Guest Post: The New European Serfdom

Tyler Durden's picture

Submitted by John Aziz of Azizonomics

The New European Serfdom

So let’s assume Greece is going to leave the Eurozone and suffer the consequences of default, exit, capital controls, a deposit freeze, the drachmatization of euro claims, and depreciation.

It’s going to be a painful time for the Greek people. But what about for Greece’s highly-leveraged creditors, who must now bite the bullet of a disorderly default? Surely the ramifications of a Greek exit will be worse for the international financial system?

J.P. Morgan — fresh from putting an LTCM alumnus in charge of a $70 trillion derivatives book (good luck with that) — is upping the fear about Europe and its impact on global finance:

The main direct losses correspond to the €240bn of Greek debt in official hands (EU/IMF), to €130bn of Eurosystem’s exposure to Greece via TARGET2 and a potential loss of around €25bn for European banks. This is the cross-border claims (i.e. not matched by local liabilities) that European banks (mostly French) have on Greece’s public and non-bank private sector. These immediate losses add up to €400bn. This is a big amount but let’s assume that, as several people suggested this week, these immediate/direct losses are manageable. What are the indirect consequences of a Greek exit for the rest?


The wildcard is obviously contagion to Spain or Italy? Could a Greek exit create a capital and deposit flight from Spain and Italy which becomes difficult to contain? It is admittedly true that European policymakers have tried over the past year to convince markets that Greece is a special case and its problems are rather unique. We see little evidence that their efforts have paid off.


The steady selling of Spanish and Italian government bonds by non-domestic investors over the past nine months (€200bn for Italy and €80bn for Spain) suggests that markets see Greece more as a precedent for other peripherals rather than a special case. And it is not only the €800bn of Italian and Spanish government bonds still held by non-domestic investors that are likely at risk. It is also the €500bn of Italian and Spanish bank and corporate bonds and the €300bn of quoted Italian and Spanish shares held by nonresidents. And the numbers balloon if one starts looking beyond portfolio/quoted assets. Of course, the €1.4tr of Italian and €1.6tr of Spanish bank domestic deposits is the elephant in the room which a Greek exit and the introduction of capital controls by Greece has the potential to destabilize.

A multi-trillion € shock — far bigger than the fallout from Lehman — has the potential to trigger a default cascade wherein busted leveraged Greek creditors themselves end up in a fire sale to raise collateral as they struggle to maintain cash flow, and face the prospect of downgrades and margin calls and may themselves default on their obligations, setting off a cascade of illiquidity and default. Very simply, such an event has the potential to dwarf 2008 and 1929, and possibly even bring the entire global financial system to a juddering halt (just as Paulson fear-mongered in 2008).

Which is why I am certain that it will not be allowed to happen, and that J.P. Morgan’s histrionics are just a ponying up toward the next round of crony-”capitalist” bailouts. Here’s the status quo today:

Greece no longer wants to play along with the game?

Okay, fine — cut them out of the equation. In the interests of “long-term financial stability”, let’s stop pretending that we are bailing out Greece and just hand the cash over to the banks. Here’s my expected new normal in Europe:

After all — if the establishment is to be believed — it’s in the interests of “long-term financial stability” that creditors who stupidly bought unrepayable debt don’t get a big haircut like they would in a free market.  And it’s in the interests of “long-term financial stability” that bad companies who made bad decisions don’t go out of business like they would in a free market, but instead become suckling zombies attached to the taxpayer teat. And apparently it is also in the interests of “long-term financial stability” that a broken market and broken system doesn’t liquidate, so that people learn their lesson. Apparently our “long-term financial stability” depends on producing even greater moral hazard by handing more money out to the negligent.

The only real question is whether or not it will just be the IMF and the EU institutions, or whether Bernanke at the Fed will get involved beyond the inevitable QE3 (please do it Bernanke! I have some crummy equities I want to offload to a greater fool!)

