The monstrous fact – From bail-outs to debt peonage

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By David Malone

There is one monstrous fact stalking Europe and no amount of debating will make it go away – there isn’t enough money to make the bank bail-out’s work.

There isn’t enough money in Europe’s bail out fund, the EFSF, despite this morning’s vote in the German parliament.  The vote this morning was to ‘increase’ the EFSF not to what the banks and the Americans have already  insisted  it will need (read – what they want) – more than a trillion euros – but to what was ‘agreed’ some while ago and had to then be ratified by member states.

By David Malone

There is one monstrous fact stalking Europe and no amount of debating will make it go away – there isn’t enough money to make the bank bail-out’s work.

There isn’t enough money in Europe’s bail out fund, the EFSF, despite this morning’s vote in the German parliament.  The vote this morning was to ‘increase’ the EFSF not to what the banks and the Americans have already  insisted  it will need (read – what they want) – more than a trillion euros – but to what was ‘agreed’ some while ago and had to then be ratified by member states.

The mainstream financial news outlets seem keen to give the impression that what was voted for in Germany was ‘it’, the final fix, the super-EFSF. This is NOT the case. What was agreed to in Germany is what Geithner and others had already said was woefully insufficient.  That is why the vote has not heralded a massive rally in Europe or America. There has been a muted increase on exchanges because today’s vote is a step towards the  Uber plan.

That plan will see the EFSF working with the ECB to create what amounts to a vast CDO (Collateralized Debt Obligation). This ‘CDO’, which the banks and the Fed want so badly, will be a supra-national version of the CDOs which brought us to this state in the first place. What I think would happen, is Greece would be forced to put up assets as collateral. These could be parts of Greece and its infrastructure and/or the income from them, and future tax receipts as well I imagine. This ‘income stream’ will be the promise written on new bonds/debt which the CDO will sell to investors. Those ‘investors’ will probably be the central banks and even the self same insolvent private banks who are being bailed out in Europe and beyond.

The trick is that the money paid will now not be a ‘bail out’ it will be an ‘investment’. We won’t be bailing out the banks, they’ll be bailing us out (with money we have given them and to asset strip the Greek people – but we won’t talk about that will we). We will have all been pulled through the financial looking glass. And better yet, the amount of return won’t simply be what the banks could get by forcing Greece to flog its ‘assets’ today, but will be the whole future income from those assets as well. Rather than give Greece what it needs or even just force it to sell what you want as payment of its debts, even better is to force the nation and its people in to a long term debt peonage.

On this flimsy and unstable basis the CDO will be allowed to sell far more debt than any bail out could promise. What could not be bailed out will be leveraged out. Et voila – by the magic of leverage – the same leverage which created the magic growth and prosperity of the property bubble, whose fruits we have so enjoying these last years – we (for which you should read the wealthy 1-10%) will be saved again.

But that insanity hasn’t yet happened, and until it does we have the current rest stop, half way between nothing and nowhere. And in the present EFSF there’s simply not enough, not for Greece, not for Spain and certainly not for Italy. What there is, is just enough new suffering to stop any coagulation around the open wounds so that Greece can continue to bleed freely for Germany and France. This present ‘plan’ is not to ‘save’ Greece, let alone do anything positive for its people.  It is about keeping Greece going so the Greeks can pay more taxes and keep the government in power long enough to sell to the banks or pledge as collateral to the banks everything of social value that the Greeks have worked for since WWII (and let’s not kid ourselves Greeks have worked and built a country out of the ashes of Military dictatorship) – and send the proceeds to France and Germany to prop up the French and German banks. Just keep it all going, keep the payments on French and German bank debts going, until the new order of debt peonage can be rammed through.

Germany isn’t debating bailing out Greece. Its debating bailing out French banks. Why do you think the French are so keen to expand the EFSF? Because they love the Greeks more than the Germans? No it’s because the French elite want the German elite to force German tax payers to help to save French banks, while the German elite is wondering if they might not be better off simply saving their own banks.  Greece is just the pass-through so that foreigners can take the blame.

The bank lobby group says the European banks themselves don’t have enough money and won’t survive without much more help. Not only that but the bank lobby claims that if the banks are asked to ‘help’ by write down their loans to Greece by more than the agreed 21%, then, they warn, there could be a catastrophic cascade of one bank bringing down another. So while the people can be bled dry the banks must not be even discomfited. What about a cascade of civil unrest? A European winter? Until that seems like a real possibility our leaders will take the threats of the banks far more seriously and seek to appease the banks long before they think of helping us. We must make ourselves dangerous or we will be drowned like rats in a cage.

Have you ever drowned rats? You lure them in to the cage with the smell of food and once in you can take your time lowering the cage into a tub of water. You would not believe how desperately they bite at the steel bars and try to force themeslevs through the mesh as their last breath runs out and in goes the cold water to their lungs. But too late was the cry. They were doomed from the moment they walked so freely in. They just didn’t know it.

Even the IMF says it doesn’t have enough money and wants to be able to double its own funding. But how? From donations from the nations, like the US  whose own debts are already out of control?

When banks didn’t have enough money in 2008, they pillaged nations. When nations had been thoroughly pillaged and they in turn ran out of money, the same leaders who had bankrupted them, then created super funds with which to continue the bail out the banks but now also to bail out the countries whose main job had been reduced to bailing out the banks.

The EFSF is one such fund. The TARP was another. The new lending provision of the IMF is another. Despite firm expert assurances each time a new bail out was needed, that this extra push, extra bail out, extra austerity measures, would be the last, the ones to see the job completed, none of them were. Instead each successive bail out proved to have to be larger than the previous. And today the banks need more money than they ever did. We are now told that far form having been improved by the immense pillaging of public finances, the entire banking system is in danger of systemic collapse unless yet more, and a great deal more, public money is pumped into them. And then as winter follows summer we will then be told there have to be even greater cuts made to compensate.

Once again we will be told that there is no money for fripperies like hospitals and care for the elderly or sick, but billions must be made available for the banks. We can print and borrow for teh banks but not we are warned for ourselves. Once again instead of spending money on things that would put people to work and invest in a long term future for us all, money will be poured into banks where it will remain. Filling the whole left by the  rotting away of the banks’ ‘assets’ and loans.

The Geithners of this world talk about the need to take decisive action to maintain order. What order? I see no order unless you think an occupying army’s ransacking of a nation can be called ‘orderly’. Decisive action does need to be taken. We need to have the courage to stand up and think for ourselves.

 

David Malone is the author of Debt Generation
Visit David’s blog: http://www.golemxiv.co.uk/