naked capitalism

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Your Excellency, I am pleased to present the requested report on the economic outlook for the Great Southern Province of China, currently referred to by the local population as “Australia”. For convenience I will refer to the country by this older name.

Deep dependence on our great nation means Australia’s future is inextricably linked to China. Given that the white European colonisers historically feared the “yellow peril”, the irony of the situation will be not lost on the Politburo. Despite recent engagement with us and the rest of Asia, Australia’s focus seems confused. The country’s head of state remains an octogenarian British Queen. Australia also believes its security is guaranteed by the United States of America with whom it has extensive defence links.

The locals continue to believe in both in its sovereignty and also its bright economic prospects.

Escaping Acronyms…

The popular narrative is that Australia escaped the GFC (global financial crisis – the locals are acronymic) through their own planning.

The country was certainly in a better position to cope with the problems. The Federal government did not have much debt. However, some State governments have significant borrowing. Governments also systematically shifted some of their debt into public private partnerships (“PPP”). Because of the strategic nature of this infrastructure, these projects de facto enjoy the indirect support of governments. Private household debt is also high.

At the start of the crisis, Australian interest rates were relatively high, providing greater flexibility.

But Australia did not escape the crisis unscathed. One major bank lost nearly a billion Aussies (colloquial term for the Australian dollar, the local version of the Renminbi). Investors, including a number of charities and local councils, suffered significant losses from investments in various financial products. A number of highly leveraged infrastructure and commercial real-estate investors failed.

Local banks escaped the problems of their overseas counterparts. The near death experiences in the recession of the early 1990s encouraged them to stay home eschewing overseas adventures and complex financial structures. That said, another year or so, they would not have been so lucky.

The local banking regulator, APRA (Australian Prudential Regulation Authority), and politicians take credit for the banks being relatively unaffected. This is curious given that banking regulations are largely uniform around the world. One can only assume that Australia has superior regulators and politicians to the rest of the world – an example of “Australian exceptionalism”.

In reality, Australia’s swift recovery was driven by large cuts in interest rates, government guarantees for banks, government stimulus and a commodity boom.

The central bank reduced interest rates (from 7.25% per annum to 3.00% per annum). The fall of 4.25% per annum translates into a fall in monthly mortgage repayments of nearly 30 % or around $7,000 per year on a 20-year mortgage of $250,000. A government guarantee on bank deposits and borrowing ensured that financial institutions were insulated from many of the problems.

Government spending minimised the effects on the real economy. Cleverly directed cash transfers to lower income households rapidly stimulated the economy. As part of the ESP (Economic Stimulus Package), government spending on education, housing and infrastructure was also increased. Some of the spending was not well directed. Environmental initiatives, subsidies for home insulation to reduce energy consumption, have proved less than successful.

The long-term benefit of some spending is questionable. Your Excellency, the school across from my office has been refurbished with new gold signage and a brand new fence replacing the aluminium one that was perfectly serviceable. The economic return on this investment is unknown.

The main driver of the recovery has been a commodity boom. This is not a new phenomenon in Australian history. It can be traced back to the famous gold rush of the 19th century when many of our countrymen travelled to Australia in search of their fortunes.

Boom…

Former Prime Minister of Australia Paul Keating, a prominent Sino-phile, recently remarked that Australians were luckier than most races having been give an entire continent. He might have added that it was also remarkably rich in mineral wealth.

Australia has benefited from a substantial increase in demand for and prices for its mineral products. The country is enjoying its best terms of trade (measured as Price of Exports divided by Price of Imports, showing the quantity of imports that can be purchased theoretically from the sale of a fixed amount of exports) in 140 years. Australia’s terms of trade have improved by 42%, just since 2004.

The commodity boom is driven by a sharp increase in demand, supply constraints because of under-investment in mineral production and associated infrastructure and some unexpected effects of the GFC.

In the 1990s, as a result of persistently low prices, mining companies did not invest sufficiently in expanding production capacity or infrastructure, such as transport, refining or processing capacity. The increase in demand from purchasers, particularly emerging economies, quickly created bottlenecks and shortages. This led to sharply higher prices as well as improved volumes for many commodities.

The GFC also boosted investment in commodities. As traditional investments fared poorly (stocks, interest rates and property prices all fell), investors switched to hard assets, like commodities. The underlying logic was that these were real assets with genuine underlying uses rather than the fictions created through financial engineering.

Low interest rates also assisted demand and prices as it cost less than before to buy and hold commodities, which paid no return.

As central banks commenced printing money in an effort to restart growth, investment in commodities increased further as investors sought a hedge against the risk of inflation. Former Board member of the Reserve Bank of Australia, Professor Russell McKibbin suggested that perhaps as much as 40% of the improvement in Australia’s terms of trade was driven by US and European monetary expansion.

As your Excellency knows, one of China’s priorities is to preserve the value of its foreign exchange reserves, currently around US$3.2 trillion. The bulk of these funds are invested in US dollar, Euro and Yen denominated securities. To reduce the risk of losses as these securities lose value due to the actions of governments to devalue the currency against the Renminbi, we have executed your instruction to purchase and stockpile large amounts of strategic commodities.

Boomier…

The economists, who failed to forecast the rise in commodity prices or the GFC, now speak of a “super” boom lasting decades. The boom is more fragile than currently understood.

As growth in China and other emerging countries decelerates, demand for commodities is likely to slow. High prices have encouraged investment in expanding existing mines, building new mines and additional infrastructure as well as exploration. As new capacity and supply comes on stream, there will be pressure on prices.

At your Excellency’s suggestion, we have extensively studied the commodity purchasing strategies of Japan in the 1980s. Based on this analysis, we have actively cultivated new sources of supply of essential commodities. This will enable us to play suppliers off against each other to achieve more favourable prices in the long term. Westerners place great store in contracts, such as long term agreements to purchase minerals at agreed prices. In the Chinese way, these are, at best, statements of intention based on conditions existing at the time of agreement. If conditions change, then we will, like the Japanese, renegotiate the arrangements in our favour.

Australian mining entrepreneurs and politicians point to a massive pipeline of projects, which will underpin Australian prosperity. The Australian Mines and Metals Association estimate that there is A$427 billion of resources in train, including A$146 billion in Liquid Natural Gas alone. A$236 billion of projects are current under way with a further A$191 billion awaiting approval.

There is also A$770 billion of infrastructure spending required to renew and develop Australia’s economic and social infrastructure. This will compete with commodity projects for funding. Chairman of Infrastructure Australia Rod Eddington has warned that financing will not be available for many projects. Infrastructure Australia has identified a smaller list of priority project totalling A$86 billion.

Commodity projects depend on demand for the product and also on the ability to finance it. Deterioration in money market conditions and also problems in the banking system mean that the availability of funding is becoming more restricted and expensive. If previous commodity booms are a guide, then many of these projects may not eventuate.

Sinophilia…

Around 23 % of Australian exports now go to China. The real quantum is higher as some Australian exports to Asia are then re-exported to China.

China currently faces significant challenges. Our two major trading partner – Europe and America – face serious problem which will lead to a slow down in our own exports. Recent statistics, such as the volatile Purchasing Managers Index that measures manufacturing activity, suggest a sharp slowdown. In turn, this will affect our suppliers such as Australia by way of lower demand and also lower prices for commodities.

Unlike 2008, our capacity to respond to any slowdown is reduced. Then, we increased lending through our policy banks to boost demand. In 2009 and 2010, we were able to grow loans by around 30-40% of our GDP to drive growth. Unfortunately, party cadres have not used the money wisely in all cases, resulting in some unproductive investment and bad debts for the banks. The need to support our banks and cover their bad debts will restrict our ability to support the economy.

