Goldman's Great Greek Swindle and the American Blowback

Photo Credit: molotalk Flickr Creative Commons

You've heard this crappy joke before. Financial vampire squid Goldman Sachs games billions on the books for a prestigious client, hiding its lack of real value, while both continue to lucratively trade on false data. Time passes, Goldman retracts its feeding tube, the prestigious client implodes, and the collateral damage escalates. Cue the cruel laugh track.  

The client this time? Greece, where Goldman executed a currency swap worth billions, without reporting it of course. The collateral damage? The euro, and perhaps the entire European Union, depending on how the house of cards falls. But to be fair, Goldman couldn't have done it alone. 

"The European Union bureaucrats that are driving the system wanted their own empire," economist Paul Craig Roberts, one-time assistant U.S. Treasury secretary in the Reagan administration, told AlterNet. "So the European Union was expanded into financially weaker states, which can no longer print money to cover their debts as they all use the euro. What Goldman Sachs did for the Greek government was to help hide the size of the Greek debt, since European Union membership requires maintaining a fairly low deficit-to-GDP ratio." 

What happens when you, unlike the United States and its money-makers at the Federal Reserve, can't simply print your way out of an economic meltdown to bring those numbers in line? In Greece, you get street riots, austerity measures, bank runs, runaway nationalism, crippling sanctions and what passes for a serfdom ruled by an oligarchy. Ask Roberts, however, and he'll argue no such thin red, white and blue line exists across the pond. Americans are stuck in the same mess. 

"Here we have the U.S. government," Roberts wrote last year in a rant called, conveniently enough, "Americans: Serfs Ruled By Oligarchs," which is "totally dependent on the generosity of foreigners to finance its red ink, which extends in large quantities as far as the eye can see, completely under the thumb of the military/security complex, which will destroy us all in order to meet Wall Street share price expectations." 

In other words, same joke, different country. Right now, Greece is dependent on the generosity of foreigners to keep it, and by extension the European Union, solvent enough to survive the crisis. German chancellor Angela Merkel plans to meet with Greece's prime minister George Papandreou this week, while her country's banks hammer out a possible bailout. But will it work? 

"The question is whether Germany, the European Union's dominant member, wants to hold the Union together enough to guarantee the troubled debts of its weaker members," Roberts told AlterNet. "The alternative is to reduce the size of the European Union to those countries willing and able to keep within the permitted deficit-to-GDP ratio." 

Either move could stop the bombs from exploding in front of JP Morgan Chase, but probably not. After Greece, the European Union most likely has even more Internetworked default crises in Spain and Italy lying in wait, with perhaps more nations yet to come. As in America, the European Union's problem is systemic, not regional: Everyone goes down with the ship, including perhaps the United States, which is already on the slippery slope at home. 

"It doesn't take a huge glitch to set a chain of events in motion with very destructive consequences for economies," James Kunstler, author of The Long Emergency and The Geography of Nowhere, told AlterNet. "The 1998 Russian default wasn't huge, but it created a lot of mischief. The collapse of the Malaysian ringgit pranged the whole South Asian sector of the global economy, and eventually caused major dislocation for Europe and America. There are so many traps, pitfalls, and gauntlets -- accidents waiting to happen -- that it's unlikely we'll escape some precipitating incident. Between the threat of sovereign debt default and contagion, derivatives mischief, developing commercial real-estate collapse, asset deflation, peak oil, Tea Party shenanigans, China bubble... well, I've left other problems out, but you get the drift."