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Home Publications Blogs Beat the Press The IMF Will Wing it for Greece, Just Like They Did for Citigroup

The IMF Will Wing it for Greece, Just Like They Did for Citigroup

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Wednesday, 02 November 2011 04:42

The Washington Post is concerned that the referendum in Greece on the austerity plans will make it difficult for the IMF to approve the next tranche of a loan that will be needed for Greece to make a set of debt payments in December. It told readers:

"Papandreou’s announcement could put the IMF in a difficult position. The agency is due to approve the latest disbursement of money to Greece under an earlier loan agreement. But IMF rules allow such disbursements only under programs that are on track."

This certainly will not be a problem for the IMF. Since the beginning of the financial crisis all sorts of rules have been suspended in all sorts of different contexts. For example, when the crisis was at its peak in September of 2008 the FDIC suspended mark to market accounting, allowing banks to keep mortgages on their books at full value even when it was almost certain that they would take large losses on them. Citigroup was given guarantees on $300 billion in assets by the Fed and Treasury at a point where it was not even clear what assets were being guaranteed (i.e. they could after the fact put bad assets into the pool).

If the IMF wants to support Greek debt, which it probably will since a default would likely lead to major bank defaults, then it will have no problem getting around its rules. There is no legal body to which such a move can be contested.

This piece also neglected an important aspect to the decision to hold a referendum. The referendum will likely lead the troika dictating bailout terms (the IMF, the European Central Bank, and the European Union) to make further concessions. Their current plan implies more than a decade of austerity where Greece will not return to its pre-crisis level of per capita income until after 2020, even if the economy grows in line with projections.

(Since Greece's pension system has been one point of contention in the austerity plans designed by the troika, it is worth noting that IMF economists are often able to retire in their early fifties with six-figure pensions.)

Comments (4)Add Comment
USA to Suspend Market Prices in Attempted Recovery
written by izzatzo, November 02, 2011 6:29
For example, when the crisis was at its peak in September of 2008 the FDIC suspended mark to market accounting, allowing banks to keep mortgages on their books at full value even when it was almost certain that they would take large losses on them.


Exactly. Depending on the market to provide accurate price signals for making economic decisions is one more form of socialism destined for failure.

Suspend market signals now before it's too late and the USA goes the way of Greece. Bring back the good old days of capitalism when prices and market value meant something.

As a first step the current market value of all homes will be suspended and re-valued for loan purposes at prior bubble prices in order to restore wealth driven consumption spending.

Stupid liberals.
mark to market AND mark to fantasy
written by Blissex, November 02, 2011 7:41
«all sorts of rules have been suspended in all sorts of different contexts. For example, when the crisis was at its peak in September of 2008 the FDIC suspended mark to market accounting, allowing banks to keep mortgages on their books at full value even when it was almost certain that they would take large losses on them.»

That's actually an understatement. The rule change was force by Congress, and now banks are allowed to choose different methods for assets and liabilities. They can very well mark to fantasy the assets and mark to market the liabilities.

Indeed some banks have been boosting their reported profits by marking down to market their liabilities (as their solvency is in question because their marked to fantasy assets are vastly overpriced) and thus booking those capital gains as profits.

They have been able to book profits arbitraging their own insolvency and regulatory misfeasance. This is something perversely beautiful...
Please identitfy such a bank
written by AndrewDover, November 02, 2011 8:26
"A Greek debt default would likely lead to major bank defaults"

Which major bank is so dependent on Greek Sovereign loans?
Time to Cut Greece Loose
written by Paul, November 02, 2011 9:02
Greece has survived just fine without the euro for 3000 years. If its banks collapse and a few others in Euroland take a haircut, the problem will be solved and the world can move on. Obviously, the "leaders" in Euroland are incapable of resolving this problem, so time to amputate.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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