As your excellency is also aware, around US$ 800 billion or 25% of our US$3.2 trillion in foreign exchange reserves is invested in “risk free” European government bonds. Continued losses in these investments and on investments in US government bonds also further restrict our flexibility. Our economic growth will be slower then widely anticipated.

European Tsunamis…

Australians believe that physical distance from Europe and proximity to China and Asia affords protection from European debt problems.

Despite record terms of trade and high export volumes, Australia continues to run a current account deficit with the rest of the world of around 2-3% of GDP, around US$30-40 billion per year. This must be financed overseas. Sovereign debt problems and the resultant problems in the banking system will affect international money markets for some time to come. Australian borrowers will face reduced availability of funding and increased borrowing cost.

Before the crisis, Australian bank deposits totalled 50-60% of loans made. The difference was funded in wholesale markets, generally from institutional investors.

In 2007, deposits made up around 20% of bank borrowing down from 34% a decade earlier. Domestic wholesale borrowing and foreign wholesale borrowing were 53% and 27% of bank balance sheets. Following the GFC, increases in the cost of overseas funding and regulatory pressure, Australian banks significantly reduced their loan to deposit ratios, with deposits now around 70% of loans. They also reduced their dependence on international borrowings.

Nevertheless, Australian banks face significantly international re-financing pressures, needing around A$80 billion in 2012. Around A$35 billion are AAA rated government guaranteed bonds which will need to be financed without government support, unless the policy changes. In addition, the banks have a further A$28 billion worth of bonds that mature in the domestic markets

In the period before the GFC, Australian banks relied on securitisation to raise cheap funding from overseas. When these markets closed, Australian banks used debt guaranteed by the Federal Government to raise funds. With the guarantee now not available, Australian banks are increasingly using covered bonds to raise funds.

Covered bonds are secured over specified assets such as a pool of mortgages, giving investors priority over depositors. Regulators have limited the quantum of covered bonds permitted to a maximum of 8% of assets, limiting the ability of banks to use this form of financing.

To date, covered bonds have not proved a cheap source of finance for banks, as originally envisaged. Inaugural international issues by ANZ and Wespac have cost around 1.50% over inter-bank rates. In early 2012, the Commonwealth Bank issued at around 1.75% over interbank rates in the domestic markets. Given that the covered bonds enjoyed the highest rating of AAA, the funding cost for Australian banks for unsecured borrowings would be around 2.00-2.50% over inter-bank rates, a sharp increase over the last 6 months. This higher cost will be passed on to customers at some stage.

In testimony to a parliamentary committee, John Laker, the head of APRA, acknowledged the funding challenge. He hoped that improvements in market conditions would allow the Australian banks to access the overseas funding required.

Money Too Tight To Mention …

Facing reduced availability and higher cost of funding, Australian banks may reduce loan volumes and increase rates to customers.

The problems of international banks, especially European banks, previously active in financing local businesses, will compound the problem. These banks are required to increase capital to cover losses, including those on their sovereign bond investment. As they can’t or do not want to issue equity at deeply discounted prices and the limited investor appetite for such issues, the banks may sell assets or reduce lending to raise the required capital. Estimates suggest that these banks could have to sell (up to) $2.5-3.0 trillion in assets, resulting in a sharp contraction in availability of credit.

Before the GFC, European banks provided around 35% of loans to Australian corporations. This has fallen to around 16% in 2011 and is likely to decline further as a result of losses on sovereign bond holdings, pressures on bank capital and increases in US$ funding costs. European banks are actively looking to sell all or a portion of their Australian loan portfolios to alleviate the pressures. They are also cutting back on new lending to Australia clients, focusing on their home markets in Europe.

The reduced participation reflects losses on sovereign bond holdings, pressures on bank capital and increases in US$ funding costs. European banks are actively looking to sell all or a portion of their Australian loan portfolios to alleviate the pressures. They are also cutting back on new lending to Australia clients, focusing on their home markets in Europe.

Given that Australian companies will need to re-finance around A$80 billion of maturing loans in 2012, these pressures are not welcome. The problems of European banks, active in commodity financing, may reduce the supply of credit to the sector by about 25-30%, which would impact Australia’s resources businesses.

The contraction of credit will also affect Australia indirectly. The withdrawal of European banks from Asia and other emerging markets is affecting the ability of companies to finance trade and investment projects. This affects Australian exports.

In 2007, European banks and US banks accounted for 30% and 10% of loan in Asia-Pacific. This has fallen by around half to 15-16% for European banks and 5-6% for US banks. The level of participation is likely to shrink further as a result of the problems of these banks. Troubled French banks account for about 11% of maturing loans in Asia Pacific. It is unlikely that these banks will maintain their level of commitment. Asia-Pacific banks have taken up the slack but are not sizeable enough to fill the gap completely.

Australian companies overseas earnings also face significant pressure due to economic weakness in Europe and its affect on the other markets. A proportion of Australian retirement savings are invested overseas. These will also be affected by the problems in Europe and internationally.

The European crisis has affected Australian public finances. Falls in income and capital gains have reduced tax revenue. The government is cutting expenditure and tightening taxes to offset the reduction in revenue. Falls in income on retirement savings, reduced business investment and general loss of confidence is likely to adversely affect the domestic economy. Australia may not escape the possible European tsunami.

Yves here. Stuart Zechman is a keen observer of how corporatist policies are peddled through various Rubinite/Hamilton Project organizations and other mouthpieces and skillfully messaged so as to snooker or co-opt bona fide progressives who ought to know better.

His article mentions Third Way. For benefit of those who have been so fortune as to have limited contact with the netherworld inside the Beltway, here is a brief description from an earlier post:

And make no mistake about the role of Third Way. Third Way runs the policy apparatus of the Democratic Party. In Congress, staffers attend regular Third Way policy briefings, where the group hands out pre-packaged legislative amendments in legal form, generic press releases, polling around those policy ideas, and talking points. It’s a soup-to-nuts policy apparatus. Most of these ideas are harmless – like increased volunteerism – but some are not, like various tax proposals.

The group has enormous juice. On the Congressional side, it has six honorary Senate co-Chairs, and seven House-side co-Chairs. Jim Clyburn, a co-Chair, is in the House Democratic leadership. Two current cabinet members are former co-Chairs. Steny Hoyer, the House minority whip, held regular briefings for the freshmen member staff in the last Congress.

On the administration side, former Third Way board member Bill Daley is now White House chief of staff. Ron Klain, who was Biden’s Chief of Staff, is now with Third Way. The White House is pretty much full of Third Way-style apparatchiks.

Third Way also echoes, nearly entirely, the White House’s political line (though it is slightly ahead on gay rights). Here’s Third Way praising the Gang of 6 talks, opposing cut, cap, and balance, encouraging entitlement cuts, pushing various free trade agreements

Finally, most of the Board members are from the FIRE Sector (Wall Street and real estate), including the head of equity trading for Goldman Sachs and one of the heads of investment banking for Morgan Stanley.

It’s a highly optimized political operation for the White House and Congressional Democrats, with PR muscle, elite validators, access, and policy-making infrastructure.

By Stuart Zechman, an entrepreneur and technologist, co-founder with Jay Ackroyd of the blog “Political Lagoon, and a frequent commenter at TIME Magazine’s political blog “Swampland”.

Well, well, well.

It seems as if some of you purists out there have been grumbling again about the President’s latest “jobs legislation,” even though his recent speech to Congress contained some cautiously populist rhetoric designed to get you to clap, vote and give your hard-earned money to his re-election campaign. How predictable of you movement liberals, never giving Our President credit for anything. What exactly do you people want, a Works Progress Administration, or something equally rife with New Deal orthodoxy?

Don’t you movement liberals understand that our neoliberal, Third Way program is the least rightist agenda that can ever be achieved in the United States? Haven’t you been listening to Dem-leaning pundits? Are you still insisting that there could actually be a separate, distinct, movement liberal, political-economic philosophy than what is currently held by the “center-left coalition” that runs the Democratic Party and its associated message shops and think tanks? Don’t you get that, if you’re anywhere left of movement conservatives, we’re all there is?

