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Wolves vs. PIIGS
From The Daily Capitalist
This is another sad tale of shooting the messenger.
Without fail, governments always blame speculators for their economic woes. I can't think of a time when that has not occurred. In fact our own government is engaging in the same thing. Speculators are called "wolves," "jackals," "parasites," and even "capitalists" on occasion.
But for Mr. George Papandreou to have the gall to blame the wolves for Greece's problems is not only an outrageous lie but is a display of ignorance. One could correctly conclude that he is just another slimy politician trying to hold on to power.
Here's what he said on "Fareed Zacharia GPS" on Sunday:
Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said.
“I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” ...
“Greece will look into the past and see how things went,” Papandreou said. “There are similar investigations going on in other countries and in the United States. This is where I think, yes, the financial sector, I hear the words fraud and lack of transparency. So yes, yes, there is great responsibility here.” ...
In the CNN interview, Papandreou said many in the international community have engaged in “Greek bashing” and find it easy “to scapegoat Greece.” He said Greeks “are a hard-working people. We are a proud people.”
“We have made our mistakes,” Papandreou said. “We are living up to this responsibility. But at the same time, give us a chance. We’ll show you.”
That is pathetic. They've never lived up to their responsibilities, they have defaulted before, and I believe they will default again. Mr. Papandreou and his (and his father's) socialist PASOK party (Panhellenic Socialist Movement, or Panellinio Sosialistikó Kínima) were responsible for the massive spending and welfare programs that are now hobbling Greece.
Let's back up a moment and learn a bit about the Papandreous, father and son. Father Andreas was the son of Geórgios, a leading political figure prominent in the anti-monarchist movement. In the Sixties he was premier and espoused many socialist policies. He was supported in his cabinet by his son Andreas. A military coup kicked George and his son out and ruled until 1974 which is when Andreas founded PASOK. Andreas was premier during much of the 1980s and 1990s until he died in 1996.
Andreas was responsible for most of the socialist policies that included national health care and generous pensions and benefits. They paid for them by running deficits and borrowing the money. Andreas was also very anti-American, disliked the U.S.'s influence in the world and wanted U.S. bases in Greece closed. According to the Wikipedia article, he said that the "USSR is not a capitalist country 'one cannot label it an imperialist power.' According to Papandreou, 'the Soviet Union represent[ed] a factor that restrict[ed] the expansion of capitalism and its imperialistic aims'. There's an enlightened man.
I should say that father and son are U.S. citizens. Andreas was kicked out of Greece by the dictatorship in 1938 and landed in the U.S. and got his Ph.D in economics at Harvard in 1942. In 1943 he joined the Navy and served as a nurse during the War and became a citizen. After the War he taught economics at the University of Minnesota, Northwestern University, the University of California, Berkeley (where, fittingly, he was chair of the Department of Economics), Stockholm University and York University in Toronto.
Son George (known as Giórgos, to distinguish him from his grandfather Geórgios) was born in St. Paul, Minnesota in 1952. George speaks perfect American English. He was educated at "Amherst College in Massachusetts, Stockholm University, the London School of Economics and Harvard University. He has a Bachelor of Arts degree in sociology from Amherst and a Master's degree in sociology from the LSE. He was a researcher in immigration issues at Stockholm University in 1972-73." In 2006 he became president of the Socialist International, whose members consist of socialist parties around the world (for an interesting list, see here). In 2004 and again in 2009 Giórgos was elected premier.
The Papandreou family doesn't understand a thing about economics. Giórgos might know a bit of Keynes, but I can assure you has has no real knowledge of classical liberal economics, much less Austrian theory. In other words, a whole intellectual movement which challenges his socialist ideas has eluded him. This is especially significant in light of the drastic failures of socialist economies. I can assure you that many, if not most Austrian theory economists have an excellent working knowledge of socialism.
We all know that politicians scapegoat others to evade responsibility for their mistakes. So they go after speculators. Any claim that speculators are responsible for Greece's woes is a lie. What speculators do is seek and find the true(r) values of overvalued assets. They can make good money doing this and they should. If it weren't for the wolves, we ordinary investors might be suckered into buying these overvalued assets. The quicker it's done, the better it is for the markets because it prevents the misallocation of capital which would be otherwise used to invest in productive assets.
For the weeks before the EU adopted the €750 billion bailout speculators were hammering the euro, Greece's bonds, and European banks who were big lenders to the PIIGS. The politicians didn't like this revelation of truth:
The Committee of European Securities Regulators said on May 7 it was investigating “exceptional volatility” in the markets and would work with other regulators, including the U.S. Securities and Exchange Commission, as part of a coordinated clampdown.
