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Friday, 9 March 2012

What the Greek Rescue is Really About

This Article from 'The Daily Reckoning' is such a good analysis and so topical that I reproduce it in full:-

What the Greek Rescue is Really About
Dan Denning

In today’s Daily Reckoning, we’ll do something we can barely stand to do: we’re going to write one more time about Greece. If you can stand to read it, you may come to the same conclusion we reached.

That conclusion is simple: what’s going on Europe has nothing to do with solving a debt crisis and everything to do with preserving a corrupt system based on limitless debt and growing government power. The sooner you understand that fact, the sooner you’ll be able to prepare for what happens next. There are two options for what happens next, and we’ll get to those shortly.

First, though, doesn’t it strike you as strange that all of Europe can be brought to its knees by tiny little Greece? Greek GDP is just 2.4% of Europe’s GDP. In economic terms, Greece doesn’t matter. Its lack of growth or economic competitiveness shouldn’t be factors that can destroy Europe’s 13-year single currency experiment. Yet, Greece obviously does matter; otherwise the European financial markets wouldn’t be celebrating the latest €130 billion bailout that’s on its way to Athens.

So here’s our question: Why do Greek finances matter to anyone outside of Greece? If you rule out the obvious things that don’t matter, that leaves everything else. Or as Sherlock Holmes was fond of saying, “when you have eliminated the impossible, whatever remains, however improbable, must be the truth.”

First, let’s see why the possible explanations for Greece’s importance to the world are actually impossible. Take the issue of debt reduction. As we wrote last week, the deal before Europe would reduce Greek debt to 120% of GDP by 2020. The IMF says that level is sustainable.

Back in a universe where common sense prevails, you can see that the plan is a joke, at least in terms of debt reduction. A plan to reduce Greek’s debt to 120% of GDP...EIGHT YEARS FROM not a serious plan about debt. Therefore, the plan cannot be about debt reduction.

Will the plan make Greece more competitive in the long run? Well, probably not. In order to get more money by March 20th, the Greek Parliament had to agree to certain structural reforms. Some of those reforms might even be a good idea. But cutting the minimum wage isn’t going to be popular. And with Greek GDP shrinking by 7% in the fourth quarter, years of austerity won’t make Greece more competitive. The lifestyle of the Greeks will be destroyed and the debt will remain. Therefore, the plan cannot be about making Greece more competitive.

Does saving Greece save the euro? Not at all. The euro would be better off without Greece and Greece would be better off without the euro. The Germans are even planning for a euro that doesn’t include Greece. With its own currency, Greece could default, devalue, inflate and start over. Argentina did it in the last 10 years. It’s not rocket science. Therefore, saving Greece is not about saving the euro.

If saving Greece is not about saving the euro, and if it’s not about reducing Greek debt, and if it’s not about making Greece a more competitive economy...then just what IS it about? Well, now that we’ve rule out what’s impossible, let’s look at what’s left.

Saving Greece means preventing a technical default...even though Greece has already defaulted in a real-world sense. So why is avoiding a technical default so important to the European Central Bank (ECB) and the International Monetary Fund (IMF)? The current plan certainly looks like a default. Under the plan, €100 billion worth of Greek debt would disappear, thanks to a debt swap agreement with private sector investors. The ECB has twisted enough arms to get creditors to accept a 70% haircut on their current Greek debt without actually calling it a default.

And yet, bizarrely, Greece’s creditors could be forced to accept this not-a-default default losses recourse to the credit default insurance they purchased. That’s right; they might lose 70% of their capital and still be denied a payout on the default insurance they purchased. That would be like an insurance company refusing to honor a fire insurance policy because only 70% of your house burned to the ground.

It gets kind of wonky here. But really, it’s about who gets to make the rules. To you and me and everyone else in the universe where common sense prevails, a non-voluntary 70% loss on your government bonds is a default. But you and I don’t get to decide what constitutes a credit default. That honour belongs to the International Swaps Derivatives Association (ISDA). The important thing to keep in mind here is that the ISDA is a trade group made up of banks and financial firms. Those are the firms that have the most to lose if Greek bonds default. It’s in the interest of the members of the ISDA that a non-voluntary credit event in Greece NOT be called a default.

It gets even murkier here. The ISDA essentially represents the global banking system. In Europe, the banking system is full of government bonds. Those bonds are nominally assets. If Greece defaults, it sets a precedent for how other countries might deal with unsustainable debt levels. This imperils the collateral of Europe’s entire banking system.

If you want to put it in simpler terms, let’s say that Europe’s banking system is full of rotting meat. Some investors bought that meat thinking they were going to get prime rib. But they can smell the stink of the meat from a mile away. They want to be compensated for the bad meat. The ISDA, which owns the freezer in which the meat went bad, says, “Well, we’ve decided the meat isn’t bad after all. And you have less of it than you thought anyway, as of now.”

This is a crude analogy. But this is exactly what happened last week. A “determinations committee” of the ISDA ruled that Greece’s default is not a default. The committee determined that “no credit event has yet occurred” for holders of credit default protection on Greece.