What is wrong with you magical-thinkers? Why can’t you accept that political reality dictates that you not exist!

And yet, there you are, complaining about inept policy blundering again, moaning about an obvious, overwhelming lack of positive economic results from our Consensus program for ordinary American voters. Listen, the Democratic President of the United States stood in front of Congress and literally demanded that this body pass his Administration-endorsed National Infrastructure Bank! He called for the passage of Kerry-Hutchison, loud and clear! He said “jobs” many times!

Wait…am I hearing that the National Infrastructure Bank proposal is just not good enough for you moldy, old Glass-Steagall types? Seriously?

But it’s Fareed Zakaria’s favorite policy!

But the New America Foundation loves it!

But the Progressive Policy Institute included it in their “New Book of Memos to the New President,” just as soon as Obama took office!

But Norman Anderson, the president and CEO of CG/LA Infrastructure, LLC, a “Washington, DC based Consulting Firm dedicated to the creation of Public Value via Consulting, Publications and Rankings and The Leadership Forum ( Infrastructure Conference)” made the case for Kerry-Hutchison again for PPI in March! Even such a policy and political genius as Tom Friedman was in attendance at this desperately needed Infrastructure Conference!

But Dr. Everett M. Ehrlich, one of the nation’s leading business economists, whose firm, ESC Company, combines economic analysis, business development, and communications skills to solve a wide range of business problems thinks it’s the best policy ever!

And Dr. Ehrlich (he of the “Everyday Economics” blog) said not to worry about how a National Infrastructure Bank proposal addresses unemployment at all!

This is more a vision of infrastructure policy than a blueprint for the immediate future. Admittedly, it will take years and a meticulous reorganization to produce this configuration. But the best way to measure our progress in infrastructure policy (and the merits of the administration’s proposal) is not to see how quickly we adopt the Bank’s specific features, but to see how the Bank addresses the underlying infrastructure policy flaws it is designed to fix.

And, maybe most importantly, liberal Democrats all over America heard the President say “Build schools, repair bridges, high speed rail, etc”, and they probably don’t even know about the “underlying infrastructure policy flaws” that the National Infrastructure Bank “is designed to fix”!

How can you not reluctantly, but gratefully accept this policy proposal, given the challenges of perpetual conservative ascendency in a fundamentally center-right nation that “senior Democrats” have identified for us?

For God’s sake, its ideological centrism and partisan Democratic rhetoric drew strong contrasts with rightist Republicans! Our President’s been out selling it to the country as a boondoggle-stopper for at least the past year!

This week, President Barack Obama proposed exactly this sort of bank, as part of a Labor Day push for jobs. The national infrastructure bank would “leverage private and state and local capital to invest in projects that are most critical to our economic progress,” the White House said. “This marks an important departure from the federal government’s traditional way of spending on infrastructure through earmarks and formula-based grants that are allocated more by geography and politics than demonstrated value.”

By Annie Lowrey | 09.10.10 | 12:40 pm

http://washingtonindependent.com/97142/the-problem-with-having-an-infrastructure-bank-as-a-jobs-program

NIB is not literally privatization like that bad ol’ Heritage Foundation-GOP stuff, it’s the Third Way’s ideologically-based, private-public partnership policy agenda proposed with sophisticated New Democrat Network messaging designed to appeal to both Democrats and Independents! It’s the stuff a New Democrat’s successful presidential campaign is made of! As Muniblog helpfully explains,

Currently almost all American infrastructure is funded either through municipal bonds or federal funding. Even as federal funding has been constrained, municipal bond issuance has been very low this year, running at about half of last year’s rate. There is plenty of capacity to fund infrastructure with municipal bonds. From a funding standpoint it’s not clear why we need an infrastructure bank, especially a paygo infrastructure bank.

The AIFA legislation is very specific about the type of projects that can be funded:

Highway or road
Bridge
Mass transit
Inland waterways
Commercial ports
Airports
Air traffic control systems
Passenger rail, including high-speed rail
Freight rail systems

The legislation seems to require public-private partnerships for funding. In the bill’s criteria for loan approval, there’s a preference for those projects which maximize private investment (page 41):

“the extent to which the provision of assistance by AIFA maximizes the level of private investment in the infrastructure project or supports a public-private partnership, while providing a significant public benefit”

The essence of the American Infrastructure Financing Authority is to use the full faith and credit of the U.S. government to loan funds at below-market rates to public-private partnerships — in other words, to privatize the cash flows from public assets.

When you read the congressional testimony and materials about the proposed bank you always hear about the vast sums of private money waiting in the wings to be invested. When Robert Wolf, Chairman and CEO of UBS Americas and close confidant of President Obama, testified to the Senate Banking Committee last year he said:

Preqin, a private equity industry consultant, estimates that there is over $180 billion dollars of private equity and pension fund capital focused on infrastructure equity investments. This capital can play an important role in bridging state and local budget gaps.

There is no question that private money is interested in being used for loans to infrastructure projects and guaranteed by the federal government and taxpayers. It’s almost identical to senior bondholders who loaned money to too-big-to-fail banks. It’s the best setup for private money because there is no loss.

So what are you un-pragmatic leftists demanding, anyway? Not to have the citizenry held hostage by the self-interested demands of money-center banks ever again? That’s crazy old 1930′s talk!

See, the National Infrastructure Bank proposal firmly, yet thoughtfully rejects old, liberal orthodoxies about ordinary people not having to rely on giant, corrupt, unaccountable market actors for almost everything of importance in their daily lives, and falls squarely within the 1990s Democratic program to “modernize” the government (and the population) to cope with the realities of the 21st century, global economy!

The President said that he was going to fight the conservatives and the Republicans, just like depressed liberal Democrats have been whinging and begging him to do, and take this policy of depending on the continued confidence of shitpile peddlers and inveterate gamblers (instead of dedicated tax revenues ) to be ratified by the public, where he’ll refer to it uncontroversially as “Jobs Plan! Pass It Now! Jobs Plan!”. Much of the liberal blogosphere just put on their Team D uniforms, picked up their pragmatist pom-poms and yelled “Give me an O!” when they heard the familiar strains of ’08 campaign-speak, so what more could you possibly want?

Are you one of those ideological purists who’s unhappy with anything that isn’t the total abolition of the DoD, and free pot for everyone, who lives to scream “Sellout” at the professionals who are trying to Get Things Done in the capital? Isn’t it your duty to praise the Administration whenever they offer the slightest hint of putting up a fight, and to leave the hard thinking about the agenda they’re pushing to the practical folks primarily concerned with “progressive unity” and Democratic Party success? Aren’t you afraid of being called a whiner for not “getting everything?” Have you been penitent enough about your role in Bush-Gore 2000, yet?

Can’t you see that, in order to defeat the GOP right, the “center-left coalition” has to all get behind the Third Way’s decade-old, National Infrastructure Bank dream date fantasy, toute-de-fucking-suite?

So how could this policy be wrong, if the only people who question it are rightists and un-Serious, non-establishment, magical-thinking, hippie-type liberals who, once given a taste of contrast-drawing 2012 campaign rhetoric, will endorse it anyway –whatever it does or doesn’t do for actual unemployment in the near term, however horrible in practice this lunatic policy actually turns out to be over the next decade, if passed?

Aren’t you being just like those unreasonable, crazee House Republicans, demanding the ideological and impossible instead of the Third Way and wonderful –sorry, I meant, “the most liberal it could be, given the circumstances?” Can’t you just shut up and vote for us and this policy, again, like we know you will?

Or don’t you live to see Our President re-elected next year?

