Vultures' Picnic, page 35
I hadn’t used the word cabal even once, General.
“We do things in the open! Look at our Web site!”
I had. I didn’t see the memos with these phone numbers. Maybe I wasn’t looking hard enough.
Then Lamy went on to paint a picture of the WTO not as Citibank’s enforcer but rather as a kind of Oxfam or ACLU for trade. “It’s about freedom, about human rights, about technology, about media, about political civil liberties!”
My God! I was in the presence of another Jefferson, not Thug’s progeny. I meekly suggested that, outside the WTO’s gated compound, few people associated fourth-order derivatives and worthless mortgage securities with human rights and freedom.
“They should!” Lamy said. “They should!”
Geithner wrote about an end-game, but what game were they playing? World Trade negotiations used to be about trade in goods: you know, my computers for your bananas. But the bankers, through the mucked-with Financial Services Agreement, had switched the gameboard.
The juiciest target of the new FSA would be China. China wanted to sell us everything we used to make ourselves. The United States would agree to let their stuff in, but in return, China would have to join the WTO, sign the Treaties, and buy what America makes now, banking “products.” China would have to let Citi and JP Morgan set up shop in Shanghai.
In effect, U.S. manufacturing jobs would be sold for the bankers’ right to gamble in the new market.
To capture the China queen, the worker-pawns had been sacrificed—yet they had no idea they were even on the chessboard, that they were being played.
The score? In the last decade of the last century, U.S. multinationals shed 2.9 million employees in America while increasing their foreign workforces by 2.7 million. China signed the World Trade treaty in 2006, ending the OPM War, letting foreign bankers into the Forbidden City.
Did it concern the Director-General that U.S. banks are calling the shots from the shadows?
That wasn’t his department.
“[It’s] not for me to judge the democratic credentials of members. There’s a place in the UN, not far from here, which is called the Council on Human Rights where this sort of debate can take place.”
If an unelected junta of bankers drafts America’s trade position, well, here’s the number to call.
And so the law of international finance became Lawlessness.
ATHENS
In May 2010, the end-game ended for Greece.
The new financial products were packaged, polished to a shine, and sold to government pension funds all over the planet. The bankers sold blind sacks of sub-prime mortgages, sliced and mixed up, as Collateralized Debt Obligations (CDOs) and other fetid concoctions. The Financial Services Agreement was rockin’!
But when opened, buyers found the bags were filled with financial feces. Government pensions and sovereign funds, from Finland to Qatar, lost trillions. The bags were toxic to bank balance sheets and several failed. However, in most cases, bankers could get a refill of capital juice from governments fearful of full-bore financial collapse. Re-funding banks meant de-funding economies: pension cuts, salary cuts, all the things that bring an economy to its knees. And sets it on fire.
When Bankers Gone Wild slammed the planet into recession, Greece’s main industry, tourism, lost two million visitors who were too broke, too panicked, for beach party vacations and ouzo.
And the more Greece lost, the greater “the spread.”
In May 2010, after the banks burned, Greece’s Prime Minister George Papandreou said, “Everyone in Greece, whether three years old or ninety-eight years old, now knows what a spread is.”
If you’re not a Greek three-year-old, I’ll let you in on it. A spread is the extra interest demanded by speculators and banks to insure against a nation’s bankruptcy and default. When sold as a derivative, the bankruptcy insurance is called a credit default swap (CDS).25
How much does this insurance cost? If you have to ask, you can’t afford it. In 2010 and 2011, the “spread” for Greece hit as much as 10 percent versus German debt. That is, Germany could borrow at 5 percent while Greece paid 15 percent. (At the same time, U.S. banks had the right to borrow for next to nothing, less than 1 percent, from the U.S. Federal Reserve.) On Greece’s roughly $100 billion debt, the extra vigorish demanded by lenders raised the interest payments to $14,000 a year per family, over half a year’s salary for the average Greek worker. And that’s just the interest.
