News & Analysis
How Wall Street Aided Greek Spending and Why
The Greek crisis has taken on a decidedly sub-prime feel following revelations that Wall Street investment banks earned hundreds of millions of dollars over the past decade from transactions that helped the country hide billions of dollars of debt. The New York Times reported on the weekend that Wall Street tactics had played their part in worsening Greece's financial position and undermining the euro by helping European governments to hide their mounting debts. The reports said that in 2001, shortly after Greece joined Europe's monetary union, Goldman Sachs helped the government quietly raise billions of dollars. Athens was able to continue its free-spending ways while complying with the strict EU deficit regime, because the transaction was treated as a currency trade rather than a loan. Apparently, Greece wasn't the only EU government to use these types of deals, where a government would raise cash up front in exchange for handing over the rights to a future income stream. They were also popular in Italy, Spain and Portugal. Greece has defended its use of financial derivatives, saying they were legal at the time. The problem for Greece is that it now finds itself under extreme pressure to cut its budget deficit by slashing spending and boosting its revenues. But the result of these past deals with Wall Street banks is that the Greek government has already handed over the rights to big chunks of its revenues, such as airport fees and lottery proceeds, for years to come. And, of course, the revelation that Greece participated in these Wall Street transactions has further undermined its credibility within the EU. Greece had already been criticized by the EU for supplying incorrect information about its budget situation in the past. – Business Spectator
Dominant Social Theme: It's Goldman's fault.
Free-Market Analysis: It has apparently emerged that Wall Street's Goldman Sachs was not alone in helping Greece – and other countries – avoid EU-determined governmental budget limits. But the way this story is playing out, Wall Street is made to look like an enabler of bad and profligate Greek behavior. In fact, it seems a bit more complicated than that. Follow along (if you wish to) dear reader ...
First we need to relate the story of a fine feedback we read somewhere explaining how (price) inflation was actually one of the causes of the current Greek predicament, and that the adoption of the euro itself had helped ruin the Greek economy. While corruption in Greece was certainly bad, the proximate cause of the current crisis, this feedbacker wrote, involved the one-size-fits-all euro. We were intrigued, as it was not an argument that has received a great deal of attention (though it rings true).
This person was of Greek descent and had visited Greece for years. His well-made point (or so it seemed to us) was that the euro was great for industrial Germany, and to a lesser degree France, but that it was hell for countries like Greece that had to import high-priced euro goods from industrial countries, while relying on lower-priced dollars and other currencies for their (tourist) revenue, etc. What this means practically is that Greek income went down while the nation's import costs went up. This is one definition of price inflation. The Greeks started borrowing, buying houses on credit, etc., and so did the government.
Now actually we have heard something like this before. And it makes sense. Italy, Spain, etc. – these governments are all terrible black holes. But Germany's government, we would venture to say is not that much better. What has apparently helped Germany is its industrial economy. Which brings us back to what we have been writing about the EU recently – that it is essentially a project that has massive benefits for Germany, so long as Germany agrees to be bound by EU conventions. Sort of like Gulliver being bound by Lilliputians.
Anyway, the EU is working out fairly well for Germany and a lot less well for the "Pigs" as they are called. And while the considered wisdom of the EU mainstream press is that the Greeks will do anything they need to stay in the union, we wonder when it is that Greek citizens will figure out that they have been sold downstream by their own elites – which wanted the upfront loot the EU was dangling – and EU bureaucrats themselves.
Greece is in for a long hard slog. The EU itself will insist on Greece reducing governmental "profligacy." But what this may mean in reality is that Greek citizens, having struggled with painful euro-inflation for years are now to be slugged with a "euro recession" of indeterminate length and viciousness. "How's that EU-thingy working out for you," Sarah Palin might ask. We also believe the EU, Germany, somebody ... is going to have to step in and help Greece unless the intention is to have Greece default. How bad is it? This bad:
The recent credit crisis was over a few trillion in bad, mostly US, mortgage debts, with most of that at US banks. Greek debt is $350 billion, with about $270 billion of that spread among just three European countries and their banks. Make no mistake, a Greek default is another potential credit crisis in the making. As noted above, it is not just the writedown of Greek debt; it is the mark-to-market of other sovereign debt.
