Felix Salmon

Now this is what we really need on a Friday afternoon: a Bob Rubin sex scandal!

It’s all based on a whopping 3,500-word blog entry from Iris Mack, who had a long relationship with Bob Rubin which involved hundreds of phone calls, a few dates, the occasional “cuddle” — and no sex.

The post itself leaves the question of whether or not sex occurred slightly ambiguous, but I’ve cleared the matter up with Moe Tkacik, who helped Mack write the story, and the fact is that although Rubin clearly wanted sex, he never got it.

Mack says that Rubin behaved like a “bratty teenager”, and that she finally got disgusted enough with him to go public after she watched his dreadful performance in front of the FCIC. But not before this:

“Do you want to go upstairs and…cuddle?”

So that’s what this is about. For a moment I was totally speechless and had to dig into my Harvard trained PhD brain to figure out what the hell he meant by “cuddling”! What can I say; once a teetotaling math geek, always a bit slow to pick up on signals from the menfolk. So the former Treasury Secretary had a “crush” on me! And not long afterward the former Treasury Secretary had his tongue down my throat and hands everywhere sort of like an octopus. But as soon as the thought entered my mind — the former Treasury Secretary has his tongue down my throat?! — I came to my senses a bit and awkwardly went back home before we both got too carried away. This is to say, I said to myself that there would be no other former Treasury Secretary appendages entering any other of my orifices.

Rubin’s reputation has been in tatters for a while now, but that doesn’t stop him from having a lot of influence in the White House. I suspect that’s going to change now that no one’s going to be able to look at him without thinking of him jetting down to Miami on a booty call — and then failing to close the deal.

Meanwhile, Rubin’s professional reputation should be hurt by this, too:

It was a hellish season back at the Citigroup office; a few days after that first call a powerful analyst had put out a damning report all but declaring Citigroup insolvent, some regulators were already calling to break up the bank and the disgraced CEO Chuck Prince was negotiating his golden parachute.

But none of this seemed to require Bob Rubin to actually do very much. On November 1 he called me four times as I was leaving for a conference in Raleigh; first while I was packing, then in the cab to the airport, then again before I went through security, then again when I was supposed to land. When I had to put the phone away he acted like a little kid who’d been told it was bedtime, and said he would call me again when I got to my destination.

“Don’t you have work to do, Mr. Chairman?” I joked during our third call.

“I’m the chairman of the executive committee,” he specified.

“What the hell does that mean?” By then I was confused.

“It means the word ‘chairman’ is in the title and I get paid very handsomely, but I don’t have any actual managerial responsibilities.” He seemed pleased.

“Well excuse moi,” I shot back. “Nice work if you can get it!”

Three days after this chat, Prince resigned, forcing Bob Rubin to add an additional chairmanship — of the board — to his business cards. But he kept calling me all the while.

Of course, Rubin is retired now — although his Hamilton Project is still going on. I wonder how he’ll deal with this the next time he goes into his office there.

Why did Goldman stock fall so far today? It’s pretty standard practice for SEC complaints to get forwarded over to Justice, so the news that Justice was looking at Goldman could hardly have come as all that much of a surprise to the market. But perhaps Justice isn’t looking at Abacus: if it’s looking at Timberwolf instead, then that’s a whole new can of worms for Goldman to deal with, and would help turn one bad deal into a fully-fledged pattern of criminal behavior.

So while Henry Blodget is right to say that the falling share price will increase the pressure on Goldman to settle with the SEC, I’m not sure he’s right when he says that “it could also ease the pressure on prosecutors to file criminal charges against the firm.” Now that Justice is looking at the firm, it’s going to make its own decisions — and if it files a criminal case against Goldman, that’s going to be devastating for the firm whether it has settled with the SEC or not.

The wisdom of crowds, it turns out, is pretty reliable. I asked for the names of the two unidentified cities at the top of the housing-price and price-to-rent scales, and the correct answers started rolling in immediately: Honolulu and San Jose. Here’s the chart with a bunch more names added in:

Congratulations to stevenlyons, kmitchelson, petertemplar, and ACS, all of whom win a copy of Richard Florida’s new book.

On Monday, I looked at Germany’s attitude to Greece from a nationalist/tactical perspective, and promptly got slapped down by dsquared: “Congratulations,” he wrote, “you’ve proved the impossibility of not only the 2004 and 2007 accessions, but also of the Common Agricultural Policy.”