How could that happen?
Greece is a crime victim. Its banks, burnt and un-burnt, a crime scene.
In 2002, investment bank Goldman Sachs secretly bought up $2.3 billion in Greek government debt, converted it into yen and dollars, and sold it back to Greece at a big loss. Goldman isn’t stupid. The deal was a con, with Goldman making up a phony-baloney exchange rate for the transaction, hiding the Greek debt as an exchange rate loss, and working a scam to get repayment of the “loss” from the government over time at loan-shark rates. Through this crazy and costly legerdemain, Greece’s right-wing free-market government was able to pretend its deficits never exceeded 3 percent of GDP.
Cool. Fraudulent but cool. Fraudulent but legal. Read your Financial Services Agreement.
Flim-flam isn’t cheap these days: On top of murderous interest, Goldman charged the Greeks over a quarter billion dollars in fees.
And those rotting bags of CDOs sold by Goldman and others? Did they know they were handing their customers gold-painted turds? Well, in 2007, at the same time banks like Goldman were selling sub-prime mortgage securities to Europeans, the firm itself was betting that the securities they created were crap. Goldman held a “net short” position against the securities they themselves sold. Goldman picked up half a billion dollars on the bet. Now, if General Motors built a car they knew would fall apart, would the company be praised, as Goldman has been, for the brilliance of offloading the junkers to unsophisticated rubes?
So Greece went down. It was the spread itself, the premium for the bankruptcy insurance that put Greece into bankruptcy. It’s as if a fire insurance company set fire to your house and then charged you higher premiums because you had a fire.
Not everyone runs from a burning building or a burning nation. Riots have their fans. One riot tourist couldn’t wait to get to Greece and, to savor it fresh, invited Greece’s President to lunch.
So, while the streets erupted, while the bank burned, while in the midst of his sleepless, humiliating begging sessions with the IMF and the German Chancellor, Greece’s new Prime Minister George Papandreou was called away to a luncheon with a stout man with a combed-down mustache. Others in the Athens restaurant could be forgiven for mistaking him for a misplaced Bavarian Burgermeister. The mustache belongs to Thomas Friedman, the world’s most influential writer on economics. He is not actually an economist, but he plays one in the pages of The New York Times.
Friedman had flown business class and had already visited the burnt bank, a “shrine,” as he called it, to globalization.
Friedman then arrived at the restaurant beaming with delight and, by his own account, dug into his fish with gusto. Greece had been “profligate” but now faced the wonderful opportunity for “regeneration.” The bubbly pundit was so excited by the prospect that Greece would now have to “cut public sector pay, freeze benefits, slash jobs, abolish a range of welfare entitlements, and take the ax to programs such as school building and road maintenance” that you feared he would soil his underpants before the courier delivered his fresh ones.26
Friedman ticked off with relish: 20 percent wage cuts, social security slashed by 10 percent, retirement age increased by four years, and massive cuts in government spending. While incomes fell, the national value-added sales tax would rise by four percentage points. Friedman was thrilled. A follower of the proto-fascist philosopher Schumpeter, who coined the phrase “creative destruction,” Friedman applauded this creative demolition of the Greek economy.
The flames and mass unemployment, the permanent reduction of wages, said Friedman, would bring about a “revolution,” a “regeneration” of Greece. And, of course, the post-fire fire sale of national assets.
Prime Minister Papandreou did not throw his feta in Friedman’s face.
Profligate?! Papandreou had just signed an accord to cut budgets that would increase unemployment by half, from 9 percent to 14 percent. The real cause of the crisis was the $14,000 per family “risk premium” on funds owed to speculators, the spread. Even the chief of Britain’s central bank, Mervyn King, said, “The price of this financial crisis is being borne by people who absolutely did not cause it.”
But you can’t make the innocent pay unless they accept that they are to blame.