As I asked last month:

Have the 2008 bailouts cemented a new feudal aristocracy of bankers, financiers and too-big-to-fail zombies, alongside a serf class that exists to fund the excesses of the financial and corporate elite?

And will the inevitable 2012-13 bailouts of European finance cement this aristocracy even deeper and wider?

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LawsofPhysics's picture

Right, cut the creeks out, and then Spain, and then Italy, and then...   ...and then the U.S.

eCONomics, meet fucking reality.  Soon the "creditors" will be a couple germans playing with themselves.  Good luck.

BlueCollaredOne's picture


"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists. "


I like the way you think, but I think you forgot to sprinkle in a little war to your post

Richard Chesler's picture

...of the banksters, by the banksters, for the banksters.

Manthong's picture

My diagram may clarify the mechanics of the flow slightly.

Aziz's picture

As my girlfriend puts it "heavy flow".

Xkwisetly Paneful's picture

Those damn evil banksters.

Greece hasn't had a budget surplus since most of the evil banksters were in grade school,

those damn evil banksters!


Aziz's picture

If a country hasn't had a budget surplus since before you were in grade school why in the bluest hell would you buy their debt?

Manthong's picture

Because you were in a government school getting a government education.

Aziz's picture

Close, but the correct answer is "coke and hookers".

Manthong's picture

But you turned to coke, hookers, porn, politics and banking because you went to a government school and got a government education.

11b40's picture

With all due respect, I'll bet the majority of the top Wall St. clowns went to private prep schools and most assuredly went to private, elite universities.


Manthong's picture

“the majority of the top Wall St. clowns went to private.. schools”

I agree.. but that is where they were educated by fellow elites as to how to keep the sheep in government schools under the control of overpaid government bureaucrats so that they never get a freaking clue as to what is being done to them by the politicians and bankers.

The Leno “Jaywalking” segments are nifty evidence of how government education is working out.

I particularly like it when he gets teachers and students being indoctrinated to be teachers who shouldn’t be allowed within a mile of a school.

Ask 10 products of government education to explain what a Federal Reserve Note is and how and when the “money” that is center of their physical life came to be.

That is not a suggestion, that is a challenge.

Got a little off track there… I guess you don’t turn to coke and hookers because of the education you get in sheep school, but then again, they haven't done such a great job of discouraging it, either.

Xkwisetly Paneful's picture

for the same reason junk bonds exist. 

the one that comes into the game with nothing and leaves with something-aka Greece can't be the loser of the game. 

I am awaiting more charts about the egregious interest being looted from state coffers all the while,

they've been debt financing the country for who knows how long? 1973 may be the right answer but who knows?, the fraudulent double the norm GDP after WWII didn't really lead to fraudulent prosperity aka the folks who came into the game with nothing and left with lifestyles far above what the underlying economy could support and that doesn't really continue today where they were running monster deficits for as far as the eye can see.  They came into the game with minus nothing and left with generations of prosperity-

those damn evil banksters!

Joe The Plumber's picture

I will give the zerohedge token zionist joo a big greenie.

Well played

Xkwisetly Paneful's picture

Aslam Alekem Achmed.

getting worried no outlet for you and the rest of the brothers' jew hate here lately.

That basically means it must be completely off base.

No jew here for the 2,123,985th time.

pretend I am islam woman if that helps.


Bobbyrib's picture

Excellent point! It's not like Goldman rigged Greece's debt to make it look like they met the requirements of entering the EU.

LawsofPhysics's picture

Unless you are referring to a global nuclear war, I don't think most realize that the world does not have the resources and supply-chains to support a sustained conventional war or police state.  Having served, I feel I am better prepared than most, but I would simply conclude that all economies are indeed local, and becoming more local by the minute.  People in my neck of the woods have been trading physical cash and physical assets as well as other goods and services for quite some time now.  This is being done out of the eye of the tax-man, which further perpetuates the collapse.  History shows that when the fraud is so blatant and the game so obviously rigged, most people simply stop playing.  The differnce now is that we do not have a planet with easy access to abundant energy (read OIL).  Same as it ever was, well sort of.

