For those who remain interested in Christine Lagarde's new rule at the IMF, I think this latest report is instructive: http://www.bbc.co.uk/news/business-14133548.

As expected, Lagarde is now sponsoring an austerity budget for Italy. Italians too should pay for the excesses of the lending system and the sins of the banks. While Moyara was convinced that the Greeks should suffer because of their past profligacy, those claims can no longer be used to disguise the outright protection of lenders over all other victims of the economic collapse. Italians, after all, have been huge savers.

We've heard before from free market capitalists that the social democracy model of Western Europe cannot be sustained. But that's only because free market capitalists can't be as rich under these systems. Christine Lagarde represents those interests and her leadership of the IMF promises no real change (as opposed to lip service).

Dear Moyara,

We have, I think, found the profound ideological differences between us. I do respectfully request that you try not to insist that my ideological framework is somehow unworthy.

I have indeed read Stiglitz and I'm quite comfortable with my description. I'm happy to quote more than his book in this regard; over the years, Stiglitz has become far less tolerant of the IMF and I'm quite confident that he would agree with me not only on the IMF behavior of the past, but also of its approach to Greece. If you need specific citations of Stiglitz's position on Greece in general and the IMF role there in particular, please let me know and I will be pleased to pass them along. But I'd be surprised if you haven't already seen and heard Stiglitz on these issues and know that what I'm saying is true.

In the end, you disagree with Stiglitz too, and believe that he (and I) simply ascribe bad motives to the IMF, when really they should be seen as uninterested in the "side effects" of their activities. I disagree.

The Tobin tax continues to be supported by many, many economists and Lagarde is cowardly to drop her request for it. In fact, I'd argue that this proves my point: rather than stand on her original principle, she chose to abandon it in the face of pressure from monied interests.

Your view of the Greek situation is now one on which we can substantively disagree. You believe that the Greeks must suffer enormously because the banks must be saved. This must happen regardless of the banks' immoral behavior. It must happen because in the end, other countries will fall as well. But none of this reflects the slightest concern for the suffering people of Greece, Ireland, and Portugal.

No matter. The bigger problem with your position is that it won't work. Because the Greeks cannot pay back their loans. They can't do it now and they can't do it if the loans are rolled over. They carry a debt load of 150% of GDP and their GDP is falling. It would have to grow at a rate of 5% every year for the next 30 years in order for them to pay back their loans, and you and I both know that this is an impossible hope.

The EU and the IMF also know that the Greeks can't pay back their debt. The goal is not for that to happen; the goal is for the banks that will suffer losses to become healthier before they have to suffer those losses. And for the economies of the lending countries to become healthier.

The only practical solution (forget your ideology and mine) is for the Greeks to be permitted to drop from the euro and then devalue their currency. This really becomes simply another way to restructure, of course, since the repayment of the loans would be in devalued currency, but it is the least painful process for all involved. This would also solve the problem of the pouting parents who complain that the Greeks lied to them before being admitted to the EU.

Incidentally, all of that is also a red herring. The truth is that the Germans and the French established the acceptability of exceeding the EU limits for debt long ago. Had either of both of those countries been willing to accept penalties for those violations, they would be in a much better position for wagging fingers. Think of it as the parents who are drunk when the prodigal son comes home yelling at their child that he must stay sober.

Surely, though, you jest about the poor banks being forced by their countries to make these loans. While you may be able to find such examples, the vast majority of the loans were made happily by the bankers with no pressure from anyone. The banks overextended themselves because they weren't required to maintain capital levels that were sufficient to support such risky loans. Are the countries responsible for that? I suppose to some extent.

So what we really have is a big brother (the banks) crying to his parents (the EU) that his baby brother (Greece) was mean to him and that even though the big brother was stronger, bigger, smarter, and in total control of his actions, this little one should be punished.

I'm with the little brother on this one.

With respect,

dojero

I am very appreciative of moraya's long and well considered response to my comments. While I don't think this is a forum that can permit continued lengthy discussion, I do want to address a couple of key differences.

First, there is the question of the IMF's role itself. You say, I am ill-informed as to how and why the IMF functions the way it does. and that the IMF has played an important role in many instances in preventing total economic collapse.

