By Ellen Brown - truthdig
Remember when the infamous Goldman Sachs delivered a thinly-veiled threat to the Greek Parliament in December, warning them to elect a pro-austerity prime minister or risk having central bank liquidity cut off to their banks? (See January 6th post here.) It seems the European Central Bank (headed by Mario Draghi, former managing director of Goldman Sachs International) has now made good on the threat.
The week after the leftwing Syriza candidate Alexis Tsipras was sworn in as prime minister, the ECB announced that it would no longer accept Greek government bonds and government-guaranteed debts as collateral for central bank loans to Greek banks. The banks were reduced to getting their central bank liquidity through “Emergency Liquidity Assistance” (ELA), which is at high interest rates and can also be terminated by the ECB at will.
In an interview reported in the German magazine Der Spiegel on March 6th, Alexis Tsipras said that the ECB was “holding a noose around Greece’s neck.” If the ECB continued its hardball tactics, he warned, “it will be back to the thriller we saw before February” (referring to the market turmoil accompanying negotiations before a four-month bailout extension was finally agreed to).
The noose around Greece’s neck is this: the ECB will not accept Greek bonds as collateral for the central bank liquidity all banks need, until the new Syriza government accepts the very stringent austerity program imposed by the troika (the EU Commission, ECB and IMF). That means selling off public assets (including ports, airports, electric and petroleum companies), slashing salaries and pensions, drastically increasing taxes and dismantling social services, while creating special funds to save the banking system.
These are the mafia-like extortion tactics by which entire economies are yoked into paying off debts to foreign banks – debts that must be paid with the labor, assets and patrimony of people who had nothing to do with incurring them.
Playing Chicken with the People’s Money
Greece is not the first to feel the noose tightening on its neck. As The Economist notes, in 2013 the ECB announced that it would cut off Emergency Lending Assistance to Cypriot banks within days, unless the government agreed to its bailout terms. Similar threats were used to get agreement from the Irish government in 2010.
Likewise, says The Economist, the “Greek banks’ growing dependence on ELA leaves the government at the ECB’s mercy as it tries to renegotiate the bailout.”
Mark Weisbrot commented in the Huffington Post:
We should be clear about what this means. The ECB’s move was completely unnecessary . . . . It looks very much like a deliberate attempt to undermine the new government.
. . . The ECB could . . . stabilize Greek bond yields at low levels, but instead it chose . . . to go to the opposite extreme — and I mean extreme — to promote a run on bank deposits, tank the Greek stock market, and drive up Greek borrowing costs.
Weisbrot observed that the troika had plunged the Eurozone into at least two additional years of unnecessary recession beginning in 2011, because “they were playing a similar game of chicken. . . . [T]he ECB deliberately allowed these market actors to create an existential crisis for the euro, in order to force concessions from the governments of Spain, Italy, Greece, Portugal, and Ireland.”
The Tourniquet of Central Bank Liquidity
Not just Greek banks but all banks are reliant on central bank liquidity, because they are all technically insolvent. They all lend money they don’t have. They rely on being able to borrow from other banks, the money market, or the central bank as needed to balance their books. The central bank (which has the power to print money) is the ultimate backstop in this sleight of hand. If that source of liquidity dries up, the banks go down.
In the Eurozone, the national central banks of member countries have relinquished this critical credit power to the European Central Bank. And the ECB, like the US Federal Reserve, marches to the drums of large international banks rather than to the democratic will of the people.
Lest there be any doubt, let’s review Goldman’s December memo to the Greek Parliament, reprinted on Zerohedge. Titled “From GRecovery to GRelapse,” it warned:
[H]erein lies the main risk for Greece. The economy needs the only lender of last resort to the banking system to maintain ample provision of liquidity. And this is not just because banks may require resources to help reduce future refinancing risks for the sovereign. But also because banks are already reliant on government issued or government guaranteed securities to maintain the current levels of liquidity constant.
In the event of a severe Greek government clash with international lenders, interruption of liquidity provision to Greek banks by the ECB could potentially even lead to a Cyprus-style prolonged “bank holiday”. And market fears for potential Euro-exit risks could rise at that point. [Emphasis added.]
Memo To Citigroup CEO Michael Corbat:
Does Your Crony Capitalist Plunder Know No Shame?
by David Stockman
The times are few and far between that I am in agreement with Senator Elizabeth Warren’s brand of Big Government liberalism. But I do applaud her willingness to stand up to the Wall Street lobby machine; her capacity to recognize and call-out the egregious gambling dens that have metastasized there; and her insistence that never again should the hard-pressed taxpayers of America be forced to bailout the crony capitalist plunder that is enabled by the Fed’s free money madness.