By Richard Smith

You won’t be hearing much from Yves today:

Traceroute has started…

traceroute to vroo.pair.com (209.68.1.136), 64 hops max, 52 byte packets

1  192.168.1.1 (192.168.1.1)  5.882 ms  0.760 ms  0.631 ms

2  yves.tearing.hair.out (yves.tearing.hair.out)  8.501 ms  15.333 ms  9.936 ms

3  te-9-4-ur01.brunswick.me.boston.comcast.net (68.87.36.53)  9.966 ms  10.767 ms  9.605 ms

4  te-0-7-0-2-sur01.brunswick.me.boston.comcast.net (68.85.162.61)  10.250 ms  9.868 ms *

5  te-1-1-0-0-ar01.needham.ma.boston.comcast.net (68.85.162.246)  26.179 ms  25.956 ms  25.944 ms

6  pos-2-2-0-0-cr01.newyork.ny.ibone.comcast.net (68.86.93.185)  32.955 ms *  117.248 ms

7  tengigabitethernet9-2.ar4.nyc1.gblx.net (64.213.77.217)  31.811 ms  32.612 ms *

8  64.210.21.150 (64.210.21.150)  66.971 ms  77.856 ms  72.333 ms

9  * * *

10  * vroo.pair.com (209.68.1.136)  65.129 ms  65.480 ms

No mobile signal either, and the nearest public Wi-Fi is 15 miles away. So much for the relaxing up-country break, methinks. Or maybe it is just a reminder that the expectations nourished by life in the big city are always out of whack with what’s available out in the boonies (or, from Comcast). I remember a wide-eyed ex-Londoner, newly resident in Herefordshire (rural England), commenting on the 30-mile round trip required to stock up on his taramasalata. Feel free to add your own stories of bemused encounters between city and country types in the comments; from either perspective. We have a goodly selection of both, but no civil wars please.

Don’t bother telling me how to fix the timeout problem – that’s for Comcast et al to sort out. I’ll be helping out with the blog as best I can today…

Sorry if you were looking for listing of the various Greek assets on offer. You need to be a really heavyweight investor (and have been verified as such) to get a real viewing. And you are late if you are taking interest only now. The Guardian last week visited a road show of sorts in London (note that the properties were being hawked BEFORE the Greek parliament had approved the sale). The potential bidders were very cool:

Up for sale are 39 airports, 850 ports, railways, motorways, sewage works, a couple of energy companies, banks, defence groups, thousands of acres of land for development, casinos and Greece’s national lottery. George Christodoulakis, Greece’s special secretary for asset restructuring and privatisations, said the sell-off would raise €50bn (£44bn) to help pay back the country’s €110bn bailout debt.

The private equity bosses gathered in the hotel’s ballroom for the parade of Greece’s national treasures showed little interest in buying anything.

Nikos Stathopoulous, managing partner of BC Partners, which has invested more than €3.5bn in Greece, said investors are put off by bureaucracy, strong unions, corruption and a lack of transparency. “Even in the good times Greece is not a country that attracts investment. Foreign investors don’t want to invest in a country where there is no flexibility in hiring and firing people,” he said. “You don’t want to invest in a country in which you wake up and a new law has been passed which totally undermines and destroys the value of the investment you’ve just made.”

But I have no doubt there are properties for sale to suit all budget, apparently including lots of beachfronts. From Aljazeera (hat tip the Economic Populist):

It is pretty clear that this is all going to end badly. The asset sales have been budgeted to fetch €50 billion; experts expected them to yield at most €15 billion. And as the video clip suggests, a lot of what is being put up for sale is white elephants. Moreover, the good properties are de facto sale-leasebacks, with the attractiveness of the investment dependent on the income it produces from Greek nationals (and maybe tourists). With infrastructure investors’ practice of “sweating the asset,” meaning increasingly increasing charges to users, that just sucks more income out of the Greek economy, making it less able to service other debt.

Greece is clearly going to suffer some pain regardless, but this stripping of the country when a restructuring is inevitable isn’t sound policy, it’s looting, pure and simple. It reminds me of a video Richard Smith sent me about stoats hunting rabbits (reader alert: I actually do have a certain fondness for members of the weasel family, I think they get a bum rap, but this video is not for the fainthearted. You need to view it at YouTube, since embedding is not permitted)

The striking thing isn’t simply the distress of the rabbit being hunted, it’s the complacency of the other rabbits as one of their own is being taken down. With banks in the US licking their chops at the prospect of “privatizing” state and municipal assets, the example of Greece is more germane than many of us would like to believe.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College

The fight for Europe’s future is being waged in Athens and other Greek cities to resist financial demands that are the 21st century’s version of an outright military attack. The threat of bank overlordship is not the kind of economy-killing policy that affords opportunities for heroism in armed battle, to be sure. Destructive financial policies are more like an exercise in the banality of evil – in this case, the pro-creditor assumptions of the European Central Bank (ECB), EU and IMF (egged on by the U.S. Treasury).

As Vladimir Putin pointed out some years ago, the neoliberal reforms put in Boris Yeltsin’s hands by the Harvard Boys in the 1990s caused Russia to suffer lower birth rates, shortening life spans and emigration – the greatest loss in population growth since World War II. Capital flight is another consequence of financial austerity. The ECB’s proposed “solution” to Greece’s debt problem is thus self-defeating. It only buys time for the ECB to take on yet more Greek government debt, leaving all EU taxpayers to get the bill. It is to avoid this shift of bank losses onto taxpayers that Angela Merkel in Germany has insisted that private bondholders must absorb some of the loss resulting from their bad investments.

The bankers are trying to get a windfall by using the debt hammer to achieve what warfare did in times past. They are demanding privatization of public assets (on credit, with tax deductibility for interest so as to leave more cash flow to pay the bankers). This transfer of land, public utilities and interest as financial booty and tribute to creditor economies is what makes financial austerity like war in its effect.

Socrates said that ignorance must be the root of all evil, because no one deliberately sets out to be bad. But the economic “medicine” of driving debtors into poverty and forcing the selloff of their public domain has become socially accepted wisdom taught in today’s business schools. One would think that after fifty years of austerity programs and privatization selloffs to pay bad debts, the world has learned enough about causes and consequences. The banking profession chooses deliberately to be ignorant. “Good accepted practice” is bolstered by Nobel Economics Prizes to provide a cloak of plausible deniability when markets “unexpectedly” are hollowed out and new investment slows as a result of financially bleeding economies, medieval-style while wealth is siphoned up to the top of the economic pyramid.

My friend David Kelley likes to cite Molly Ivins’ quip: “It’s hard to convince people that you are killing them for their own good.” The EU’s attempt to do this didn’t succeed in Iceland. And like the Icelanders, the Greek protesters have had their fill of neoliberal learned ignorance that austerity, unemployment and shrinking markets are the path to prosperity, not deeper poverty. So we must ask what motivates central banks to promote tunnel-visioned managers who follow the orders and logic of a system that imposes needless suffering and waste – all to pursue the banal obsession that banks must not lose money?

One must conclude that the EU’s new central planners (isn’t that what Hayek said was the Road to Serfdom?) are acting as class warriors by demanding that all losses are to be suffered by economies imposing debt deflation and permitting creditors to grab assets – as if this won’t make the problem worse. This ECB hard line is backed by U.S. Treasury Secretary Geithner, evidently so that U.S. institutions not lose their bets on derivative plays they have written up.

This is a repeat of Mr. Geithner’s intervention to prevent Irish debt alleviation. The result is that we enter absurdist territory when the ECB and Treasury insist on “voluntary renegotiation” on the ground that some bank may have taken an AIG-type gamble in offering default insurance or bets that would make it lose so much money that yet another bailout would be necessary. It is as if financial gambling is economically necessary, not part of Las Vegas.