That would bankrupt the bulk of the European banking system, which is why it is unlikely to be allowed to happen. Just as the Fed (under Volker!) allowed US banks to mark up Latin American debt that had defaulted to its original loan value (and only slowly did they write it down; it took many years), I think the same thing will happen in Europe. Or the ECB will provide liquidity. Or there may be any of several other measures to keep things moving along. But real mark-to-market? Unlikely.
The entire EU is faced with no good choices. It is coming down to that moment of crisis predicted by Milton Friedman so many years ago. And there is no agreement on what to do. (- MoneyWeb.com)
We haven't predicted the breakup of the EU over Greece or the Pigs, only a great deal of pain, so far. But we have asked how long the long-suffering citizens of the EU will be prepared to tolerate an endlessly painful euro-experience. Eventually, the pain will be used as a cynical launching pad, we expect, for Europhiles to call for a political union to supersede the current economic one. Of course, this has probably been the plan all along, but we wonder whether it is going to work.
We think the EU is a despicable organization, clearly corrupt from heel to head, a dictatorial regulatory democracy of the worst kind, one apparently modeled on purpose after the USSR's old bureaucracy. It is a kind of engineered coup of the power elite, a step toward creating and then integrating large national blocks in anticipation of ever larger, global economic union. Unfortunately, for the elite, the Internet has clearly become a focal point for organizing against the EU in Europe, and has even been a main force in keeping Britain out of the euro.
It is not surprising to find Wall Street mixed up in the Greek mess. And many may make a big deal out of it. But as bad as Wall Street is, the EU itself is worse – at least when it comes to culpability for the Greek situation. And boy does the EU have problems. You probably won't read this elsewhere (which is why you read the Bell!) but the biggest problem the EU has is not the failing of the Pigs but the failing of the Euro promotion itself. And for this reason in this case, Wall Street's (direct) involvement seems to us, for once, more a symptom than a cause.
The EU's problems actually are far bigger than the Greece of the Pigs or the endless, looming economic crisis. The biggest problem is that the cynical plans of its leaders to exploit the inevitable currency crisis (one sure to come, they knew) are dimming thanks in large part we believe to modern electronic communications. There is an incredible amount of anti-EU sentiment on the Internet in Britain. And we have to think that there is a good deal of anti-EU sentiment being expressed elsewhere on the ‘Net in Europe as well.
Conclusion: Here's our point: When the bureaucracy of the EU attempts to "spin" the currency crisis toward a more perfect political union, watch out. The EU powers-that-be rammed the euro through. But building a stronger political union at this point in time, given the ubiquity and power of the ‘Net and the increasing disillusion of EU citizens, may be a rougher haul than EU planners expected. Times have changed. Power elite dominant social themes are not looking healthy, and it is possible that the EU itself may fall victim. Couldn't happen to a more deserving bunch.
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Posted by Bill Ross on 02/17/10 08:23 AM
The nature of the fraud is irrelevant. Any system / collection of actions that takes resources from the productive without consent discourages them and places them on a trajectory between choosing to be less productive and outright ReEvolution (questioning past choices / arrangements, making different choices).
The corollary is that encouraging the unproductive makes them a stronger moral / economic force, further destroying productivity.The grim reaper of "Mathematics Of Rule" is reacting to collective choices and determining REAL outcome. Slavery, no matter how rationalized, legitimized or, even if "tolerated", DOES NOT WORK:
http://www.cli.gs/MathematicsOfRule
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Posted by Manok on 02/16/10 11:12 PM
I don't agree that Greece had to pay high-priced imports, and got lousy tourist-dollars. The imports were paid in Euros, which were strong, much stronger than their original drachme. So the import prices are low because of the Euro.
The majority of the tourists is European. Those might have came less to Greece, since it was no longer a very cheap place (with now everything prices in Euro).