But now comes a naked Wall Street raid on the taxpayers that’s beyond the pale; and it would have sailed right through in the dead of night absent Elizabeth Warren’s intrepid opposition. Bravo, Senator!
I am referring to the Citigroup-drafted sneak attack on Washington’s tepid effort to curtail the more egregious gambling habits of some of the big banks. These incorrigible larcenists have been trying to gut the “push out” provisions of Dodd-Frank for more than three years now, yet the latter boils down to a simple and urgently necessary injunction to the banks. Namely, you can’t roll the dice in the “derivatives” gambling halls with taxpayer guaranteed deposits.
In light of the inherent dangers of what even Warren Buffet once called “financial weapons of mass destruction”, it is self-evident that no bank—not even the mighty Citigroup—–should be allowed to bring these incendiary devices within a country-mile of the taxpayer enabled FDIC guarantee program. So what Dodd-Frank does is to say go ahead and swing for the fences, but do it in a holding company subsidiary. If something subsequently goes boom in the night, its on your earnings and bonus—–not the taxpayers’ hard earned bucks.
If there was anyone left on Wall Street with a sense of decency and a modest comprehension of what free market capitalism is about, they would not be looking a gift horse in the mouth. The Dodd-Frank provision now under its furious attack was hardly a slap on the wrist. If Congress had really meant to fix the system that supposedly brought us to the cusp of Armageddon in September 2008 it would not have bothered with Dodd-Frank at all—-and its incomprehensible 1,700 pages of legislative pettifoggery and 10,000 pages of implementing regulations that metastasize by the day, and will do so as far as the eye can see.
Instead, it should have gone to the root of the problem and passed a Super Glass-Steagall that would have dismembered the giant banks by statutory edict, and kicked the Wall Street based gambling houses like Citigroup out of the FDIC entirely. The fact is, deposit insurance has been coopted and abused by the Wall Street mega-banks for decades, and now stands as a vast perversion of what had actually been intended—-misguided or not—way back in the dark hours of 1934.
Back then there were three people in Washington who counted when push came to shove—–FDR, Senator Glass and Congressman Steagall. FDR was against deposit insurance because he thought it would be abused by Wall Street, and for once he was right. Senator Glass was against it, too, because as one of the true financial statesman of modern times he did well and truly understand the dangers of moral hazard and fractional reserve banking propped up by the state.
Alas, Congressman Steagall was a demagogic foe of Wall Street, and only wanted deposit insurance to protect the red-neck depositors of Alabama, who had been taken to the cleaners by banksters of local origin. So we got deposit insurance for the proverbial “little guy” and a sharp separation of banking and commerce at the insistence of Senator Glass.
And for at least a generation, Wall Street—-which was still run by the chastened survivors of the 1920s gambling orgies and the Crash of 1929—-kept its distance and its lobbyists at home.
By contrast, today we have almost the opposite history. Wall Street is run by a generation that has been bailed-out too many times to count and that has been blatantly and egregiously coddled by perverse central bank theories and practices that have turned the nation’s capital and money markets into veritable gambling casinos.
This includes such practices as the stock market “puts”, the “wealth effects” doctrine and years and years of ZIRP. The latter is nothing more than free gambling money that can be used to fund the carry trades—-that is, using free overnight money to buy anything with a yield or prospect of short-term gain—–and that can be rolled over day after day with the assurance from the Eccles building that the cost of carry is fixed and subject to change only upon ample notice.
In fact, the spoiled rotten generation now running Wall Street is the reason for this post, and why it is addressed to the Citigroup CEO. The unconscionable raid on the taxpayers that Senator Warren is desperately trying to forestall did not occur because Citigroup’s hirelings were sitting around K-Street looking for an issue on which to bill their client.
Greece Under Attack
Pray For Yanis Varoufakis
by Paul Craig Roberts
Greece’s new Finance Minister is a highly intelligent person. His likes are not to be found in any Western government. As he stands in the way of those who are determined to complete their looting of Greece, the Western looters are out to get him.
