Financial fuckery thread

[Scribbly]

Okay - I know basically nothing about global finance - but I don't understand why governments defaulting on some of their debt is such a terrible idea.  Obviously it will make banks less willing to lend money to gov'ts in the future, but can the banks afford to boycott the US + EU if it really came down to it?  If anything was too big to fail, it'd be something like the North Atlantic economic zone.  (hopefully?)

We've tried giving banks free money, and they still didn't lend it out properly - it seems like the next thing to try would be not giving the banks any money, since they aren't using their resources to help the global economy anyway.

If a government defaults, the foreign banks who have bought their debt no longer have that theoretical money - they lose it, and it is probably more than they have in reserves.

If one bank goes under, all of the debt they have given out to others is also claimed - the banks have leant money to each other, so it rapidly becomes a cascading domino effect. Governments then have to step in to secure the banks again, because if they don't, then homeowners lose houses and individuals lose their savings. Pension funds are also likely to be badly effected, if not totally wiped out, and businesses who rely on loans to make payrole (most of the big ones) would be unable to get that money without a functional banking system; it would be the credit crunch again writ large.

It isn't really a matter of the banks not using their money to 'lend it out properly' - no bank knows who to lend the money to, because no bank knows whether they need the money to survive when someone goes bust. Government bonds are also suffering at the moment because the possibility of the government going bust and everyone losing money is there - it would actually be pretty irresponsible for anyone to buy sovereign debt knowing that there's an 80% chance that they are throwing their money into a black pit.

I think it has come up two or three times so far - the only real way to 'solve' this problem is to stop everyone trying to jostle for position and punish the entire system by wiping out all debt and starting again. This won't happen, though, because the people who hold the majority of the debt are not the ones who will suffer when countries start to collapse.

Also, when a government goes down, it cannot finance its services. Almost all governments are running at a massive deficit, which means that they need to continue to borrow money in order to pay for the activities they are undertaking now. If a countries goes into an unstructured default, it simply cannot pay its staff. Which includes, amongst teachers doctors nurses etc, whatever armed services those countries have.

So yeah. It isn't in anybody's interest to let unstructured default happen, and it isn't in the interest of the people at the top of our collective pyramid to even allow the discussion on how to wipe out all debt to take place.

[Scribbly]

Public discontent will rise along with these social issues and the apparent inability of the politicians to deal with the root cause of the problem. Nationalism and protectionism will rise as a result, pandering to the idea that all of our countries can blame the laziness, selfishness and indulgence of all of the other countries, not like We Good English/Italian/French/American/German/WTFever. People will lap this up, and blame the victims for what has been inflicted on them because it is more comforting to believe that is the case, rather than the class warfare which is being perpetrated by the rich on everyone else.

Hey exactly.

I've heard some otherwise very intelligent friends already comment in this fashion of "well yeah but the Greeks kinda have it coming, the way they were running their economy".

Any good arguments against this line of reasoning? that, indeed will lead to creeping nationalism as things get worse

So far I've been asking them:

"who exactly have it coming? who are responsible? [govmt, big finance, etc] and who exactly are going to 'get it'? [the people of Greece, due to austerity], now are those the same people? even some partial overlap? and who again are probably going to get away with it, who have the means to make sure they can remain living very comfortably? [again the rich, big finance, etc]"

I mean that's probably as good a reason as any.

But I do wonder, I get the feeling this is just one side of the scenario.

Why is the Netherlands doing so much better than Greece? Is it really because we were running a more responsible economy than they? Maybe, there's probably some difference, in favour of NL. But is that the whole story? Because haven't our (Dutch) bankers and stock brokers and whatnot been running the same scams all those years here just as well? Okay maybe we don't have a lot of subprime lending going on, just some but not huge problems with poor people racking up huge debts from loans or credit cards, apart from mortgages on our houses the Dutch don't like living on credit. But I still don't believe this is the whole story.

And now I'm speculating, because lacking knowledge about big international finance, sometimes things that seem like a good thing can actually be a bad thing and vice versa, so please correct me if I'm wrong.

But I'm looking at, say, IKEA putting their financial headquarters in the Netherlands. So does Yandex, the "Russian Google", and many other big companies have some sort of financial incorporation here. Speaking of Google, I recently posted about them using a tax-evasion construction for AdSense called the "double Irish / Dutch sandwich". Well the Irish authorities never "see" those revenues and cannot tax them, but what about the Netherlands? (I dont know btw maybe we also dont see a dime) And then I see these huge offices of financial law accounting firms such as Price Waterhouse Cooper, these are the guys that get paid millions of bucks to start a "project" and collect and request all the paperwork and licenses and things to create these incredible tax evasion constructions.

