Debt and Austerity in Greece, Puerto Rico, Detroit: The Bankers Are in Charge

It's easy to sympathize with Greeks; much harder to sympathize with Greece. The same is true for Puerto Ricans and Puerto Rico and Detroiters and Detroit. There's a pattern here. Governments cut taxes and borrowed billions to pay for daily services. Bankers gleefully lent them money they knew they couldn't repay. Now the IOUs have come due, and real people in real communities are suffering.

There are two reasons: Failure and dishonesty by political institutions, and the political power of banks. The big news this week is that the bankers are back in charge and fiscal austerity of the Tea Party/Republican kind is ascendant everywhere.

The various governments now going broke have generally lied to and manipulated their own people. They spent money they didn't have, cut taxes for the rich, decimated public services, borrowed huge sums to balance the books and, again, lied about it. The day of reckoning was inevitable.

This isn't a new phenomenon; Germany got bailed out of its debt, as did New York City, as did the mega-banks and savings and loan industry and the auto industry.

The suffering was spread out and everyone was in pain. New Yorkers and Detroiters saw pensions and salaries cut and taxes raised, but the banks didn't get full repayment either. Shared pain. But as the plague of unrepayable debt has spread the bankers and their German pals have learned a lesson and are hammering everyone else. They've combined forces to make sure that they could recoup every penny and the little guy bears the burden of higher taxes and less services.

And that's the deal that Germany and the bankers forced down the throat of Greece, and what's likely to happen in Puerto Rico. Regular bankruptcies and regular shared sacrifice are gone. This is truly bad news, and not just for Greece and Puerto Rico.

Again it's hard to sympathize with governments that borrow and don't repay. It's dishonest and dishonorable. But we have bankruptcy laws for a reason. We need to be sure that even the debtor can move forward and that nations have enough to invest in schools, and roads and the economy and people. That, at least, has been the American way.

The only glimmer of hope for Greece is coming from, of all things, the International Monetary Fund which is hammering Germany to let Greece write off some of its debt. But we face the same problems in New York and across America. There's a lot of unrepayable municipal and private debt out there, and there will be more Detroits and Puerto Ricos to reckon with. We have to face up to a miserable dilemma: Who suffers when governments can't repay the money they borrowed?

My answer is everybody shares. Germany's answer is everybody shares except bankers. Washington's answers are still to come.