The BBC, as the interview in the link below demonstrates, was sicced on him. Much more is to come. Moreover, if the new Greek government is able to stand its ground and to prevent the continuation of the horrific looting of the Greek people, assassination of its leading members is not unlikely. Washington will not permit any independent governments to arise in Europe. If a Greek government succeeds in standing up for the Greek people and actually representing them, the idea might spread to Italy, Spain, Portugal, and Ireland, and then into Eastern Europe. Washington’s control over Europe would unravel.
The BBC presstitute substituted a deposition for an interview. She reeked with hostility toward the minister, an indication of the fury that foreign financial institutions and their vassal governments feel toward the new Greek government. As I wrote the other day, if western elites hate something more than they hate democracy and truth, it is accountability for themselves. You can bet your life that presstitutes like the BBC will do the elite’s hatchet work on the new Greek government just as they do on the Russian government, the Chinese government, and the Iranian government, and just as they did on the Serbian, Iraqi, Libyan, and Syrian governments and on the Taliban.
Magic Growth Numbers
Magic Growth Numbers From The Government
by Paul Craig Roberts
Everyone wants good news, so the government makes it up. The latest fiction is that US real GDP grew 4.6% in the second quarter and 5% in the third.
Where did this growth come from?
Not from rising real consumer incomes.
Not from rising consumer credit.
Not from rising real retail sales.
Not from the housing sector.
Not from a trade surplus.
The growth came from a Bureau of Economic Analysis survey of consumer spending on services. The BEA found that spending on Obamacare drove the US real GDP growth to 5% in the third quarter.
In America, unlike in other countries, a huge chunk of medical spending goes to insurance company profits, not to health care. Another big chunk goes to paperwork, which has a variety of purposes such as collecting personal information on patients and combating fraud (probably the paperwork costs more than fraud). Another chunk goes for tests and procedures in order to justify further procedures. For example, if a doctor thinks a patient’s diagnosis requires a MRI, he must often first order an x-ray to establish that a cheaper procedure does not suffice. If a cancerous skin growth needs to come off, first a biopsy must be done to establish that it is a cancer so that a needless removal is not performed. And, of course, medical practicians must order unnecessary tests in order to protect themselves from the liability of relying on their medical judgment.
To regard any of these expenses as economic growth is farfetched.
There are sampling and other problems with the survey of personal consumption, and apparently Obamacare spending was all dumped into the third quarter. Why the third quarter?
The answer is that the illusion of economic recovery must be kept alive.
Real GDP growth of 5% in the third quarter is inconsistent with the sharp fall in key industrial commodity prices. It is not only oil (down 47%) but iron ore prices (down 49%), natural gas (down 30%), copper (down 15%). Pam and Russ Martens show that the fall in the producer price index for industrial commodities in 2014 is sharper than in 2008, the year of the crash.
With 30% of 30-year old Americans and almost 50% of 25-year olds living with parents, with debt-based derivative instruments impacted by falling oil and industrial commodity prices, with the likelihood that the US and EU economic attack on Russia will fail and perhaps produce retaliatory measures that could bring down the European banking system, look for 2015 to be the year that Washington will cease to get away with its economic lies.
The financial media and Wall Street economists by refusing to ask obvious questions have left the American people unprepared for another drop in their living standards and ability to cope.
Why would the ECB have to “interrupt liquidity provision” just because of a “clash with international lenders”? As Mark Weisbrot observed, the move was completely unnecessary. The central bank can flick the credit switch on or off at its whim. Any country that resists going along with the troika’s austerity program may find that its banks have been cut off from this critical liquidity, because the government and the banks are no longer considered “good credit risks.” And that damning judgment becomes a self-fulfilling prophecy, as is happening in Greece.
“The Icing on the Cake”
Adding insult to injury, the ballooning Greek debt was incurred to save the very international banks to which it is now largely owed. Worse, those banks bought the debt with cheap loans from the ECB!
Pepe Escobar writes:
The troika sold Greece an economic racket . . . . Essentially, Greece’s public debt went from private to public hands when the ECB and the IMF ‘rescued’ private (German, French, Spanish) banks. The debt, of course, ballooned. The troika intervened, not to save Greece, but to save private banking.
The ECB bought public debt from private banks for a fortune, because the ECB could not buy public debt directly from the Greek state. The icing on this layer cake is that private banks had found the cash to buy Greece’s public debt exactly from…the ECB, profiting from ultra-friendly interest rates. This is outright theft. And it’s the thieves that have been setting the rules of the game all along.
