Christopher Papagianis

Making sense of what comes next in Greece

Christopher Papagianis
May 9, 2012 22:03 UTC

Analysts are scrambling to interpret the voting results from Greece’s first election since the crisis began in late 2009, hoping to accurately gauge the political risk that a new parliament in Greece will successfully (and meaningfully) renegotiate the previous austerity accords. At stake is the ongoing debt-financing support from the International Monetary Fund, European Commission and European Central Bank. Already the triumvirate has warned that it will not follow through on the next loan disbursement unless the new Greek government also follows through in detailing next month how it will achieve budgetary savings of more than 11 billion euros for 2013 and 2014.

Here are a few important guideposts to keep in mind as the news out of Greece develops over the next few weeks.

1. Another election is likely, which means general fears about fresh instability will remain elevated over the next month. The two major political parties (Conservative New Democracy and Socialist Pasok) that endorsed the austerity pacts over the last few years lost big in the election. Combined, a bunch of smaller, and in some cases fringe, political groups (including the Neo-Nazi Golden Dawn party) won more than 60 percent of the popular vote. In all, Sunday’s results left Greece with its most fragmented parliament since democracy was restored in the country back in the 1970s. The consensus view is that it will be difficult, if not impossible, for these diverse factions to form a coalition government. If that happens, a new “do-over” election will have to take place, though probably not before the middle of June.

2. The debate around Greece, and specifically whether it will exit the euro, is about to get louder. By some estimates, almost three-quarters of the Greek population wants to keep the euro. Ironically, this most recent election in Greece was not really framed for voters as a binary choice between either abandoning austerity or maintaining the euro. Parties on both the left and right chose instead to emphasize that they represented fresh leadership alternatives that could still deliver win-win fiscal policy solutions (i.e., avoiding much of the scheduled pain from austerity). In many respects, the best way to characterize the election results at this stage is that votes were cast not for specific new policies (with a full appreciation of the consequences) but more out of general frustration with the incumbent parties. Corruption and other party-specific (rather than policy-specific) factors loomed large as well. Expect the commentariat to examine this tension within public opinion, which may help clarify whether holding on to the euro while avoiding all near-term austerity is an untenable position.

3. The election results appear to have been driven by younger, not older, voters. Overall, it appears that voter turnout was low (exactly how low is unclear). Younger voters were the most energized. Older voters, who probably have the most to lose from a disorderly exit from the euro, did not turn out. In part, this dynamic looks as if it helped fuel the rise of third- or fourth-tier parties. A lot of the post-election attention is appropriately focused on Alexis Tsipras, the 38-year-old politician who ushered his Syriza party to a second-place finish behind the New Democracy Party. Syriza got a big boost from younger voters in this election, and many analysts believe that will pay off in any future election. If – or, more likely, when – there is another election next month, a key trend to watch will be whether there is any rebound in support for the New Democracy and Pasok parties, since voter turnout patterns will probably normalize.

Is Uncle Sam ever truly an investor?

Christopher Papagianis
May 2, 2012 19:48 UTC

Last week, a debate erupted about whether the government’s massive Troubled Asset Relief Program (TARP) made or lost taxpayers money. Assistant Secretary for Financial Stability Timothy Massad and his colleagues at the Treasury Department argue that TARP is going to end up costing a lot less than originally expected and may even end up turning a profit for taxpayers. Breakingviews Washington columnist Daniel Indiviglio scoffs at this, arguing that TARP “looks more like a loss of at least $230 billion.”

While the two sides are miles apart on their calculations (and it is important to examine why), their disagreement reflects a broader philosophical dilemma that deserves more attention. It concerns whether the U.S. government should be held to the same standards as private investors. Put another way, should policymakers adopt the same analytical approach that private-market participants use to evaluate or measure the prospective return on new investments? The answer has important consequences for defining the roles for the public sector and private enterprise – and particularly how the U.S. government accounts for all of its trillions in direct loan programs and loan guarantees.

Let’s start by using TARP as a case study. The calculation Treasury uses is simple: If a bank that received a TARP capital injection pays back the original amount, then the taxpayer broke even. If some interest or dividend income (i.e., on the government’s ownership stake from the injection) is generated, then the taxpayer likely made a profit on the investment.

Can Silicon Valley fix the mortgage market?

Christopher Papagianis
Apr 25, 2012 16:12 UTC

Without question, the rise of social networks has been the dominant theme in Silicon Valley over the past few years. Platforms like Facebook and Twitter have inspired countless startups looking to latch on to networks to deliver new applications and services for consumers. In many ways, the glue that binds these enterprises is an advanced ability to organize and analyze the reams of user data generated by these networks or systems. Entirely new business models have emerged to try and capitalize on this improved understanding of consumer preferences and behavior.

Over the last couple of years, the analytics experts in Silicon Valley have started to turn their attention to other big data problems. A question that is increasingly attracting their attention is: How can the fallout from the subprime mortgage crisis be better managed for all the players involved, including at-risk homeowners, lenders, mortgage servicers and investors?

We’ve heard a lot about the near-universal frustration that at-risk borrowers have had with their mortgage servicers. The common refrain is that if mortgage servicers could only make smarter and quicker decisions on how to modify the terms of individual mortgages, then there would be fewer foreclosures on the margin and lenders or mortgage investors would actually lose less money in aggregate, since the foreclosure process itself is costly.