John Taylor: IMF Loans To Greece Bailed Out Banks And Worsened The Situation

Tyler Durden's picture

Two weeks ago, in "The Unspoken Tragedy In The Upcoming Greek Bailout", we showed that for all the talk of Greek profligacy and corruption (and there certainly has been a lot of that since Greece adopted the Euro in 2001), the reality is that of the €230 billion in Greek bailouts 1 and 2, only 11% of this amount trickled down to the Greek population.

 

We followed up earlier this week with "The Biggest Winner From The Greek Tragedy" in which we explained that while Greek debt has risen consistently to a record highs of 175% of GDP even with the PSI aka private creditor debt restructuring which took place in 2012...

 

... the vast majority of that debt has gone to cover repayments to banks exposed to Greece:

Now, as a result of yet another imminent bailout, #3, the Greek people are about ot be hijacked by their government which explicitly asked them if they agree with said bailout to which 62% said no, and stick them with tens of billions more in debt, debt which will push the total debt/GDP to over 200% and without a trace of doubt, lead to the complete collapse of Greece. Worse, virtually all of thise debt will again be used as funds to repay exiting creditor claims.

Then again, Greece has already collapsed, and the only real question is whether the ECB will give Greek depositors time to withdraw some of the €120 billion in deposits it holds hostage with the frozen ELA, or if the ECB will admit the truth about the Greek insolvent banking system risking Eurozone contagion.

Perhaps a better question is just what is the purpose of the IMF (besides being the source of much humor with its "forecasts") whose intervention in Greece can be described in one word: disaster.

It can also be described in eleven, as the creator of the Taylor Rule, John Taylor, has done in a blog post which can be summarized as follows: IMF Loans To Greece Bailed Out Banks And Worsened The Situation.

Here are the key excerpts:

I make the case in this Wall Street Journal piece and in more detail in Congressional testimony that there’s an opportunity for a deal between the Congress and the Administration on international monetary reform.  The case starts with perhaps the most obvious lesson from the Greek crisis: The IMF should not make loans to countries with unsustainable debt. Such loans bail out banks and often worsen the situation.

 

The IMF learned that lesson more than a decade ago and in 2003 adopted an “exceptional access framework” enshrining the rule of no lending to countries with unsustainable debt. There were few crises in emerging markets in the years following, and it seemed to work well.

 

But the rule was broken in 2010 when the Greek crisis came along.  Even though Greek debt was unsustainable, the IMF lent 30 billion euros anyway.  It wrote in an exemption to the rule for systemic risk, perhaps under pressure from private holders of Greek debt.

Here replace "perhaps" with "most certainly"!

Following this 2010 decision, the Greek economy has deteriorated sharply and many private creditors were able to get out of Greek debt leaving the public sector holding the bag, as Benn Steil has dramatically shown.

Taylor goes on to demand that the IMF's systemic exemption be repealed, as per his WSJ Op-Ed:

New loans, it said, could be made in unsustainable situations so long as there was a “high risk of international systemic spillover.” The IMF claimed, with very little evidence, that this was true in Greece’s case and approved an exceptionally large loan of €30 billion. But it did not require any restructuring of the debt, which was held largely by European banks.

Therein lies the fault of Taylor's thinking: whether it is the IMF, or just any other central bank, the largest commercial bank equity holders will always find a way to transfer their risk exposure to that of the general public: it happened in the US in 2008 (with no referendum), it has kept happening in Greece for the past five years. Private banks don't need three-letter acronym organizations to do it (three page blank check proposals work just as well) but they will use them if they are around.

As long as commercial banks are in control of entities such as central banks, the policy of privatized gains and socialized losses, aka the "global central bank put", will never change.

And as long as private banks also get to determine policy, which they do thanks to thir pervasive domination of all the world's politicians, the bailouts of these monstrous entities at the taxpayers' expense will continue.

Incidentally, for those still dubious about how just one bank, in this case FDIC insured hedge fund (why is it still FDIC insured - because it has so many ATMs probably) Goldman Sachs, can control the world, here is a reminder.

 

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aliki's picture

yep - stole a page out of our playbook from here in the states.

just gas-up the helicopters & get on with it already.  only a matter of IF not WHEN "they" make it rain on the people.

#print&rain

crazytechnician's picture

It will be the opposite. A deflationary depression marked with bail in's and negative interest rates.

Deathrips's picture

Anyone who thinks banks or governments work for the people is going to have a very hard and depressing life.

