As the IMF prepares to hand $150B to Greece, you’ve got to wonder what they are thinking. Greece has demonstrated that it is a financial mess. When you lend someone money, you’ve got to see a path where they can pay you back, right?
First there is the issue of spending. Greece has been spending crazy amounts of money for decades. While the IMF hopes to require spending cuts, what confidence can any investor have that Greece will implement them? Sadly, the Greeks have been caught lying about their finances in the past. How do you lend money to a country where the leaders are fraudulent?
Second, there is the issue of revenue. The IMF wants Greece to raise taxes on its people. That seems like a good idea, except that Greece has had policies of not enforcing their own tax code for years. Why would any investor believe that Greece will suddenly change, and that its people will finally start paying their bills?
So for you would be lenders out there, Greece has huge risk both in terms of cutting its spending and also in terms of increasing its revenues. In my view, lending money with any expectation of payback is simply wishful thinking. It’s not going to happen.
Finally, who are the lenders then? Well, as usual, it all comes back to the United States. While the US isn’t getting the full $150B for this one, the US contribution as being part of the IMF will be a staggering $39B. That’s right, while the Greeks are selfishly protesting tax increases in the streets and not even paying their own taxes, America is going to take another $39B loan to help them out. Nice. For the record, that means every working American gets a bill for ~$278.
You can guess what I think: let them fail.
They are “too big to fail”.