GlobalTalk

On the Brink Again…

By Steve Clark

You wouldn’t know it in America, but the global financial system is teetering on the brink of collapse, just as in September, 2008.

Then, it was the bankruptcy of a Wall Street giant, Lehman Brothers, that threatened to pull down the whole system. This time, it’s Greece.

In moral terms, of course, the two situations are incomparable. It’s only as matters of factual impact that the two compare.

Lehman Brothers was a big bank that had made billions repackaging – with insurance giant AGI – home mortgages as speculative investment “opportunities” for the pension fund and 401(k) managers of middle class savings plans. When the over-heated housing market collapsed, sucking all the big banks to the brink of disaster, Lehman happened to be the most vulnerable and took the hit just before the U.S. Treasury moved in to bail-out the rest.

Greece isn’t a lender; it’s a borrower. Like the homeowners who were enticed by banks into putting meager savings into down payments on mortgages they ultimately could not afford, the Greek government was enticed into borrowing heavily from big banks in Europe to finance government services and jobs for its citizens. That worked okay as long as the global (and Greek) economy was expanding, but when the recession hit, the government couldn’t keep up the payments.

Here in America, strapped homeowners were forced to hand over their homes, but the Greek government’s collateral isn’t so finite and physical. Rather, its collateral is only the ability to collect more taxes from its citizens (or, alternatively, to keep up the present tax rate while providing less service).

A series of austerity packages has further collapsed the Greek economy, and the Greek people are rebelling. Some of that is in the streets; more significant, they are withdrawing their savings from the banks. Meanwhile, the “socialist” government, hanging by a thread, alternately begs and berates its citizens, unwilling to break from its failed policy.

Yesterday, in an open letter to the Greek people, Britain’s Ann Pettifor urged what amounts to revolution in today’s context. The founder of Advocacy International and a leader of the Jubilee 2000, Pettifor called on the Greeks to abandon the Euro and restore the Drachma. Only in this way, she said, could the Greeks dump the harsh demands of the European banks and the European Central Bank.

A voice in the wilderness, perhaps, Pettifor at least offers real and consistent clarity about the world’s financial crisis. Don’t imagine that it’s over. Indeed, coming up on three years running, it is grinding harder and ever more harshly on the world’s people. No progress is evident because the world’s politicians, particularly those leading France, Germany, Britain and the U.S., are committed to saving the banks because they are “too big to fail.”

By directing their government to abandon the Euro, the Greek people can take charge of their own destiny, keeping their taxes in their own country for real investment in the local economy.

Greek Collapse Threatenes Global Catastrophe

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.