 

RIPS

ebworthen's picture

Precisely.  Bail out J.P. Morgan, Citi, GM, Countrywide, AIG and fuck the citizenry - no surprise this is the ECB/IMF tactic for Europe.

Hang the banksters and the politician lackeys if you want to solve the problem!

eatthebanksters's picture

This whole Greek/German/EU episode has been one big charade..in spite of the threats both sides pushed until there was no time left to push and then made a deal.  The Germans and the EU were never going to not take a haircut and walf away from a partial payoff - it wasn't politically feasible.  The Greeks were just posturing to get the best deal all along and the vote last weekend really helped them.  But in the end the EU has fucked itself because now the rest of the fucktards (Italy, Spain, Portugal and France - yes France) know the dance.  This shit will go on for the next 20 or 30 years...the can will be kicked and the little people will be fucked.  Meanwhile back in the good old USofA the same shit is going on.  The market roars at 'good' news and the Fed rules over everything.  Its amazing that China can lose $6 trillion and still be on a downward trajectory (and maybe a war footing as a result) but our markets don't blink.  However, little tiny fucking Greece created serious volitility when the potential of no deal was on the table.  This shit is so rigged that if you weren't in at the beginning then you'll never get in and you're fucked for life.

 

Deathrips's picture

I wear the socialist downvote like a badge of honor.

 

RIPS

de3de8's picture

These are the type of articles I read on ZH that makes my blood boil.

aliki's picture

nothing they could do would surprise me anymore.  obama's plan all-along is to overload any & all systems until they blow leaving government the final & only solution left standing. friggin pathetic world we live in.

santelli said they had a patch they would wear on their jackets down on the floor that said "free markets = free men".

i don't doubt ball-ins & negative rates are on the horizon here in the states. we are generating record tax reciepts here in the U.S. the past 5 years and we are still spending $1 trillion a year (on average) more. its never gonna be enough spending for them and its gotta come from somewhere.

Stanley Kubrick's picture

Well, at least we've got fantasy football to fallback on....burp.

DeProgrammed's picture

It will be....  exactly what the banksters and TPTB want it to be.  They sure fixed that OXI in a hurry.

Oh regional Indian's picture

Gold Mansacks, looting and pillaging.....

Quelle surprise!

KnuckleDragger-X's picture

Just remember, rape, pillage, THEN burn.....

JustObserving's picture
IMF Loans To Greece Bailed Out Banks And Worsened The Situation

If someone is loaning you money when you are deeply in debt, it's not for your good.

Besides, when has the IMF not been a force for evil?

The IMF Itself Is a Criminal Organization 

To understand this story, you have to reel back to the birth of the IMF. In 1944, the countries that were poised to win the Second World War gathered in a hotel in rural New Hampshire to divvy up the spoils. With a few honourable exceptions, like the great British economist John Maynard Keynes, the negotiators were determined to do one thing. They wanted to build a global financial system that ensured they received the lion's share of the planet's money and resources. They set up a series of institutions designed for that purpose – and so the IMF was delivered into the world.

 

The IMF’s official job sounds simple and attractive. It is supposedly there to ensure poor countries don’t fall into debt, and if they do, to lift them out with loans and economic expertise. It is presented as the poor world’s best friend and guardian. But beyond the rhetoric, the IMF was designed to be dominated by a handful of rich countries – and, more specifically, by their bankers and financial speculators. The IMF works in their interests, every step of the way.


http://www.realclearworld.com/2011/06/03/the_imf_itself_is_a_criminal_or...

Philo Beddoe's picture

If somebody wants to lend me a billion I am all ears. 

101 years and counting's picture

"IMF Loans To Greece Bailed Out Banks And Worsened The Situation."

no shit.  but still nice to see someone else finally say it.  taxpayers bailed out the banks again.  will the peasants ever realize how badly we're all getting fucked for the good of so few people.

Winston Churchill's picture

The sheep don't mind as long you're wearing wellies.

Seem to enjoy it actually.

deKevelioc's picture
John Taylor: IMF Loans To Greece Bailed Out Banks And Worsened The Situation

 

We know, John.

 

 

Salzburg1756's picture

The only solution is world-wide public executions of banksters, and put them on TV.

HowardBeale's picture

The greatest surprise to me is that the vigilantes haven't begun the cleansing already. Really! 

falconflight's picture

"... the reality is that of the €230 billion in Greek bailouts 1 and 2, only 11% of this amount trickled down to the Greek population."  

