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Euro Nations Continue to Insult, Strangle, Threaten Greece

8:28 am in Uncategorized by Scarecrow

Jan Kees de Jager "Money" (photo: josvanzetten, flickr)

Jan Kees de Jager "Money is the thing we can control Greece with." (photo: josvanzetten, flickr)

This a.m. Atrios highlights an op ed at the Financial Times by Wolfgang Münchau pointing out that Greece now faces the bitter choice of defaulting if it wants to preserve any pretense of democracy and national sovereignty.

That follows a week or more of intimidating and insulting comments by German financial minister Wolfgang Schäuble and others suggesting that it would be better for everyone if Greece just left, but if they insist on staying, they effectively have to surrender their fiscal sovereignty to the Troika representing outside creditors and even postpone elections to satisfy the Germans that a new government will honor the current government’s pledges.

All of these insults were happening while Angela Merkel and Troika officials were insisting that a Greek default and leaving the Euro were out of the question, while demanding more and more austerity concessions as a condition for providing the loan funds they promised months ago. The goalposts have been moving almost daily.

Everyone’s been playing bad cop/bullying cop, and there’s not a sensible voice among the entire Euro leadership. As one might expect, this has infuriated the Greek government and more importantly, the Greek people, who turned out in the hundreds of thousands to protest not only the strangling austerity measures but also the bulling and insults that came with them. And yet the government keeps promising to meet each set of new demands.

Today, as the Euro ministers are meeting supposedly to reach final agreement, we get yet more insults and bullying. From the FT’s live crisis blog at that meeting:

15.21: Jan Kees de Jager, the Dutch finance minister, has roiled the markets with his latest comments outside the Brussels meeting. This via Reuters:

“Greece wants the money and so far we haven’t given them anything. We have said no over the past weeks. We can afford to say to no until Greece has met all the demands. It’s up to Greece and the troika (of the ECB, the IMF and the European Commission) to say whether this has been done and for us it is a no until Greece has done so. If Greece lives up to all its obligations, then the Netherlands will also do its part.

. . . it’s probably necessary that there is some kind of permanent presence of the troika in Athens not every three months but on a permanent basis.. . .“I am in favour of more control, more supervision … Money is the thing we can control Greece with.”

“Money is the thing we can control Greece with.” That pretty well sums up the bankster mentality, and they say this because they know it usually works.

Throughout the Euro/Greek crisis, the Euro leaders have focused on making sure future creditors were protected, even as current private creditors were getting a 70% haircut, never mind what the consequences were for the Greek economy or the Greek people. At no time has anyone every offered Greece a way out of its depression or a way to relieve the suffering of the Greek people while they reformed their economy.

So everything else — pensions, wages, assets, services, their future — had to be sacrificed to protect the new creditors, primarily northern Euro banks. And now the banksters’ governments are openly declaring that if you don’t protect the creditors, you can’t have democracy.

Breaking: CNN Ignores Story of Nation Falling Off Cliff

7:48 am in Uncategorized by Scarecrow

Once again, it is time for our weekly headlines that didn’t make it to CNN’s John King, because those nice folks at FDL are just too darn polite.

Breaking: Obama to switch parties, says he feels more comfortable in Reagan’s Party. Lennon/Ono photo to follow. Liberals cheer, throw rotten tomatoes.

Breaking: Dems to rename selves; be called “the Party that abandoned the New Deal” Liberals boo, throw rotten tomatoes.

Farmers report surging demand, prices for last week’s tomatoes. Economists who missed housing bubble baffled.

Man almost hits Murdoch with shaving cream pie; his phone line now being hacked.

Fox News plans Murdoch hacking special hosted by Steve Doocy: “The Rupert We Never Knew. Oh, wait . . .”

Nation’s people, Cities, crops, forests burning up while DC pretends it’s not happening, House strips climate research/regulation funding.

Radical group arrested for allegedly plotting to pull plug on Capitol Building air conditioners.

Chamber of Commerce, Business Roundtable, Wall Street start to panic; learn meaning of caveat emptor for buying Tea-GOP.

Economy stalled, jobless forgotten; so Congress and President develop $3-4 trillion dollar plans to restart recession, mimic 1937.

NYT editorial praises Gang of Six for recession-inducing plan it describes as reprehensible but not as godawful as those others.

“Audit the Fed” report shows Federal Reserve gave $16 trillion in loans to everyone in top 1 percent, including foreign banksters, who crashed the economy. Funny how they don’t call that a “debt crisis.”

Obama promises not to complain when GOP Senators reject his Not-Warren appointee to consumer agency.

European Ministers solve Greece problem: Agree they’ll all hold breath together until they pass out.

Wars? What wars? We don’t even do hostilities.

