Thursday, 2 September 2010

Greece, EU and Goldman Sachs: Economic Crisis and Crisis of Confidence (Jon Kofas, Greece)

Posted on February 16th, 2010 

The stability of a society and its institutions is tested not in times of relative growth and domestic and foreign harmony, but during domestic and international turmoil. Last week, the New York Times exposed a global scandal involving Goldman Sachs and a number of governments, including Greece and Italy. Apparently, in the past two decades, Goldman Sachs has been striking elaborate deals not only with businesses to conceal their actual earnings, but with governments to conceal their actual debt, so that they qualify for more loans at lower interest rates. In a number of pieces I wrote a few weeks ago, I noted “investment scams” were behind EU government bonds and the falling euro. I specifically mentioned in one of those pieces that Goldman Sachs, reputedly behind the massive AIG collapse and a number of Hedge Funds that were at the heart of the global financial crisis, had announced that it would reward its executive with $100 million in bonuses. This took place at a time that the Obama administration is trying to have the banks and investment firms set the example of restraint amid 10% official (15% real) unemployment. Naturally, I have no idea as to the NYT sources for the Goldman Sachs story, though I suspect one of the US Treasury, or one of the agencies, and all in retaliation for Goldman’s defiance of the Obama administration’s attempts to control some of the excesses in investment banking. The EU knew about Goldman Sachs deals with governments, but in 2001, it issued a directive to all governments to stop making deals with Goldman that resulted in “fraudulent debt figures,” a practice that burdened the fiscally stronger EU countries which subsidized the weaker ones. Presumably, all governments officially agreed to comply. However, the EU agreed to allow the false statistics Goldman was “cooking up” on behalf of governments in exchange for “liberalization” reforms, especially sales of public enterprises to the private sector. In short, Goldman operated with the EU’s indirect, “back-door” condoning because larger interests were served. In November 2009, Goldman approached the newly elected Socialist Government of George Papandreou in Greece and proposed purchasing the Greek debt, at least a portion of it, presenting it to the EU lower than it actually is, and in exchange take control of the airport tolls and other frozen income sources. In October 2009, Greece’s official debt presented to the EU was 6% of GDP as opposed to 12.83% that was the real debt. Having run a campaign to clean up rampant corruption involving both domestic and foreign firms, Papandreou rejected the Goldman proposal. What followed was a campaign by Goldman Sachs to expose Greece along with all of Southern Europe as EU weak links, whose bonds should command much higher bond yields than what Germany pays. Before the NYT published the Goldman-Sachs story, Papandreou went public with implicit accusations that the EU was complicit in covering up fraudulent statistics that Greece was submitting for a number of years in exchange for policy measures that it (EU) wanted Greece to adopt. The German government acknowledged that the EU had not done its job properly. Greece is by far the most corrupt country in Europe, where “baksheesh capitalism,” as I have baptized it, permeates every sector from government and business to the Orthodox Church and universities. According to the NYT article, Greece is just the tip of the iceberg, as other countries in the EU have also imbibed of the banking industry elixir. These arrangements are conceptually similar to the SIVs (Special Investment Vehicles) that banks have used to place assets off the books so that their capital requirements are less demanding. In other words, like a magician, wave the left hand to distract the audience while the right hand moves the pea under a different shell. Among the common sleights of hand are loans disguised as currency trades and selling future revenue streams from lotteries, tolls and fees. Greece is not alone in cooking the books, as we now know as a result of the Goldman Sachs scandal. Hedge Fund and other speculators in Europe and other countries took advantage of the inordinately high budgetary deficits (presumably much higher than official statistics indicate for a number of countries) in the EU to drive bond yields up, and the euro down along with declining security values. That Goldman was engaged in the type of “financial control” that is somewhat similar to what the “Great Powers” imposed on the Ottoman Empire and China more than a century ago is not surprising. That the investment firm did so with the cooperation of governments at a time that central banks knew of the fraudulent operations in the private and public sector is indicative of how finance capitalism really works. Scandals of such magnitude are not free of cost. On the contrary, the cost of fraudulent statistics in times of crisis entails austerity measures–higher unemployment and lower living standards. But it is all worth it knowing that the “free” enterprise system works! At the heart of finance capitalism is a predatory monster feeding ferociously on expanding and contracting economic cycles, a monster that would not exist or operate in such fraudulent fashion if the state did not constantly feed it and render it protection. With each contracting economic cycle, “free” enterprise weakens and regains its strength solely by the state’s vigorous intervention. Despite all that has transpired, the majority of the people–more in the developed countries and less so in the developing–believe in capitalism. What most people see is a “few bad apples” responsible for manipulating an otherwise “good system,” but one must have faith in the apple cart because it is the only temple of worship in town. Even the trade unions, most of which have been co-opted by the mainstream political parties, worship in the same temple just as they are declaring labor strikes. Faith by the masses in the political economy is what keeps it going even in crisis mode.

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