Markets will generally continue to grapple with an environment of capital superabundance. Even with moderating financial growth in developed markets, the fundamental forces that inflated the global balance sheet since the 1980s—financial innovation, high-speed computing and reliance on leverage—are still in place.

There certainly has been a great deal of liquidity in the two years.  This is likely to continue over the next several years, and maybe well into the next decade. Policies that implicitly or explicitly constrained growth in median household income relative to GDP are more to blame than the changes in the financial system because these plosives tended to force up the savings rate. The financial system changes are much more likely to be consequences rather than causes of abundant liquidity, although there is plenty of historical evidence to suggest that the two come together, and that they are mutually reinforcing.

Technology “revolutions” tend to take place when a huge amount of risk-seeking capital flows into very risky and often capital-intensive high-tech investments, generating large network benefits and creating tremendous rewards for successful technology ventures. Particularly for those technology projects that benefit from growing networks — railroads, telephones, video, the internet — there is a strong element of pro-cyclicality, in that early successes spur greater visibility and faster adoption, which of course creates further success.

What today we call economic globalization — a combination of rapid technological progress, large-scale capital flows, and burgeoning international trade — has happened many times before in the last 200 years. During each of these periods (including our own), engineers and entrepreneurs became folk heroes and made vast fortunes while transforming the world around them. They exploited scientific advances, applied a succession of innovations to older discoveries, and spread the commercial application of these technologies throughout the developed world. Communications and transportation were usually among the most affected areas, with each technological surge causing the globe to “shrink” further.  As a historical rule it was primarily commerce and finance that drove globalization, not science or technology, and certainly not politics or culture.

Are we in such a period? We certainly were before the 2007-08 crisis, but every globalization period has been followed by a contraction which, too, has certain characteristics in common.

This disruption has already occurred to some extent. After 2007-08, global GDP growth dropped sharply, the growth in global trade dropped even more sharply, we have seen soaring unemployment, and I expect that we will soon see a wave of sovereign defaults.

But this time may be different in one important way. The 2007-08 crisis may well be the first global crisis that has occurred in a period of credible fiat currency.  The Liquidity Issue

Eaglevale Partners LP, which is run by Hillary Clinton’s son-in-law, Marc Mezvinsky,  bet big on a turnaround in the Greece economy — and lost.

“Eaglevale Partners LP, founded by Marc Mezvinsky and two former colleagues from Goldman Sachs Group Inc., told investors in a letter sent last week they had been ‘incorrect’ on Greece, helping produce losses for the firm’s main fund during two of the past three years. The main fund dropped 3.6% last year, far trailing the 5.7% rise for similar hedge funds tracked by HFR Inc. … A smaller Eaglevale fund focused only on Greece plunged 48% last year, said the person familiar with the situation, hurt by the belief Greece’s economy will see a quick rebound.”

But perhaps most revealing is this fact: The CEO of Goldman Sachs is a key investor in the fund:

Among investors in Eaglevale’s main fund is Goldman Sachs Chairman and Chief Executive Lloyd Blankfein , people familiar with the matter said.

Blankfein appears key to the enterprise because, well, Goldman Sachs has helped raise capital for the fund:.  From the start, Eaglevale’s moves have been closely followed, investors said, partly because of Mr. Mezvinsky’s family connection. Ahead of the firm’s launch, Goldman Sachs hosted group sessions for prospective investors that drew standing-room-only crowds. The investment bank is one of the firm’s prime brokers, which help hedge funds execute trades and introduce them to potential backers.

The founders’ pedigree helped raise them money, investors said. One of Mr. Mezvinsky’s partners, Bennett Grau, got his start at J. Aron & Co., the commodity-trading arm that produced many of Goldman Sachs’s current leaders, including Mr. Blankfein.

The EU has not forgotten Goldman’s role in Greece’s misrepresentations to the EU in 2002.  Greece’s debt managers agreed to a huge deal with the savvy bankers of Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.

Such transactions are part of normal government refinancing. Europe’s governments obtain funds from investors around the world by issuing bonds in yen, dollar or Swiss francs. But they need euros to pay their daily bills. Years later the bonds are repaid in the original foreign denominations.

But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

This credit disguised as a swap didn’t show up in the Greek debt statistics. Eurostat’s reporting rules don’t comprehensively record transactions involving financial derivatives. “The Maastricht rules can be circumvented quite legally through swaps,” says a German derivatives dealer.

Of course being related to a former president and perhaps future president has apparently been helpful to Mezvinsky’s enterprise as well.

Prime Minister Alexis Tsipras will chart a path forward for Greece in parliament on Sunday, two days after the head of the euro-area finance ministers’ group shot down his proposal to avoid being shut off from funding at the end of the month.

The new government’s request for a debt writedown has already been rejected, and Eurogroup chief Jeroen Dijsselbloem on Friday rejected a request for a short-term financing agreement to keep the country afloat while it renegotiates the terms of its bailout program.

“We don’t do” bridge loans, Dijsselbloem told reporters in The Hague, when asked about Greece’s request. “A simple extension is possible as long as they fully take over the program.”

Standard & Poor’s lowered Greece’s long-term credit rating one level to B- and kept the ratings on CreditWatch negative.

“Liquidity constraints have narrowed the timeframe during which Greece’s new government can reach an agreement with its official creditors on a financing program, in our view,” S&P said in a statement.

Greece’s goal remains to achieve a bridge program that would give it time to negotiate with its creditors and devise a three- to four-year fiscal plan.

Varoufakis has said his government won’t accept any more cash under the terms of Greece’s existing bailout, leaving 7 billion euros of potential aid on the table, rather than complying with demands for more austerity attached to the country’s international bailout agreement.