Nation happy to end Shuttle space program, because government never created any jobs or did anything that made us feel proud.

Emperor Grover Norquist uses tax cuts to buy new clothes; does naked flip-flop.

At least 80 Tea-GOP House members pledge to force default and damage US credit, in open defiance of US Constitution. If one al Qaeda member did this, Joe Lieberman would want him in Guantanamo.

This week’s advice. Buy mushy tomotaoes.

Economists for Banksters/Creditors Prescribe Leeches for Anemic Greek Economy

6:21 pm in Uncategorized by Scarecrow

For centuries, the conventional wisdom and professional consensus of reputable doctors, men (mostly) who solemnly pledged to “do no harm,” was to bleed ailing patients, sometimes by applying leeches to literally suck out what was thought to be contaminated blood. That barbaric practice, now understood to make the patient worse and even risk death, and thus thoroughly discredited, would, if prescribed today, result in a doctor losing his/her license to practice.

There are no such rules for economists — including those who advise the central banks and the IMF — who are allowed to prescribe equally discredited measures. Their advice can tank an economy and put tens of millions of people out of work, but they still keep their jobs. And because there are no such rules, entire nations and their economies are regularly sickened by economists who are little more than hacks and charlatans.

The hacks and charlatans, and the banks and governments that listen to them, are now imposing the equivalent of leeches on the Greek government, its economy and its citizens. From Reuters:

Greek Prime Minister George Papandreou promised to push through radical economic reform after his new finance minister clinched agreement with EU and IMF inspectors on extra tax rises and spending cuts to plug a 3.8 billion euro funding gap.

“A comprehensive reform package… and adoption by the Greek parliament of the key laws on the fiscal strategy and privatization must be finalized as a matter of urgency in the coming days,” EU leaders said in a summit statement.

“This will provide the basis for setting up the main parameters of a new program jointly supported by its euro area partners and the IMF and allow disbursement in time to meet Greece’s financing needs in July,” the 27 leaders said.

While we’re beginning to see a few stories acknowledging that at least some economists, — e.g., Paul Krugman, Stiglitz, Galbraith, Johnson, et al, think this is economic malpractice, we still find most media reports arguing the conditions are justified and using the common terms, “a bailout for Greece.” Their use is journalistic malpractice.

None of the “bailouts” are bailouts for the Greek government, its economy or its citizens. The entities being “bailed out” are Greece’s creditors and those financial leeches and banksters who feed off those creditors, not the Greek people.

The so-called “bailouts” are loans to the Greek government to continue paying its bond holders/creditors. But the new loans are imposed on Greece under terms and conditions that, short of a miracle, may effectively prevent Greece from ever repaying them. The austerity conditions and forced sales of public assets to private predators could keep the Greeks in permanent subjugation to its creditors, with no credible mechanism to grow out of the hole.

The Greek Government is generally regarded as having been profligate, but that is a reason for voting its government out of office, not a sufficient reason for others to be punishing its people. The creditors and officials who are demanding the bailouts are unwilling to accept the consequences of their own decisions to make highly risky loans — think Citi or Bank of American/Countrywide. And those who insure those loans are unwilling to cover the insurance claims and derivatives if Greece defaults — think Lehman, Goldman and A.I.G. Greece’ creditors are primarily European — particularly German and French banks and private investors. This is their bailout, not Greece’s, but it is the Greeks who will suffer. From Paul Krugman and Robin Wells excellent and must read review of Jeff Madrick:

When the loans to Latin American governments went bad, Citi and other banks were rescued via a program that was billed as aid to troubled debtor nations but was in fact largely aimed at helping US and European banks. In that sense the program for Latin America in the 1980s bore a strong family resemblance to what is happening to Europe’s peripheral economies now. Large official loans were provided to debtor nations, not to help them recover economically, but to help them repay their private-sector creditors. In effect, it looked like a country bailout, but it was really an indirect bank bailout. And the banks did indeed weather the storm. But the loans came with a price, namely harsh austerity programs imposed on debtor nations—and in Latin America, the price of this austerity was a lost decade of falling incomes and minimal growth.

The Greek people are being told they must suffer “shared sacrifice” to keep these creditors whole — or at most, to allow private banks/creditors to roll over the loans without having to book immediate losses and expose their own insolvency. It is their reckless behavior that is being shielded from disclosure.

It is not as though economists never learned that applying leeches when a nation’s economy is anemic is counter productive. Smart and honest economists figured this out more than 80 years ago, and smart and honest economists still know this today. Those who remember these truths persistently point to example after example of how austerity measures imposed on a flattened economy with high unemployment, near zero interest rates, and little prospect of exporting your way out can’t recover through austerity.