And it is not over. The wolves are back at it. An article in Bloomberg today shows that the market doesn't trust the politicians:
Money markets are showing rising levels of mistrust between Europe’s banks on concern an almost $1 trillion bailout package won’t prevent a sovereign debt default that might trigger a breakup of the euro.
Royal Bank of Scotland Group Plc and Barclays Plc led financial firms punished by rising borrowing costs, British Bankers’ Association data show. The cost to hedge against losses on European bank bonds is 62 percent higher than a month ago. Investment-grade corporate debt sales in the region plummeted 88 percent last week to $1.2 billion from the previous period, according to data compiled by Bloomberg.
The rate banks say they charge each other for three-month loans in dollars rose to a nine-month high, even after a government-led rescue designed to prevent Greece from defaulting, and a new financial crisis. The euro fell to its weakest against the dollar since 2006.
Bank lending “conveys a lack of trust in the system,” said Robert Baur, chief global economist at Des Moines, Iowa- based Principal Global Investors, which manages $222 billion. “Banks are a little reluctant to lend overnight as they don’t know the full extent of what is on the bank balance sheets.” ...
Deutsche Bank AG Chief Executive Officer Josef Ackermann said Greece may not be able to repay its debt in full, and former Federal Reserve Chairman Paul Volcker said he’s concerned the euro area may break up. Sony Corp., the world’s second- largest maker of consumer electronics, said it may suffer a “significant impact” if Europe’s deficit spreads, while Chinese Premier Wen Jiabao said the foundations for a worldwide recovery aren’t “solid” as the sovereign-debt crisis deepens.
The wolves are correct. The market will eventually reveal the truth.
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Leo:
I can never understand why you take the positions that you do. You appear to defend the worst people and the worst economic outcomes and yet you criticize the current financial system of bailouts as "capitalism." I would agree that bailouts are corporate welfare but you well know that many of us on ZH take the position that this isn't capitalism. Please don't keep using that term to exemplify the existing system.
OTOH you protest when you are labeled as a "socialist" yet you defend the very policies that seem to bring the U.S. and Canada closer to socialism or fascism or crony capitalism or whatever name you wish to use.
It is crystal clear that the Papandreous are hardline socialists. Nowhere in the world has socialism worked and it has bankrupted Greece. Can't we at least agree on that point. Neither Goldman, nor the speculators, nor the EMU have anything to do with Greece's problems. And I stand on my claim that speculators are doing us a favor by hammering the banks that lended to Greece, and the euro, and Greek debt.
I believe you are correct when you say that this bailout is also to bail out French and German banks. But if there was a chance that Greece would actually reform their system, then I don't think the spreads would be so high.
My prediction is that Greece will eventually default because of their internal dynamics. What that does to the eurozone, I am not sure. But clearly, it puts it in jeopardy.
Bravo Econophile!
I too am tired of Leo's apologies for systemic corruption and malfeasance as well.
This string is screwed up. The subject is Greasey-spoon not english grammer. goe phuck yuor celfs..........an xcluesivve phroom roger ramjet up your apple pyeee
I guess your Mom came into your bedroom and read you the riot act...
Who the fuck watches CNN anyways? The worldwide leader in corporate propaganda!
Crying to the press about getting caught with your pants down doing some unholy things with a squid. How pathetic.
How do the meritocrat capitalist non-socialists among us feel about inheritance? I feel that to be a meritocrat capitalist non-socialist and also to believe in inheritance rights means that after a generation or two, one is a feudalist-corporatist due to the concentration of wealth, aside from the fact that inheritance violates the precepts of meritocracy. Yet the meritocrat capitalist non-socialists I have engaged with generally seem to feel that the right to bequeath one's wealth to one's offspring should be inviolate.
Mpig,
The socialist types I have engaged with strongly feel (not seem to feel) that my government's right to bequeath my wealth to everyone else and their offspring should be inviolate.
And I haven't even had the chance to retire and spend it soaking up solar energy on the beaches of the blue Aegean.
Poorly raised children tend to fritter away their inheritances quickly. That's usually how it happens.
The world rarely works the way that the academics claim that it does. I'm far less concerned about the ultra-rich than ensuring that the poor and middle class have a means to consolidate their capital and save for the future.
Now, it seems that all the "middle class" has is a sterling credit rating.
Banks and speculators didn't create the Greek budgets (or budget) deficits. They were glad to profit from being middle men for Greek debt sales and glad to bet (using CDS's) that Greece wouldn't pay off that debt.
