Arliss on Greece

The After Show is an hour long and my segment generally starts at about the 35 minute point during the podcast. You will quickly find that I often have much more in the notes than I can get to during the podcast. Please use the menu below to jump to your area of interest and then click on the episode title for the audio link.

Goldman Sachs and Upcoming Greek Election
Greece vs the Vampire Squid (Greek Election Results)
Will & Arliss on Greece, Scotland & Spain

9.1.15Goldman Sachs and Upcoming Greek Election

  • as per Matt Tiabbi, Goldman Sachs is: “a great vampire quid wrapped around the face of humanity, relentless jamming its blood funnel into anything that smells like money.”
  • if there is trouble, GS rides to the “rescue” by creating derivatives, “restructuring debt” and assisting with “public-private partnerships”
  • GS creates a bubble, makes money by selling overpriced debt and bets against entire countries
    • GS buys the debt
    • hedged its bet by shorting it*
    • GS buys insurance on the debt
    • GS creates derivatives
    • then GS sells the derivatives to the National Bank of Greece in a giant shell game
    • GS men are in position to direct the bailout so that GS gets all its money back and much, much more
  • per Thom Hartman and Sam Saks of Truthout
  • GS Trader, Alessio Rastani to the BBC, “We don’t really care about having fixed an economy, having fixed a situation, our job is to make money from it….I go to bed every night and I dream of another recession.” He continued, “When the market crashes….if you know what to do, if you have the right plan set up, you can make a lot of money from this.”
  • Robert Rubin – US Treasury Sec who killed off Glass-Stegall and engineered the passage of the Commodities Futures Modernization Act
  • Henry Paulson – US Treasury Sec who presided over the 2008 bailout of Wall Street
  • Timothy Guitener – US Treasury Sec who worked closely with Paulson on the bailout of Goldman while he was heading the NY Fed
  • Otmar Isaing, in Germany, former board member of Bundesbank and the ECB (helped to create the Euro); advisor to GS
  • Mario Draghi, new head of the ECB & “8th most powerful person in the world”, and former President of the Bank of Italy; former Vice Chair I Managing Dir of GS Int’l
  • Lucas Papademos, Greek PM (2011 – 2012), ran the Greek Central Bank when they worked with GS to hide debt in derivatives to slide Greece into the EU; Vice-Chair of ECB (2002 – 2010)
  • Petros Christodoulou, Exec Member of Board of Directors of Greek Nat’l Bank (heading, among many other things, a transparency committee!) former GM of the Greek Public Debt Mgm’t Agency, former National Bank of Greece (1998 – 2010) in upper mnm’t worked with Papademos to hide Greek debt via GS; joined GS in 1987 to head Money Markets Trading in
    • London then on to JP Morgan to head European Derivatives trading ultimately becoming a Managing Director
  • Mario Monti, former European Commissioner (1995 – 2004), European Chair of Trilateral Commission (Italian PM (2011 – 2013) put in place the massive austerity measures that nearly killed Italy, got 10.5% of the vote in 2013; int’l advisor to GS and Moody’s
  • Antonio Borges (died in 2013), former head of IMF’s European Dep’t and appointed to oversee “privatization”; former exec. vice chair of GS Int’l
  • Peter Sutherland, “the father of globalization”. former member of  European Commission, former Director General of GATT (now WTO) and was the Att’y Gen of Ireland during Ireland’s bail-out, then on to be the non-executive Chair of BP until 2009; is non-executive Chair of GS Int’l; is Honorary Chair of the Trilateral Commission (was chair 2001 – 2010) & a financial advisor to the Vatican
  • Mark Carney, Governor of Bank of England & Chair of G20’s Financial Stability Board; former GS man (citizen of Canada, Ireland & UK); 13 years with GS and worked on Russian crisis
  • Shorting a stock = example take loan of a specific quantity of stock, say 100 shares, from when price is at $X. You are betting that the price will fall. When price drops you buy 100 shares, at $X – $50, and give them back to the broker thereby pocketing the difference in price of $50/share.
  • Greece – the upcoming election
    • as per Ellen Brown of Alternet
    • the Troika (IMF, EU Commission, ECB) are threatening Greece with a Cyprus-like attack on banking
    • Greeks seem to be pushing back
    • Greek bail-out in 2010; only country in EU to have debt restructured in a €240B bailout, massive austerity imposed by the new Democracy Party lead by PM Antonis Samaras
    • GDP has fallen 20%
    • unemployment is 26% (Italy is at 13.4%, Spain at 25%) – 100M people live in these three countries, 1/3 of Europe’s population
    • in December the Greek Parliament rejected the Presidential nominee so a snap election was forced
    • January 25th elections with a predicted win for far left party Syriza lead by Alexis Tsipras
    • even if Tsipras does not win outright they will lead a coalition gov’t
    • says he wants to stay in Euro but plans to cut all associated austerity measures, as William Black says, “The big question is not why the Greek people are rising up to reject the barbarous measures but what took them so long?”
    • investors are panicking
    • Greece is running a budget surplus (if interest payments are not considered)
    • investors are hoping that Spain, Italy and France will see Greece and not go there, sticking instead to Merkel’s imposed austerity
    • even The Economist has recently decided that austerity may be doing more harm than good
    • a Grexit looks easier for the EU to manage now though still perilous because France, Spain and Italy really might not stick if Greece survives the Grexit
    • deflation is looming because Germany allows no flexibility
    • Troika threat is for the ECB to basically shut down the banks as they did with Cyprus; banks rely upon the discount window and overnight intra-bank loans in order to lend themselves; the actual condition/health of Greek banks is not the issue
    • if Greece defaults the several hundred billion in Greek bonds held by the ECB become worthless so Greece does have leverage
    • Greece CAN resign from the EU, revert to its own sovereign currency (the drachma); Italy, France, Portugal and Spain would be watching closely
    • Der Spiegel is reporting that the Grexit would be less painful now because it wouldn’t spread; this, of course, is completely wrong
    • if Greece defaults, banks may be protected but depositors won’t be because of the new (German imposed) ECB Financial Stability Board which has imposed a bail-in structure on banks; investors, like Goldman, get covered first and depositors funds are confiscated in order to do so; bail-in protocols use depositors funds to guarantee derivatives which have been flipped to be more senior creditors