You can see the basic problem: everyone else knows that if Greece defaults (officially), the value of other government bonds in Spain and Italy and Portugal will plummet too. A Greek default wouldn’t be important because of the size of the default (although French and German banks would stand to lose a fair bit). It would be important because it would begin the process of blowing up bank balance sheets all over Europe.

When you realize that the ISDA and the ECB and the EU are in league to save their financial skins, you realize that the Greek rescue plans is about preventing other countries from realizing that default is an option. In fact, it’s not even about preventing the realization. It’s about making it impossible for a country to default on its obligations...even if it means erasing the word “default” from the English language.

If the centralized European Welfare State model is to survive, banks must not take losses on their government bond holdings. Individual and private investors, on the other hand, will be forced to take losses through a “collective action clause.” This clause allows your securities to be revalued without your consent if a majority of other bondholders agree to it.

Now we’re coming to the real nuts and bolts of what’s at stake. The technocrats in Europe are at war with private investors. The members of the ISDA are in league with the technocrats to preserve their system. That part is easy to understand.

The technocrats are employed by government and get to spend your money. This system is good for them. It’s good for the members of the ISDA too. Loaning money to the government is good business. Collecting rent off the expansion of credit is easy money. They want the system to last as well. Who is the system not good for? Everybody else who’s on the outside looking in. Investors who want their capital to be productive are out of luck. And taxpayers who question the value of austerity measures and debt reduction plans that don’t really reduce debt are also out of luck. No wonder they are angry.

We’ve come a long way, then. Greece isn’t about saving Greece. The only reason something so small and insignificant could matter so much is that it matters in a way no one is willing to say. It’s about the subversion of sovereignty and democratic processes by removing decisions from people and giving them to trans-national financial elites. It’s about preserving a global system that’s based on the accumulation of debt and growing government power because there are two groups of people who benefit tremendously from that system, even if most people don’t.

This is simply the latest example of corrupt government operatives colluding with the financial elite to steal money, liberty and big chunks of “the pursuit of happiness” from “we, the people.”
Dan Denning, for The Daily Reckoning

So now what do you think about membership of the EU system (let alone the FU)?


  1. The last Western politician to stand in the way of the banks and the corporations was John Kennedy.

    A little learning about the money supply and the staggering ignorance most have with regard to it shows why we are where we are.

  2. Does this mean that what I was told 30 years ago but refused to believe because it seemed so far-fetched is true, namely that Marxists and the financial elites have been in league ever since the Russian Revolution. Whilst they talk democracy the whole aim has been to gradually remove it and drive us all together into one great pit in which we are constantly on a treadmill to nowhere and they pile on more and more weights to make our debt-laden struggle even more onerous. If this is true then not all Marxists can be useful idiots. Some of them at least must know who is in charge of the asylum and letting them play their naive and dangerous political little games. Am I right? Merkel is an East German communist and Barroso is a Maoist but they must know or have known who they are really working for, surely - and Cameron, Clegg, Milliband, Heath, Blair, Brown and all the rest -even the so-called arch-patriot Margaret Thatcher. We are the proles now.

    1. You have it. The Blairs and the like are enriched for promoting the degeneration of nations and their peoples for the corporations and banks.The deceit is so all pervading that most people do not even see it and those that do are villified. We are controlled by debt, ignorance and the vanity of the middle class herd that clings to the fantacies of equality and liberalism as panaceas for all ills. They have been conditioned for decades. Only when the scales fall from one's eyes does the depth of social and intellectual depravity that has been foisted upon us become apparent.

  3. Not only Merkel and Barroso, but at least half the current, and past, Kommission members, too...

    Maggie is the only PM we had, since Heath, that ever said "No!" to Brussels/EU. It cost her her position, and her job. See the link I use for the Think-Tank she helped create afterwards to dispel the pro-EU propaganda. And propaganda it is.

    Cameron and co can mouth all the "I'm a sceptic" platitudes they want. They've done anything BUT put Britain's interests first where the EU is concerned.

    Heath's government basically knowingly lied to the population to get that "Yes, let's stay in the EEC!" vote.
    (See/search for "FCO 30/1048" for further info).

    There were a few who said the EU, and the Euro, was a bad idea for Britain, but the gutter press, and the rest of the politicians (presumably sat at the EU trough) howled and ridiculed them for it.

    We're all paying for it now :(

    1. There have only been two politicians in parliament during my 60 years who have shown any sort of integrity, Enoch Powell and Frank Field. When I questioned my one time mp Douglas Hurd about immigration 30 years ago his eyes glazed over as if he had been programmed to switch off at the mention of the word. I sometimes wonder whether he had acutally been brainwashed. As regards Enoch Powell, I am now beginning to accept that he knew exactly what Heath was up to on immigration and the then EEC and challenged him on both counts and so had to be hastily disposed of - like JFK was in a more brutal way. And was the hold that they had over Heath the possible love that dares not speak its name relationship with another tory mp of the day? I am sure that they bribed him up to the hilt for where else did he get the dosh from to buy that bloody great yacht?