Why should this matter a drachma to the Greeks? It is an intra-European bank regulatory problem. Yet to sidestep it, the ECB is telling Greece to sell off its water and sewer rights, ports, islands and other infrastructure.

This veers on financial theater of the absurd. Of course some special interest always benefits from systemic absurdity, banal as it may be. Financial markets already have priced in the expectation that Greece will default in the end. It is only a question of when. Banks are using the time to take as much as they can and pass the losses onto the ECB, EU and IMF – “public” institutions that have more leverage than private creditors. So bankers become the sponsors of absurdity – and of the junk economics spouted so unthinkingly by the enforcers, cheerleaders for the banality of evil. It doesn’t really matter if their names are Trichet, Geithner or Papandreou. They are just kindred lumps on the vampire squid of creditor claims.

The Greek crowds demonstrating before Parliament in Syntagma Square are providing their counterpart to “Arab spring.” But what really can they do, short of violence – as long as the police and military side with the government that itself is siding with foreign creditors?

The most effective tactic is to demand a national referendum on whether to accept the ECB’s terms for austerity, tax increases, public spending cutbacks and selloffs. This is how Iceland’s President stopped his country’s Social Democratic leadership from committing the economy to ruinous (and legally unnecessary) payments to Gordon Brown’s Labour Party demands and those of the Dutch for the Icesave and even the Kaupthing bailouts.

The only legal basis for demanding payment of the EU’s bailout of French and German banks – and U.S. Treasury Secretary Tim Geithner’s demand that debts be sacrosanct, not the lives of citizens – is public acceptance and acquiescence in such policy. Otherwise the imposition of debt may be treated simply as an act of financial warfare.

National economies have the right to defend themselves against such aggression. The crowd’s leaders can insist that in the absence of a referendum, they intend to elect a political slate committed to outright debt annulment. Across the board, including the Greek banks as well as foreign banks, the IMF and EU central planners. International law prohibits nations from treating their own nationals differently from foreigners, so all debts in specified categories would have to be annulled to create a Clean Slate. (The German Monetary Reform of 1947 imposed by the Allied Powers was the most successful Clean Slate in modern times. Freeing the German economy from debt, it became the basis of that nation’s economic miracle.)

This is not the first such proposal for Greece. Toward the end of the 3rd century BC, Sparta’s kings Agis and Cleomenes urged a debt cancellation, as did Nabis after them. Plutarch tells the story, and also explains the tragic flaw of this policy. Absentee owners who had borrowed to buy real estate backed the debt cancellation, gaining an enormous windfall.

This would be much more the case today than in times past, now that the great bulk of debt is mortgage debt. Imagine what a debt cancellation would do for the Donald Trumps of the economy – having acquired property on credit with minimum equity investment of their own, suddenly owing nothing to the banks! The aim of financial-fiscal reform should be to free the economy from financial overhead that is technologically unnecessary. To avoid giving a free lunch to absentee owners, a debt cancellation would have to go hand in hand with an economic rent tax. The public sector would receive the land’s rental value as its fiscal base.

This happens to have been the basic aim of 19th-century free market economists: tax land and nature – and natural monopolies – rather than taxing labor and capital goods. The aim was to keep for the public what nature and public infrastructure spending create. A century ago it was believed that monopolies such as the privatizers now set their eyes should be operated by the public sector; or, if left in public hands, their prices would be regulated to keep them in line with actual costs of production. Where private owners already have taken possession of land, mines or monopolies, the rental revenue from such ownership privileges would be fully taxed. This would include the financial privilege that banks enjoy in credit creation.

The way to lower costs is to lower “bad” taxes that add to the price of production, headed by taxes on labor and capital, sales taxes and value-added taxes. By contrast, rent taxes collect the economy’s “free lunch,” and thus leave less available to be pledged to banks to capitalize into debt service on higher loans. Shifting the Greek tax burden off labor onto property would reduce the supply price of labor, and also reduce the price of housing that is being bid up by bank credit.

A land tax shift was the primary reform proposal from the 18th and 19th century, from the Physiocrats and Adam Smith down through John Stuart Mill and America’s Progressive Era reformers. The aim was to free markets from the landed aristocracy’s hereditary rents stemming from the medieval Viking conquest. This would free economies from feudalism, bringing prices in line with socially necessary costs of production.

Every government has the right to levy taxes, as long as they do it uniformly to domestic property owners as well as to foreign owners. Short of re-nationalizing the land and infrastructure, fully taxing its economic rent (access payments for sites whose value is created by nature or by public improvements) would take back for the Greek authorities what creditors are trying to grab.

This classical threat of 19th century reformers is the response that the Greeks can make to the European Central Bank. They can remind the rest of the world that it was, after all, the ideal of free markets as expressed from Adam Smith through John Stuart Mill in England, and underlay U.S. public spending, regulatory agencies and tax policy during its period of take-off.

How strange (and sad) that Greece’s own ruling Socialist Party, whose leader heads the Second International, has rejected this centuries-old reform program. It is not Communism. It is not even inherently revolutionary, or at least was not at the time it was formulated. It is socialism of the reformist type that two centuries of classical political economy culminated in.

But it is the kind of free markets against which the ECB is fighting – backed by Treasury Secretary Geithner’s shrill exhortations from the United States. Mr. Obama says nothing leaving it all to Wall Street bureaucrats to set national economic policy. Is this evil? Or is it just passive and indifferent? Does it make much of a difference as far as the end result is concerned?

To sum up, the aims of foreign financial aggression are the same as military conquest: land and the public domain. But nations have the right to tax their rental yield over and above a return to capital investment. Contrary to EU demands for “internal devaluation” (wage cuts) as a means of lowering the price of Greek labor to make it more competitive, reducing living standards is not the way to go. That reduces labor productivity while eroding the internal market, leading to a deteriorating spiral of economic shrinkage.

The need for a popular referendum

Every government has the right and indeed the political obligation to protect its prosperity and livelihood so as to keep its population at home rather than drive them abroad or drive them into a position of financial dependency on rentiers. At the heart of economic democracy is the principle that no sovereign nation is committed to relinquish its public domain or its taxing, and hence its economic prosperity and future livelihood, to foreigners or for that matter to a domestic financial class. This is why Iceland voted “No” in the debt referendum. Its economy is recovering.

Ireland voted “Yes” and now faces a new Great Emigration to rival that which followed the potato famine of the mid-19th century. If Greece does not draw a line here, it will be a victory for financial and fiscal aggression imposing debt peonage.

Finance has become the 21st century’s preferred mode of warfare. It’s aim is to appropriate the land and public infrastructure for its own power elites. Achieving this end financially, by imposing debt peonage on subject populations, avoids the sacrifice of life by the aggressor power – but only as long as subject debtor countries accept their burden voluntarily. If there is no referendum, the national economy cannot be held liable to pay the debts owed even to “senior” creditors: the IMF and ECB. Assets that are privatized at foreign bank insistence can be renationalized. And just as nations under military attack can sue, so Greece can sue for the devastation caused by austerity – the lost employment, lost output, lost population, capital flight.

The Greek economy will not end up with the proceeds of any ECB “bailout.” The banks will get the money. They would like to turn around and lend it out afresh to the buyers of the land, monopolies and other properties that Greece is being told to privatize. The user fees they collect (no doubt raising charges in the process, to cover the interest and pay themselves the usual salary jumps on privatized property) will be paid out as interest. Is this not like military tribute?

Margret Thatcher used to say “There is no alternative” (TINA). But of course there is. Greece can simply opt out of this giveaway of assets and economic privilege to creditors.

What do Mr. Papandreou’s Socialist International colleagues have to say about current events in Greece? I suppose it is clear that the old Socialist International is dead, given the fact that Mr. Papandreou is its head, after all. What passes for socialism today is the diametric opposite of the reforms promoted under its name a century ago, in the era prior to World War I. Europe’s Social Democratic and Labour parties have led the way in privatization, financializing their economies under conditions that have blocked the growth in living standards. The result promises to be an international political realignment.