I don't believe that I am ill-informed. I believe that my view of the role played by the IMF differs from yours because you believe that its loans prevent total economic collapse, while I believe that its loans force countries to sustain economic structures that serve investors and foreign interventionists while allowing poverty to continue unabated. If we look at the role of the IMF in South America, we will see these effects clearly. That's why the South American countries have worked hard to eliminate the IMF's influence on their continent. I'd also point out that Joseph Stiglitz, a Nobel prize winner for Economics, has often spoken and written about the IMF's unfair policies. Effectively, as Stiglitz has pointed out, the IMF has imposed impossible conditions as a part of their lending policy in order to preserve the first world's capital investments.

You say that the IMF only wants a country to get its house in order and that you have little sympathy for the profligate Greeks.

But the IMF actually asks that a country do far more than it can "to get its fiscal house in order." In the case of the Greeks, this means reducing the wages of the few Greeks who can keep their jobs to impossibly low levels, while insisting that Greek unemployment rates soar past 20%. As for not sympathizing with the profligate Greeks, I can only say that I have far less sympathy for the lenders who supported the Greeks as they spent their way into oblivion. Yet Lagarde and the IMF don't think those greedy lenders should suffer at all for their bad loans. Why? Why should the Greek people make unbearable sacrifices and the lenders who made the bad loans make none at all? Please explain why you (apparently) feel sympathy for the French banks that made the loans when there was every reason to know that the Greek economy could not be sustained?

You say that Lagarde pushed for flexible labor markets and stood up to the banks.

And I agree that I am opposed to her labor reforms on ideological grounds, as well as on economic grounds (I don't believe the French needed more flexible labor markets and I believe workers were ill served by the reforms). But Lagarde most certainly represents the big banks. Her positions against them have been faint and insignificant. Her positions in their favor, including that they should in no way be asked to lose money on their bad loans to Greece, are far more important.

As for the discussion of the candidates, I'd argue that it is less important for the IMF head to speak good English than it is for the IMF head to stand up for the third world countries it is asked to help. I believe that it is less important for the IMF head to care about the lenders and investors and more important for the IMF to care about the people of the countries to whom it is making loans.

In no way does Lagarde qualify by those standards.

And she demonstrated it in her first day in office, by calling upon the Greek people who are demonstrating in the streets to support their own enforced poverty in the spirit of helping the French bankers to be assured of a continuing return on their investments.

With respect,

dojero

This is wrong on many counts.

First, it is disingenuous to claim that no one should consider that Lagarde is a woman when making the decision, but that it will be a triumph for women if she is chosen.

Second, it is simply wrong to claim that no one should consider that she comes from Europe in general and France in particular. The IMF's long and terrible history is one of asserting European and American power over struggling countries when they are at their most vulnerable. Now, as the emerging economies share an increasing load at the IMF and as the IMF becomes the lender of last resort not to the third world, but to Europe, it's well past time to change that history. It's time for someone outside of Europe and the US to run it. And it is particularly wrong for someone from France to run the IMF. That's because France is significantly exposed on loans to Greece and so it's hard to imagine that someone from France will be impartial with regard to the matter.

Third, it is wrong to say that Lagarde has done a good job of navigating France through the economic crisis. In fact, France is heavily indebted, its economy is barely growing (by some measures it isn't growing at all) and today France received negative warnings from the ratings agencies. In fact, Lagarde is likely to feel enormous pressure to protect French bank loans to Greece because that will help her to save her country from her bad stewardship.

It's amusing in this context to read a positive comment about Lagarde's absurd insistence that Greek debt should not be restructured. In fact, almost all economists agree that the debt will have to be restructured. Moreover, the reason that Lagarde is being so adamant about not restructuring is that restructuring would be devastating to French banks and the French economy, which can ill afford more setbacks.

I have no problem agreeing that Lagarde's lack of a Ph.D. in economics does not disqualify her. What disqualifies her is that she's a bad economist who has insisted on her conservative political and economic views in the face of overwhelming evidence that they are wrong.

It's important, I think, that we stop insisting that there is some sort of equivalency between the repressive regimes that have fallen in Egypt and Tunisia with the powerful, but ELECTED, heads of state in Russia and Venezuela. As the author rightly points out, the Western "experts" are wrong more often than they are right. Perhaps that's because they insist on wishful thinking instead of intelligent assessment. In the case of Egypt, it was wishful thinking to imagine that Mubarak could withstand a popular uprising. The wish was that the status quo could be preserved in order to protect Western oil interests. It is equally wishful thinking to imagine that Medvedev (or Putin) or Chavez is threatened. The wish is that they are so that the West can secure reliable allies in those countries.

But wishing, as we have learned, won't make it so.