So I'm thinking, and again maybe I'm completely barking up the wrong tree here:

Either the countries that are not yet hit by this global economic crisis have so far managed to "stay on top" because they're "exploiting", in a financial sense, through convoluted loopholes, these countries that are now down in the dumps, the "PIIGS". OR, it's not the richer countries doing this, but Big International Finance, acting as a sort of "transnational superpower" by moving money [through loopholes and legislations] around deciding which countries get fucked and which ones stay on top. And then I wonder why? Is there any particular reason why the Netherlands is getting the good end of the stick and Spain is not? Or is it just that that's the way things happened to go and you gotta have winners and losers even when there's no intentional/purposeful reason for one not being the other.

Also, sorry I missed this.

I don't know enough about european finance to really answer the second part, or provide any insight into why they might go there rather than elsewhere. I'm surprised more companies don't locate in places like the Czech Republic or Turkey where corporate taxes are tiny or non-existent, but I think it comes down partway to complex interplay between taxcodes and partly towards offices where it is prestigious to have them.

On the line of reasoning though...

The real argument is that fundamentally, yes, you have to accept that Greece acted badly. Everyone acted badly to some extent. The trouble is, punishing these countries for doing so is also going to hurt you in the long run; it is a global problem that needs a global solution, not even one limited to just Europe. Globalization (although I hate that buzzword) has led to an interconnected system in which the actions of one place impact everyone else. Forcing Greece into massive depression because they 'deserve' it just hurts the international economy as a whole - it is really a 'cutting off your nose to spite your face' position.

This line or reasoning won't work on everyone. My father, for instance, firmly believes that we should actively work to fuck everyone else over, because he thinks that Britain will come out comparatively on top. This is because he is a deluded idiot, but if you are strongly dog-eat-dog then you may say it is better to reign in hell than serve in heaven. I don't think it makes much sense myself, but that's what happens when you treat the global economy as a zero sum game.

[Cain]

http://www.nakedcapitalism.com/2011/11/mark-ames-austerity-fascism-in-greece-%E2%80%93-the-real-1-doctrine.html

See the guy in the photo there, dangling an ax from his left hand? That's Greece's new "Minister of Infrastructure, Transport and Networks" Makis Voridis captured back in the 1980s, when he led a fascist student group called "Student Alternative" at the University of Athens law school. It's 1985, and Minister Voridis, dressed like some Kajagoogoo Nazi, is caught on camera patrolling the campus with his fellow fascists, hunting for suspected leftist students to bash. Voridis was booted out of law school that year, and sued by Greece's National Association of Students for taking part in violent attacks on non-fascist law students.

With all the propaganda we've been fed about Greece's new "austerity" government being staffed by non-ideological "technocrats," it may come as a surprise that fascists are now considered "technocrats" to the mainstream media and Western banking interests. Then again, history shows that fascists have always been favored by the 1-percenters to deliver the austerity medicine.

This rather disturbing definition of what counts as "non-ideological" or "technocratic" in 2011 is something most folks are trying hard to ignore, which might explain why there's been almost nothing about how Greece's new EU-imposed austerity government includes neo-Nazis from the LAOS Party (LAOS is the acronym for Greece's fascist political party, not the Southeast Asian paradise).

Which brings me back to the new Minister of Infrastructure, Makis Voridis. Before he was an ax-wielding law student, Voridis led another fascist youth group that supported the jailed leader of Greece's 1967 military coup. Greece has been down this fascism route before, all under the guise of saving the nation and complaints about alleged parliamentary weakness. In 1967, the military overthrew democracy, imposed a fascist junta, jailed and tortured suspected leftist dissidents, and ran the country into the ground until the junta was overthrown by popular protest in 1974.

That military junta—and the United States support for it (for which Clinton apologized in 1999)—is a raw and painful memory for Greeks. Most Greeks, anyway. As far as today's Infrastructure Minister, Makis Voridis, was concerned, the only bad thing about the junta was that it was overthrown by democracy demonstrators. A fascist party was set up in the early 1980s in support of the jailed coup leader, and Voridis headed up that party's youth wing. That's when he earned the nickname "Hammer." You can probably guess by now why Greece's Infrastructure Minister was given the nickname "Hammer": Voridis's favorite sport was hunting down leftist youths and beating them with, yes, a hammer.

Also lots of good information on the possibility of a military coup being considered by the USA and France.