But the fact is that the Europe which grew in 2004 and 2007, and the Europe which came together to create the CAP, now looks as though it is falling apart. Philip Stephens has an essay in today’s FT which diagnoses this well, and which captures the sudden shift that we’ve seen of late, from the “reassuringly ineluctable” EU of a couple of years ago to something much more precarious today:

Europe no longer carries the stamp of inevitability. Quite suddenly, it has become almost as easy to foresee a future in which the Union fractures…

Germany relishes instead the chance to become a “normal” country, separating what it sees as its national from the European interest. Helmut Kohl’s historical insights are forgotten in the insistence that German taxpayers should not be asked to remain the continent’s paymaster. So too are Berlin’s long-term interests in European-wide political stability and in open markets for its exports.

France struggles with the dynamics of a Union in which more Europe no longer necessarily means more France. Nicolas Sarkozy’s admirable energy is unconnected to strategic purpose. Britain, as ever, stands half on the sidelines. Italy, led by Silvio Berlusconi, has removed itself from influence.

There have been moments of stasis before. But the rules have changed. The fall of the Berlin Wall and the collapse of communism have turned an enterprise of necessity into one of choice. If the Union falls into disrepair everyone will still be the loser; but the threat no longer seems an existential one…

The response of Europe’s politicians has been to sacrifice the strategic to the tactical.

Stephens diagnoses this as a failure of leadership, and narrowly he’s right; certainly it’s impossible to imagine today’s European heads of state making the collective decision to adopt the euro.

But Paul Krugman takes the opposite tack: the failure of leadership, he says, was encapsulated in the decision to adopt the euro in the first place.

The deficit hawks are already trying to appropriate the European crisis, presenting it as an object lesson in the evils of government red ink. What the crisis really demonstrates, however, is the dangers of putting yourself in a policy straitjacket. When they joined the euro, the governments of Greece, Portugal and Spain denied themselves the ability to do some bad things, like printing too much money; but they also denied themselves the ability to respond flexibly to events.

And when crisis strikes, governments need to be able to act. That’s what the architects of the euro forgot — and the rest of us need to remember.

I’m probably closer to Stephens than to Krugman on this one, but it’s true that the architects of the euro assumed that it would foster political unity, in much the same way as some couples think that having a baby will help to save their marriage. Certainly the stakes were raised, but if Germany and Greece never really got on very well in the first place, it was with hindsight far too optimistic to assume that joining together in monetary matrimony would suddenly make them sovereign soul-mates. When they were just cohabiting in the EU, their differences were manageable. But now they’ve had the euro together, that’s not true any more.

Remember all those Swiss banks with massive exposure to Greece? Er, never mind. The WSJ’s Brian Blackstone has* this great little chart, which shows Switzerland’s $79 billion of exposure falling by 95% between the third and fourth quarters. He’s got to the bottom of what exactly happened, too. And it has nothing whatsoever to do with CDS:

Eurobank EFG is based in Athens, listed on the Athens stock exchange and has roughly 1,600 branches in Greece and other countries in Central, Eastern and Southern Europe. It is controlled by EFG Group, a holding company that is indirectly controlled by the billionaire Latsis family of Greece.

Until recently, EFG Group had its headquarters in Switzerland…

It is unlikely that the bank posed any significant financial risk to Switzerland. Like all Greek banks, its deposits are insured by the Greek government.

Eurobank EFG’s exposure was classified as Swiss because its parent company was based in Switzerland. In the fourth quarter, the parent company underwent a restructuring; EFG Group is now based in Luxembourg but not classified as a bank there.

It seems that the BIS itself is in dire need of moving from a rules-based to a principles-based regime. EFG is a Greek bank, it was always a Greek bank, and it should always have been reported as such. If some narrow-minded bureaucrat decided that the rules meant that it had to be reported as Swiss, then obviously the BIS should have changed the rules. It’s worth asking why that never happened.

Update: Reuters had it first. And I think, although BIS statistics are very confusing, that what we’re looking at here is double-counting: EFG showing up in both the Greece and the Switzerland statistics. Until Q4, at which point it was just Greece.

Update 2: Or maybe Alphaville had it first.

My reference library is the internet. But I do have a few indispensible books on my shelves, and right next to the OED is Angus Maddison’s magisterial The World Economy: A Millennial Perspective. The product of a lifetime’s erudition and research, it might get updated over the coming few decades but I doubt it will be replaced for a very long time, if ever.