Austerity under those conditions not only makes the economy worse, not only increases unemployment, but fails even to achieve the professed deficit reduction goals that form the misguided or pretended pretext for plundering the public sector and hurting people. The Greeks are in a debt trap, and the creditors won’t let them out.

That is what we should have learned from our own history, what the Europeans should have learned from us and many other countries. But through a calculated, deliberate effort at rewriting history and a deliberate forgetting of what economists once knew, we again live in an ignorant, barbaric era in which the conventional wisdom and professional consensus of the economists relied upon by the world’s central bankers and governments is that the way to cure an anemic economy is to bleed the government and its citizens.

In this era, good theory and confirming real-world examples don’t matter. The hacks and charlatans, funded by greed, must have their leeches, and their ideologues will applaud the bleeding as both moral and necessary. And if they can’t get that, they will threaten to tank the economy in some other way. That is what the Greeks face; it is what Americans face, not because America is the same as Greece, but because the Tea-GOP insist we pretend we are.

The Greeks are ahead of us. The Spanish, Irish, Brits and Portugese who have flooded their public squares to protest are ahead of us, just as the Egyptians were ahead of us, save Wisconsin. They understand what leeches do, and they want no part of them. They now realize their own government, their own parties and institutions have all failed and betrayed them. Their only hope is in the streets. If you’re not with them, you soon will be.

Leech update: we learn from our wonderful commenters that leeches may play a useful role, such as in reattached amputations, but the central point about not using them for anemia stands.

Related reading:
[Update: See Krugman's blog on the Argentine default example: Dont Cry for Argentina; Dean Baker agrees.]

Naked Capitalism, Alex Andreou, Democracy vs. Mythology: the Battle in Syntagma Square

WaPo: In Greece, Austerity Kindles Deep Discontent

NYT: Pain of British Fiscal Cuts Could Inform US Debate

NYT: Some Greeks Fear Government Is Selling Nation

NYT: Derivatives Cloud Possible Fallout from Greek Default

NYT: Major Banks and Creditors asked to Assist

NYT: New Jersy Lawmakers Pass Deep Benefit Cuts

Markets Shudder as Europe Visits America, But Pete Peterson Is Smiling

7:30 am in Uncategorized by Scarecrow

The Financial Times and New York Times are reporting large selloffs today in Asian and European markets, and they’re expecting the tidal wave to hit the US markets this morning. Pre-market futures are in negative double digits, so it looks nasty.

Markets are apparently spooked by continuing belligerence from North Korea towards the South — which is probably solvable — and declining confidence the Europeans have sorted out how to prevent a lending freeze up while the IMF and Euro-based governments are telling their citizens they have to accept wage and benefit cuts and other drastic austerity measures.

We’re watching a huge mess unfold that seems likely to affect us too. This is hardly my area, but the "smart people" out there are telling us the countries on the Euro have an inherently unworkable system: they share a common currency, but don’t share a common fiscal/budget system or sufficiently integrated central governing system. We do.

Unlike the US, Greece and Portugal and Spain can’t print their own dollars/Euros, so their Ben Bernankeopoulus can’t easily drop Euros out of a helicopter to stimulate their economies. Their economies are in the tank for reasons familiar to the US — e.g., huge housing bubbles that burst (Spain), out-of-control financial dealings by the largest banks, and lack of competitiveness (Greece). The resulting great recessions are driving huge budget deficits as each government receives less tax revenues but must pay out more for safety net services. It’s like California, but without a federal stimulus plan.

So their budget deficits relative to their respective GDP’s are scaring their own Pete Petersons; they’re the bankers/bond holders who would lose a bundle if any government defaulted on its debt. Just like here, there’s a plague of these people worried that weaker governments might default on their own debts, and that would be bad for bond holders and other lenders, including all the banks. Sound familiar?

Save the Euro! Save Europe! Only what they really mean is Save the banks! Save the bond holders!

Two weeks ago they agreed to have IMF and the European Central Bank (ECB) do what Hank Paulsen, Bernanke and Geithner did in 2008 and into 2009: create a massive fund of hundreds of billions of Euros to buy sovereign debts and backstop bank assets, and try to convince the "bond vigilantes" betting against them that they’re not going to let the system crash.

And who will pay for this save-the-creditors strategy and the governments behind them? Well, the folks rioting in Greece seem to think they are about to get the shaft but no better future. So instead of creating stimulus packages to pump their economies back into growth, or forcing the creditors to take a haircut (that’s called "restructuring"), Europe’s financial elites have decided to impose severe austerity on national budgets and ordinary people. Because, you know, their wages and benefits are too high to be competitive, and they don’t work hard enough or long enough. And all those safety net programs that serve to allocate wealth more equitably and avoid poverty for millions? Too extravagant. Down with socialism!

