants in the whole scandal, the essential ingredient, and probably the 'proximate cause' of the financial crisis.

I'm open to counter-argumen t. But it's going to have to include quotations that have her asserting different priorities than those I documented. That would of necessity establish something that I don't think Ms Morgenson did -- namely that she contradicted herself within the book itself.

You also mention that I "forgot to take the excerpts" had to do with the culpability of all the other players in this mess. Even if there were no limits on these comments, it would have been illogical for me to include quotes about all the other players. Your comment had to do with Wall St Banks, so did my comments. There is a lot of blame to go around and Ms Morgenson does a good job of distributing it, but I think she gave the largest amount to the Wall St Banks.

I apologize for the late response, but I do have excuses, which I won't bore you with.
+13 # John Locke 2012-06-18 12:42
CoyoteMan50 The reason they can't fix the problems may be because they don't know how. Just like our economy, the Banks that caused the problem are calling for austerity, they believe, although I can't understand the thinking, that to cut spending and give the bankers and 1% tax cuts will create economic growth...To my way of thinking we are being led by insane people!
+2 # BradFromSalem 2012-06-19 06:35
Possibly a very good explanation. And an indication that they broke something that they couldn't fix, which is never a good idea. To look like a hero, always break something you can fix.
+2 # wwway 2012-06-18 10:24
Why a different bail out standard for Greece and Spain? Is it because Greece has a poor tax collection system?
-7 # edge 2012-06-18 11:01
Come on, don't blame Germany!
You know you want to blame BUSH!
+2 # economicminor 2012-06-18 11:25
How about GS, who helped Greece hide its bad fundamentals and then sell the Greeks who were responsible, derivative insurance?

Everyone seems to forget how Greece got into the EU in the first place.
+5 # readerz 2012-06-18 11:03
NPR had an interview in the mid 1990s, can't say exactly when or with whom, about the war in then-Yugoslavia ; instigators had thick German accents. The Danube happens to open into the Black Sea right at the former Yugoslavia, and Germany had just upgraded its lock system so that more goods (I think it was coal) could be floated downriver, but they wanted control of the mouth of the river. Nobody denied this. Germany has more than a small hand in making economics benefit them.

Greece does not have a strong economy, and other Europeans don't know it well. But Greece has some right-wing shipping magnates who register their ships in Liberia (etc.) and pay no taxes to Greece. Like Ireland, the rich find ways to not share their wealth with their country, and these include some famous billionaires. The average Greek that is not rich is often poor and frustrated, although they can be well educated. Charity is often a low priority among those who should be able to afford it.
+5 # jwb110 2012-06-18 11:11
Norther Europe has looked down their noses at the southern countries in Europe for centuries. They may not admit it but it is their version of racial prejudice and it should be called that in the world press. Not all of the EU wants to become Protestant and tight assed.
-3 # gcavener 2012-06-18 12:03
110, I have read countless posts on RSN of American lefties "looking down their noses at southern" states. Shouldn't that be looked at as bigotry and "be called that in the world press"?
+2 # Mrcead 2012-06-18 17:08
Southern bigotry eclipses anything that comes from the North. Is your history book glued shut? My 5 year old son tries that "he's bad too" routine, but he's only 5.
+5 # mjc 2012-06-18 11:20
It certainly does appear that the Greeks were taken advantage of in order to increase the distribution of the euro. Greece is...or may it is was...depicted as the cradle of western civilization, a place where the individual was valued more highly than the group. World War II did nothing to set off an era of prosperity and when the Europeans finally got around to realizing there was strength in some sort of unity, Greece had very little to add to the European economies but it might be a good place to exploit, much as Africa had and is now being exploited. Sad state of affairs for a cradle that brought forth so much of the philosophy of the republic, democracy, and individualism.
-4 # MidwestTom 2012-06-18 11:36
Paul Krugman is right, but he stops short of making the next extension, that being world government. The Germans balk at taking care of the PIGS. What do you think world government will bring, we will be forced to take Germans place and bailout the Honduras's Chad's, and Zimbabwe;s of the world. However, before we do that we will probably be forced to bail out Mexico and make it 51's thru 72nd states.
+8 # Texas Aggie 2012-06-18 12:39
Considering how much of Mexico's problems originated north of the Rio Bravo, if you want to moralize, then you have to acknowledge responsibility for cleaning up at least some of the mess.