[BabylonHoruv]

from Cain's link

After the hammer, he graduated to law school– and the ax; was expelled from law school; and worked his way up the adult world of Greek fascist politics, his ax tucked under the bed somewhere. In 1994, Voridis helped found a new far-right party, The Hellenic Front. In 2004's elections, Voridis's "Hellenic Front Party" formed a bloc with the neo-Nazi "Front Party," headed by Greece's most notorious Holocaust denier, Konstantinos Plevis, a former fascist terrorist whose book, "Jews: The Whole Truth," praised Adolph Hitler and called for the extermination of Jews. Plevis was charged and found guilty of "inciting racial hatred" in 2007, but his sentence was overturned on appeal in 2009.

This doesn't make sense to me.  if he likes Nazis, and is in favor of eliminating Jews, why would he claim that the Nazis did not try to do exactly that?

[ñͤͣ̄ͦ̌̑͗͊͛͂͗ ̸̨̨̣̺̼̣̜͙͈͕̮̊̈́̈͂͛̽͊ͭ̓͆ͅé ̰̓̓́ͯ́́͞]

from Cain's link

After the hammer, he graduated to law school– and the ax; was expelled from law school; and worked his way up the adult world of Greek fascist politics, his ax tucked under the bed somewhere. In 1994, Voridis helped found a new far-right party, The Hellenic Front. In 2004's elections, Voridis's "Hellenic Front Party" formed a bloc with the neo-Nazi "Front Party," headed by Greece's most notorious Holocaust denier, Konstantinos Plevis, a former fascist terrorist whose book, "Jews: The Whole Truth," praised Adolph Hitler and called for the extermination of Jews. Plevis was charged and found guilty of "inciting racial hatred" in 2007, but his sentence was overturned on appeal in 2009.

This doesn't make sense to me.  if he likes Nazis, and is in favor of eliminating Jews, why would he claim that the Nazis did not try to do exactly that?

http://lmgtfy.com/?q=holocaust+denial+antisemitism

[BabylonHoruv]

from Cain's link

After the hammer, he graduated to law school– and the ax; was expelled from law school; and worked his way up the adult world of Greek fascist politics, his ax tucked under the bed somewhere. In 1994, Voridis helped found a new far-right party, The Hellenic Front. In 2004's elections, Voridis's "Hellenic Front Party" formed a bloc with the neo-Nazi "Front Party," headed by Greece's most notorious Holocaust denier, Konstantinos Plevis, a former fascist terrorist whose book, "Jews: The Whole Truth," praised Adolph Hitler and called for the extermination of Jews. Plevis was charged and found guilty of "inciting racial hatred" in 2007, but his sentence was overturned on appeal in 2009.

This doesn't make sense to me.  if he likes Nazis, and is in favor of eliminating Jews, why would he claim that the Nazis did not try to do exactly that?

http://lmgtfy.com/?q=holocaust+denial+antisemitism

herp derp

yeah, but most holocaust deniers claim that the Nazis never intended to eliminate the Jews.  They're usually vocally in favor of second class citizenship or slave status for Jews.

[Triple Zero]

http://www.economist.com/node/21540259?fsrc=scn/tw/te/ar/bewareoffallingmasonry
Beware of falling masonry - The crisis in the euro area is turning into a panic and dragging the zone into recession. The risk that the currency disintegrates within weeks is alarmingly high.

"disintegrates" ? What, like inflations and my euros on my bank account will suddenly be worth zilch?

Should've spent my savings on eye laser surgery sooner, I suppose. OTOH my student debt, which is more, will also be worth less. Hm.

[Mesozoic Mister Nigel]

http://www.economist.com/node/21540259?fsrc=scn/tw/te/ar/bewareoffallingmasonry
Beware of falling masonry - The crisis in the euro area is turning into a panic and dragging the zone into recession. The risk that the currency disintegrates within weeks is alarmingly high.

"disintegrates" ? What, like inflations and my euros on my bank account will suddenly be worth zilch?

Should've spent my savings on eye laser surgery sooner, I suppose. OTOH my student debt, which is more, will also be worth less. Hm.

That's one thing for me to be glad of about inflation. The less the dollar is worth, the smaller my debt becomes in proportion to my income, although that's only helpful if inflation also means I am able to demand more dollars per hour of work.

[Mesozoic Mister Nigel]

Also, recessions in other countries scare me more than the recession here, because if the Euro plummets I'll lose all my European customers who were buying because the dollar is so weak against the Euro.

Global economies really suck donkey balls, because it means that in a recession NO ONE has greater buying power and there is no way for manufacturers to take advantage of their currency's relative weakness by exporting goods.

[Cain]

UK's going to relax rules on pension funds being able to invest in projects in the UK.

