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The Greek hostage crisis

MarketWatch:

This isn’t about “bailing out Greece.” Yes, the Greeks owe about $500 billion, but they already have spent the money.

This is about bailing out the banks that lent to them.

The biggest creditors are French banks. The second biggest are the Germans. The third biggest are the British. I’ll bet a lot of Greek bonds are now held by hedge funds.

These are the people asking for public funds.

What’s happening in Europe right now isn’t a financial crisis. It’s a hostage crisis.

Once again, we are all being held hostage by a bunch of bankers. “Give us a bailout,” they’re saying, “or else the economy gets it!”

Maybe it’s time to call their bluff.

Perhaps Europe should let Greece default. Let it go bust. Force the bond holders to take their losses.

If you invest in a stock that falls, you don’t get made whole.

If you buy bonds in a company or institution that collapses, you don’t get your money back. So why here?

They call it “risk capital” for a reason.

This is Bear Stearns all over again. It’s AIG all over again.

They call it “risk capital” for a reason. Exactly.

If the banksters are stupid, they made a bad bet. If the banksters are evil, they knew the bet was bad, and are using the #FAIL as a pretext for financializing the State. If the banksters are stupid and evil .... Well, I think we win. But that will take time.

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Jessica Yogini's picture
Submitted by Jessica Yogini on

I read that the European Central Bank has already accepted a lot of the Greek bonds from their banks. So the folks who should take the hit on this may have already been pre-bailed out.
Another factor at work is that apparently the big American banks wrote CDSs against the Greek debt, in effect they issued default insurance. Depending on exactly what form the default takes, those CDSs might have to be paid off. They are supposedly much more than the entire capital of the issuers. (More than the capital they claim to have; of course if their books were done honestly, they are all bankrupt even before the Greek CDSs).
So some of what is going on now may be maneuvering between the American banks and their government versus the European banks and theirs.
Meanwhile, the "peasants" in Greece look like they may be the ones who finally starting teaching the aristos in Versailles a lesson.
By the way, it is good that we learn to grow our own food, but when we can make our own iPods, then we will be ready to replace these evil clowns. Not before.

malagodi's picture
Submitted by malagodi on

"By the way, it is good that we learn to grow our own food, but when we can make our own iPods, then we will be ready to replace these evil clowns. Not before."

The composer John Cage may be criticized for naivety, but he did have a way of putting things in stark simplicity: "People don't want government, they want services."

Your statement points out something quite important; we want the fruits of industry, but we don't want the domineering, planet-killing governance of industrialism. And I think this is a reasonable, and achievable goal, though none of us may live to see it.

Jessica Yogini's picture
Submitted by Jessica Yogini on

"We want the fruits of industry, but we don't want the domineering, planet-killing governance of industrialism. "

Yes, exactly. We definitely can do this eventually. But right now, I wonder if many people stay trapped in the current belief system because they believe that only the current system can produce those fruits. Which right now is true.
I don't think this is a rational calculation. Just that if someone starts to imagine life without our Overlords, they sense the disappearance of the fruits of industry and that is so scary that they just pull back from thinking in that direction.
Puts us collectively in the position of an abused child or of an abused spouse who stays with the abuser out of the belief that there is no alternative.
In other words, what looks like consent has changed on the inside from consent to hopelessness, but the outside still looks the same. For now.
This is also the source of the power of the promise of anti-radical change, the weapon that the Democrats are responsible for using against the "threat" of real democracy.

Jessica Yogini's picture
Submitted by Jessica Yogini on

"We want the fruits of industry, but we don't want the domineering, planet-killing governance of industrialism. "

Yes, exactly. We definitely can do this eventually. But right now, I wonder if many people stay trapped in the current belief system because they believe that only the current system can produce those fruits. Which right now is true.
I don't think this is a rational calculation. Just that if someone starts to imagine life without our Overlords, they sense the disappearance of the fruits of industry and that is so scary that they just pull back from thinking in that direction.
Puts us collectively in the position of an abused child or of an abused spouse who stays with the abuser out of the belief that there is no alternative.
In other words, what looks like consent has changed on the inside from consent to hopelessness, but the outside still looks the same. For now.
This is also the source of the power of the promise of anti-radical change, the weapon that the Democrats are responsible for using against the "threat" of real democracy.