I just came across Maddison’s name yesterday, as I was reading Matt Ridley’s new book, and he dropped in the fact that China was the only country in the world to have lower GDP in 1950 than it had in 1000. That’s the kind of thing which no one knew, certainly not with any confidence, before Maddison came along.

Maddison died on April 24, I just found out. The Economist has an excellent obituary. But as far as the economic literature is concerned, he’s one of the immortals.

Markets in everything: A one-week internship at Vogue sells for $42,500 — Gawker

Justice Dept. Said to Open Goldman Inquiry — NYT

Utterly incomprehensible AP press release talks about reaching “emerging devices like… desktops” — AP

‘Push-cop’ Pogan found guilty of lying, faces up to 4 years — NYPost

Ben Nelson, Wife Own as Much as $6 Million in Berkshire Stock — Businessweek

Did Goldman’s Ex-Mortgage Guru Lie Under Oath? I’m not convinced, but the circumstantial evidence is strong — Mother Jones

Paul Collier has a new book, The Plundered Planet — Amazon

Steve Jobs vs Flash. He’s convinced me — Apple

The LSE seems to be the fivethirtyeight of the UK elections — LSE

6 Palm execs make $8 million in 2 weeks — Footnoted

I now have a comments feed for this blog — Reuters RSS

Chart of the day comes from Richard Florida:

He’s re-running the numbers on the rent-vs-buy debate, and the first thing to notice about this chart, if you just look at the distribution along the y-axis, is that there really aren’t all that many cities below David Leonhardt’s cut-off of 20, and there are precious few indeed below Dean Baker’s cut-off of 15. Most of the country, it seems, is still pretty expensive on a rental-ratio basis.

But be careful with those numbers: Florida, here, is comparing house prices in these cities to rents in these cities. But that ratio is always going to be higher than the ratio between the price of any given house and the annual cost of renting it, since houses for sale tend to be bigger and more expensive and located in nicer neighborhoods than houses for rent.

That, in turn, helps to explain at least a little bit of the startling positive correlation we see in the chart: the cities at the top-right are more likely to be ghettoized into expensive neighborhoods where everybody owns and cheap neighborhoods where everybody rents. Meanwhile, I’ll happily hazard a guess that the cities at the bottom-left will see much less in the way of that kind of differentiation.

But I think there’s something real going on in this chart as well, and it’s rational, to boot. Let’s ignore the difference in housing stock between purchase and rental properties for the time being, and create an oversimplified model where prices are set, in a rational market, at the net present value of future rents. Does it make sense that the prospects for future rent increases are much more robust in LA, NY, and SF than they are in Tampa and Atlanta? Of course it does: vibrant urban centers are much better placed, economically speaking, than endless crumbling exurbs.

In turn, what that says to me is that the market does a pretty good job with respect to pricing in future appreciation or depreciation in rents. There’s a clear baseline cluster around the 20 mark, and then an adjustment is made to that number according to the rental outlook from city to city.

Still, the top five cities are clearly outliers and far too expensive: it would be foolish, I think, to buy in any of them. Which raises an important question for Richard: What are the other two cities in that cluster of five up in the top right hand corner?

I’ll drop Richard an email to find out, but in the meantime put your guesses in the comments, and I’ll try and get his publicist to send a copy of his new book to the first people who get the answer right.

Update: Quiz over. It’s Honolulu and San Jose.

Dick Fuld said under oath that he was paid less than $310 million from 2000 through 2007, and that he held, rather than sold, the “vast majority” of his shares, if not all of them. But it’s becoming increasingly clear that he was lying. The latest bombshells come from former Lehman lawyer Oliver Budde, who spent many years drafting the bank’s compensation disclosures and hiding the restricted stock unit (RSU) component of Fuld’s pay. Lehman had to change that after Budde left, but it didn’t:

Budde calculated that while Lehman reported Fuld’s RSUs as worth $146 million, the real figure, based on the Section 16 reports, was $409.5 million. Lehman had counted just 2 of 15 RSU awards…

Considering his options, Budde decided to go to the SEC as a whistleblower. He sent a detailed two-page e-mail on April 14, 2008, to the SEC’s Enforcement Division, under the subject line “Possible Material Noncompliance with New Executive Compensation Disclosure Rules.”…

He got a standardized form thanking him for his letter in return. He never heard anything else…

While Fuld said he earned less than $310 million from 2000 through 2007, he actually had received $529.4 million, according to Budde’s calculations.

In direct contradiction to Fuld’s claim to Waxman that he had not sold the majority of his shares, Budde estimates that Fuld earned $469 million from stock sales between 2000 and 2008.