CvlDobd's picture

I hope you are right. None of this paper shit is worth a war.

Xkwisetly Paneful's picture

History shows that war is always around the corner.

It sure as hell didn't start with the advent of paper currency or any other modern entity or device.


LawsofPhysics's picture

no, it always starts whens the currency becomes worthless and goods and services stop crossing boarders.  Do you have a point or are you simply another useless troll?

Xkwisetly Paneful's picture

No wars ever from famines, pandemics et al either, largely erradicated thanks to what?

Leverered fiat currencies-thanks for playing.

Don't stop with that indefensible drone like melody, war to save the petro dollar.

Without it as background, muzak just isn't the same.




Xkwisetly Paneful's picture

Do the red clicks signify complete herd delusion or what? As if modern man invented war!

I don't think most people realize their experience is not new or novel.

War is always coming, inflation is always coming, the government has always lied and manipulated. Half their existence is to purposefully lie about upcoming war and inflation. WTF? Don't fight the fed exists for a reason.

 There is nothing new or novel here.

Really doesn't matter the spectrum of underlying topic.

Entire existence is one incorrect platitude after another,

the world has never been in a better spot for perpetual police state.

From flying drones, to NSA recording trillions of communications to vast insertment of government into every human beings life on earth-one could maintain it already is a perpetual police state.

JFC employ the brain just once in a blue moon, if a total moronic imbecile like me can see this stuff so simply, why is it so incredibily tough for the self proclaimed geniuses?


blunderdog's picture

Someone will say Greek retirees have WMD stockpiles.  That'll do it.

LetThemEatRand's picture

I for one don't want to wait for the inevitable mushroom cloud that would be the outcome if we don't act on the assumption that thee retirees do have WMDs.

rwe2late's picture



financial swindling and war profiteering

are two arms of the same vampire

that are the most injurious when deceptively entwined.

jus_lite_reading's picture


Great quote from Ernest by the way...

Many a brilliant minds spelled out the dangers of central banks, TBTF, fiat ponzi and the like long enough ago that we have no excuse to allow this to happen. Too late... the game is over!

Hold tight... the fireworks start soon

Ruffcut's picture

It is all good with the bernanke samich. HIs secret ingredient is a lot of musturd. Lap it up.

Cheyenne's picture

Check out American serfdom at the Music Box Theater in Chicago this Wednesday at 8 pm:

SheepDog-One's picture

Get back on those oars, debt peasants, and ROW dammit! You've got billionaire banksters to support!

Paul451's picture

And the bankers want to go water skiing.

redpill's picture

2012 Word of the Year: drachmatization

falak pema's picture

Now you are tearing that curtain from in front of the world stage! Its the banksta world that is being saved by the Merkozy/ECB strategy. Greece is just human grease for the financial pump.

GeneMarchbanks's picture

There never was a curtain, only a glance the other way. How many times do I have to post it?

The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks. --  Lord Acton

icanhasbailout's picture

Party like it's 1789

Hugh_Jorgan's picture

Indeed. There will soon be no piano in Greece with any strings left in them, and a lot of high-end real estate left vacant. God help Eurozone, it is going to be a bloody 2012-2013.

Zero Debt's picture

"We the people" is missing in the charts.

gojam's picture

And then people wonder I why Syriza are taking the position they are.

Here's an essay about whether all the bailouts are just the biggest 'Ultimatum Game' in history.

PhilB's picture

The example is a poor one, but the outcome will be the same as you say. It is not at all irrational for Greece to demand better. In fact, I think we all know that Greece doesnt really have a deal that makes the country independently viable. We all know that. ZH has been telling us this all along. The incentive for Greece to pay a much higher long term price is declining as the true price tag of that price becomes more evident. Its Iceland AND Bust for Greece. There is no other way except direct EU transfers (not loans).

Paul451's picture

"And will the inevitable 2012-13 bailouts of European finance cement this aristocracy even deeper and wider?"

The answer would not be a 'yes', but is a "Fuck yes."