Here is a list of just some of the problems the US has created for Mexico:

1. The US is the driving force behind the narcotics gangs in Mexico because it is such a willing and huge market. It also supplies the weaponry that the narcos use to fight for control.

2. NAFTA is responsible for creating a deep well of poverty in Mexico by dumping US subsidized agricultural products, primarily corn, on the Mexican market at below production costs thereby driving countless farmers out of business who then trekked north to find employment.

3. US political parties, primarily the republicans, have been sticking their noses into Mexican politics for a very long time. Calderon's "election" had republican fingerprints all over it. The previous US ambassador to Mexico under Bush made himself all but persona non grata by his constant interference in Mexican internal affairs.

Before you complain about "bailing out Mexico," you need to correct behavior that causes those problems.

-4 # Martintfre 2012-06-18 15:57
//Paul Krugman is right, but he stops short of making the next extension, that being world government.//

Actually Krugnam is wrong -- like all central planners he suffers from the fatal conceit of the central planners where they think they are smart enough to solve every one elses problems. If you actually follow any of those people they have many of their own problems they can't solve either.

Things will not improve as it gets larger and grander, there simply will be more victims.
+4 # Dietz 2012-06-18 11:58
I certainly feel sorry for the Greeks and the mess they are in, but has anyone raised the fact that taxes appear to be anathema to them? There are local tax offices that have never collected a Euro in taxes, dividend income from Greek companies is not taxed, capital gains from sales on the Athens Stock Exchange are not taxed, capital gains from the sale of a business between family members are not taxed, and the real corker is that the provision exempting from tax any income derived from ships and shipping is enshrined in the Greek constitution. Is it truly a wonder that the Northern European countries are just a tad annoyed?
+1 # Mrcead 2012-06-18 17:16
The thing about habits are that they just don't spring up overnight. I seriously doubt that the European nations were unaware of the Greek's financial peculiarities. I know GS cooked their books and presented them a nice bill for helping them eek into the euro but come on now, not one eyebrow raised? People need to stop looking the other way, especially on world altering matters.
+5 # Jyl 2012-06-18 12:18
As I read this article, all I could think is that for the most part, if one substitutes "Greece" with "America" the story is almost equally applicable.
-4 # petevokos 2012-06-18 12:50
Paul,please. First you point out Greece,s failings and then you say that is not what caused the crisis.
The Greeks have nothing of any substance to export,their government is corrupt,they have a history of tax evasion and they live beyond their means.
What will widen their crisis is that the Greeks will not accept the fact that they have to make changes, they have to quit living beyond their means and make meaningful changes in the government.
+1 # mdhome 2012-06-18 13:32
Step one would be to collect taxes to start paying the bills, why does no one understand this?
+6 # vicnada 2012-06-18 13:05
Again, a lucid column. How many of us can't feel a kinship with the Greeks insofar as we are among millions who earn less than $100K per year but still got saddled by the huge bailout for the multi-millionai res. I personally feel victimized by a government by, of and for big money interests. We lose daily to international policy failures based on poor economic thinking at the top. If you haven't watched Obama's Harvard professor's video castigating him for his failed policies, you need to watch it. Even if it makes us left-leaners uncomfortable, there's too much truth there to ignore. While I'm for giving Obama a second term, he needs to understand that (like his Nobel Peace Prize) he hasn't earned it. He needs to change course signficantly and become truly progressive. How about starting by ditching Geithner for Krugman?
0 # allisivy 2012-06-18 13:45
I don't know much about the Greek economy, but this analysis seems to be somewhat circular and doesn't really address its own premises. As a scientist, I know that sometimes although an experiment fails to prove what it was out to prove, the reason for the failure could be many reasons. The article is a bit clumsy for Paul. Paul points out one reason why the Euro was a singularly bad idea- Calling it an arrogant notion doesn't help much of anything. This article isn't really much about Greece and seems to accept many capitalist premises that could be questioned.
+2 # BradFromSalem 2012-06-18 14:50
The arrogant notion was that the Euro would magically work evenly throughout its geographic zone. There is no binding legal authority to create balanced regulation so that strengths of one nation would not overwhelm the economy of another.