I'm fine with controlling profits of primary dealers (central banks don't want that because who would facilitate the sale of Treasury trash) and fine with forcing CDS's on exchanges (and even restricting their use to hedges for people with a position in underlying securities) but once again politicians don't want that because it will hurt profits for their "sugar daddies."
Banks and speculators didn't cause Greece's problems but they will try to exploit them (for their own profit) and if we let the markets function, in some cases, for their own destruction.
Greece will default (so will a lot of other countries, including US) either explicitly or via monetization.
The governments caused all this and in trying to cover their butts are making it worse. Speculators are trying to profit from the collapse (and some will). Average citizen will be destroyed. Some leaders may be punished but most will get off scot free. That's how life is! Your are screwed, B@#$%s!
Good Grief!
Living in the modern world, it's rapidly 'one group's fault' and not some other group's. Ironically, the group in the crosshairs is the one lacking means to unwind the finance dilemma. Default? Marc Faber suggests that all nations will default and from here it is hard to see any nation that is not insolvent.
The Vatican is overburdened with sex abuse claims. Israel by its military commitments. China? A gigantic currency trap not much different from (insolvent) Spain or Ireland.
There are too many finance claims against shrinking physical production be that the output of machines or the 'development' of resorts. Claims multiply like rabbits. I have part ownership of a house in New Orleans. I have an undeterminate claim against BP. See how easy it is? Modernity creates claims against itself as the byproduct of waste which is its primary product.
In the end, we individuals all default. We step into the grave giving the finger to the rest of the world.
One illumination of the ongoing crisis is that the claims of finance are subordinate natural claims. I realize this is a shocking concept. That silent and agreeable nature would manifest its claims through the finance system by undermining it is something never considered by the creators and operators of that system. While Goldman- Sachs' claims can be negated by a Court inside bankruptcy (default) or by restructuring, the claims made by physics are non- negotiable. The crude oil dumped into the ocean cannot be removed by writ, the energy removed from the future by wasteful use last week cannot be likewise re- constituted elsewhere. That there are no guarantees for retiree claims or those of sovereigns should be no surprise as all are sculpted upon an armature of claims on nature. Arbitraging thermodynamic claims has distorted finance to the point where it is becoming non- functional right under our noses.
The outcome of this is a money regime that has fallen and can't get up. The failure is the product of decades of waste and zero returns upon that waste. The only surprise here is that the denouement has taken so long to arrive.
Life was just as much fun for Germans vacationing in Greece as the byproduct of the sale of German autombiles in Greece as it was for the Greeks who bought those automobiles. The question now is 'where is the finance/energy return on the use of those automobiles?' Both the Greek and German must answer, 'nowhere'.
Instead the rich blame the poor. Dumb, no?
What a butt-fucker that guy is.
From Websters:
Main Entry: par·a·site Pronunciation: \?per-?-?s?t, ?pa-r?-\ Function: noun Etymology: Middle French, from Latin parasitus, from Greek parasitos, from para- + sitos grain, food Date: 15391 : a person who exploits the hospitality of the rich and earns welcome by flattery
2 : an organism living in, with, or on another organism in parasitism
3 : something that resembles a biological parasite in dependence on something else for existence or support without making a useful or adequate return
my note: see Socialism
Geez! Give me a break, Leo. Goldman MAY have driven the getaway car for a few blocks after the Greek Socialists robbed the bank but they sure as hell didn't play any role in Greece's problems. You really do have a problem with anything critical of Socialism. I suggest you get over it. The Socialist facade of stable fiscal and monetary management, along with Socialist governments are being revealed for what they are...... and will be thrown out of power once the average person understands they have looted the public's pocket and given the money to their union friends that are wildly overpaid with lavish pensions and health care benefits.
For the nth time, I AM NOT A SOCIALIST! But I warn you, what pisses me off more than liberal socialists who see the government as a solution to all their ills are hypocritical capitalists who shun handouts to the poor and destitute while gladly accepting corporate welfarism. If all these banksters had substantial skin in the game, I doubt we would have seen a fraction of the shenanigans we witnessed over the last decade. HYPOCRISY reigns as the financial oligarchs scheme up news ways to screw the system.
Leo, you are a very shitty demagogue. Capitalism and a free market economy have nothing to do with "corporate welfare". This is why we have problems in America: there is no free market economy left in America any more. We got an ersatz capitalism in America.
Leo, is there any Greek leader who is "accountable" for this Greek mess?
You know how this will all play out. Greek leadership will implement austerity measures at the behest of the Germans. At the point in time when their economy is nearing a quasi-surplus (net debt interest payments) they will default on their debt. Going forward they will feel that with the exclusion of debt interest payments, their budget will be balanced and the world-be-damned.
