Markets Respond Positively to Talk of Greek Bailout
I try not to put too much stock in these one-day “why is the stock market doing this or that” stories, but I noticed that today stocks are rallying as people think there will be some kind of EU rescue/bailout for Greece rather than a catastrophe. And though I haven’t made a scientific study of the matter, my impression is that this has been the pattern throughout the great financial crisis. Among the pundits, there’s a great deal of talk about the need for balance and restraint and worry about this and that but in the markets every signal that there’s going to be forceful intervention by strong players (US, China, Japan, Germany, France, etc.) is greeted with cheers. That can be TARP, that can be aggressive credit easing by the Fed, that can be the US stimulus or the bigger Chinese stimulus, or now talk of a Greek rescue. It’s never “markets crash in anticipation of future moral hazard problems.”
15 Responses to “Markets Respond Positively to Talk of Greek Bailout”
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February 9th, 2010 at 1:42 pm
Yes, but that’s because the Masters of the Universe end up being the beneficiaries of the moral hazard!
February 9th, 2010 at 1:47 pm
I’d stick with being skeptical of any story that attempts to give a single, simple explanation for market behavior.
February 9th, 2010 at 1:59 pm
It is the moral hazard which led us into this mess, and which will likely make a lasting recovery elusive. It’s pretty hard to rectify a titanic misallocation of capital by incentivizing yet more of the same.
February 9th, 2010 at 2:14 pm
Firstly, some sort of bailout was guaranteed. There is always a bailout. It what the asset markets count on. Every bailout is bullish because it is bailing out the assets of the financial sphere, ie. the wealthy and powerful.
The US stock market is managed, broadly speaking. Just as the ‘news’ is broadly managed. The narratives explaining the markets and the financial world are far more powerful than the ones describing and reporting the political world. So the ‘news’ of the inevitable bailout can be assigned causality in a morning rally and everyone is happy. Everyone is happy these things are managed. Confidence in the financial system is founded upon the markets being managed now. Managed markets are free markets.
February 9th, 2010 at 2:29 pm
Of course not — because the markets benefit from the moral hazard as much as the countries getting the bailout.
February 9th, 2010 at 2:44 pm
Bailing out Greece = using taxpayers of other countries to bail out the owners of Greek bonds (= banks, rich people, etc.) Wonder if Goldman Sachs owns Greek bonds, or is speculating in them? Wouldn’t surprise me one bit.
February 9th, 2010 at 3:11 pm
Fuck tiny, nasty, inconsequential Greece. What of mighty Spain? We all love Spain, and we are all going to miss her. Oh Spain! You gave it valiant effort, but you are going to come up short.
Spain tried to get off the oil. They really did. They tried to become energy independent. On a per capita basis, Spain led the world in solar power, wind power, and high speed rail.
Sun Power: Spain has 6 of the world’s 8 largest Photovoltaic Power Plants.
Wind Power: On a recent day in December, Spain achieved are remarkable feat: more than half (53%) of the country’s total electrical energy needs were met by wind power.
Train Power: Spain’s high speed rail network, relative to size, is largest in the world, larger even, than China. Take it and like it China!
But the bankers got ya Spain, didn’t they? Created a giant bubble above your country, and then blew it up. Now you’re broke, and heading toward towards destitution.
When the central bankers are done with you, Spain, there will be nothing left. Your country will be a dust bowl, fit for neither Moors nor locusts.
Good-bye, hyper-modern Spain. We hardly knew ye.
February 9th, 2010 at 3:19 pm
My Big Fat Greek Default!!!
(I stole this from someone at Calculated Risk.)
Bailing out Greece = using taxpayers of other countries to bail out the owners of Greek bonds
But Germany and Europe have more progressive tax systems than the US, right?
February 9th, 2010 at 3:24 pm
@6 kafka: “Wonder if Goldman Sachs owns Greek bonds, or is speculating in them? Wouldn’t surprise me one bit.”
Goldman is all over this deal. The whole thing stinks of Goldman. Goldman has been in China, trying to convince Chinese central bankers to buy Greece -the entire goddamn nation.
I swear to God, if we don’t tear Goldman down, down to fucking ground, they will destroy this country and much of the known world.
Every minute Goldman lives, the planet is one minute closer to doomsday.
February 9th, 2010 at 3:26 pm
Even internationally, the rich like BIG GOVERNMENT just fine so long as it’s their names on the dividend checks.
February 9th, 2010 at 4:05 pm
Meh, if the Greeks stick to their austerity budget, a big if, this is going to feel more like a bankruptcy to many parts of Greek society than a bailout. But, without the credit line it would unarguably be worse since the Greek government is nowhere near being able to fund itself.
So, unfortunately, this is what qualifies for good news these days. Now back to your pop-austrianism and conspiracy theories.
February 9th, 2010 at 4:42 pm
But Germany and Europe have more progressive tax systems than the US, right?
Here is an analysis of international tax progressivity.
The “concentration coefficient”, the Gini equivalent for tax burden, is actually higher in the US than any European country. Thus the US tax burden is more progressive (i.e. unequal).
The reason is simple – European countries gather more tax burden in payroll taxes, which tend to be less progressive than income taxes. For example in France the employee payroll tax is 22.5% of gross wages in France (the employer part of the payroll tax is 42.5%).
Lower Gini coefficients of European countries come largely from post-tax transfers, not from higher pre-tax income equality or more progressive tax systems (in fact, as mentioned, they are slightly less progressive).
When you typically have 10% of your population unemployed, there is no way you can have a low Gini coefficient without the government paying unemployed people a lot of cash.
February 9th, 2010 at 5:01 pm
Markets were oversold. They tend to rally when this happens. In the short term, monitoring overbought and oversold extremes is the best, quantified way to make sense of the markets.
February 10th, 2010 at 9:17 am
I wish Yggy would steer clear of commenting on things like stock markets, since it’s pretty glaringly obvious he’s out of his depth on this sort of thing. Buying the narrative that a single thing is what’s moving markets on a single day basis that is utterly meaningless in a world where the only thing what really matters is the longer term trends is just pointless.
February 14th, 2010 at 4:44 pm
[...] Reader after a week of barely paying attention to what has been going on. I came across a short blog post by Matthew Yglesias about markets responding positively to talks of the Greek bailout. The point of [...]