Thursday, March 4, 2010

It's Greek To Americans

The Greeks are among a select few people who use an alphabet created for them by a Christian saint and such is the oddness of the alphabet compared to our "proper Roman" letters, it has been customary to describe any problem too complex to unravel as being "greek." St Cyril's transliteration of sounds made by Greeks, Bulgars and Russians isn't that hard to understand if you are forced to study it for a little while, and when, many years ago I took a very long train ride across the Soviet Union, a place that exists no more, I devoted some time in my carriage to trying to learn the spelling.I shocked my wife when I was able to translate place names on our road trip through the Balkans, driving in the Republica Srpska, a bastard pseudo-state in Bosnia-Herzegovina whose fascist leaders yearn to be part of the Cyrillic world of Serbia and Russia. Of course languages are alive and to be remembered they have to be used and nowadays I find my ability to remember the difference between a D and an L, or a YI and an N to be fading away...

The language of bankers is, unhappily international and a crisis of epic proportions is brewing in Europe, thanks in part to the meddling of Goldman Sachs- the Slobodan Milosevic of the current conflagration. In the same way the last President of Yugoslavia tore apart that confederation it seems US bankers are standing by to tear apart the Euro world of the civilized, industrialized nations of the European Union. The story, as it becomes public is complex enough to be defined as "greek" yet in some ways is as simple as a second mortgage on a US home. In order to join the European Monetary Union, abolish the drachma and replace it with the common currency called the Euro, participating nations had to keep public debt levels within 3% of their budgets. Germany met this arbitrary goal easily France managed it and Britain decided to opt out of the whole mess (which was a decision I found annoying at the time, though perhaps I was wrong as we shall see). In some manner not specified the weaker members of the European "snake" which then became the European Monetary Union, managed to meet these goals too prior to economic unification. Greece Italy and Portugal got in under the wire and abolished their currencies in favor of the European Central Bank (ECB) gaining total control over their money supply. Now they all use the Euro, with scudos, lire, pesetas, schillings, marks, and francs all gone into the rubbish bin of history, poor things.

Unhappily for all concerned there was no mechanism written into the new currency to allow for countries that essentially over borrowed and went belly up, which is what has happened in all but name in Greece. That was because the framers of the Union didn't think about secret deals that might be made between governments and bankers and Goldman Sach's deal with Greece, it turns out, was a doozie. After much reading I think I have figured out in plain terms what they did. Goldman Sachs lent enough money to Greece to allow the country to write off sufficient debt to allow it to meet the threshold for entry into the Euro-zone. The loan was masked as a currency trade and the Greek government used future income (!!) as collateral for the loan. Does this sound like a crazy mortgage as sold to "home owners" in the US? What makes this even worse is that it seems Goldman Sachs bought and sold Credit Default Swaps on this loan giving the bank an incentive to drive Greece into bankruptcy.
There has been much discussion in the US about the moral legitimacy of walking away from "underwater" home loans and in the ordinary course of things one can understand a certain moral repugnance at people who abandon loans that cover properties that have simply lost value. However it is really important to understand that the institutions that underwrote those loans weighed the odds against them. Not only did they happily make loans to people clearly not able to handle them, they then bet the loans would fail, by using Credit Default Swaps. They then cut up the loan packages, mixed them in with solid performing loans and sold them around the world as Grade A US loans backed by the burgeoning real estate market. In this way they made it extremely complex for people to renegotiate their loan terms as the paper was held by thousands of people and institutions around the world (literally!) and besides that they had no interest in getting these loans to conform or pay off! They wanted these fragmented investment papers to fail because their insurance- the Credit Default Swaps- then paid off and paid off big time. And even then the banks caught in the trap pleaded with the US government that promptly shoveled some twelve trillion dollars of YOUR DEBT to them to cover their losses. This is exactly what is happening with Greece. It profits Goldman Sachs if Greece implodes! Are you scared yet? It gets worse.
Strikes and protests are building in Greece with workers demanding to know (unlike American sheeple) why the bail out has to come on their backs, and their indignation is spreading across Europe as the realisation sinks in that bankers have duped their governments. The Greek Government has no answer to this fundamental question of human justice, the Germans don't want to know about Greece's problems and the European Central Bank has no mechanism to bail Greece out except to pay off it's debts. It's as though the US Federal Government were to pay off Illinois and California's debts knowing full well both states will go back down the path of overspending and racking up more debts. Besides there isn't any money left! From here on out the Fed has to print dollars because foreigners, seeing the coming crisis, have figured they better not buy any more American debt. China and Japan principally have cut back hugely on US sales of Treasuries.
To close out this excessively long and unpleasant essay let me say that I believe we are in the equivalent of 1931 of our own 21st century Great Depression. I have no idea what to do to prepare for whatever comes next, except to keep on keeping on. I don't believe there is any recovery coming soon and we are starting to hear publicly expressed doubts by people who usually are in the cheerleading section of mainstream news. There is no jobs program and health care reform will run up against God knows what economic crisis. Even if what happens in Greece looks Greek and alien to us, it might be worth while paying attention because the next phase of economic collapse may take the same shape here in the US and it would be nice if it didn't come as a surprise.
Our bankers have already baked the first layer of our cake with the housing collapse, unemployment was the next layer, and to top that we will soon see public employment attacked as parasitic and then the icing will be the failure of our currency. Just like them Greeks are seeing right now.

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