Greece per William Black

  • in case the ECB is listening, NEWS FLASH, deflation is not magically different than too low inflation, it is just more of the same so the problem you don’t think you have yet you do
  • Eurozone’s fundamental problem is a death of domestic demand
  • “ …Germany uses the Troika do the dirty work of compelling European workers to enter the Coliseum and slaughter each other’s wages in a brutal financial competition while Prime Minister Angela Merkel’s wealthy financial and manufacturing supporters thunderously applaud the results. Merkel takes particular delight when German diktats force leftist heads of state to betray the workers by forcing “dramatic…wage cuts.” This, of course, discredits the parties that once represented the workers.” 8.1.15 NEP
  • the ECB has only JUST figured out that bond vigilantes are a problem
  • the Eurozone CAN recover
    • large available labor force
    • banks and corporations are sitting on LARGE piles of money
    • can readily purchase the production materials it needs (unless Russia cuts it off)
  • the integration of the EU was supposed to crate a unified “caring” community but Germany has used the euro as a way to wring other surrounding economies dry
  • Paul Krugman has fun mocking austerians saying that they believe in the Confidence Fairy when they talk about supply driving an economy
  • Spain and Portugal, who have elections later this year, will be watching

Greece per Marshall Auerbach

  • a Grexit might well show that a return to a valid sovereign currency is possible and punch a hole in the EU
  • would likely cause a bank run on domestically domiciled banks
  • peripheral euros would be transferred to Germany and the Netherlands
  • Randall Wray says, “When you think about it, anyone who still has a Euro deposit in any bank other than Germany is either a philanthropist or a fool.”
  • Der Spiegel has projected at 10% contraction of the Germany economy if the EU collapses, unemployment would nearly double and the Bundesbank could be brought down
  • investors are already pulling their money out of Greece but now it’s the Eurozone in general
  • the weaker Euro can be good because it can increase exports
  • the Asian central banks and China are heavily selling off Euros