Sancho Ponzi's picture

There's a great article at that argues Greece won't/can't be the only country leaving the Eurozone.



Paul451's picture

Of course they wont be the only one; they'll just be the first. Soon to be followed by...fill in the bankrupt euro-nation of your choice...

Negro Primero's picture



"...history records tyrant oppression

    history records slave rebellion

    history teaches freedom liberation"

'Humanity Always Rises From Slavery'

-Terence George Craddock-

Jason T's picture

Tis why to Go Galt.  So the looters don't feed off the profits of your energy.  

sethstorm's picture

The better idea is to not make yourself a target.

Then do however else you wish.

Al Huxley's picture

Well said, and good call.  Yes, 'in the interests of long-term stability, our banker friends will be kept whole'.  Lucky for the rest of us there's no downside to infinite monetization of debt.

Mercury's picture

Resisting equilibrium is by definition counter to long-term stability.

Coke and Hookers's picture

Uhhhhh I thought the Greek Government had never been a part of that equation. Most of the money goes straight to the banks and has done so from the beginning - only 15-20% stops by in Greece if I remember correctly.

Correct me if I'm wrong.

theTribster's picture

Good post as usual, one that I definitely agree with although I just came th that conclusion over the weekend. In order to save Greece the Troika will have to relent in a big way and this will immediately impact Spain, Italy and the rest of the PIIGS. The only solution is printing money and distributing it, I think they'll make it much easier to get funds from the Troika on a go forward basis, European Bonds or some other vehicle. They have to move fast though, doesn't Greece have a huge payment due tomorrow? Whatever they do I think it will make the politics in Greece largely irrelevant.

I don't see any other way around it, in order to save the EU they have to pull some shit like this, a huge unlimited pot of funds. This is the plan, let's face it - get every country in the world as far into debt as possible, at the same time force everyone into the markets - then crash the whole shebang and take ownership of the world. This is the game as stated by the NWO, the Fed will help out the Euro again to make sure we can last as long as possible. To think that they are just stiupid and short term thieves is naive, this is part of a bigger plan for sure.

Everyone will be dependent on the gubmints to survive, even more than we are now. This will all stop abruptly and completely, at that point martial law, bank holidays, price controls, and all kinds of other nastiness will occur. I think they will have to postpone the elections because by November it will be clear that Ron Paul was right - as I've said before, let's hope we have the meltdown before August so everyone can wake up and understand the real deal. This is when Ron Paul will become the hero that he should be, the only honest statesmen left in our Gubmint. As everyone knows, if Ron Paul get the nomination Obummer is in deep, deep trouble - thus a postponement of the elections. The President and Congress will both agree on this, because things will be too bad at that point to change our gubmint - that will be the positioning. We can then expect the final big theft as they transfer America's retirement funds to gubmint bonds (401, ss, iras, etc). That's the last 54 trillion of wealth the country will have - and they want it!

Expect this to happen by mid to late summer, they won't be able to hold it off until after the elections - that was Plan A but they'll have to go to Plan B which is: Postpone the Elections. I see it happening, and it is this event that will require Americans to stand up and demand a free, fair election! Ron Paul will win and the world gets another chance - certainly America does! I'd be afraid they would try to kill him before they would let him actually become President.

As I said, keep making the popcorn, this is a multi-part movie (can't really be real can it?) with a great finally that is truly unpredictable! We will have to actually get involved soon, away from the machines and on to the streets , it will be our last chance to our country back from the Banksters and Technocrats and Politicians.

Fuuck You Bernanke!    


penexpers's picture

"Have the 2008 bailouts cemented a new feudal aristocracy of bankers, financiers and too-big-to-fail zombies, alongside a serf class that exists to fund the excesses of the financial and corporate elite?"

The answer is clearly a "yes."

The problem is that the West is completely asleep and doesn't understand that magnitude of theft that is going on right in front of them.

I think "long-term financial stability" is Newspeak for "short-term guarantee of the socialization of losses and privatization of profit."