By Steve Clark
Fear is again in the eyes of the world’s financial titans. Again, our banking system stands at the brink of collapse.
For the past decade or two, suggesting that Greeks (and Icelanders, Irish, Portuguese, Spaniards and, apparently, Italians as well) could attain the same high-consumption lifestyle common to France, Germany, Britain and the U.S. by having their government borrow heavily to expand government programs, the banks of these richer neighbors lent heavily by buying Greek treasury bills. With the banks’ credit rating organizations (e.g., Moody’s, Standard & Poor, etc.) providing low but adequate ratings on Greek instruments, the banks achieved exceptionally high rates of return (interest) on their speculations. All along, they knew that if the Greek government could not pay the interest, it would have to go to the Greek people for the money, through higher taxes or cuts in government spending.
So now, inevitably, the worst case scenario is playing out. The amount that Greece owes these speculators (banks) is far in excess of what it can reasonably pay, despite a series of increasingly draconian austerity measures imposed in recent years. Jittery, the banks considered easing the crisis (by extending the term of the bills or lowering their interest payments) but ultimately refused, instead saying to their central bank (the European Central Bank – the amalgamation of the quasi-governmental central banks of, primarily, France and Germany) that it would have to provide the indemnification necessary to make the “private investors” (again, the banks, themselves) whole.
Meanwhile, the limit of the Greek people was reached. This week, violent protests erupted, and a government default is likely.
Observers are comparing a Greek default to the collapse of Lehman Brothers, which kicked off the 2008 crisis and almost toppled the entire global financial system.
Iceland, a small state, has already collapsed (but to its people’s credit, it refused to accept the staunch terms of the European banks and is rebuilding its economy on its own). Ireland accepted the terms, and the harsh, imposed austerity is killing its economy (but the banks were saved!). Greece is much larger, and the popular temperament, perhaps, more like Icelanders (despite their opposite climates!).
The whole of Euro zone finance is threatened, but today the New York Times suggests that British and American banks may be insulated enough to dodge the bullet. Yet, the article highlights just how intertwined they are with the European banks.
Of course, I don’t know if a Greek default will bring the whole system to the brink of a new collapse, but I’m certain that sooner rather than later, some default will do the deed. Neither speculation nor hoarding, the two wings of contemporary financial “investment,” is real investment in real productivity. Rather, they are the swinging pendulum between bubble-building and bubble-bust management. The financial titans do not do real investment, and they have squandered whatever claim they might make to define the terms of the next social contract.
I’m not cheering for collapse with its immense human suffering, but only a popular movement for real investment through civil society-led initiative at the global grassroots will deflect this careening big bank catastrophe. The situation is dire.
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