Papandreou understood the role of the two Friedmans (Thomas, and before him, Milton). Globalization’s implosion needed apologists, much like the professors and pundits who, a century ago, blithely sang praises of the Bolsheviks while ignoring the rotting bodies. Lenin had a name for them: useful idiots.
The Friedmans are very useful to the bankers: to take the spotlight off the perpetrators, and blame financial ruin on the victims. The U.S. press especially is always ready to blame the victims of financial crime, whether it be home foreclosures or auto plant closings. Teachers and street cleaners who lose their jobs, factory workers who lose their pensions, especially if they belong to unions, are lazy, greedy, and guilty. And these sniveling workers are always grasping for their “entitlements,” as if collecting your social security is an avaricious crime, whereas selling bogus bonds to pension funds is simply smart business.
Papandreou looked at the Bavarian mustache and understood the terms of surrender. He had to eat shit with his spanakopita, kiss the whip that beats him, announce that he loves swallowing the job-cut medicine, even if it tastes suspiciously like cyanide.
Greece will cut pensions until grandma has to live on dog food and fire departments sell their hoses, so long as the creditor bankers, supposedly the “risk takers,” get their interest and principal, in cash and in full, all to pay off the debts created by fraud. Greece was now a sub-prime mortgagee to the IMF and the holders of the swaps—Detroit with beaches.
It could be worse. What if Papandreou were Spanish? As Spain’s “spread” widened for no damn reason except that Spaniards look kind of Greek, its socialist Prime Minister had to cancel the €2,500 ($3,170) payment to parents of newborn babies.
An IMF insider said that Greece would have to return to its status as “a low-wage nation.” Greeks must accept that they are again the Jamaicans of Europe, condemned forever to wait tables and bring piña coladas to overweight Germans on cruise ships for low wages when wages can be found at all.
And so, Aristotle finally got even with the Greeks for dicking him around.
The fires of Greece had spread to Spain and Portugal and savaged employment throughout the Euro Zone. Thailand imploded into riots, but when the poor were gunned down and chased out of Bangkok, it was no longer news. Italy and the UK were next. Foreclosures in California melted Iceland’s banks. And now the economic infection had already returned to its source in Detroit, in Los Angeles, in Miami, in Las Vegas.
So here it is: Lonigro’s giant map of arrows slithering across continents. And now I know they were fuses, and these bastards were crazy enough to light them.
NEW YORK
That whole scam with Goldman that knifed Greece in the gut was a goof ball attempt by the right-wing government of Greece to cover up a government deficit exceeding 3 percent of its GDP. For the United States, a 3 percent deficit would be frugal. Frankly, in hard times, no nation can keep to a 3 percent limit. No nation should.
So why the deadly fraud to adhere to a plain stupid rule?
The answer is that the 3 percent rule is the price Greece had to pay for replacing its ancient currency, the drachma, with the Euro.
Odd that. There are a lot of cool things a nation can do with its own currency. If you need more, you print it. That’s what the Federal Reserve does when America needs a few trillion. (I imagine Reserve Chairman Ben Ber-nanke down in the basement blowing on the bills until they are dry enough to send to Citibank.)
Greece does not even have a central bank anymore, or one that means anything. There’s no one to print and blow on the bills. Worse, Greece can’t change its currency’s exchange rate, which could solve some of its woes, because it no longer has a currency of its own.
The 3 percent rule is not about being frugal, it’s about fiscal policy. Greece can’t have one. Join the Euro and you give that up. Have a recession or depression? Well, you are not permitted to spend for jobs for recovery. In fact, the Euro treaty requires governments to cut budgets in the middle of a depression, which is like having a rule that makes you drink water while drowning.
It’s cruel, and it’s supposed to be cruel, which no government may reverse. It works like a strict gold standard, which, as Mr. “Creative Destruction” Schumpeter put it, “imposes restrictions upon governments or bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom, of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense.”
I don’t know what that means, but I know I don’t like the sound of it. Especially coming from an Austrian. But this I can gather from it: You can choose the Euro or you can choose democracy.
