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Economy

Goldman's Great Greek Swindle and the American Blowback

Goldman's epic swindle may topple Greece and even the European Union. Wall Street's stranglehold on the U.S. is equally dangerous.

You've heard this crappy joke before. Financial vampire squid Goldman Sachs games billionson 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 sanctionsand 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 dependenton 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 bombsfrom exploding in front of JP Morgan Chase, but probably not. After Greece, the European Union most likely has even more Internetworked default crisesin 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 defaultwasn't huge, but it created a lot of mischief. The collapse of the Malaysian ringgitpranged 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." 

Those myriad traps nevertheless fail to capture the too-big-to-fail banks, of course, mostly because they profit from both inflating and deflating these kinds of killer stratagems. Right now, even the U.S. Federal Reserve is looking into Goldman Sachs' manipulation of Greece (which is kind of like sending Karl Rove to look into Dick Cheney's dirty laundry). Both institutions are partially responsible for at least our recent global economic meltdowns, if not more throughout history. Greece, like Malaysia before it, is just another expendable pawn on the global chessboard.  

"It's hard to know what Goldman Sachs has been up to in European financial affairs," said Kunstler. "One of the benefits of derivatives trafficking is that you can booby-trap contracts with counter-parties on a gigantic scale, without having to clear any regulation or disclosure in open markets. It's all secret, below board. So outfits like Goldman Sachs set destructive events in motion, and we don't find out until the victim -- a company or nation -- turns up dead. They did essentially the same thing to AIG and escaped without so much as a wrist-slap. They set the pattern for the housing debacle by shorting their own mortgage-backed securities and collateralized debt obligations -- which could easily be prosecuted as both fraud and insider trading, but wasn't." 

"We have a situation in which major financial institutions are amplifying a public crisis for what would appear to be for private gain," argued Senator Chris Doddto Ben Bernanke, after the Federal Reserve chairman insisted that it's checking Goldman's books. But Dodd, who is retiring and trolling for a job, is a case study in economic compromise. He recently criticized the Obama administration for excessive ambitionas it tries to more heavily regulate the banking industry, clowning Paul Volcker's proposal to euthanize rather than rescue corrupt banks as a pipe dream.  

It is indeed this type of compromise that ruined the global economy, where politicians and bankers exchanged money, favors and hollow sound-bites to keep the casino alive for the slender percentage that still have solvency and power. This rapacious flux survives attempts to downplay the roleof swaps traders in such meltdowns, or to assign blame to a single innocent cause or oppressive entity. Such as the always popular Federal Reserve, which has been recently accused of buying Greece's bondsto keep the European Union from collapsing, even though doing so could tank the dollar. If all of us suckers are going down with the ship, you can be sure members of the master class, what Roberts called the oligarchy, have already hatched escape plans.

Tectonic shifts in how and why we do business are already underway, as the lethal combination of shrinking resources and population expansion takes hold. It will not be enough to simply nail Goldman Sachs' neck to the wall with regulation, or supplant sycophants like Dodd and worse (much worse) with better political puppets. It's going to take a full-blown rethink for the 21st century's global financial system to survive the economic and sociopolitical vagaries of the 20th century. America could take the lead now by unplugging from the derivatives matrix and building a life more closely aligned with a downsized future. 

"There can be no recovery, because years of offshoring jobs and issuing H-1B visashave crippled the middle class," Roberts explained. "As incomes ceased to grow, Americans kept consumption up by going deeper into debt. That limit has been reached, so stimulus programs can't do much. U.S. budget deficits are now so large that they cannot be financed by the trade surpluses that China, Japan and OPEC have with America. Indeed, the U.S. budget deficit might exceed the entirety of world savings." 

That gap might grow wider as those world savings disappear to bail out nations like Greece or the banks that elect to fill the black holes on their balance sheets with ever more billions of hard-earned taxpayer revenue. Hence, street riots, creating currenciesand worse, which could spark into more explosive conflagrations as the century wears on. And the more cash those banks, including perhaps our own Federal Reserve, throw on the fire, the more the currency that cash represents loses its purchasing power. The European Union may save the euro, but for how long? It's a question we should be asking of the dollars we keep peeling off the Fed's overheated printing presses. Right now, with its hilariously named quantitative easing, the Fed is printing money ex nihilo, which is to say, out of nothing. What happens when it, to say nothing of Greece or poor Latvia, has to assign real value to its hyperreal spawn? 

"Currently, our deficit is financed by a deterioration in the Federal Reserve's balance sheet," Roberts explained. "The Fed takes troubled instrumentsoff the banks' books, and the banks use the funds, or reserves, received in exchange to purchase U.S. Treasuries. There is a limit to this. If the limit is reached prior to the deficit's shrinking, the Fed will have to monetize the U.S. budget deficit or some large part of it. That is, print money. This will undo the dollar as reserve currency, and the U.S. will no longer be able to finance its trade deficit." 

But this is already known by banks, politicians and other complicit parties. Which is why it's hard not to laugh as you watch Goldman Sachs charge local governments 30 percent more than normal to underwrite so-called Build America bonds. There is a cruel humor to the vampire squid's predation, at home and abroad. But what can you expect in a country whose Supreme Court equates corporations with people, whose blood, sweat and increasing tears don't bring as much on the market as they used to? Banks like Goldman Sachs, Bank of America and more are empowered by the politicians and governments that sell and skim those bonds and other financial scams, who in turn are emboldened by a public still doped up on hyperconsumption and empty indignation.  

"We are courting the rise of what I call 'corn-pone Nazis,' people like Glenn Beck, Rush Limbaugh and other vengeful, pompous bullies who prey on the hardships of ordinary Americans in distress," Kunstler said. "But the American public is unable to let go of their comforts and perks, and that's why we're seeing massive campaigns to sustain the unsustainable from both parties. When the annals of this period are written, historians will gape in wonder and nausea at the corruption of institutional finance."

Scott Thill runs the online mag Morphizm.com. His writing has appeared on Salon, XLR8R, All Music Guide, Wired and others.
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