Budde’s numbers are almost identical to the numbers already published by Lucian Bebchuk, so they are credible on their face. And Budde clearly knows what he’s talking about.

It comes down to this: Fuld claimed that he was paid less than $310 million over the years in question, and lost nearly all of it. In fact, according to Budde, he was paid $529 million, and kept $469 million — more than he said he was paid in total.

Fuld’s in a lot of legal jeopardy already, of course. But we’re still waiting for a villain from this crisis to end up in jail. Is there any chance, do you think, that an aggressive attorney general somewhere might launch a criminal prosecution for perjury?

One of the things missing from the Great RSS Truncation Debate (see me, passim, ad nauseam) is much in the way of empirical data. So, in the wake of the WSJ’s recent decision to truncate its blogs’ RSS feeds, it’s going to be interesting to see what happens over at Above The Law. It’s truncating for the next month, and seeing what happens, against the sage advice of executive editor Matt Creamer.

Breaking Media’s CEO, Jonah Bloom, explains that it comes down to saving a bunch of his own time:

In our case, the move was prompted as much by my annoyance at the growing group of content thieves scraping our content via RSS (I dealt with two yesterday), as it was by a desire to get some commercial benefit from those readers. We’re a small company with limited resources, and I got fed up wasting valuable time trying to track down these parasites who aren’t only benefiting from our editors’ hard graft but also potentially messing with our search engine results by creating duplicates of our content on other sites.

On the other hand, notes Creamer, scrapers don’t need full RSS feeds to scrape content, and it’s becoming increasingly outmoded to think that the only way people should read online content is by pointing their computer’s web browser at a web page.

Most content providers get furious at the idea that anybody is stealing their work, and therefore waste valuable time trying to track down such parasites. I’m much more sanguine about scrapers: they exist, they get a tiny bit of search-engine traffic at the margin, but they make no visible dent in readership, and they never actually become popular in their own right. (Although I’d love to know the story behind the Ethiopian Review, a quite beautifully simple web-scraper which carries no ads, as far as I can tell; it’s the only scraper I’ve seen which people might actually want to come back to.) In general, I’m flattered by scrapers, just as I’m flattered by people who send my blog entries around by email. It’s all good in the long run.

In any event, I’m looking forward to Bloom reporting back in 29 days and telling us all what happened to both the number of scrapers and the quantity of web traffic after he truncated his feeds. The more datapoints we have on this, the better.

Update: dWj has a good idea in the comments:

I would think randomly truncating 10% of the entries would annoy scrapers a lot more than regular readers, at least relative to truncating 100% of them.

Has anybody tried this?

Update 2: This is funny. And, I see ads on it! (Via)

Peter Boone and Simon Johnson have a long and dense post on the eurocrisis today, which has a lot of different diagnoses and conclusions. I don’t agree with all of it, but I do think they touch on something important when they trace it all back to the way that the ECB became a quasi-fiscal agent:

The underlying problem is the rule for printing money: in the eurozone, any government can finance itself by issuing bonds directly (or indirectly) to commercial banks, and then having those banks “repo” them (i.e., borrow using these bonds as collateral) at the ECB in return for fresh euros. The commercial banks make a profit because the ECB charges them very little for those loans, while the governments get the money – and can thus finance larger budget deficits. The problem is that eventually that government has to pay back its debt or, more modestly, at least stabilize its public debt levels.

This same structure directly distorts the incentives of commercial banks: they have a backstop at the ECB, which is the “lender of last resort”; and the ECB and European Union (EU) put a great deal of pressure on each nation to bail out commercial banks in trouble. When a country joins the eurozone, its banks win access to a large amount of cheap financing, along with the expectation they will be bailed out when they make mistakes. This, in turn, enables the banks to greatly expand their balance sheets, ploughing into domestic real estate, overseas expansion, or crazy junk products issued by Goldman Sachs. Just think of Ireland and Spain, where the banks took on massive loans that are now sinking the country.

Given the eurozone provides easy access to cheap money, it is no wonder that many more nations want to join. No wonder also that it blew up.

The magnitude of the problem that Boone and Johnson describe here is of course directly related to the spread between the ECB repo rate, on the one hand, and any given nation’s funding cost, on the other. As that spread increases — and it’s been increasing wildly over the past few weeks in places like Greece — the moral hazard associated with this trade skyrockets.