Cheap money was the problem. Letting Greece into the Eurozone was the real problem. True, the Eurozone is an economic zone, but the creation of it was very political motivated. As many countries as possible had to be included. regardless whether they were an asset or not. Make the targets just once, and you're in? Any respectable accountant can accomplish that!
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Posted by KHL on 02/16/10 09:57 PM
A review of Murray Rothbard's lectures will give a pretty good list of this so-called ruling elite up until the late 1980s. Interestingly he purports to connect virtually every president from the 1870s to Reagan to the Morgan/Rockefeller group and ties it in quite nicely with the rise of statism and corporatism.
Of great amusement and some enlightenment is his analysis political assassinations in America. They somehow, with the exception of Lincoln, are always attributed to lone nut jobs and maladjusted individuals. While that may or may not be the case, he does make the point that when it comes to assassinations, they are never handled like a standard murder investigation, where all leads are followed and suspects are eliminated until a suspect is uncovered. Motive and opportunity are never examined in the typical American political assassination investigation.
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Posted by Ernst on 02/16/10 08:33 PM
For a more esoteric commentary on the 'means' by which said 'elite' operate, there are the fine works of Traditionalists Julius Evola ("Men Among the Ruins", especially) and Ren Gunon.
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Posted by Ernst on 02/16/10 08:14 PM
To both "George" and to The Daily Bell: The 'names' that George requested above can readily be found in the works of the late Professor Carroll Quigley of Georgetown University -- specifically, "Tragedy and Hope" and "The Anglo-American Establishment". The works of the late Eustace Mullins would also prove satisfactory for said request.
Reply from The Daily Bell
Thanks. We are familiar with both. Mullins' is available on the 'Net, or was. And of course there are dozens, if not hundreds, of websites naming names and places. There is however only one Bell.
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Posted by Adrian W on 02/16/10 04:30 PM
So is it safe to say, "PIIGS are to the EU what California is to the United States?"
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Posted by George on 02/16/10 11:15 AM
By your response to my 2/16/2010 feedback, your readers now know that the Bell admits that "Power Elite" is a "Meme" of your own creation and all that you ascribe to a "Meme". That's disappointing. I asked for you to name names and the reasons why those people are "Power Elites" in your mind. You see, I value your analysis. Identifying the Power Elite and the reasons behind your selections would separate you from the rest of the media. I very much appreciate your journalism and analysis. I have encouraged others to subscribe. I gave the Bell an opportunity to rise above noise. Don't you realize that you are becoming the very thing you are trying to alert us to - in your own words - "a folk wisdom virtually exempt from questioning?" What are you afraid of?
Reply from The Daily Bell
We are sorry we are disappointing you. But the information you demand is not within our brief to provide currently. Not to say, of course, that things won't change ...
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Posted by Lance E. Schultz on 02/16/10 09:39 AM
"a dictatorial regulatory democracy of the worst kind, one apparently modeled on purpose after the USSR's old bureaucracy."
True to be certain except this EU is the grandchild erupted from a much more ancient volcano of a Pythagorean vision of restoring true Atlantean Democracy. All one must do is reread Griffin's fine Jekyl treatise to witness the handiwork of the moneychangers pulling the puppet-strings of their sovereign debt slaves and the picture becomes clearer and clearer.
The true nature of the "pan" Europa debt crisis is revealed below. Keep your eyes fixed on the IMF/BIS duo and as is often proferred for wisdom...follow thy money...
Click to view link
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Posted by Mike on 02/16/10 09:38 AM
Maybe The Greeks can just play 'make believe' like they do over here in the USA and pretend that the magic faries will pay everyones bills while we all hold hands and dance in circles waiting for the imaginary helicopters of gold coming to drop lead weights on everyones heads with a message printed on it saying"When the dept floods come rushing in,use this as your life preserver" Run for the hills and buy gold and silver.
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Posted by R M'Geddon on 02/16/10 07:11 AM
I do hope you are right! Coincidentally, even the normally strongly euro-phile British newspaper 'The Guardian' has been bad-mouthing the EU recently over the lack of democracy in the way the EU does things. And all over continental Europe, newspapers are now picking up on how serious the consequences of the current euro crisis may be for the EU - because every one of the possible solutions to the current problems are likely to be negative somewhere.
