...and while we wait for the final results of the Greek referendum here is some light reading to help one and all to pass the time...
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"So Goldman Sachs, the world's greatest and smuggest investment bank, has been sued for fraud by the American Securities and Exchange Commission. Legally, the case hangs on a technicality.
Morally, however, the Goldman Sachs case may turn into a final referendum on the greed-is-good ethos that conquered America sometime in the 80s – and in the years since has aped other horrifying American trends such as boybands and reality shows in spreading across the western world like a venereal disease.
When Britain and other countries were engulfed in the flood of defaults and derivative losses that emerged from the collapse of the American housing bubble two years ago, few people understood that the crash had its roots in the lunatic greed-centered objectivist religion, fostered back in the 50s and 60s by ponderous emigre novelist Ayn Rand.
While, outside of America, Russian-born Rand is probably best known for being the unfunniest person western civilisation has seen since maybe Goebbels or Jack the Ripper (63 out of 100 colobus monkeys recently forced to read Atlas Shrugged in a laboratory setting died of boredom-induced aneurysms), in America Rand is upheld as an intellectual giant of limitless wisdom. Here in the States, her ideas are roundly worshipped even by people who've never read her books oreven heard of her. The rightwing "Tea Party" movement is just one example of an entire demographic that has been inspired to mass protest by Rand without even knowing it.
Last summer I wrote a brutally negative article about Goldman Sachs for Rolling Stone magazine (I called the bank a "great vampire squid wrapped around the face of humanity") that unexpectedly sparked a heated national debate. On one side of the debate were people like me, who believed that Goldman is little better than a criminal enterprise that earns its billions by bilking the market, the government, and even its own clients in a bewildering variety of complex financial scams.
On the other side of the debate were the people who argued Goldman wasn't guilty of anything except being "too smart" and really, really good at making money. This side of the argument was based almost entirely on the Randian belief system, under which the leaders of Goldman Sachs appear not as the cheap swindlers they look like to me, but idealised heroes, the saviours of society."
....and this delicious bit...
"Now, the instruments in question in this deal – collateralised debt obligations and credit default swaps – fall into the category of derivatives, which are virtually unregulated in the US thanks in large part to the effort of gremlinish former Federal Reserve chairman Alan Greenspan, who as a young man was close to Rand and remained a staunch Randian his whole life. In the late 90s, Greenspan lobbied hard for the passage of a law that came to be called the Commodity Futures Modernisation Act of 2000, a monster of a bill that among other things deregulated the sort of interest-rate swaps Goldman used in its now-infamous dealings with Greece.
Both the Paulson deal and the Greece deal were examples of Goldman making millions by bending over their own business partners. In the Paulson deal the suckers were European banks such as ABN-Amro and IKB, which were never told that the stuff Goldman was cheerfully selling to them was, in effect, designed to implode; in the Greece deal,
Goldman hilariously used exotic swaps to help the country mask its financial problems, then turned right around and bet against the country by shorting Greece's debt.
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....from...
http://www.theguardian.com/business/2010/apr/24/will-goldman-prove-greed-is-god
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"Who are the real villains on Wall Street? When it comes to institutionalized greed and corruption, nothing tops the too-big-to-fail banks like JP Morgan Chase, Bank of America and Goldman Sachs. But these financial giants form only one part of the financial oligarchy. Lurking in the shadows are aggressive hedge funds that are just as lethal to our economic well being. If Goldman Sachs is a vampire squid, as Matt Taibbi so aptly named it, then hedge funds are like schools of piranhas or sharks, eager to strip the financial carcass to the bone.
The sharks at this very moment are circling Greece, waiting to devour that nation’s resources. To understand this attack we need to enter into the rotting innards of our financial system.
But aren’t the Greeks lazy?
Let’s starts with a closer look at why Greece has accumulated so much debt. The answer is not because they sit around sipping retsina rather than working. Instead it has everything to do with the attempt of Europe to improve the lot of the Greek people so they would embrace democracy. Let’s not forget that from 1967 to 1974 Greece was ruled by a military junta that inflicted enormous pain on its people. Helping the Greek people escape poverty was critically important. Greece’s entry into the European Union and the access to capital it provided, allowed the Greek people to rebuild the foundations of prosperity and democracy.
Of course, our vampire squid banks also played a critical role in exacerbating the debt problem. When Greece hit the debt limits set by the EU, large U.S. banks profited mightily by structuring loans to Greece to skirt those rules.