Because, historically speaking, pension funds have shown great business acumen.

[Placid Dingo]

Heard a great interview on my local ABC News Radio with John Christianson who founded the Tax Justice Network. (http://www.taxjustice.net/cms/front_content.php?idcatart=2&lang=1)

He worked as an economic advisor in Jersey, a Tax Haven (though he refers to these as Secrecy Jurisdictions) as well as several other areas which helped him identify how these structures work.

The big issue shutting down SJs is that they are often perceived as small island nations, but in reality fly bigger flags; Jersey is under a British Flag, and Britain likes it that way because it essentially means money from India, Africa etc gets funnelled into London. Switzerland is another area, as is, surprisingly, USA (or at least parts; he mentions Nevada and Wyoming specifically).

He specifically blames the downfall of Greece and instability of Italy largely on the government failing to be able to collect its own tax effectively.

[Cain]

He's right, at least in part, it is an issue of revenue as much as anything else. 

This one area where international agreements and treaties work, if you can get everyone to agree.  Ensuring a level playing field across the board and heavy penalties for transgressors, under an independent international body, would likely close many of these loopholes, if you could convince the major transgressors to agree and ensure the benefits of cooperation outweigh those of defection.

And there, as they say, lies the rub...

[Cain]

Rumour mill has gone crazy with suggestions of a French, Austrian (and consequently Hungarian and Romanian) and Japanese downgrade by Standard and Poors, the people who brought us the US downgrade this summer.

Not saying it's definite, only that's what I'm hearing.  S&P seem especially keen to downgrade...I'd love a list of their financial records for the past few years, I'm betting it's insider trading galore over there.

[Cain]

http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn't tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn't mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed's below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
'Change Their Votes'

"When you see the dollars the banks got, it's hard to make the case these were successful institutions," says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. "This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now."

The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open.

The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma -- investors and counterparties would shun firms that used the central bank as lender of last resort -- and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg's lawsuit up to the U.S. Supreme Court, which declined to hear the banks' appeal in March 2011.

$7.77 Trillion

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he "wasn't aware of the magnitude." It dwarfed the Treasury Department's better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

"TARP at least had some strings attached," says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program's executive-pay ceiling. "With the Fed programs, there was nothing."

[Cain]

Bonus fun from 2008

http://blogs.reuters.com/felix-salmon/2011/11/29/hank-paulsons-inside-jobs/

What on earth did Hank Paulson think his job was in the summer of 2008? As far as most of us were concerned, he was secretary of the US Treasury, answerable to the US people and to the president. But at the same time, in secret meetings, Paulson was hanging out with his old Goldman Sachs buddies, giving them invaluable information about what he was thinking in his new job.

The first news of this behavior came in October 2009, when Andrew Ross Sorkin revealed that Paulson had met with the entire board of Goldman Sachs in a Moscow hotel suite for an hour at the end of June 2008. He told them his views of the US and global economies, he previewed a market-moving speech he was about to give, and he even talked about the possibility that Lehman Brothers might blow up. Maybe it's not so surprising that Goldman Sachs turned out to be so well positioned when Lehman did indeed do just that a few months later.

Today we learn that the Goldman meeting in Moscow was not some kind of aberration. A few weeks later, on July 28 2008, Paulson met with a who's who of the hedge-fund world in the headquarters of Eton Park Capital Management — a fund founded by former Goldman superstar Eric Mindich.

The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into "conservatorship" — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets...

    Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out...

    The fund manager who described the meeting left after coffee and called his lawyer. The attorney's quick conclusion: Paulson's talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.

When we found out about the Moscow meeting, I asked how on earth Paulson thought such behavior was OK. But now I think he was downright pathological in giving inside information to his old Wall Street buddies. And the crazy thing is that we have no idea how many of these meetings there were, or how long they went on for — the only way that we ever find out about them is when reporters like Sorkin or Bloomberg's Richard Teitelbaum manage to find a source who was in the meeting and is willing to talk about what happened.

Given that it's taken two years since the release of Sorkin's book for the Eton Park meeting to be made public, it's fair to assume that there were other meetings, too — possibly many others. Paulson was giving inside tips to Wall Street in general, and to Goldman types in particular: exactly the kind of behavior that "Government Sachs" conspiracy theorists have been speculating about for years. Turns out, they were right.

Paulson, says Teitelbaum, "is now a distinguished senior fellow at the University of Chicago, where he's starting the Paulson Institute, a think tank focused on U.S.-Chinese relations". I'd take issue with the "distinguished" bit. Unless it means "distinguished by an astonishing black hole where his ethics ought to be".