Disingenuous and prevaricating.  You mean direct monetary payments?  Yes, I don't doubt that, but who is financing Greek socialist government redistributionist programs?  

Circular logic wins the day again.  Only a people allowed and protected to depend on their own devices can avoid oligarchic rule, but that means most of us will have to accept the vagaries of life and no publicly funded 'safety net.'

lawyer4anarchists's picture

Of course the banks got it. They always do.  The entire banking system is a scam as we know.  Most people, however, have never heard of a little case that exposed it and showed people how to defend themselves from it.  Thus the case is buried, along with the judge who entered the order.  Such is the way it is.  http://www.thetruthaboutthelaw.com/banks-lend-money-they-create-out-of-t...

DeProgrammed's picture

If only it were so easy. Wasn't this a rare case in which the bank had some M1 and M0 (I can't remember the details) money mixed up in reserves, hence the verdict? Basically caught the bank on a technicality. I bet they were royally pissed.

Rainman's picture

Reminder to citizens: USSA quota to the IMF is about 58 Billion fiatscos. We are all Greeks now.

Soul Glow's picture

Bailed out bonds are getting slaughtered today.

Mike Honcho's picture

If Greece can hold on until 2017, ex Enron Wizard Jeffrey Skilling will be out and can make their books look as good needed.

MEFOBILLS's picture

And as long as private banks also get to determine policy, which they do thanks to thir pervasive domination of all the world's politicians, the bailouts of these monstrous entities at the taxpayers' expense will continue.

 

 

Thank you John Taylor for saying it.  When I first started pointing this out to ZH readers, I would get roundly critized by the "Government" is source of the "problem" crowd.

Finance Capitalism has captured Western Governments.

The following statements are at the crux of the problem: Virtually all money in Western"credit" money supply is sourced at private banks and at interest.  Banks create credit, they do not intermediate existing funds.  Intergovernmental debts have no agreed upon legal mechanisms for settling dispute.

gcjohns1971's picture

"Finance Capitalism has captured Western Governments."

 

Which Capitalism is 'Finance Capitalism'?

Is that the one where Government gives banks the privilege of pledging the same money at the same time to both depositors and loan recipients?

Is that the one where the Government creates a Central Bank whose explicit purpose is a "Flexible Money" supply - e.g. one that can be expanded at will for the express purpose of ensuring that banks will be able to deliver said money to both loan recipient's creditors and to the depositor?

Is that the one where the Government demands said banks assume 'Lender of Last Resort" status in return for the privilege?

Which Capitalist mentioned such a Government-Central Bank relationship?

Would that be "Wealth of Nations" and Adam Smith?  I can't seem to find it.  Everything he said seems to repudiate such a banking-government relationship, not promote it!

Oh! Sorry.  I withdraw the question.  I found the proponent.

It is one of Karl Marx's 10 planks of Communism listed in the Communist Manifesto.

Which Capitalism is that again?

css1971's picture

It is still a government problem. We in the west, generally have representative democracies where we delegate the powers of government to other people. In order for this to work, these people have to be trustworthy. Not entirely surprisingly, it seems that most politicians can't be trusted.

Therefore they shouldn't have the powers delegated. The mechanism of government needs to change to reduce the attractiveness of corruption. Powers have to be retained by the populace and not be delegated to representatives. This is really a failure of representative democracy as a model of governance.

Look to a more direct form of democracy which removes power from politicians.

optimator's picture

IMF?  Forget it, if you want to know start with the top, BIS.  (Boss In Switzerland).

Fuku Ben's picture

Will the IMF ever learn?

For all those who were offended by my previous fictional parody attempts at humor please accept my humble and sincere apologies. Especially the Giants whose well renowned sense of humor, historically mentioned in literature, differs so greatly from my own.

Auf wiedersehen

assistedliving's picture

Gen Y meet generation Schauble.  i want more, i want free and i wont do a thing to get it is not a plan

gcjohns1971's picture

What?

You mean that it is impossible to solve a problem caused by excessive leverage in society by adding leverage???

 

Who knew?

ThisIsBob's picture

Of course it worsened things, but not for the players who got their share of the coin, and that, after all, was on whose behalf the deals were done.

 

Greece, Schmeece.   Collateral damage.  None of them do now, nor ever did give a flying fuck about greece.

Amish Hacker's picture

The carrot: if Greece caves to the Troika this weekend, it will "give Greek depositors time to withdraw some of the €120 billion in deposits."