Submitted by jawbone on

When the DSK scandal first broke, it was theorized by some that Sarkozy might have been using a known womanizing trait of DSK's to bring him down. Then, it was noted that Geithner had played a secret role in ruining an IMF brokered agreement to get Irish creditors to take a haircut and thus lessen the intensity of the austerity measures required of Ireland's government. More recently, the new American head of the IMF, Robert Lipsky, strong armed the EU to hew strictly to The Austerian Way and forced Angela Merkel to back down from pushing for a haircut for Greece's creditors. Verboten, said Lipsky of the IMF, or we will bring you down.

Acting IMF chief threatened to trigger sovereign default if Berlin failed to come to rescue of Greece<
SNIP
Germany was forced to agree to bail out Greece for the second time in a year under strong pressure from the International Monetary Fund following the resignation last month of its head, Dominique Strauss-Kahn, the Guardian has learned.

Under its acting chief, the American John Lipsky, the IMF has taken a more hardline stance. The fund warned the Germans in recent weeks that it would withhold urgently needed funds and trigger a Greek sovereign default unless Berlin stopped delaying and pledged firmly that it would come to Greece's rescue.

Senior officials and diplomats in Brussels confirmed that the IMF threat to pull the plug on its funding, in stark contrast to the more emollient line of Strauss-Kahn, had been defused because of a German climbdown.
SNIP
Privately, sources said that Lipsky challenged the Germans on the fringes of a G8 summit in France almost three weeks ago, and demanded that Berlin guarantee Greece's borrowing requirements and put a figure on the pledge. The IMF ultimatum came a week after Strauss-Kahn, a former French presidential contender, resigned as IMF chief following his New York arrest on charges he denies of attempted rape and sexual assault of a hotel chambermaid.

Berlin blinked, according to participants in the negotiations, and 10 days after the IMF challenge, the Merkel government admitted for the first time that Greece would need a new bailout. But it stoked further controversy by demanding that Greece's private creditors take losses on their loans.

Before a series of crucial EU meetings starting this weekend, Berlin looks increasingly isolated in its demands, spelling trouble for Merkel at home, where the rescue of spendthrift eurozone countries is deeply unpopular. Merkel's junior coalition partner, the liberal Free Democrats, on Thursday reiterated the need for the banks to take some of the pain in the Greek crisis.

Friday's news was filled with articles on Merkel backing down and agreeing with Sakozy; now it was "voluntary" haircuts.

FDL poster kberke found more information about the Ireland situation and Geithner's interference/calling the shots.

He/she links to and quotes from Edward Harrison’s website Credit Writedowns, which gives a pretty good summary of how Ireland got to where it is. He also references the November 2010 strong arming by Geithner to stop any sharing of the debt burden by the creditors:

Credit Default Swaps

There has been quite a bit of buzz – at least in the blogosphere and in my circles - surrounding CDS exposure to Greece. Credit Default Swaps or CDS are financial derivatives which act like an insurance contract against the risk of default. CDS contracts are one of those areas Warren Buffett has labelled financial weapons of mass destruction and were the reason AIG, once the world’s largest insurer, imploded in 2008 after Lehman Brothers filed for bankruptcy. See, for instance, Why was AIG rescued after Lehman had failed? from September 2010 and Geithner urged AIG to withhold information from January 2010.

The reason for the buzz is that (contrary to my earlier thinking) it seems possible that even a soft restructuring for Greece would trigger CDS payments. That is the official line of some of the ratings agencies. So the question naturally becomes “who’s holding the old maid?”

Earlier today, I picked up on one comment relating to this at the blog NAMA Wine Lake:

UCD economics professor, Morgan Kelly’s article in the Irish Times last month appeared to reveal for the first time that a hitherto unknown player in Irish economic affairs, US Treasury Secretary Timothy Geithner had played a pivotal role in the IMF/EU bailout negotiations last November 2010. According to Morgan Kelly “The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are”.

This came as a major revelation. And since the publication of that article, Taoiseach Enda Kenny came under pressure to discuss the matter with President Obama on his whistle-stop visit later in May, and yesterday Tanaiste Eamon Gilmore who is in Tanzania and met there with US Secretary of State, Hilary Clinton, was asked if he had brought up the “matter” with her.

But what “matter”? I suppose we want to know why someone from the US would interfere in a bailout for Ireland. If that is what we want to know then Wikileaks has already provided the answer apparently. In their release of US State Department cables, there is one which reportedly seems to explain exactly why the US had a keen interest in bondholders in Irish banks being repaid : Secretary Geithner was concerned that if Ireland refused to repay bank bondholders then, in the words of Britain’s Telegraph “that could have spread contagion to the entire European system, to which American-backed “credit default swaps” were exposed to the tune of €120bn” (a href="http://www.wikileaks.org/date/2010-02_0....">Wikileaks appears not to have published any cables beyond February 2010 on its website, and presumably this cable from Secretary Geithner is dated towards the end of the 2010, so an attempt will be made with the Telegraph to get the source cable and this post will be updated with any response).

