Warm Southern Breeze

"… there is no such thing as nothing."

A Greece Fire; Thoughtful Commentary on Unthoughtful Commentary

Posted by Warm Southern Breeze on Thursday, May 13, 2010

A Greece Fire; Thoughtful Commentary on Unthoughtful Commentary

Having read Mr. Alex Tokarev’s commentary “My big fat Greek bonus” published online May 11, 12:49 PM at http://online.worldmag.com/2010/05/11/my-big-fat-greek-bonus/, I must admit that some of his concerns are, in part, well taken… however poorly expressed. Though he does not adequately support the case for fiscal prudence, the complaints he makes in general terms about fiscal prudence are well-deserved.

Though his straw man argument is inadequately defended, placing exclusive responsibility and blame upon Greek national officials for that nation’s crisis is insufficient, and certainly short sighted. However, his rambling, miasmatic complaints have not fallen upon deaf ears – although they may have fallen upon spirited ones. Excitement, however, must be directed toward a long-term objective, and it is the more broad scope which I think he ignores. While having the ability to direct the nation toward a long-term goal is laudable, he neither cites any governmental mandate. On the whole, after having read his opinion, one might wonder if he were doing little more than expressing infantile frustration, for he certainly offers no potential solution.

The Grecian debt crisis is not due exclusively to what he calls “the bursting of the statist bubble,” “welfare pyramids” or other descriptive pejoratives to describe Grecian governmental services and activities.

Though he decries “irresponsible lenders and borrowers” whom perpetuate “bankrupt political practices,” he attempts to correlate and demean both, describing what he calls a “strong culture of entitlement” as “a beast,” though he never specifically mentions any program, plan, office, group or person.

As colorful and passionate as he may feel about Greece’s problems, he failed to address the fundamental underlying problem – Credit Default Swaps sold to Greek national authorities by Goldman Sachs Group.

American lawmakers are scrutinizing the role that Goldman Sachs Group may have had in Greece’s debt crisis, considering specifically if Credit-Default Swaps aided and abetted in concealing the size of Grecian deficit. Goldman Sachs assisted Greek officials raise $1,000,000,000 (one Billion) of off-the-books funds in 2002 specifically through Credit-Default Swaps, and did so without EU regulators’ knowledge.

While news and images of burning buildings, riots, strikes and other Greek national crises has circulated over airwaves, Internet and print, few – if any – have accurately pointed the finger of responsibility where it properly belongs.

In early March, German Chancellor Angela Merkel met with Greek Prime Minister George Papandreou and other European national officials about the Greek debt crisis. It was from that multi-national European meeting in Berlin that Chancellor Merkel made this comment about the evil perpetrated in the name of avarice by Goldman Sachs Group: “Credit-Default Swaps – where you insure your neighbor’s house just to destroy it and make money from it – that’s exactly what we have to curb.”

Saying further that derivatives traders “must be curbed,” she added that, “We must succeed at putting a stop to the speculators’ game with sovereign states. We can’t allow speculators to be the profiteers of Greece’s difficult situation.“

Paul Volker, speaking in Berlin to the American Academy called for tighter regulations on derivatives in American financial markets saying, “Surely the recent revelations about the use and abuse of complex derivatives in obscuring the extent of Greek financial obligations reinforces the need for greater transparency and less complexity.“

Mr. Volker served as chairman of the Board of Governors of the Federal Reserve System under presidents Carter and Reagan, and now serves as chairman of the Economic Recovery Advisory Board under President Obama.

Saying that it is necessary to “corral the excesses in the derivatives markets,” he called for “system-wide surveillance, backed by clear legislative directives and authority,” limits on bank size, and bans to prevent banks from creating hazardous trade.

While some German politicians have publicly called for Greece to sell some of their islands, Papandreu nixed any suggestion, and Merkel rejected the idea out of hand saying, “Selling the islands is out of the question,” and noted that no member of the German government had proposed such an idea.

She also specifically mentioned credit-default swaps as large sources of Greece’s fiscal problems and said that Greece “has not asked for any financial support,” or requested a bail-out from any European Union member nations.

Greece’s Deficit to Gross Domestic Product ratio is currently 12.7, and Greek government officials have reduced spending 4% to much public outcry and demonstration.

American Deficit to Gross Domestic Product ratio is 10.64%.

When the The Gramm-Leach-Bliley Act, of 1999 (aka GLBA, or the Financial Services Modernization Act of 1999), P.L. 106-102 was signed by then-President Clinton on 11/12/99, it chipped away at the prohibitions against the incestuous fiscal orgy now enjoyed by American Banks, Insurance Companies and Stock Brokerage Houses.

The Glass-Stegall Act of 1933 was so named after Congressman Henry B. Steagall (D, AL), Chairman of the House Committee on Banking and Currency, and Senator Carter Glass (D, VA), former Secretary of the Treasury – both men of high integrity – who wrote and/or sponsored the bill that regulated banks and other financial services firms, and prevented the problems we now witness, and the tragedies under which we now suffer as a result from Credit Default Swaps and other orgiastic behavior foisted upon the American people, and now – as we’re finding – other nations, most notably, Greece.

Banks have spent untold billions and long lobbied to repeal provisions of Glass-Steagall, if not the entire law outright. Since the 1960’s, Banks wanted to participate in the Municipal Bond Market, and numerous jokes were made – albeit in great truth – about how a lobbying subculture emerged around eradicating Glass-Steagall which funded the lobbyists’ children’s university educations.

In spring 1987, the Federal Reserve Board voted 3-2 to ease certain regulations of Glass-Steagall, over the objection of Chairman Paul Volcker.
Shortly thereafter that same year, Citicorp, J.P. Morgan and Bankers Trust advocated the relaxing certain Glass-Steagall restrictions to allow banks to handle several underwriting businesses, including commercial paper, municipal revenue bonds, and mortgage-backed securities. Claiming “a very effective” SEC, knowledgeable investors, and “very sophisticated” rating agencies, Thomas Theobald, then Citicorp Vice Chairman, argued that those three “outside checks” on corporate misbehavior which had emerged since 1933 were sufficient to maintain stability and ameliorate risk. In March, Chase Manhattan applied for, and received permission from the Federal Reserve to underwrite commercial paper.

Five months later, in August, former Director of J.P. Morgan, and banking deregulation proponent Alan Greenspan became Chairman of the Federal Reserve Board. Greenspan’s ostensible rationale for deregulation as to help U.S. banks compete with big foreign institutions.

Two years later, in January, J.P. Morgan, Chase Manhattan, Bankers Trust and Citicorp wanted to enlarge the “loophole” by obtaining permission to trade in debt and equity securities, in addition to municipal bonds and commercial paper.

Having their advocate in their hip pocket, slowly but surely, banks, insurance companies, and stock brokerage houses began to collaborate and commingle their funds, until eventually, whatever line of delineation between the three businesses formerly existed, had all but deteriorated. They were, for practical purposes, one giant money house – able to completely underwrite risk, buy, sell, trade, and establish prices for almost every conceivable fiscal and pecuniary effort – even inventing some along the way – all with little oversight.

Colloquially, the fox has watched the hen house.

Respecting the problem and greater good; laws, regulations and mandates are made for good reason, the propensity of the human heart toward evil. If history teaches us anything, it is that when such regulations and laws are flouted – most often for self, or selfish organizational interest – the people are harmed… which is why they were enacted in the first place.

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