Take a close look at this, because that’s exactly how the folks on the President’s cat food commission think and how the Peter Peterson staffers that support it want you to think. If you’re just plain folks, your life is too good, and if we try to sustain you in the declining middle class to which you’ve become accustomed, then the boys in the financial sector can’t possibly make as much by looting the nation’s wealth and your retirement. Down with Social Security!

So let go of those unions and decent wages; forget about retiring early, and stop complaining about your lack of affordable health care and the fact the richest are still getting richer and have seized an even bigger piece of the pie.

It would be irresponsible to ask the privileged to sacrifice, and we can’t possibly stay safe unless we’re bombing a dozen countries at once. It’s time we looked out for those bond holders.

Financial Times: Summers calls for new mini-stimulus

NYT: Obama asks for authority to cut items on spending
Baseline Scenario/Simon Johnson, The road to economic serfdom
Grasping Reality/Brad DeLong — explains Larry Summers to WaPo’s Dana Milbank
Naked Capitalism/Edward Harrison, CajaSur nationalization shows weakness of Spain’s banks

Goldman Sachs Helps Greeks Hide Debt, Then Sets Up Market to Bet on Its Default

8:56 pm in Uncategorized by Scarecrow

When Matt Taibbi wrote Inside the Great American Bubble Machine for Rolling Stone, he described Goldman Sachs this way:

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

At the time, Goldman’s people responded "We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good."

That was before it was revealed that Goldman and others had advised the government of Greece how to conceal the extent of its debt by selling its future tax/fee revenues to private investors while pretending to European financial regulators that it’s debts were within safe guidelines. The discovery of that charade in Greece (and elsewhere) has exacerbated a financial crisis in Europe.

Now the New York Times reports that Goldman also set up a market to take bets on the Greek government defaulting, which is having the same effect Goldman may have had on A.I.G. — pushing both towards failure.

As Greece’s financial condition has worsened, undermining the euro, the role of Goldman Sachs and other major banks in masking the true extent of the country’s problems has drawn criticism from European leaders. But even before that issue became apparent, a little-known company backed by Goldman, JP Morgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust.

Last September, the company, the Markit Group of London, introduced the iTraxx SovX Western Europe index, which is based on such swaps and let traders gamble on Greece shortly before the crisis. Such derivatives have assumed an outsize role in Europe’s debt crisis, as traders focus on their daily gyrations.

A result, some traders say, is a vicious circle. As banks and others rush into these swaps, the cost of insuring Greece’s debt rises. Alarmed by that bearish signal, bond investors then shun Greek bonds, making it harder for the country to borrow. That, in turn, adds to the anxiety — and the whole thing starts over again.

And of course, Goldman then makes money when the swaps are traded on its market, and that trading has exploded, increasing the default risks.

Trading in Markit’s sovereign credit derivative index soared this year, helping to drive up the cost of insuring Greek debt, and, in turn, what Athens must pay to borrow money. The cost of insuring $10 million of Greek bonds, for instance, rose to more than $400,000 in February, up from $282,000 in early January.

On several days in late January and early February, as demand for swaps protection soared, investors in Greek bonds fled the market, raising doubts about whether Greece could find buyers for coming bond offerings.

“It’s the blind leading the blind,” said Sylvain R. Raynes, an expert in structured finance at R&R Consulting in New York. “The iTraxx SovX did not create the situation, but it has exacerbated it.”

From Simon Johnson at Baseline Scenario:

Yesterday, Jerry Corrigan of Goldman Sachs told the UK parliament that there was “nothing inappropriate” in the way Goldman helped arrange for Greece to hide its debts. This was helpful – it essentially acknowledges that the much vaunted “reputation effects” of issuing securities with a top tier investment bank are worth less than zero. Mr. Corrigan affirmed that it is completely acceptable for Goldman and its peers to mislead investors and deceive the markets.

So you can strike out one more purported reason why we should keep massive global financial institutions. They do not enhance transparency, they do not bring clarity, they do not keep governments accountable. Instead, they are paid a great deal of cash to mislead people. What is the social value of that exactly?

Two thoughts: First, Matt Taibbi was too kind. And second, I’m reading these articles and wondering if any of the officials that would be in charge of the proposed "systemic risk council" would have found any of this problematic, since none of them saw any problems in the bubbles, shadow banking, and derivatives trading that created our own crisis. It’s not the lack of institutions that leaves us exposed; the systemic risk lies in the world views of the people we have running our government.

Yves Smith/Naked Capitalism, The NYT’s Latest Goldman/AIG Salvo
Edward Harrison, guest post at Naked Capitalism (and see links there), A Banker’s Perspective on the Greek Derivatives
PBS/Frontline, The Warning