Given the flames and cries of pain from Greece to Spain to Ireland caused by joining the Euro, you wonder why there are nations that mutilate themselves to join this currency leper colony. Yet, Latvia deliberately threw itself into a depression with 25 percent unemployment to qualify for Euro membership.
Who spawned this cruel little bastard coin?
I called its parent, Professor Robert Mundell. Mundell is known as the Father of the Euro.
The Euro is often spoken of as a means to unite post-war Europeans together emotionally and politically and to give this united Europe the economic power to compete with the U.S. economy. That’s horseshit.
The Euro was invented in New York, New York, at Columbia University.
Professor Mundell invented both the Euro and the guiding light of Thatcher-Reagan government: “Supply Side Economics” or, as George Bush Sr. accurately called it, “Voodoo Economics.” Reagan-Thatcher voodoo and the Euro are two sides of the same coin. (Ouch! Some puns hurt.)
Like the Iron Lady and President Gaga, the Euro is inflexible. That is, once you join the Euro, your nation cannot fight recession by using fiscal or monetary policy. That leaves “wage reduction, fiscal constraints (cutting government jobs and benefits) as the only recourse in crisis,” The Wall Street Journal explains with joy—and sell-offs of government property (privatizations).
Why the Euro, Professor? Dr. Mundell told me he was upset at zoning rules in Italy that did not allow him to put his commode where he wanted to in his villa there. “They’ve got rules that tell me I can’t have a toilet in this room. Can you imagine?”
I couldn’t really. I don’t have an Italian villa, so I cannot really imagine the burden of commode placement restriction.
The Euro will eventually allow you to put your toilet any damn place you want.
He meant that the only way the government can create jobs is to fire people, cut benefits, and, crucially, cut the rules and regulations that restrict business.
He told me: “Without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.” Besides bowl location, he was talking about the labor laws, which raise the price of plumbers, environmental regulations, and, of course, taxes.
No, I am not making this up. And I am not saying the Euro was imposed on the Old Country just so the professor could place his toilet at a place of maximum pleasure. The Euro is fashioned as an anti-regulation straitjacket that would eliminate gallons-per-flush laws, flush away restrictive banking regulation, and all other government controls.
I didn’t hold up the Nobel laureate for long, figuring that, due to his unresolved bowl placement problems, he seemed to be uncomfortably full of shit.
LONDON
The drachma was good enough for Plato and Socrates. Why give it up for the Euro diktat? Why remove regulations on banking that kept your pensions and pennies safe for decades?
In most nations, a fifth column of domestic financiers were ready to open the gates to the Trojan Derivative.
In Europe, the group hungering for deregulation called itself The Unnam-ables. Don’t laugh.
This group of select leaders of banking and insurance was chaired by Leon Brittan, Baron of Spennithorne, during the reign of Rubin. Despite his lordship’s title, he was chairing the group in his post as Chairman of UBS Ltd., the Swiss bankers.
The unfortunate name for the secretive group was changed so it would not sound so . . . secretive. Besides, most of their meetings were not conducted in secret. That is, someone boosted most of their meeting notes and, through a circuitous route, they landed in Jones’s office at BBC Television.
The new name of The Unnameables is the LOTIS Committee, Liberalization of Trade in Services committee. Trade in services, as D-G Lamy pointed out to me, includes my own profession of international journalism, as well as art, music, poetry. And, of course, investment banking and contract killing. (I added those.)
According to the lifted minutes of the LOTIS meetings, there were no poets (though there was, among the bankers and insurance big shots, a Reuters executive advising the wealthy gentlemen on how to parry harsh questions from reporters about their goals).
One of the most powerful members was, according to the meeting notes, Peter Sutherland. Sutherland holds the title of Consultor of the Extraordinary Section of the Administration of the Patrimony of the Apostolic See (i.e., the Pope’s stock broker), but his real powers rest on lower authority: Sutherland is Chairman of Goldman Sachs International.