To re-iterate, the 150 billion in new loans granted to get them through the next three years will be defaulted upon. You can take that to the bank.
That is Greek gratitude for you.
Go Leo Go....you talking to with the Squid....what did you expect
Hey Writer:
You say Greece has defaulted before, "They've never lived up to their responsibilities, they have defaulted before. "
If that is true, then why would any right-thinking bank lend as was done?
What does that tell you about the lending banks?
Do you know how many times a particular loan has been insured against?
Before you rail against Greece with generalities, you may want to better investigate the particulars. If they Greece has a case against the lenders, then just say "bring it on".
Florida Joe
Good God. Your understanding is so below the floor. Right thinking bank? Are you serious? Central bankers? Get a grip, or at least a basic education.
People need to realize the politics behind what is going on...There is more here than the mainstream story of fiscaly irresponsible Greeks...Too many political interests and agendas are being served by whast happening to Greece...Could Greece done more to have prevent this, ABSOLUTELY!...Are some countries and individuals profiting from this ABSOLUTELY!...For a website like ZH which talks about "rigged" markets and stock manipulation I dont undertand how the idea of manipulation of speculators in Greece's case seems so foreign...Im sure with whats going on in the EU is helping the U.S. fund its liabilities by seeling T bills...Lets start looking at the forest and not just the trees...
Judging by your post, you ain't much of a market wizard. You are simply stating the obvious. How should pension funds and personal wealth be protected during times like these?
Maybe you should change your moniker.
Egads, what a biased rant! The things written as though current Greek PM is reponsible for all troubles. Thankfully a prior poster points out there was another PM prior to October 2009.
One wonders whether the writer is trying to divert attention from other things (like the raiding of the eurozone that has been going on (??) -- Kamakura has written some very interesting pieces of late indicating that most CDS trading is done by dealers, not end-users, which in turn gives rise to interesting considerations). I for one say let the sun shine in on all player's actions (which would include the current Greek PM BTW).
As an editor, I would say the writer should have started with something like "Here is Papandreou's contribution to the Greek mess:" and then started his piece. There are lots of contributors to this mess (Goldman's assistance to the Greek government's efforts to hide its debt comes to mind), let's not focus on one player as the sole reason for the problem.
DudleyDoRight, you appear to be carrying considerable ideological baggage in your post. Read the article again. G-Pap is "another" slimy Greek politician.
In your view of a structured market, which parties should be "permitted" to trade Credit Default Swaps.
G-Pap is the leader of Greece. It's his job to lead. He is playing the hand he has been dealt and has been instrumental in stacking the deck.
It's nice that you want to re-write this article and change the message. Good luck with that...
The average guy sees banks getting bailed out and pensions getting cut. He doesn't think it's fair.
I'm in favor of capitalism for the rich and the poor. Europe has socialism for the elite and austerity for the poor/middle class. We in the US are headed in the same direction. So people are pissed.
The financial bailout is very insidious because it has removed any credibility or moral high ground for those advocating an Austrian cleansing. This is perhaps the world-wide bailout's most lasting damage to the system
I absolutely agree that government waste and and misapplication of capital must end. We know why they do that, thanks to wolves bribes.
What I don't understand is that constant rant about socialism which by many authors is defined by paying generous benefits to employees of government, founding state health care and pensions. As far as I know thousands of companies in USA are paying (still) generous benefits to their own employees also including health, pension and unemployment (supplements), is it socialism too?
<I know thousands of companies in USA are paying (still) generous benefits to their own employees also including health, pension and unemployment (supplements), is it socialism too? >
No, it is not. These private sector companies are using their own money to pay for these benefits. This money were not forcedly taken from somebody else specifically from taxpayers. Socialism is in a business of transferring money from productive segments of society to failed ones. Therefore, these transfers are undermining productive business sectors, breeding theft, corruption, parasitism, and destroying the fabrics and foundation of democracy.
"Socialism is in a business of transferring money from productive segments of society to failed ones."
Oh, you mean like the bank bailouts, right? I produce, they fail, they get my tax dollars! Wow, "socialism" sucks.
Is this a joke? Is there any doubt that huge amounts taxpayer money are being funneled to "private sector companies"? JPM? GS? GM? Windfall tax breaks to builders? WTF?
Your intelligence is reflected in your photo. One and the same.
Nice piece. To add some color: the Papandreou family has amassed quite the fortune over the years. One has to wonder how three generations of men who spent their lives in politics or teaching in universities got to be this wealthy.
