5 May 2010

If it is all Greek to you, read on

I'm convinced that much of the discussion about finance, global and corporate, is deliberately obfuscatory. Simple activities that could be described using words like 'gamble' or 'risky investment' are concealed in arcane phrases such as 'taking a position' or 'creating a collateralised debt obligation'.This certainly worked - even the CEOs could not understand what was going on.

But I know a woman who does. Mary Mellor has helped me find my way around the mysteries the financialised global economy, and she has also had the good sense to publish a book on what when wrong, and what we should do to put it right. It's called The Future of Money: From Financial Crisis to Public Resource. As a taster, here is her take on the mysterious drama being played out in Greece:

'The Greek situation demonstrates the problem of an interconnected global financial system. When the new socialist government took over in October 2009 it revealed that the previous government had hidden deficits in its accounts (with the help of Goldman Sachs). This was a ‘Bear Stearns’ moment. Early action at this point could have stablilised the European monetary system pro tem (but not in the longer term without reform) but the leading European economies dithered, particularly Germany where the government was facing regional elections. Bear Stearns became Lehman Brothers. Greece is a small economy within the EU (around 3% of GDP) and around 0.5% of the world economy. Its total debt was around 300 bn euros. Its immediate needs were around 8 billion euros. By the time rescue was at hand it was facing short term interest rates of up to 38% and an immediate need of a hundred billion euros. What was needed in the early stages was an injection of euros which could have been issued by the ECB. Why did this not happen?

'Because of the ideology of money issue as a private commercial matter. The ECB is not empowered to lend to governments only to the financial system as a private entity. This makes the assumption that governments and financial systems are separate, but this is not the case. As demonstrated by the 2007-8 financial crisis the financial problems of the private sector, particularly its debt crisis became a debt crisis for states. As states poured money into the sector they were forced through their ideology of privatised money to borrow from the ‘financial market’. Who were the financial market? The banks whose debt they had just rescued. Banks made money lending to states through the front door who had just rescued them through the back door. The Greek situation is even more ludicrous. Banks have lent to the Greek government. Other governments will not provide support, so banks are facing billions in bad debt. It is rumoured some banks in France, Germany or Switzerland may be threatened. They will need to be rescued by the very same governments who would not support the Greeks in the first place.'

In the mean time, of course, huge profits have been made by the financial intermediaries - money that will be paid by the Greek workers.

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