Friday, 3 June 2011

Guest Post: Too Big To Fail Or Too Stupid To Stop - Screw Banks/Not People


Submitted by Nomi Prins

Too Big To Fail Or Too Stupid To Stop - Screw Banks/Not People

This morning, amidst news of Moodys cutting Greece's debt rating to Caa1, I came across a phrase I wish I'd thought of first, reading through a friend's morning commentary. The phrase? "Too Stupid to Stop".

According to Bill Blain, Senior Director at Newedge in London, and self-professed Euro skeptic, "'Too Stupid to Stop' is based on politicians behaving as rational maximisers of their electoral objectives." He was referring to the real reason behind all the bank-demanded bailout loans for austerity measures throughout Europe.

In the United States, that mantra can be extended to include appointed officials, like Treasury Secretary, Tim Geithner (still not admitting our record debt increase came directly from the $4 trillion worth of Treasury issuance and other forms of assistance extended to our banking system since late 2008, as we endure his stomach-churning 'show-begging' to the GOP for a debt cap raise) and Fed Chairman, Ben Bernanke (ditto). It also, of course, applies to congress people whose political survival depends on corporate and bank contributions and financial support, the ones that believe the Dodd-Frank bill changes anything.

Rather than considering how governments have systematically done, and continue to do, the wrong (as in immoral, unfair, and uneconomically sound) thing by trying to preserve banks, any politicians possessing the ability to think independently (an oxymoron, I know) should be asking themselves instead, how clever they could be about closing them down. Take a cue from Iceland.

But, the 'Too Stupid to Stop" behavior, prevents this from occurring.

Bill and I used to work together at Bear Stearns in London during the 1990s, before the Euro came into being. Then, arguments in favor of its inception were more about how it would lead to a 'much-needed' consolidation of political-economic control, rather than an engendering of widespread economic well-being to more European citizens, which didn't even enter the realm of political discussion.

Fifteen years, marked by global currency crises, a US recession caused by energy and telecommunications fraud, a bank fostered global Depression, and a persistent strategy to guage citizens to pay for the sins of bankers, later - nothing has changed.

What Greece should do is default. Not as a sign of economic weakness, but as a sign of protective strength befitting the notion of Democracy that the country is credited for having brought to the world. Default as an act of much-needed financial defiance and independence from the insatiability of banks.

Last year, Greece's bailout was fashioned in order to make foreign banks and their investors 'whole' on their investments in Greece. It had zero to do with strengthening Greece's local economy or its citizens' financial futures. Indeed, it was designed to further trash the Greek economy, to chain the country to untenable loan conditions that required selling assets at discount prices to pay off new and old debt, while callously condemning its population to decreased average wages and increased unemployment rates, particularly amongst the nation's youth.

Rather than telling those banks that were out the money - THEY HAD RISKED to begin with, to take the free-market, s**t happens, hit, all sorts of austerity measures were attached to the $157 billion bailout loan. They hurt citizens immediately in terms of reducing pension and other social-economic benefits, and hurt them ad infinitum by forcing ongoing fire sales of their national assets which resulted in job losses. The same banks on the hook for lending money to Greece during Phase 1 of the massive global leveraged bet gone wrong, demanded repayment for their risk (otherwise their investors would be upset). Now, they have a greater opportunity to scrounge (read: extract fees) for new deals via brokering European and global firms swooping in for fresh kill, amidst the remains of Greece's assets, such as communication and energy infrastructure.

And yet, rather than say - screw you - to the ECB and the IMF, and all the mega-banking conglomerates that signed off and received fees on deals and debt gone wrong, rather than say - you know what? - we owe a debt to OUR CITIZENS, not the banks that bet against them, and we don't like the terms of this arrangement, Greek politicians are saying - screw you citizens. Again.

Greece is set to present a brand new austerity plan on Friday calling for a FASTER pace of privatization, and more tax hikes on its citizens - just to be able to pay off bondholders and the risk incurred by international banks. This won't end well. If Greece does get a second bailout package, everyone will discover that absent a strategy to revive the local economy, the package will incur further pain, and at some point there won't be any national infrastructure left to sell, and unemployment will skyrocket further. A few bondholders will be happy temporarily because they DON'T CARE whether Greece succeeds or the ECB and IMF keeps creating debt to prop debt (like we do here in the US as a matter of economic policy), same difference. A few banks won't have to write down their losses for the same reason, and a few global corporations will have bought some more assets at rock-bottom prices in a country whose citizens won't be able to afford the payments that will be counted upon to price the related securitization deals. And Greece will be screwed even more.

The better plan would be to disband the Too Stupid to Stop mentality. Screw the banks. Sadly, it's a self-fullfilling downward spiral of incompetence - in Greece, Ireland, Portgual, Spain, Italy, and the United States where the Fed is gearing up for some verison of QE3 in the wake, ironically, of Euro-pay-the-banks, indenture-the-citizens, chaos.

I have a feeling meanwhile, there will be a lot more Greeks protesting in the streets come Friday.

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