So you see, Greek depositors, just as the previous bailouts allowed the Euro megabanks to offload risk from their balance sheets onto the public, this final can-kick will let you get your money out of the banks. So bend over, damnit, it's your only hope.

gcjohns1971's picture

I find it hilarious that people call this Central-Bank-to-Government relationship "Capitalism".

 

It is one of Karl Marx's 10 planks of COMMUNISM folks.

css1971's picture

Looks to me like representative democracy is pretty much a failure. It's too prone to corruption and cronyism.

Far more "direct" democracy is required.

Bruno de Landevoisin's picture

Both misconstrued bailout plans, previous or current, will clearly eventually fail, further indebtedness can't possibly be a viable long term solution. 
 
Only hard choices can work at this point: 
 
A) Major haircut to the outstanding loans which were grossly irresponsible by both creditor and lender.  
 
B) Default and leave the EZ 
 
Anything else is a misguided attempt to suck blood from a rock. 

 

overmedicatedundersexed's picture

the troika will be crying in their Crystal for the poor greeks, nuthing can console them no matter how much caviar, drinks and the best pastery man has seen can lighten their sad mood.

gcjohns1971's picture

 

 

Let's look at the Economics of the EU, and Greece...and the US too, for that matter:

What economic system are they using??

Let's go straight to the inventors' mouths! Shall we?

 

Exhibit A - Adam Smith's description of Capitalism in 7 Points.

Exhibit B - Karl Marx's 10 planks of Communism.

 

YOU DECIDE WHICH YOU HAVE:

EXHIBIT A:

1. Private property-the right to own resources and bequeath property
2. Freedom of enterprise-own a business
3. Freedom of economic choice-work/not work, spend/not spend ...
4. Role of self-interest

a. People are by nature economic creatures
b. Self-interest is a fundamental characteristic of people

5. Competitive market system

a. Many buyers and sellers
b. Market participants, buyers and sellers, have little control over price
c. Competition performs the organizing and controlling functions for a market economy

6. Limited government ("Laissez-faire ")

a. Government should let markets be with a hands-off philosophy
b. Francois Quesnay popularized term laissez faire.

7. Characteristics of capitalism lead to Creative Destruction

a. First described by 20th century sociologist and economist J oseph Schumpeter, it was an important new idea of capitalism.
b. Change involves the creation of technology, improved economic structures and the destruction of inefficient economic structures.
c. Capitalism allows this destruction to take place.

 

EXHIBIT B

1. Abolition of private property in land and application of all rents of land to public purpose.

2. A heavy progressive or graduated income tax.

3. Abolition of all rights of inheritance.

4. Confiscation of the property of all emigrants and rebels.

5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.

6. Centralization of the means of communication and transportation in the hands of the state.

7. Extension of factories and instruments of production owned by the state; the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.

8. Equal obligation of all to work. Establishment of Industrial armies, especially for agriculture.

9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country by a more equable distribution of the population over the country.

10. Free education for all children in government schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, etc. etc.

 

combatsnoopy's picture

Exhibit A won't work unless Greece is able to leave the EU. 

For some, it's too late.  Beware of the narcissistic ideologue, they're dangerous people.  Which is why free market capitalism reigns supreme. 

Those in Europe often confuse "capitalism" with Goldman Sachs.

Capitalism and the value of their bartering tools are the purest litmus and form of democracy.  Since Greece joined the EU, democracy hasn't been of Greece. 
Well it wasn't when their leaders made a stupid mistake.

Voting doesn't work, bribery and lobbying does.  

combatsnoopy's picture

The BBC story shows an elderly Greek man who couldn't get his own money out of the bank and was bailed out by a rich Australian businessman. 
http://www.bbc.co.uk/programmes/p02wqc83?ocid=socialflow_twitter

 

And of course it was the U.S. who sold military aircraft to Turkey, whom Greece needed to defend Cyprus oil from.

 

Right? 

We can go into the technicalities of that but that's a tangent I don't have time to explore right now.  

 

The overleveraged, caucasian real estate flipping, gluttonous, lazy, out of shape, unhealthy, academically challenged and fiscally illiterate U.S. and it's PR have no room to grill ANYONE on personal responsibility.

 

 

 

SmittyinLA's picture

 then there's the "optional intentional war(s) and sanctions" imposed on Greece by the EU bankers, you know Ukraine and Syria & Libya, those were all optional, intentional and had predictable negetive consequences for Greece (refeugees, oil spike, sanctions) , in a way the banks screwed Greece with foreign wars for and intentionally forced a default, most of Greece's debt was Iraq war oil cartel rape debt.