Reply from The Daily Bell
Nothing concentrates the mind like failure.
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Posted by Goldfinger on 02/16/10 03:53 AM
Yes, it may have been more strenuous for some countries to accept the Euro, however lets not forget all the benefits these PIIGS took advantage of. It sickens me to hear how Greece "cooked" the books re; joining the EU, and then again when accepting the Euro (done with the express purpose of extracting as much money from the EU as possible). The party is now over and the Greeks must learn to pull their own weight (something totally new for them). Goldman Sachs should be banned from the EU, and Germany should leave the Euro zone.
Reply from The Daily Bell
Maybe the EU could just collapse? Wouldn't that solve the problem once and for all? No EU, no Goldman manipulation, etc.
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Posted by Patrick Clay McDonald on 02/16/10 02:07 AM
Britain has been taxed to pay billions to the EU in Belgium. The bailout of Greece would involve a tax on someone to bail out Greece. As in the previous article of The Daily Bell in the bailout of Greece; The Germans will be hit with an involuntary tax to uplift Greece. The Vandals sacked Rome. Goldman sacks Rome.
All the losses of the big too big to fail groups are passed onto the tax payers;while the ones who were bailed out crest on the bones of the soaked citizens. Ron Paul, an Austrian economist believer of the Von Mises Institute mentions Goldman Sacks. The bailouts and the stripping of the wealth of nations and its citizens.
Historically, fiat currencies of countries eventually turn to zero. Before Robert Kiyosaki came Sir John Templeton forecasting the house of cards economy; the artificially inflated housing boom and more.
At age 15; i embraced The Queen as my Queen of The Commonwealth of Australia. Queen Elizabeth II lost billions in wealth. When i read economists in Britain did not inform the Queen of the coming wave of catastrophe; my heart dropped. The world is so cruel. Where was the loyalty?
Reply from The Daily Bell
The loyalty to the Queen? It seems to be slipping.
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Posted by Michael Ponzani on 02/16/10 12:59 AM
Why No Article to Display?
Reply from The Daily Bell
There is a glitch in the system, one we are fixing.
We apologize for the delay in providing readers the other article:
"The Truth About Political Correctness"
STAY TUNED ...
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Posted by Michael Ponzani on 02/16/10 12:56 AM
We never hear this in our controlled press. They started out innocently enough; The European Coal and Steel Union, of manufacturers and miners, then morphed into this monstrosity. They knew where they wanted to go when they started this, they didn't know down to the last jot and tittle how it would be done. they do, however, plan for a long time range as Adam Wisehaupt explained.
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Posted by George on 02/16/10 12:47 AM
2/16/2010Third Request:You define Power Elite as, "wealthy and/or well connected families and individuals who seek to expand their wealth by applying and promoting dominant social themes." Please specifically name these families and individuals (not organizations) and the reasons why you have elevated them to be "Power Elite."
Failure to name the Power Elite as requested shows "The Daily Bell" guilty of creating its own meme by your own definition: "....meme is a dominant social theme (Power Elite?) with the strength for propagation from one generation to another.With sufficient repetition ... a dominant social theme (Power Elite?) can become so engrained in the public mind that it is passed from one generation to the next, as though it were folk wisdom. It becomes virtually exempt from questioning."
So, if "Power Elite" is not just a meme, folk wisdom based on conspiracy theorists, I am challenging you to name specific "families and individuals." To ignore this request is to destroy the credibility of "The Daily Bell" and tarnish the opinions of those you publish, and insult your readers. Thank you.
Reply from The Daily Bell
Here at the Daily Bell we are interested in analyzing power elite promotions and their results. If we named names, we would turn the Daily Bell into a different kind of reporting entity, and take the focus away from what the Bell does best. Does the Internet really need another website analyzing power elite nomenclature? Aren't there enough of them out there? Why are you so vehement about changing the Bell?