But the biggest blow came from the 2008 financial crash, which was wholly caused by Wall Street’s reckless gambling spree. When the world economy nearly collapsed into another Great Depression, the weaker economies in the EU took the biggest hit. Ireland, Portugal and Greece suffered enormous job loss and massive declines in tax revenues. These countries became the victims of the vast housing bubble that was pumped up by Wall Street's fantasy financial schemes. Yes, they had accumulated too much debt, but the problem would have been manageable were it not for the Wall Street-created crash.
Enter the piranha hedge funds
Hedge funds are lightly regulated, privately managed investment funds created and designed for the super-rich, who expect to get much higher rates of return than the rest of us. While you and I are lucky to see a 2 percent increase in our 401ks, hedge funds hope to see gains far in excess of 10 percent. Pension funds and endowments have also followed the super-rich into these funds to gain access to these outsized returns. There are 8,000 or so hedge funds that now manage a total of nearly $2 trillion.
But making these super-profits doesn’t come easy. Hedge funds don’t just get lucky on a few stocks or bonds. They look for an edge, and more than a few go over the edge by engaging in criminal activity like insider trading. Others hope to get to the Promised Land by being tough SOBs who don’t think twice about impoverishing people. Those SOB hedge funds are circling Greece right now, doing all they can to get their hands on the money the European Union wants to lend Greece to reduce its long-term debt problems.
Here’s the play: Greece does not have enough money to pay off the loans that are coming due in the next year. So the EU and the International Monetary Fund have assembled a bailout package to help Greece make those payments. In exchange, the Greek people are being asked to suffer through enormous cuts in government spending – which means cuts in jobs, incomes, healthcare, pensions and public education. Everyday citizens are making enormous sacrifices."
....and...
"But the European Union also insists that the bond holders of Greek debt take a hit. After all, under the supposed rules of capitalism, if you make a bad loan, you suffer the losses. So the EU wants to recall the old bonds and replace them with new ones at lower interest rates more suited to Greece’s financial condition. Imagine that! Financial elites are being asked to sacrifice a bit to pay for the problems they helped to create.
Well guess what? The elites don’t like it. You see, hedge funds have been buying up Greek bonds at steep discounts. They want to milk the deal for as much as possible. So they are refusing to accept what the EU is offering. The hedge funds want to capture as much of the bailout money as possible. They could care less if the Greek people suffer. (Think Bain.)
But wait -- why are the hedge funds refusing the offer when the alternative is having Greece default on the very bonds the hedge funds now own? If they continue to hold out, won’t the hedge funds risk ending up with nothing at all?
Here’s where we dive into rotten core of “modern finance.” These hedge funds think they have covered their bets by taking out financial insurance on their bonds, which would pay them the full value of the bonds (not just the discounted price) if Greece defaults. (These insurance policies are called credit default swaps, and are issued usually by big banks that profit on the insurance premiums.)
So the hedge funds that are playing hardball think they have their bets covered. If Greece doesn’t give them a better deal on their bonds, the hedge funds will welcome a default in order to collect fully on their financial insurance policies.
The nuclear option
There’s only one little problem: The entire financial system might collapse, including our own, if Greece defaults. That’s because no one is sure if all the financial insurance can actually be paid off. It could be like AIG all over again, when that giant insurance company couldn’t pay off its financial insurance policies. If one big bank fails to deliver it could set off a chain reaction of financial defaults around the globe. "
....and...
"As Marshall Auerbach, my financial guru, points out, it’s very much like exercising the nuclear option.
Credit default swaps [financial insurance policies] are to "hedging" credit exposure what nuclear weapons are to "hedging" a nation's defense requirements. Yes, you pay less money than equipping a huge army, but if you use the nukes, everything blows up. Much the same applies with credit default swaps.
In the old days, bankers basically didn't bet against their clients. If the borrower was successful, the banker was successful as the loan made money. If you thought the credit risk was bad, you didn't hedge it by buying a credit default swap; you simply refused to extend the loan (or demanded a lot of collateral against which the loan was secured). Nowadays, no credit analysis is done and "hedging" is done through these toxic instruments which have no social value and create a hugely destabilizing financial system.
To put it more bluntly, the sharks are using financial nuclear blackmail to milk billions out of the Greek people. They can get away with it because the EU and America are enormously fearful that a Greek default will vaporize the global financial system – yet again.
....from...
http://www.alternet.org/story/153795/vampire_hedge_funds_are_sucking_greece_dry
Cheers
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