Yes, when looking for corruption, start at the top. Keep this in mind when thinking of other national leaders closer to home.
That said, I am seeing the first signs of a real crackdown on corruption and tax fraud. The resignation of a minister yesterday over her husband's tax issues is a case in point, particularly because it is not clear her husband actually evaded taxes. They've also started the first rounds of felony tax fraud charges against doctors and other professionals.
I cannot emphasize enough how unprecedented these steps are, and if there is follow-through to institutionalize such anti-fraud and anti-corruption measures, not only will it be critical to changing the mindset of the average Greek, it will also go a long way to getting quite a lot of Greeks to accept austerity measures.
I've spoken to a lot of Greeks from all walks of life, and they all share the feeling that they are willing to do their bit to fix things as long as those who committed crimes are brought to justice and are forced to give back their ill-gotten gains.
If only we could wake up more Americans and get them to hit the streets and force such change here. I'm still optimistic.
Where can one ever find a NON-wealthy socialist politician?
Apparently, "from each according to his ability" only applies to the taxpayers.
There's no digging your way out of this hole. This hole must be filled with bodies......and we climb out.
Regards.
What a bunch of drivel. Greece will take down the eurozone? Those German and French banks who lent the money without doing a proper DD are not to blame for their misfortune? What about Goldman's role in helping Greece lie about it's true debt? What about the incompetence of Kostas Karamanlis and his government? And finally, I am tired of ZH discussing the Fareed Zakaria interview without allowing your readers to listen to what was said (forward to 10 minute mark):
Many of you might also want to listen to the roundtable with France and Singapore's finance ministers, Larry Summers, and the IMF's Strauss Kahn. Forward to the the 23 minute mark.
Leo,
former-Bundesbank-Boss Karl Otto Pöhl gave in interview in Spiegel online stating that the bailout was for German and French banks and that the proper way would have been a haircut of 30% for the lenders a while ago.
"Pöhl: Es ging darum, die deutschen, vor allem aber die französischen Banken vor Abschreibungen zu bewahren. Französischen Bankaktien sind am Tag, als das Paket verabschiedet wurde, um bis zu 24 Prozent gestiegen. Daran sieht man, worum es wirklich geht, nämlich um die Rettung der Banken und der reichen Griechen."
My translation: The point was to prevent German and, more important, French banks fom write-offs. French Bank shres rose the day the baiout was announced up to 24%. That shows what was really the point, saving the banks and rich Greeks.
http://www.spiegel.de/spiegel/0,1518,695153,00.html
The whole interview is worth a read if someone understands German.
http://www.spiegel.de/international/germany/0,1518,695245-2,00.html
the english version
Gunther,
you are absolutely correct and it also suits the politicians very well again to have a "external" Machiavellian enemy. The Banks
Gunther, I agree with this, the bailout was not to save Greece, but to save her elites as well as French and German banks.
Greece is the new AIG. A bailout conduit for big banks, courtesy of taxpayers.
I want to add:
... at the expenses of the average guy in BOTH countries.
Agreed, at the expense of average workers in both countries. I believe working class Germans and Greeks know the bailout was for the elites, not for them.
Agreed, Leo. Papandreou never volunteered the "going to sue Wall Street" statement. As one of my friends stated, how is he supposed to respond to that question? "No, we're not suing anybody"? Of course he will keep his options open.
Hell, if the Greek inquiry were to find evidence of fraud, I can imagine them getting a call from the SEC asking to have a looksie at their findings.
Are we saying the US government can sue these assholes, but not the Greeks? The more I see people making fun of Greeks and criticizing every move they make, the more this smacks of old-fashioned racism.
Us swarthy types deserve a little justice, too!
'racism', i thought that was reserved for obama critics.
Indeed --- and for those who believe that national borders actually should mean something as well.
The Serbs who formerly inhabited and controlled Kosovo learned about that, to their bitter detriment.
"racism"? WTF? There's a Greek "race" now?
While there's enough blame to go around for everyone involved, the question at hand is, who gets to sue the Greek government for perpetrating their fraud on the rest of the world for the past decades? Papandreou is like Bernie Madoff threatening to sue his clients for giving him the money in the first place. I believe we call that "gall".
As a rule, whenever you see a CEO (or in this case, a national leader) attacking the shorts, you should run fast, run far from whatever he's selling.
He should really learn to be more positive.... when life hands you Lehmans, make Lehmanade.
<deleted> not the dreaded double-post, again
That's David Einhorn's mantra.
I am absolutely not an Socialist but for the last 5 years upto October 2009 Costas Karamanlis was the PM. And he is not a Socialist either.