It's Greek to Goldman Sachs
By Robert Scheer
Truthdig: Feb 17, 2010
"What is this Goldman Sachs and why has it caused us so much grief?" is a
question they must be asking in even the most remote of Greek villages, as
they are throughout much of this economically troubled world. The Greek
financial scandal in which Goldman Sachs stands accused of selling dubious
derivatives that concealed enormous government debt has sent the Greek
economy and European markets into a tailspin. But that's just part of a
made-in-the-USA banking hustle that has haunted folks at home and abroad.
At the heart of the worldwide banking meltdown are those mysterious
unregulated derivatives that Goldman and JPMorgan led the way in selling.
But Greece's case did not involve the usual questionable mortgages packaged
into derivatives with credit default swaps backing them up, but rather
expected revenue on airport fees and other potential sources of the
cashed-strapped government's future income.
As The New York Times headlined it: "Wall St. Helped to Mask Debt Fueling
Europe's Crisis." The story described the scam succinctly: "As in the
American subprime crisis and the implosion of American International Group,
financial derivatives played a role in the run-up of Greek debt. Instruments
developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks
enabled politicians to mask additional borrowing in Greece, Italy and
possibly elsewhere. ... Critics say that such deals, because they are not
recorded as loans, mislead investors and regulators about the depth of a
country's liabilities."
As a result of such shenanigans back in 2001, Greece was allowed to join the
European Union while running up enormous debt that went undetected. Greece's
neighbors will now be forced to bail it out, much as U.S. taxpayers have
done for banks as a result of the scams Goldman and other financial houses
pulled off in this country. The common denominator is that the packagers of
the collateralized debt securities, be they based on subprime mortgages or
government airport fees, have no real interest in the integrity of the
packages, for they will balance them out with credit default swaps that pay
off when the assets prove toxic. And they will make their lucrative
commissions coming and going, no matter what goes wrong. Even after all the
trouble in Greece, Goldman President Gary D. Cohn was back in that country
last November with a new derivative scam based on potential revenue from
Greece's health care system.
Just as it did with mortgages in the U.S., Goldman in effect bet against the
collateralized Greek debt obligations. The basic issue is the same. The
thing being sold need not be understood or correctly assessed as to its
value. In his recent memoir, former Goldman Chairman Hank Paulson confesses
that as late as August 2006 when as the newly appointed treasury secretary
he briefed George W. Bush on the impending derivatives crisis he did not
even know that the packages that Goldman and others had sold were based on
mortgages. "I misread the cause, and the scale, of the coming disaster," he
admits, adding, "Notably absent from my presentation was any mention of
problems in housing and mortgages." In recalling when an obviously perplexed
President Bush asked him "How did this happen?" Paulson says in his memoir:
"It was a humbling question for someone from the financial sector to be
asked-after all, we were the ones responsible."
He got that right. The financial sector was and is responsible, but it still
resists increased transparency and other necessary regulations over the
derivatives that gamblers like Paulson themselves don't understand. As Peter
Eavis writes in The Wall Street Journal: "How many more crises will it take?
The Greek emergency is a reminder of how little has been done to fix large,
potentially unstable parts of the financial system. ... The banking lobby is
resisting efforts to overhaul the $605 trillion market for derivatives that
don't trade on exchanges."
The U.S. comptroller of the currency estimates that Goldman Sachs has a
derivative "credit exposure" that is a whopping 858 percent of its
risk-based capital and that JPMorgan Chase is in second place at 290
percent. That statement calls into question the savvy of President Obama,
who crowed just last week in defense of Goldman CEO Lloyd Blankfein and
Jamie Dimon, his old Chicago buddy who heads JPMorgan Chase, "I know both
those guys; they are very savvy businessmen." Tell it to the Greeks.