And I think Boone and Johnson might also have touched on the important question of who’s buying PIIGS debt in general, and Greek debt in particular, at its current non-distressed levels. It’s not those emerging-market bond investors, crossing over into higher yields in Greece. They always price credit risk, and they don’t like what they see. (Remember that for many years Mohamed El-Erian was the most important and powerful emerging-market bond investor in the world.) Instead, it’s our old friends the banks, wallowing in the carry trade. They know, after all, that even if Greece isn’t bailed out, they will be.

I believe Mark DeCambre’s sources: Goldman Sachs is seeking to settle with the SEC — and with the hedge fund which invested in the “shitty” Timberwolf deal, too. More generally, if you bought any toxic assets off Goldman during the financial crisis, now is probably the best possible time to sue them for losses. And if you hold Goldman stock, definitely keep an eye on those class-action suits.

Goldman would dearly love to avoid the enormous embarrassment that would certainly accompany any lawsuit, especially if Goldman executives ended up having to endure hours of cross-examination from lawyers who will surely have worked out the best lines of attack from the 11-hour Senate hearings. The total amount it pays out in lawsuit settlements might be large, but it surely doesn’t want to risk going up against a jury, now that it’s had a taste of what public opinion feels like.

Memo to Planet Money, then: check the underwriter on that toxic asset you bought for half a cent on the dollar. If it turns out to be Goldman Sachs, you might be in for a windfall profit!

Two great posts on Goldman by Steve Waldman — Interfluidity, ibid

This can’t be good: Spain Economy Min has no comment on S&P downgrade — Reuters

Married women should say ‘I don’t’ to changing their name — Globe and Mail

The Ultimate Goldman Sachs Metaphor Reel — HuffPo

My panel at the Milken conference was pretty sparsely attended, for good reason: not only was it up against comic-book superheroes, but it was also up against a real-life superhero, Clare Lockhart, who was on the Expeditionary Economics panel and who has some trenchant and compelling ideas about how to fix failed states. I was hoping to grab her for a quick video interview afterwards, but it was not to be, so in her stead I’ve been reading Chris Blattman, who has a couple of blog posts up which are very much in line with her thinking.

Chris has just returned from an unidentified small poor country, where he met the new finance minister, who got some very good advice. Donors will come, he said, and they will make three big mistakes: they will have high standards, with no tolerance for graft or pork; they will prioritize education, health and infrastructure over security and justice; and they will use NGOs to deliver aid.

Read Chris’s blog for why all of these are bad ideas in the world’s poorest countries, but certainly I’ve heard Lockhart explain things like the way in which NGOs undermine a country’s bureaucracy by stealing away its brightest, foreign-educated technocrats.

Interestingly, although Lockhart’s ideas are treated with a lot of respect in the Army, that doesn’t seem to be the case at USAID, which was generally considered a non-starter for any country interested in this kind of institution-building approach. Why? Blattman blames Congress:

The problem, however, might not be with USAID. USAID springs from Congress, a Congress that uses its charity as an instrument of foreign policy, has little belief in country ownership, and no real stake in actual development. Congress just might be getting the aid agency it deserves.

I don’t have the solution to this problem. I can barely organize my sock drawer. But we live in a world where the poorest government can safely say the US is irrelevant to its development strategy, and a leading member of the Senate can speculate in all seriousness that the main US aid agency should be wound up. This should deeply alarm us.

One of the few genuinely strong areas of the Bush administration was in the area of foreign aid and development, but it’s understandable that the Obama administration hasn’t made it a priority, and clearly there’s still a lot of work to be done to maximize the efficacy of U.S. aid in general and USAID in particular. Maybe they could start by talking to the Army a bit more.

Mohamed El-Erian has an important piece on Greece in tomorrow’s FT; if you want to boil his 750-word article down to 3, it’s basically “Greece will default”.

El-Erian comes to this conclusion using three logical steps. The first:

A number of things have to happen very fast over the next few days to have some chance of salvaging the situation. At the very minimum, the government in Greece must come up with a credible multi-year adjustment plan that, critically, has the support of Greek society; EU members must come up with sizeable funds that can be quickly released and which are underpinned by the relevant approval of national parliaments; and the IMF must secure sufficient assurances from Greece (in the form of clear policy actions) and the EU (in the form of unambiguous financing assurances) to lead and co-ordinate the process.

And a squadron of flying pigs dropping 100-euro notes from helicopters across both the Greek and Iberian peninsulas would probably help too. The fact is that far from all of these things happening in the next few days, the base-case scenario is that none of them will. (The “sizeable funds” might appear, but don’t believe for a minute that national parliaments won’t object.) And on top of that, El-Erian notes drily that “the official sector has yet to prove itself effective at crisis management” — or, to put it another way, if you really think the IMF can cope with a Greek crisis, just look at how it coped at previous crises in Asia, Russia, and Latin America.