Economic austerity cannot secure creditor claims in the end

On Thursday afternoon the DJIA, having been down 230 points, leapt up at the close to lose “only” 60 points, on rumors that Greece had agreed to the IMF’s austerity plan. But what is “Greece”? Is it the cabinet alone? Certainly not yet the entire Parliament. Will there be a Parliamentary vote in opposition to the public interest, accepting austerity and privatization?

Only a referendum can commit the Greek government to repay new debts imposed under austerity. Only a referendum can prevent property that is privatized from being re-nationalized. Such a transfer is not legitimate under commonly accepted ideas of political and economic democracy. And in any event, a rent-tax can recapture for the Greek economy what the financial aggressors are trying to seize.

History is rife with instructive examples. Local oligarchies in the region invited Rome to attack Sparta, and it overthrew the kings and their successor Nabis (who may himself have been royal). The sequel is that Rome headed an oligarchic empire, using violence at home to murder democratic reformers such as the Gracchi brothers after 133 BC, plunging the republic into a century of civil war. The creditor interests ended up fully in control, and their own banal self-seeking plunged the Western half of the Roman Empire into an economic and social Dark Age.

Let’s hope the outcome is better this time around. There will indeed be fighting, but more in the financial and fiscal sphere than the overtly military one. The fight ultimately can be won only by understanding the corrosive dynamics of the “magic of compound interest” and the social need to subordinate creditor interests to those of the overall “real” economy. But to achieve this, economic theory itself needs to be brought out of its current post-classical “neoliberal” banality.

By Alex Andreou, a successful lawyer turned actor living in London. Cross posted from SturdyBlog

I have never been more desperate to explain and more hopeful for your understanding of any single fact than this: The protests in Greece concern all of you directly.

What is going on in Athens at the moment is resistance against an invasion; an invasion as brutal as that against Poland in 1939. The invading army wears suits instead of uniforms and holds laptops instead of guns, but make no mistake – the attack on our sovereignty is as violent and thorough. Private wealth interests are dictating policy to a sovereign nation, which is expressly and directly against its national interest. Ignore it at your peril. Say to yourselves, if you wish, that perhaps it will stop there. That perhaps the bailiffs will not go after the Portugal and Ireland next. And then Spain and the UK. But it is already beginning to happen. This is why you cannot afford to ignore these events.

The powers that be have suggested that there is plenty to sell. Josef Schlarmann, a senior member of Angela Merkel’s party, recently made the helpful suggestionthat we should sell some of our islands to private buyers in order to pay the interest on these loans, which have been forced on us to stabilise financial institutions and a failed currency experiment. (Of course, it is not a coincidence that recent studies have shown immense reserves of natural gas under the Aegean sea).

China has waded in, because it holds vast currency reserves and more than a third are in Euros. Sites of historical interest like the Acropolis could be made private. If we do not as we are told, the explicit threat is that foreign and more responsible politicians will do it by force. Let’s make the Parthenon and the ancient Agora a Disney park, where badly paid locals dress like Plato or Socrates and play out the fantasies of the rich.

It is vital to understand that I do not wish to excuse my compatriots of all blame. We did plenty wrong. I left Greece in 1991 and did not return until 2006. For the first few months I looked around and saw an entirely different country to the one I had left behind. Every billboard, every bus shelter, every magazine page advertised low interest loans. It was a free money give-away. Do you have a loan that you cannot manage? Come and get an even bigger loan from us and we will give you a free lap-dance as a bonus. And the names underwriting those advertisements were not unfamiliar: HSBC, Citibank, Credit Agricole, Eurobank, etc.

Regretfully, it must be admitted that we took this bait “hook, line and sinker”. The Greek psyche has always had an Achilles’ heel; an impending identity crisis. We straddle three Continents and our culture has always been a melting pot reflective of that fact. Instead of embracing that richness, we decided we were going to be definitively European; Capitalist; Modern; Western. And, damn it, we were going to be bloody good at it. We were going to be the most European, the most Capitalist, the most Modern, the most Western. We were teenagers with their parents’ platinum card.

I did not see a pair of sunglasses not emblazoned with Diesel or Prada. I did not see a pair of flip-flops not bearing the logo of Versace or D&G. The cars around me were predominantly Mercedes and BMWs. If anyone took a holiday anywhere closer than Thailand, they kept it a secret. There was an incredible lack of common sense and no warning that this spring of wealth may not be inexhaustible. We became a nation sleepwalking toward the deep end of our newly-built, Italian-tiled swimming pool without a care that at some point our toes may not be able to touch the bottom.

That irresponsibility, however, was only a very small part of the problem. The much bigger part was the emergence of a new class of foreign business interests ruled by plutocracy, a church dominated by greed and a political dynasticism which made a candidate’s surname the only relevant consideration when voting. And while we were borrowing and spending (which is affectionately known as “growth”), they were squeezing every ounce of blood from the other end through a system of corruption so gross that it was worthy of any banana republic; so prevalent and brazen that everyone just shrugged their shoulders and accepted it or became part of it.

I know it is impossible to share in a single post the history, geography and mentality which has brought this most beautiful corner of our Continent to its knees and has turned one of the oldest civilisations in the world from a source of inspiration to the punchline of cheap jokes. I know it is impossible to impart the sense of increasing despair and helplessness that underlies every conversation I have had with friends and family over the last few months. But it is vital that I try, because the dehumanisation and demonisation of my people appears to be in full swing.

I read, agog, an article in a well-known publication which essentially advocated that the Mafia knew how to deal properly with people who didn’t repay their debts; that “a baseball bat may be what’s needed to fix the never ending Greek debt mess”. The article proceeded to justify this by rolling out a series of generalisations and prejudices so inaccurate and so venomous that, had one substituted the word “Greeks” with “Blacks” or “Jews”, the author would have been hauled in by the police and charged with hate crimes. (I always include links, but not in this case – I am damned if I will create more traffic for that harpy).

So let me deal with some of that media Mythology.

Greeks are lazy. This underlies much of what is said and written about the crisis, the implication presumably being that our lax Mediterranean work-ethic is at the heart of our self-inflicted downfall. And yet, OECD data among its members show that in 2008, Greeks worked on average 2120 hours a year. That is 690 hours more than the average German, 467 more than the average Brit and 356 more than the OECD average. Only Koreans work longer hours. Further, the paid leave entitlement in Greece is on average 23 days, lower than most EU countries including the UK’s minimum 28 and Germany’s whopping 30.

Greeks retire early. The figure of 53 years old as an average retirement age is being bandied about. So much, in fact, that it is being seen as fact. The figure actually originates from a lazy comment on the NY Times website. It was then repeated by Fox News and printed on other publications. Greek civil servants have the option to retire after 17.5 years of service, but this is on half benefits. The figure of 53 is a misinformed conflation of the number of people who choose to do this (in most cases to go on to different careers) and those who stay in public service until their full entitlement becomes available. Looking at Eurostat’s data from 2005 the average age of exit from the labour force in Greece (indicated in the graph below as EL for Ellas) was 61.7; higher than Germany, France or Italy and higher than the EU27 average. Since then Greece have had to raise the minimum age of retirement twice under bail-out conditions and so this figure is likely to rise further.

Greece is a weak economy that should never have been a part of the EU. One of the assertions frequently levelled at Greece is that its membership to the European Union was granted on emotional “cradle of democracy” grounds. This could not be further from the truth. Greece became the first associate member of the EEC outside the bloc of six founding members (Germany, France, Italy and the Benelux countries) in 1962, much before the UK. It has been a member of the EU for 30 years. It is classified by the World Bank as a “high income economy” and in 2005 boasted the 22nd highest human development and quality of life index in the world – higher than the UK, Germany or France. As late as 2009 it had the 24th highest per capita GDP according to the World Bank. Moreover, according to the University of Pennsylvania’s Centre for International Comparisons, Greece’s productivity in terms of real GDP per person per hour worked, is higher than that of France, Germany or the US and more than 20% higher than the UK’s.