***
ZCommunications.orgFrom: no-reply@zcommunications.org
http://www.zcommunications.org/chaos-as-an-everyday-thing-by-immanuel-wallerstein
"Chaos as an Everyday Thing"
By Immanuel Wallerstein
Wallerstein's ZSpace: February 17, 2010
You know you're living in a chaotic situation when (1) the mainstream media
are constantly surprised by what is happening; (2) short-term predictions by
various pundits go in radically different directions and are stated with
many reserves; (3) the Establishment dares to say things or use words that
were previously taboo; (4) ordinary people are frightened and angry but very
unsure what to do. This is a good description of the past two years
throughout the world, or at least in most parts of the world.
Consider the recent enormous "surprises" - the election of a Republican
senator in Massachusetts; the financial collapse of Dubai; the near
bankruptcy of various large states within the United States and four or five
of the member states of the European Union; severe world currency
fluctuations. These "surprises" are commented on each day in the world press
and by leading politicians. They don't agree at all about what is happening,
and even less about what one should do to improve the situation. For
example, I have seen only two intelligent statements about the election
results in the United States. One was by Barack Obama himself: "The same
thing that swept [Republican] Scott Brown into office [in Massachusetts]
swept me into office. People are angry, and they're frustrated." And the
second was by African-American op-ed columnist in The New York Times,
Charles M. Blow. He called his op-ed "Mobs rule." He said: "Welcome to the
mob: an angry, wounded electorate, riled by recession, careening across the
political spectrum, still craving change, nursing a bloodlust." First they
elected Obama; now they're rejecting him. Why? "The mob is fickle."
What are we seeing in California, in Greece, in most of the world's
governments? Government revenues are down, primarily because of reduced tax
incomes, which are in turn caused by the fact that everywhere people are
consuming less out of fear that their money is running out. At the same
time, precisely because world unemployment is considerably greater, the
demands on the states for expenditures have risen. So states have less
money to meet greater demands. What can they do then? They can increase
taxes. But taxpayers are seldom in favor of having their own taxes go up.
And states are afraid of the flight of enterprises. Well, then, they can cut
expenditures - present ones or future ones like pensions. And then they are
faced with popular unrest, if not popular revolt.
Meanwhile, the "market" reacts. But what is this market that reacts - for
example, by shifting its currency preferences? It is very large corporations
and financial structures like hedge funds, which are working the world
financial system for very short-term but significant gains. As a result,
governments are faced with impossible choices, and individuals even more
impossible choices. They cannot predict what is likely to happen. They
become ever more frantic. They lash out by being protectionist or xenophobic
or demagogic. But of course, this solves little. At this point enters that
greatest of world pundits, Thomas I. Friedman, to write a column entitled
"Never heard that before." What had he never heard before? He heard
non-Americans talking at Davos about "political instability" in the United
States. He says that in his past experience such a phrase had been used only
about countries like Russia or Iran or Honduras. Imagine that. People
actually think the United States is politically unpredictable. And Thomas
Friedman never heard it before.
There have been some people who have been writing this, and explaining this,
for some forty years at least, but Thomas Friedman never heard it before.
That's because he has been living in a self-constructed cocoon, that of the
political Establishment in the United States and its acolytes elsewhere.
Things must be really bad for them to recognize this basic reality. The
United States is politically unstable - and likely to become more so, not
less so, in the coming decade. Is Europe more stable? Only somewhat. Is
Latin America more stable? Only somewhat. Is China more stable? Perhaps
somewhat, but there are no guarantees. When the giant teeters, many things
can come down with it.
So, this is what everyday chaos is like - a situation that is not
predictable in the short run, even less in the middle run. It is therefore a
situation in which the economic, political, and cultural fluctations are
large and rapid. And that is frightening for most people.
[Copyright by Immanuel Wallerstein, immanuel.wallerstein@yale.edu. These
commentaries, published twice monthly, are intended to be reflections on the
contemporary world scene, as seen from the perspective not of the immediate
headlines but of the long term.]
From: Z Net - The Spirit Of Resistance Lives
Commentaries: http://www.zcommunications.org/zspace/commentaries/
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