5.2.15 Greece vs the Vampire Squid (Greek Election Results)

  • Greece is not alone – Greece, Spain and Italy have, collectively 100m in population, 1/3 the population of the Eurozone; Portugal, Ireland and France are all watching as well
  • General Stats for Greece
    • 26% unemployment for adults, nearly 55% for young workers
    • since austerity, GDP is down 25%
    • of the €254.4bn in loans from the Troika between 2010 and 2014, €29.3bn has gone into state operating needs and the Greek contribution to the EU stability mechanism, the other €225.1bn has gone to pay debt
  • New Greek Government – SYRIZA
    • Prime Minister – Alexis Tsipras
      • (my party) is not a ‘threat to Europe’ but instead a force for change in its policy direction.
    • Finance Minister – Yanis Varoufakis
      • showed up at 11 Downing Street, home of the British Chancellor of the Exchequer, George Osborne, wearing black jeans, an untucked shirt open at the collar and a leather jacket “something Putin might wear on a bear hunt” – The Guardian
        • a suit would have conveyed “get comfortable I want to join the club”
        • Varoufakis does NOT want to join the club!!! – he wants them terrified
        • it’s Greece saying, “You can’t get blood from a fucking stone so get real.”
      • economist with Greek and Australian citizenship
      • Professor of economic theory in Athens
      • describes austerity as “fiscal waterboarding”
      • runs a popular blog and intends to continue to do so
      • If it is in my power to determine…Greece will neither want to leave the euro nor threaten to do so. We should not have entered the euro–that is crystal clear, but once in, it is disastrous to remove one’s-self from the Eurozone voluntarily.
    • Deputy Minister of Labor and Social Solidarity – Rania Antonopoulos
      • Levy Institute Senior Scholar
      • one of several specialities is job guarantee programs
      • expert advisor to the UN Development Program
      • has been advising the Greeks
  • SYRIZA has been receiving advise for years from Dimitri Papadimitriou – head of Levy Institute
    • has traveled to Greece every few months to work with party leaders
    • worked with Levy students to calculate the cost of creating jobs at the pre-recession minimum wage for a job guarantee program; 1-3% of GDP puts everyone to work! and have a massive magnifier effect
    • Levy was founded in 1986 by and investment banker to memorialize the work of his physicist father who got interested in economics and developed a useful theory; best known for the scholarship of Hyman Minsky
  • The SYRIZA Plan
    • core principle is to put ordinary Greeks first
    • hard to think of a more centerist position
    • inspired by the New Deal
    • SYRIZA has embraced real economics
    • Varoufakis has officially announced that Greece is bankrupt – everyone is SHOCKED, shocked I say!
    • refusal by the Greek government to accept further bailout loans is NOT an expression of an intent to default; SYRIZA has repeatedly stated that the intention is to renegotiate existing loans, Tsipras has said, “Greece will repay its debts to the European Central Bank and the International Monetary Fund and reach a deal ‘soon’ with the euro-area nations that funded most of the country’s financial rescue.” – to Bloomberg News
    • …it means that we need time to breathe and create our own medium-term recovery program…
    • focused on ECB and IMF loan obligations; loans by other nations are secondary in his carefully worded statements
    • Greece has rejected the ECB imposed bailout monitors but welcomed “rational discussion
    • per Frances Coppola:
      • Greece has no intention of leaving the Euro or the EY. (But others might force it out.)
      • Greece has no intention of defaulting on its debts to primary official creditors. (But others might force it to.)
      • Greece is committed to pursuing policies that promote economic stability and recovery of Europe. (But others might not be.)
      • threatening default is hardball (German response has been to refuse to consider further debt relief…but she will have to)
      • Now the ball is in the court of the EU
  • Possibilities
    • should the ECB completely cease to accept all Greek paper then debt payments could no longer be made and Greece would be cut-off from the Euro, if the Greek central bank keeps the banking system open for internal payments then the Greek euro/drachma would float against the rest of the euro currency
    • this would crate two levels of Euro value and, therefore, divergence and the end of the EZ
    • Greece could create an internal currency/script for use in local exchanges without necessarily having to grexit
  • Debt Service per Frances Coppola
    • well below market rates
    • very long horizon for repayment
    • does not have to make any principle payments on the EFSF loans until 2022
    • debt service is 2.6% of GDP so not unaffordable
    • current debt load is 175% of GDP
    • the real problem is not debt service but the EZ bailout conditions
      • requires not a balanced budget but a surplus of 4.5% from 2015 on!!!
      • and must reduce excess by 1/20th per year (excess debt above 60% of GDP)
    • what Greece needs is less restrictive bailout conditions
  • ECB
    • the Trokia = the ECB, IMF and the European Commission
