NEW YORK TIMES MAGAZINE: …On that day in 2009 when GR0133004177 was issued, investors had every reason to assume that this was an especially risky loan. The Greek government wanted 7 billion euros, or $10.5 billion, which would not be paid back in full until 2026. These were all sophisticated investors, who were expected to think very carefully about the number they typed, because that number had to reflect their belief in the Greek government’s ability to continually pay its debts for the next 17 years. I was shocked, looking back, to see the winning number: 5.3 percent. That is a very low interest rate, only a couple of percentage points above the rate at which Germany, Europe’s most creditworthy nation, was borrowing money. This was a rate that expressed a near certainty that Greece would never miss a payment.
In hindsight, of course, we know that the investors should not have lent Greece anything at all, or, if they did, should have demanded something like 100 percent interest. But this is not a case of retrospective genius. At the time, investors had all the information they needed to make a smarter decision. Greece, then as now, was a small, poor, largely agrarian economy, with a spotty track record for adhering to globally recognized financial controls. Just three weeks earlier, a newly elected Greek prime minister revealed that the previous government had scrupulously hidden billions of dollars in debt from the rest of the world. In fact, the new leader revealed, Greece owed considerably more money than the size of its entire annual economy. Within a month of the bond sale, faced with essentially the same information the investors had, Moody’s and the other ratings agencies downgraded the country’s credit rating. In less than six months, Greece was negotiating a bailout package from the International Monetary Fund.
The original sin of the Greek crisis did not happen in Athens. It happened on those computer terminals, in Frankfurt and London and Shanghai and New York. Yes, the Greeks took the money. But if I offered you €7 billion at 5.3 percent interest, you would probably take the money, too. I would be the one who looked nuts. And if I didn’t even own that money — if I was just watching over it for someone else, as most large investors do — I might even go to jail… (more)
EDITOR: It is a misnomer to refer to a Greek bailout. It is a Greek lenders bailout. And those lenders are largely German and French bankers.