Exactly which Capitalist notions are you questioning? Certainly you are not accusing Krugman of supporting laissdez-faire policies?
-7 # Martintfre 2012-06-18 14:33
Lol -- the Greeks are a victim of their own shallow stupidity and greed.

Shallow people voting in shallow politicians who promised they can live beyond their means at some one elses expense.
+7 # aljoschu 2012-06-18 14:41
"No, the origins of this disaster lie farther north, in Brussels, Frankfurt and Berlin, where officials created a deeply - perhaps fatally - flawed monetary system, then compounded the problems of that system by substituting moralizing for analysis."

Dear Paul,
you understand very well why we don't trust you one moment in Europe! It is because you forgot the mother of all origins of evil in your above list: New York and the Chicago School of Economics! It is because you Americans carry into the world not only a constant influx of hot militaristic aggression but also a constant and relentless economic war.
It is your attack on the Euro - from its start - which has been putting it under enormous pressure. It is your hedge funds and money industry which are trying to take advantage of each and every European safety campaign for Greece. It is your uncontrolled rating agencies who are judging over entire economies without having the least set of agreed standards and procedures. It is your greedy and rapturous economic system which has gone wild beyond any checks and balances.
And you and your government have so far done nothing to contain that monstrous system. It is America - that failed state you forgot, Paul.
-1 # Martintfre 2012-06-18 15:53
Your real enemy died, Lord Keynes.

Too bad his ideas justifying printing prosperity did not die with him and FDR's economic morass. we stupid Americans (with Krugman's blessing) are repeating it learning nothing.

Long Live the Austrian school of Economics!
+4 # bingers 2012-06-18 14:45
One way to fix our problems is total transparency. Every donor to politicians, whether directly or through PACs should be made known, and a vote by any politician for a measure benefitting their donor should result in immediate arrest and jailing without bail until their trial. Their vote should be negated and they should be banned from receiving any corporate of union funds or public funds for their bail or defense.
0 # Dougded 2012-06-19 09:55
Please tell me how the people of Greece and their leaders attitudes are beside the point. They are exactly the " point".
+2 # bluepilgrim 2012-06-19 10:27

How Goldman Wired Greece for Implosion
by grtv

MSNBC—Nov. 15, 2011—From the Dylan Ratigan Show.

BBC Investigative Journalist Greg Palast discusses how Goldman Sachs ruined the Greek economy.
+1 # ronnewmexico 2012-06-19 18:28
Goldman, indeed do have credit default swaps which will allows them to benefit when things in Europe go bad. As percentage cause of the problem...proba bly not.

However governments, nations go bankrupt and have been going bankrupt for thousands of years. Greece itself speaks to this truism.
The problem..histor ically a default of the currency is the solution..the currency becomes so devalued through inflationary pressure...the debts held in those denominations become...payabl e. So yes the country becomes bankrupt but indeed the debts still remain payable. Much depreciated but still in theory paid.

Problem solved.
With one currency, a euro...such a solution is not available and the consequences becomes a contagion.
There is much wisdom in a old way of doing things. Not arbitrarily do countries nation states have their own currencies, it is for need and cause.

The euro like things such as credit default swaps are perhaps things better left for economists to theorize rather than to employ as real life solutions to existent problems..

Problem being....many economists with a few exceptions glommed onto this idea of a euro and eventually a one world currency , who now is left to bang the drum and say...sorry no...that was a bad bad idea.

Few indeed.

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