    • the Troika’s position is that Greece’s problem is not bankruptcy but is a temporary liquidity shortfall and lending more money will allow it to meet debt service obligations while “structural reforms” will lead to renewed growth
    • in reality it is in a debt deflationary spiral when income is falling and debt is rising
    • per William Black in NEP, “The troika overwhelmingly provides loans to Greece. The troika rages repeatedly about what it claims is Greece’s excessive debt. The troika is shocked that extending more debt (rather than aid) to a nation it claims is in disaster because of its excessive debt levels has not transformed Greece not a neoclassical paradise. The troika loans roll-over existing Greek debt or bail out banks (and their owners and creditors). Many of those banks, owners and creditors are foreign.
    • Draghi, “But for growth to pick up, you need investment. For investment, you need confidence. And for confidence, you need structural reforms.” …and unicorns. For confidence you need LOTS of unicorns.
    • Wussing, Wussie, Wusses – Business Confidence – business never leads; business follows; business NEVER hires a single employee it does not desperately need
    • a huge lack of transparency exists regarding ECB terms and conditions for investment and lending decisions (to cover the extent of German machinations) – basically, entirely discretionary, inconsistent and unpredictable
    • the theory that low wages lead to an increase in production for export pre-supposes that we can all be exporters…derp!
    • TINA – “there is no alternative” to austerity
    • in Davos the NYT tracked down Kenneth Rogoff who said, “Much bigger steps need to be taken to fiscally stimulate the hardest hit European countries, Mr. Rogoff added. Primarily, he said, steps should be taken to significantly lighten the government debt of these countries, with a view to giving space and freedom for governments to spend more.” – Holy CRAP! Even Kenneth Rogoff is on the same page as SYRIZA (well, probably not entirely but certainly more than the NYT and ECB
    • across the EZ there is a contraction in lending
  • ECB Lifts Waiver effecting Greek Bonds
    • as of 3:30PM EST yesterday
    • ECB had allowed Greece to issue bonds (junk bonds) to use in paying debt despite not meeting official minimum credit rating requirements
    • of course, this was always discretionary so part of the hardball game in response to Greek actions is to suddenly re-discover concerns
    • Emergency Liquidity Assistance (ELA) will remain available but it is entirely an ECB instrument and fully at their discretion
    • PMs and Finance Ministers have not yet met so ECB is (again) exceeding its mandate without consulting parties and is pressuring the Greek government
    • This is creation, not mitigation, of risk. The ECB is engineering bank runs.
    • Circular logic → possible grexit → withdrawal of collateral backing → bank run → grexit
    • But Greek banks less reliant on Greek Government Bonds than most realize
      • < €5bn in Greek Government bonds and around €3.5bn in T-bills so Greek banks are using, at the most, €8bn in Greek government debt as of December, as collateral for Eurosystem loans the other €48bn they owe to the Eurosystem is collateralized in other ways (including…peaches apparently)
      • Greek bonds were already devalued by 40%
        • these “other ways” include something called Pillar II and Pillar III bonds which would be more valuable if they were peach futures
      • in 30 min of trading at the end of the day, the Greek bonds dropped by 10.8% with much more to come today; and the market, which had been up by 100 points fell to only minor gain
    • meanwhile, as I have long said, the nervous money fled where? To US Treasuries.
  • Germany
    • German POV is neocolonialist, at best, a new Reich, at worst
    • German surplus far exceeds even the upper limit for surplus and because there is ALWAYS BALANCE German surplus = debt for everyone else
    • German banks are up to their eyeballs in bubbles of the worst kind
    • Greek loans are all about bailing out Germany
    • only 11% of the bailout monies went to Greek operations and the Greek people, the other 89% went to cover loans by German banks
    • NYT’s insane quote, “While Greece sees itself as being punished by creditor’s demands, Germany and a host of European officials have argued that Greece and other troubled nations in the eurozone must clean up the high debts and deficits at the root of Europe’s crisis. They say Athens has failed to make enough progress on structural reforms seen as necessary to stabilize the economy, and they are pressing Greece to raise billions of euros through more budgetary cutbacks and taxes.
    • Austerity is the cause – not debt or deficits
    • deficits are too small
    • top German politicians are demanding that Greece sell islands in order to bail out German creditors
    • Germany has launched a war on Greek workers and retirees in particular
    • the Euro was founded with wishful thinking
    • Germany has the most to lose if the euro collapses
      • at least €350bn at risk
      • will result in collapsing competitiveness for the German currency relative to everyone else (because their assets would vanish while, for virtually everyone else only debt would disappear)