The first bail-out was designed to help Greek people, but unfortunately failed. It was not. The first bail-out was designed to stabilise and buy time for the Eurozone. It was designed to avoid another Lehman-Bros-type market shock, at a time when financial institutions were too weak to withstand it. In the words of BBC economist Stephanie Flanders: “Put it another way: Greece looks less able to repay than it did a year ago – while the system as a whole looks in better shape to withstand a default… From their perspective, buying time has worked for the eurozone. It just hasn’t been working out so well for Greece.” If the bail-out were designed to help Greece get out of debt, then France and Germany would not have insisted on future multi-billion military contracts. As Daniel Cohn-Bendit, the MEP and leader of the Green group in the European Parliament, explained: “In the past three months we have forced Greece to confirm several billion dollars in arms contracts. French frigates that the Greeks will have to buy for 2.5 billion euros. Helicopters, planes, German submarines.”

The second bail-out is designed to help Greek people and will definitely succeed. I watched as Merkel and Sarkozy made their joint statement yesterday. It was dotted with phrases like “Markets are worried”, “Investors need reassurance” and packed with the technical language of monetarism. It sounded like a set of engineers making minor adjustments to an unmanned probe about to be launched into space. It was utterly devoid of any sense that at the centre of what was being discussed was the proposed extent of misery, poverty, pain and even death that a sovereign European partner, an entire nation was to endure. In fact most commentators agree, that this second package is designed to do exactly what the first one did: buy more time for the banks, at considerable expense to the Greek people. There is no chance of Greece ever being able to repay its debt – default is inevitable. It is simply servicing interest and will continue to do so in perpetuity.

And the biggest myth of them all: Greeks are protesting because they want the bail-out but not the austerity that goes with it. This is a fundamental untruth. Greeks are protesting because they do not want the bail-out at all. They have already accepted cuts which would be unfathomable in the UK – think of what Cameron is doing and multiply it by ten. Benefits have not been paid in over six months. Basic salaries have been cut to 550 Euros (£440) a month.

My mother, who is nearly 70, who worked all her life for the Archaeology Department of the Ministry of Culture, who paid tax, national insurance and pension contributions for over 45 years, deducted at the source (as they are for the vast majority of decent hard-working people – it is the rich that can evade), has had her pension cut to less than £400 a month. She faces the same rampantly inflationary energy and food prices as the rest of Europe.

A good friend’s granddad, Panagiotis K., fought a war 70 years ago – on the same side as the rest of Western democracy. He returned and worked 50 years in a shipyard, paid his taxes, built his pension. At the age of 87 he has had to move back to his village so he can work his “pervoli” – a small arable garden – planting vegetables and keeping four chickens. So that he and his 83 year old wife might have something to eat.

A doctor talking on Al Jazeera yesterday explained how even GPs and nurses have become so desperate that they ask people for money under the table in order to treat them, in what are meant to be free state hospitals. Those who cannot afford to do this, go away to live with their ailment, or die from it. The Hippocratic oath violated out of despair, at the place of its inception.

So, the case is not that Greeks are fighting cuts. There is nothing left to cut. The IMF filleting knife has gotten to pure, white, arthritis-afflicted bone. The Greeks understand that a second bail-out is simply “kicking the can down the road”. Greece’s primary budget deficit is, in fact, under 5bn Euros. The other 48bn Euros are servicing the debt, including that of the first bail-out, with one third being purely interest. The EU, ECB and IMF now wish to add another pile of debt on top of that, which will be used to satisfy interest payments for another year. And the Greeks have called their bluff. They have said “Enough is enough. Keep your money.”

My land has always attracted aggressive occupiers. Its vital strategic position combined with its extraordinary natural beauty and history, have always made it the trinket of choice for the forces of evil. But we are a tenacious lot. We emerged after 400 years of Ottoman occupation, 25 generations during which our national identity was outlawed with penalty of death, with our language, tradition, religion and music intact.

Finally, we have woken up and taken to the streets. My sister tells me that what is happening in Syntagma Square is beautiful; filled with hope; gloriously democratic. A totally bi-partisan crowd of hundreds of thousands of people have occupied the area in front of our Parliament. They share what little food and drink there is. A microphone stands in the middle, on which anyone can speak for two minutes at a time – even propose things which are voted by a show of thumbs. Citizenship.

And what they say is this: We will not suffer any more so that we can make the rich, even richer. We do not authorise any of the politicians, who failed so spectacularly, to borrow any more money in our name. We do not trust you or the people that are lending it. We want a completely new set of accountable people at the helm, untainted by the fiascos of the past. You have run out of ideas.

Wherever in the world you are, their statement applies.

Money is a commodity, invented to help people by facilitating transactions. It is not wealth in itself. Wealth is natural resources, water, food, land, education, skill, spirit, ingenuity, art. In those terms, the people of Greece are no poorer than they were two years ago. Neither are the people of Spain or Ireland or the UK. And yet, we are all being put through various levels of suffering, in order for numbers (representing money which never existed) to be transferred from one column of a spreadsheet to another.

This is why the matter concerns you directly. Because this is a battle between our right to self-determine, to demand a new political process, to be sovereign, and private corporate interests which appear determined to treat us like a herd, which only exists for their benefit. It is the battle against a system which ensures that those who fuck up, are never those that are punished – it is always the poorest, the most decent, the most hard-working that bear the brunt. The Greeks have said “Enough is enough”. What do you say?

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Help us by spreading this message to others – don’t let the media airbrush it out of existence, like they have done with the people of Madison, Wisconsin and the Indignados in Spain. Go to the original article on Alex’s blog here, and use the comments below (no registration is needed) to express your solidarity with the people of Greece. If you have any questions, again use the comments section on Alex’s blog he will do his best to answer. Raise the matter with people in power. Ask questions. Talk about it in the pub. Most of all, wake up before you find yourself in our situation.

Nassim Nicholas Taleb is the Lebanese-American philosopher who formulated the theory of “Black Swan Events” – unpredictable, unforeseen events which have a huge impact and can only be explained afterwards. Last week, on Newsnight, he was asked by Jeremy Paxman whether the people taking to the streets in Athens was a Black Swan Event. He replied: “No. The real Black Swan Event is that people are not rioting against the banks in London and New York.”

One of the interesting features of the seemingly unending Eurozone crisis is that the half life of rescue measures is decreasing.

The elephant in the room, which we will put aside to focus on the current state of play, is that everyone knows the Greek debts must be restructured. To have Greece pay out punitive rates on past debt will simply grind the economy into a deeper hole, worsening its debt to GDP ratio and eroding its physical and human infrastructure. All the delay of the inevitable does is allow for more extend and pretend while Western financial firms strip the economy for fun and profit. And this is terribly inefficient looting; their profits from this pilferage will be small relative to the pain inflicted on the Greek populace.

Late last week, various commentators made a bit too much of the clearing of one obstacle to the extension of yet another short lifeline to Greece, namely, that Angel Merkel had relaxed one of conditions that stood in the way of a planned €12 billion credit extension. She had wanted private creditors to share in the pain, and agreed that a rollover of currently maturing debt would do. Before she had insisted on a full bond exchange, which would have resulted in a much more significant hit to investors.

This concession did not go over well in Germany. Per the Financial Times:

“What has been agreed is not a real participation of [private] creditors,” said Frank Schäffler, a rebel leader in the Bundestag from the ranks of the Free Democratic party, the liberal junior partner in Ms Merkel’s coalition. “It does not correspond to what the German Bundestag has agreed,” he told the Frankfurter Allgemeine newspaper on Sunday.