The standoff risks leaving Europe’s most-indebted state without any funding as of the end of this month, following the Jan. 25 election victory of Tsipras’s Syriza party.

While there’s little doubt Tsipras will win the confidence vote — his coalition has 162 seats in the 300-seat chamber — attempts to persuade the rest of the euro-region to endorse his plan to restructure the country’s debt and boost spending have so far drawn a blank. Tsipras and Varoufakis, have been recalibrating their rhetoric this week after markets plunged during their first days in office.

Ant Financial Services Group, an affiliate of China’s Alibaba Group Holding Ltd, has agreed to buy 25 percent of Indian payment services provider One97 Communications, tapping into the country’s smartphone and online industry boom.

The companies did not provide the value of the deal, but a person with knowledge of the matter called the investment a precursor to One97 listing on the stock exchange, and said the stake was worth more than $500 million.

The deal values One97 at more than $2 billion, making it one of the most-valuable start ups in the country. One97 runs Paytm, an online platform through which users can shop or pay utility bills, whereas Ant runs Paytm’s Chinese peer Alipay.

Paytm has benefited from the spread of affordable handsets and internet connectivity which has turned India into the fastest-growing smartphone market in the Asia-Pacific region, according to researcher IDC.

“This partnership between Ant Financial Services Group and Paytm will foster the growth of India’s digital payment ecosystem,” the companies said in a joint statement.

Ant, investing in an Indian company for the first time, will provide Paytm “with strategic and technical support for its business”, the companies said.

One97 plans to use the proceeds to grow its mobile payment business and increase the scale of its services, they said.

“With over one billion people, India’s payments market has vast untapped potential,” Ant Vice President Cyril Han said in the statement.

Paytm has about 23 million users, the companies said. The $2 billion valuation of operator One97 compares with the $11 billion of Flipkart Online Services Pvt Ltd, India’s biggest e-commerce company.

Ashoka Mody writes: President Barack Obama’s recent call to ease the austerity imposed on Greece is remarkable – and not only for his endorsement of the newly elected Greek government’s negotiating position in the face of its official creditors. Obama’s comments represent a break with the long-standing tradition of official American silence on European monetary affairs. (Note: It is unfortunate that the American who speaks up knows so little of his own country’s finances).

German Chancellor Angela Merkel said that Greece should not expect more debt relief and must maintain austerity. Meanwhile, after days of not-so-veiled threats, the European Central Bank is on the verge of cutting funding to Greek banks. The guardians of financial stability are amplifying a destabilizing bank run.

The International Monetary Fund has acquiesced in German-imposed orthodoxy. As IMF Managing Director Christine Lagarde told the Irish Times: “A debt is a debt, and it is a contract. Defaulting, restructuring, changing the terms has consequences.”

Delays and errors in managing the Greek crisis started early. In July 2010, Lagarde, who was France’s finance minister at the time, recognized the damage incurred by those initial delays.  Even the IMF acknowledged that it had been a mistake not to impose losses on private creditors preemptively; it finally did so only in June 2013, when the damage had already been done.

There is plenty of blame to go around. Former US Treasury Secretary Timothy Geithner championed a hardline stance against debt restructuring during a crisis.

Lee Buchheit, a leading sovereign-debt attorney  was harshly critical of the authorities’ failure to face up to reality.

Obama may have arrived late to the right conclusion, but he expressed what should be an obvious truth: “You cannot keep on squeezing countries that are in the midst of depression.”

Recent analysis shows that forgiveness of Greece’s official debt is unambiguously desirable.. If European sensitivities must be assuaged, Greece’s debt repayment could be drawn out over 100 years.

At the end of the day, debt forgiveness benefits creditors as much as it helps debtors. Creditors have known this since Spain’s King Philip II became the world’s first known serial sovereign defaulter.

European authorities must come to understand that the next act of the Greek tragedy will not be confined to Greece. If relief fails to materialize, political discontent will spread, extremist forces will gain strength, and the survival of the European Union itself could be endangered.

Alexander Winning and Oksana Kobzeva write:  Russian banks’ capital could “quickly melt” if the economy significantly weakens, but banks won’t experience significant difficulties if the situation develops in line with official forecasts, a deputy central bank governor said.

Mikhail Sukhov said banks’ loan quality could deteriorate sharply if two of the following take place: gross domestic product (GDP) falls by over 6 percent in 2015, real wages fall by over 10 percent, or if unemployment goes over 10 percent.  “I’m categorically against calling it a banking crisis,” he said. “But difficulties could emerge if economic development is significantly different from the forecasts that we have.”

The Economy Ministry last week said it expects Russia’s GDP to contract by 3 percent this year, if oil prices average $50 a barrel. Many analysts are less optimistic, predicting the economy could shrink by 5 percent or more.

Russian banks’ cost of financing and loan-loss provisioning jumped last year, hurting their profits and eroding their capital as their access to Western markets was restricted due to sanctions linked to the Ukraine crisis.  Sukhov said on Thursday that he expected Russia’s top five banks to increase their share of total banking assets to around 60 percent next year. Most of them are state-controlled, including Sberbank (SBER.MM: Quote, Profile, Research) and VTB (VTBR.MM: Quote, Profile, Research).  “The process of consolidation is going very quickly,” he said. “The concentration of business in the banking sector will strengthen.”

Russian banks’ open foreign-currency position had fallen from $14 billion to $10 billion in December, meaning their exposure to potential forex losses had reduced, Sukhov said.

The Central Bank has relaxed accounting rules and credit ratings of lenders to pre-date Russias incursion into Crimea. This means they are pretending that the economy is better than it is.