The second part of the argument is this:

The disorderly market moves of recent days will place even greater pressure on the balance sheets of Greek banks and their counterparties in Europe and elsewhere. The already material risks of disorderly bank deposit outflows and capital flights are increasing. The bottom line is simple yet consequential: the Greek debt crisis has morphed into something that is potentially more sinister for Europe and the global economy. What started out as a public finance issue is quickly turning into a banking problem too; and, what started out as a Greek issue has become a full- blown crisis for Europe.

This, in a sense, hardly needs saying: all public finance crises are also banking crises. The world has never seen an insolvent country with solvent banks, and Greece won’t be the first. But of course it’s not just Greek banks we’re worried about here, it’s also other banks across Europe — French, German and Swiss banks in general, and Fortis, Dexia and SocGen in particular, seem to be particularly at risk. Greece has always borrowed heavily from abroad, and its lenders are now in a very tough spot; needless to say, all those banks will get bailed out before they’re allowed to fail.

Finally, concludes El-Erian:

Absent some remarkable change in the next few days, things will get even more complex for the official sector. It may have no choice but to combine its own exceptional financing efforts with talks on a controversial approach that will be familiar to veteran emerging market observers – PSI, or “private sector involvement”.

PSI is the polite way to talk about the restructuring of some of the sovereign debt held by the private sector. It is based on a concept of burden-sharing in a disorderly world. It can appeal to governments as a seemingly easy way to ensure that massive public sector support to crisis countries does not flow back out in the form of payments to private creditors. Yet PSI is also hard to design comprehensively, harder to implement well and involves collateral damage and unintended consequences.

This is the “Greece will default” bit. El-Erian doesn’t quite come out and say so directly, but that’s how I read his “may have no choice but to” language: it’s about as close as the CEO of Pimco can come to saying that Greece will default without being accused of inciting panic. He even provides the requisite euphemism for the public sector to use: “private sector involvement”.

Consider the alternative, which is that the bulk of any EU/IMF bailout package would go to paying off in full all those speculators who have been buying Greek debt at 18% interest rates. It’s the too-big-to-fail problem all over again, exacerbated by the fact that if Greece gets a bailout, you can be sure that other countries are going to want one too, starting with Portugal, and working on from there. At some point, the German population simply won’t abide it: they’ve got their fiscal house in order, and they understandably don’t want to spend their hard-earned euros on paying off the debts of countries which, as Tyler Cowen puts it, “have been pretending to be much wealthier than they really are and to make financial plans on that basis”.

A Greek bailout package — any bailout package, really — is much more palatable when there isn’t anybody obviously being bailed out: when the distressed and insolvent borrower has to endure painful austerity, and when its lenders too suffer a certain amount of pain. To put it in US terms, we’re looking for something much more like GM or Chrysler, and much less like Bear Stearns. But of course GM and Chrysler were put into bankruptcy, and there’s no such thing as sovereign bankruptcy, which makes the whole problem that much more difficult and prone to what El-Erian calls “collateral damage and unintended consequences”.

El-Erian talks about how this approach “will be familiar to veteran emerging market observers”, but there’s a lot going on here which we haven’t seen in emerging markets before: a debt-to-GDP ratio of well over 100%; a country facing default which still has two investment-grade credit ratings; and, of course, the formal economic and monetary ties to risk-free developed nations.

It’s worth remembering Mexico’s tequila crisis of 1994-5. That was a liquidity crisis, not a solvency crisis, but even then the US bailout (a now-tiny-seeming $20 billion) had to come from a little-known Treasury slush fund since there was no way that it was going to receive Congressional approval. What’s more, the US ended up making a profit on that bailout, while as every German knows, any Greek bailout funds are unlikely to be repaid in full. And the US aid was extended only after Mexico had devalued and thereby become competitive again.

It’s impossible for Greece to devalue without defaulting, given that all of its debt is in euros. El-Erian doesn’t talk about devaluation in his article, but it’s clearly still a possibility. A default, meanwhile, is increasingly looking like it’s probable in the short-to-medium term, and near-certain in the long term. Countries have come back from high debt-to-GDP ratios in the past. But not with interest rates at these kind of levels, and only through devaluation.

I think I’m going to go join Paul Krugman under that table.