Klaus-Dieter Willsch, another dissident backbencher in Ms Merkel’s own Christian Democratic Union, warned that “it will be difficult [for her] to win a majority in parliament” for a new Greek rescue on the basis of a bond rollover.

Even the opposition Social Democrats, who are in principle more positive about a new Greek rescue, are threatening to withhold their votes in the Bundestag if Ms Merkel cannot deliver a majority from the ranks of her supporters.

Even though Germany has been the heavy thus far, it is France that is actually the most exposed to Greece, when you include private debt, as this chart from the BBC shows (hat tip Daniel Pennell):

The update this morning from meetings over the weekend among Eurozone ministers is fragmentary and confused (the disparity among various reports on the same story is unusually wide) but the bottom line is clear. First, a deal has not been agreed to although they insist there will be a deal before Greece really needs the dough. Second, the eurozone ministers insist that the Greek parliament nevertheless pass tough austerity measures as a precondition for any rescue.

The BBC, which was more coherent than some other accounts, depicts the action as a “delay”:

Eurozone finance ministers have postponed their decision on a 12bn euro ($17bn; £10bn) loan to Greece until it introduces further austerity measures.

The ministers said they expected to pay the latest tranche of a 110bn euro EU and IMF aid package by mid-July.

But it will depend on the Greek parliament passing 28bn euros of new spending cuts and economic reforms.

The ministers also committed to put together a second bail-out package to keep the country afloat.

It isn’t lost on anyone that “expected to pay” isn’t a resounding commitment. The Financial Times more pointedly called it “A failure by eurozone governments over the weekend to agree the release of a €12bn bail-out payment for Greece.” Bloomberg pointed to another obvious concern, whether the full €12 billion would be forthcoming even if the Greeks knuckled under.

Recall also that this €12 billion isn’t a new deal; it’s another tranche in the €110 billion package agreed (well, supposedly agreed) for Greece last year. And the Greek government does have the upper hand here; it is ironically the same leverage point the US banks used to push through the heinous TARP in 2008: “If you don’t rescue us, all hell breaks loose.” But it has been cowed into not making that threat. As Mark Weisbrot wrote in the Guardian last Friday:

Imagine that in its worst year of our recent recession, the United States government had decided to reduce its federal budget deficit by more than $800bn – cutting spending and raising taxes to meet this goal. Imagine that, as a result of these measures, the economy had worsened and unemployment soared to more than 16%; and then the president pledged another $400bn in spending cuts and tax increases this year. What do you think would be the public reaction?

It would probably be similar to what we are seeing in Greece today, including mass demonstrations and riots – because that is what the Greek government has done….What makes the Greek public even angrier is that their collective punishment is being meted out by foreign powers – the European Commission, the European Central Bank and the IMF. This highlights perhaps the biggest problem of unaccountable, rightwing, supranational institutions….If it had leaders of its own who were stupid enough to massively cut spending and raise taxes during a recession, those government officials would be replaced….

And if that required a renegotiation of the public debt, that is what the country would do. This is going to happen even under the European authorities, but first, they are putting the country through years of unnecessary suffering. And they are taking advantage of the situation to privatise public assets at fire sale prices and restructure the Greek state and economy, so that it is more to their liking…

Because of the massive opposition to further economic self-destruction – the latest polls show that 80% of Greeks are opposed to making any more concessions to the European authorities – the Greek government has so far been unable to reach an agreement with the IMF for the release of their latest loan tranche on 29 June…

The IMF is going to hand over the money anyway…the prospect of a disorderly default… is too scary for the European authorities to contemplate. For this reason, the many news articles about the possibility of a financial collapse comparable to what happened after Lehman Brothers went under in 2008 are somewhat exaggerated. The European authorities are not going to let that happen over a measly $17bn loan installment.

There appears to be three ways that the Greek conditional deal gets upended. The first two are that the austerity plan, which is tantamount to stripping the country of assets, is repudiated by Parliament or in the streets. The third is a bank run (which is already underway and could accelerate if the public pushback is severe enough).

It isn’t clear that the austerity plan will be approved by the Greek legislators. Weisbrot claimed polls showed opposition at 80%: the more widely cited polling results in the Western media is a mere 47% (note that poll showed only 35% in favor of the deal). Given how poorly the economy has performed and how the deal amounts to an end of Greek sovereignity, it isn’t hard to imagine that opposition is over 50%, particularly since reports over the last month indicate that even Greek businessmen are against it.

The key Parliamentary decisions are a vote of confidence on Tuesday, which Papandreou is expected to survive, and a vote on the austerity package next week. A report last week by the BBC’s Paul Mason (which I urge you to read in full) gives a sense of both how deep the discord is in Greece and how the European elites are misreading it. He contends that they are mistaking the protests as typical leftie opposition that can be ignored, when the citizens are withdrawing their consent to be ruled:

There is a social crisis under way and I think it is different from the one our history books teach us to expect. It’s not like the cracking of the state, or mass unrest, but simply that the Greek state – whose reach was never far into society – is beginning to lose its grip slightly on the actual functions a state should do.

It cannot decide its economic policy; it can’t convince its own people of any good intent; the rule of law is imposed hard here – with the impounding of yachts bought through tax evasion – only to break down somewhere else, as people begin to pledge non-payment of bills for the privatised utilities… the violence is a sideshow: it is the political paralysis of the Greek government that is of world importance because – while the European Union bickers about how much bankers should lose versus how much the EU should lose as Greece defaults – you are seeing the lines of defence against financial and social chaos within this part of Europe getting very frayed…

I think the level of mismatch between perception and reality within the Eurozone is worrying. Because last year’s protests were mainly leftist; and the strikes mainly token, a pattern of thinking has emerged that dismisses all Greek protest as essentially this.

But a new situation is emerging: Greek people I have spoken to are beginning to express things in terms of nation and sovereignty – and this makes the Greek situation different, for now, to Ireland and Portugal.

While the centre right New Democracy would probably win any snap election, it is hard to find support for pro-austerity politics among ND’s natural support base, the business class. Because austerity for them means getting hammered with a tax bill the like of which they have never dreamed, nor indeed paid.

And I will repeat the point about hostility to the media…The “mainstream” – whether it’s the media, politicians or business people – is beginning to seem illegitimate to large numbers of people.

As one old bloke put it to me, when I said: “Don’t you want us to report what’s happening to you?” – “No.”

He was quite calm and rational as he waved his hand in my face: “It’s too late for that.”

Gavin Hewitt, the BBC’s Europe editor, echos the same theme this morning: the real risk is not from the not well focused protests, but the simmering resentment among broad swathes of the public.

The ever pragmatic John Dizard thinks the public be damned, the real hazard is a bank run:

Again, don’t pay too much attention to the striking civil servants. They aren’t going to destroy the country. The issue is the avoidance of deposit runs, and widespread decapitalisation of the Greek financial system. These could quickly overwhelm any reasonable commitments of multilateral support.

Among the problems with the buy-time kick-the-can approach to restructuring of troubled European sovereign debt is that it creates a succession of critical dates before which panic can build. After a while, the depositing public gets educated to the advantages of withdrawing pre-restriction, or pre-devaluation, currency.

The tacit assumption underlying the eurozone push for the Greek government to put its neck in the noose before any commitments are made is that the markets will go along with this gamesmanship (or to be more precise, any adverse reaction will be short term in nature). So far, they’ve won this game of Russian roulette. But with everyone with an operating brain cell understanding that a Greek restructuring is inevitable, the point will come when kicking the can down the road is no longer credible. And that juncture is likely to come before the eurozone officialdom is prepared to make tough decisions and force losses on to bondholders and banks.