-There’s no mystery to US Treasury Secretary, Timothy Geithner’s intervention in the Irish bailout. Wikileaks has already revealed the reason.

Read more: http://www.creditwritedowns.com/2011/06/...

B, at Moon of Alabama, wrote of the US involvement in Europe's credit problems that they are "more an American one than you might want to know." This should be reported on in more depth and more clearly. Right now, in the US, Greece is being used as a Big Scare to intimidate both citizens and politicians into accepting the austerity measures such as Pete Peterson, the banksters, and Obama want imposed. Ireland, Spain, and Portugal are being used the same way, but Greece is in sharper definition in political and scare mongering economist propaganda. But actual reporting about the US banksters' role in the EU nations' various debt problems? If mentioned, it is soon sent down the Memory Hole.

It appears from what he has done to Ireland and now to Greece, that Geithner is a made-man on Wall Street, appearing as a mild-mannered, somewhat wimpy bureaucrat and Secretary of Treasury in public, but, behind closed doors, he removes his fine suits and emerges as Super Vampire Squid Man (sorry but I have no illustration), ready to take on large EU nations and its central bank to force them to adhere to The Austerian Way.

Further on in Harrison's post, he quotes from this NYTimes article from June 13th, which an emailer pointed out to him:

According to a recent report by Fitch, as of February, 44.3 percent of prime money market funds in the United States were invested in the short-term debt of European banks. Some of those institutions, like Deutsche Bank and Barclays, do not have dangerous Greek exposure. But some of those funds also hold shares of French banks like Société Générale, Crédit Agricole and BNP Paribas, which do have significant Greek bond holdings — about 8.5 billion euros, or, in the case of BNP and Société Générale, about 10 percent of their Tier 1 capital.

This month, the president of the Federal Reserve Bank of Boston, Eric S. Rosengren, warned that the large share of European banks in American money market fund portfolios posed a Lehman-like risk if, in the wake of a default in Europe, panicky investors took their money out all at once.

“Money market mutual funds have the potential to be impacted should there be unexpected international financial problems emanating from Europe,” he said in a speech at Stanford. "

Read more: http://www.creditwritedowns.com/2011/06/...

Harrison closes with his thinking about what will happen, and I am not in a position to evaluate his possible outcomes. Anyone?

The CDS problem adds a whole level of complexity to the sovereign debt crisis in Europe. In my view, a CDS trigger could produce a Lehman-style event, yes. Moreover, only a hard restructuring – meaning principal reduction would actually have any meaningful impact on peripheral CDS or interest rates. So, I expect the euro zone periphery to continue to remain under stress until we reach that point. The policy response and appreciation of the CDS variable will be crucial in limiting downside risk.

Read more: http://www.creditwritedowns.com/2011/06/...

What I'm getting from Geithner's involvement is that those $13 Trillion the Fed pushed out the back door to Big Banksters, mostly in US, is that the banksters foresaw a huge downside to these CDS's coming home to roost. Also, Geithner and Obama are willing to strongarm EU governments into doing their bidding to avoid possibly catastrophic outcomes. Or...to cover up what how they've been complicit in Wall Street's shenanigans? To avoid having to make whole those scammed by the US's poorly regulated banks? Or...just to keep the top 1% at their accustomed level of wealth?

Whatever is the real motivation, it means stiffing the non-Uberwealthy of all nations.

It seems to me --and I am not an economist-- the sooner Greece, or Ireland, defaults, the sooner this boil of festering bankster scams and CDS's might be lanced...or not, given what Geithner and Obama have done in the past. How much more Fed money/credit will be pushed out the back door? It seems they are willing to put the full faith and credit of the United States behind protecting the Too Big To Fail banks.

And quite willing to put the repayments on the backs of regular, non-Uberwealthy Americans. And any other nation's non-Uberwealthy.

Submitted by lambert on

See "pass the parcel" here.

* * *

On another note, where is the 401(k) money and how much of it is there? It would be ironic, indeed, that Social Security is "sound as a dollar" while the banksters took the 401(k) money and pissed it away on the ponies. Riverdaughter has asked this question, and she's right to ask it.