“The history of Europe is long and blood-spattered. It is nothing like the United States, which is a young country with a common language, clear boundaries and a single political structure. Yes, the USA fought a civil war to achieve its current degree of political unity, and there are no doubt still stresses and strains. But Europe–if you must regard it as one entity, which is problematic in itself–has fought HUNDREDS of civil wars. We do not have a single language, we still cannot agree on where our boundaries should fall and national interest always trump “European” politics. You can’t overturn tribal and cultural identities that go back thousands of years at the stroke of a few politicians’ pens.” – Frances Coppola

“The Euro is the biggest threat to peace in Western Europe that I have seen in my lifetime.” – France Coppola

Debt Renegotiation

  • in commercial world when dealing with a (large) business debt is renegotiated/reduced
    • after WWII debt was reduced for…Germany
    • Poland, 1991, more than half of its debt was written off
    • 100% of debts were written off for many African countries
    • in Latin America the debt of many countries was written off by 50 – 100%
    • Germans are demanding that the Greeks pay 100 cents on the dollar
      • same mistake was made in Latin America in the 1990’s (thanks to the Pete Peterson Posse), called the Washington Consensus, and leading to the “lost decade” (rolling recessions, weak growth, greater unemployment) and ultimately leading to the democratic election of a dozen anti-austerity governments
  • Spain, Italy, Portugal, France
    • in Spain polls showing Podemos (only a year old) is taking a lead in the polls
    • greatly encouraged by Greece
    • right-wing parties are opposing austerity because it has lead to a German take-over of Europe for the last five years; these are countries who do not fondly recall their occupation by Germany
      • Germany has only needed to send bond vigilantes in as its Schwerpunkt (shock troops)

EFSF = European Financial Stability Facility bonds – developed specifically to address the sovereign debt crises

6.2.15 – Will & Arliss on Greece, Scotland and Spain

[Please note that only my notes are here at this time. – Arliss]

  • Lord Ashcroft
    • Tory peer, resigned from conservative central office in 2010
    • the “Pollfather”

Varoufakis’ Plan

  • Greece isn’t looking for an all-out fight with the EZ/ECB
    • George Osborne has called the current Greek crisis the “greatest risk to the global economy” and he is right
    • Varoufakis, “I’ll say, ‘Help us to reform our country and give us some fiscal space to do this, otherwise we shall continue to suffocate and become a deformed rather than a recorded Greece.’”
    • will not materially change Greek debt payments but will shift the balance of power
    • financial community seems pleased, political representatives not-so-much
    • Varoufakis’ insistence that Greece in insolvent/bankrupt and not illiquid
    • deepens instead of challenging EZ integration
    • privatization of public interests at fire-sale prices is counterproductive
  • Perpetual Bonds aka Consols (British “consolidated” their debt following the Napoleonic Wars into perpetual bonds)
    • fixed coupon bonds with no maturity date that can be repaid at any time
    • Canada used the concept in 1970 & Churchill refinanced WW1 debt in 1927
    • Consols are not a credit event and do not remove assets from the ECB balance sheet
    • removes the terms “debt forgiveness” and “haircut” from the discussion thereby helping to placate the Germans
    • EZ is frantic for safe assets as deflation sets in
    • tiny positive yield is preferable to cash with negative interest
    • also will replace the EFSF bonds with bonds that will be a GDP-linked bond (known as a warrent)
    • Links ECB and EZ to SUCCESS in Greece as a state instead of as a common creditor
    • it is a classic debt for equity swap
    • Amazingly, the plan has received enthusiastic backing from Britain’s Adam Smith Institute
    • this is risk-sharing
      • even Mario Draghi has indicated that some form of risk-sharing will be necessary
    • Crackdown on tax evasion
      • “destroy the Greek oligarchy” is not a side issue
      • Martin Schultz, President of European Parliament, has agreed that the common Greek has paid too much and that it is time for those who have been taking money out of the country to pay!!!
    • Remove requirement to meet 4.7% budget surplus
    • As I have said, “It is not the job of Congress to balance the budget, it is the bio of Congress to balance the economy.: so too, “It is not the job of the ECB to underwrite banks, it is the job of the ECB to balance the economy of the Eurozone.”
      • ECB has been conducting credit policy rather than monetary policy
      • the ECB was/is the primary culprit in creating the crisis due to tight, austerity-based monetary policy

date – title

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