That brings us back to the role of Goldman Sachs (dubbed by Matt Taibbi the “Vampire Squid”), which “helped” Greece get into the Eurozone through a highly questionable derivative scheme involving a currency swap that used artificially high exchange rates to conceal Greek debt.
Goldman then turned around and hedged its bets by shorting Greek debt. Predictably, these derivative bets went very wrong for the less sophisticated of the two players. A €2.8 billion loan to Greece in 2001 became a €5.1 billion debt by 2005.
No, the command to mount this despicable attempt to take the entire budget of the United States hostage in the middle of the night came straight from the C-suite at Citigroup. So just consider the monumental hutzpah of Michael Corbat and his Wall Street confederates.
In point of fact, these unvarnished crony capitalists have been trying to gut Dodd-Frank and especially the Volcker Rule and the “push out” standard for more than three years. But their case is so threadbare and self-serving that they could not even buy the necessary votes—notwithstanding millions of PAC contributions and every accouterment of the lobbying trade at their disposal—through the normal legislative process. Their “push out” slam-down was, in fact, a dead letter on Capitol Hill.
So now they have resorted to a road so low that it cries out for condemnation. Owing to its usual dysfunction, Congress has once again failed to pass the appropriations bills for the current fiscal year which has been underway for 80 days now. Therefore it is again punting via a giant omnibus appropriations bill authorizing $1.1 trillion of spending in 1600 pages of fine print, bedecked with prodigious helpings of pork, that no one could have possibly read or comprehended in the couple of days since it was fashioned in the backrooms during the wee hours of the night.
In short, the so-called “Cromnibus” caper is disgusting enough in its own right. But the fact that the CEO of Citigroup has ordered his henchman to pile-on is stark testimony to the insuperable arrogance of the generation which now runs Wall Street; and to its sheer sense of “entitlement”. That is, its belief that Washington is there to do “whatever it takes” to insure that Wall Street profits are fattened one more quarter—-so that the share prices of the gambling halls which operate there, and the executive options and bonuses of the executives who run them, will never fail to advance.
Yes, Michael Corbat is a Citigroup “lifer” and is just doing his corporate duty in behalf of shareholders. But that’s precisely the problem. There should be no Citigroup “lifers” whatsoever—— because their should have been no Citigroup left standing. In fact, “C” is testimony to the financial folly of the last three decades.
Folks, banks are not free enterprise institutions; they are wards of the state that would not even remotely exist in their current Wall Street incarnation without the state subsidies and safety nets implicit in the Fed’s discount window, where they can get unlimited zero cost money at a moments notice; and in deposit insurance, which essentially shields their balance sheets and asset management practices from depositor scrutiny; and most especially, their banking licenses from the state and Feds that shield them from a whole range of legal liabilities and exposures that would otherwise prompt a far more prudent and stable business model.
So the point is, the monstrous string of incomprehensible and unmanageable bank and financial services mergers that Sandy Weill rolled-up over two decades should never have been permitted. The repeal of what remained of Glass-Steagall in 1999, which permitted the merger of Travelers and Citibank, should never have happened. The regulatory acquiescence in the 30:1 leverage ratios achieved by the Wall Street brokers, including the vast investment banking operations inside Citigroup, during the Greenspan housing and credit boom should never have been tolerated. The trillion dollar off-balance sheet SIVs created by Citigroup on the eve of the last financial crisis should have been stopped cold. And most crucially of all, this rogue financial behemoth should have been put out of its misery by the FDIC when it failed in 2008 and its screaming insolvency was covered up by multi-trillion bailouts from the Fed and TARP.
Here’s the thing. Michael Corbat is a “lifer” from this whole misbegotten chapter, going back to his days at Salomon Brothers and his rise through the Sandy Weill machine and all the departments and far-flung operations of Citigroup after it finally came together.
I have no clue about what he learned about banking along the way. But there is absolutely no doubt that what he did learn over that journey is that Washington exists to do Wall Street’s bidding.
The truth is, the generation represented by Michael Corbat knows nothing about the idea of the “public interest” as opposed to private advantage. It is steeped in the practice of crony capitalism, but it knows nothing of free markets.
And after all these years of Washington’s rank servility, it now thinks taking the people of America hostage in the middle of the night is all in a corporate day’s work.
Ambrose Evans-Pritchard wrote in the UK Telegraph on March 2nd:
Syriza has long argued that [its post-2009] debt is illegitimate, alleging that the ECB bought Greek bonds in 2010 in order to save the European banking system and prevent contagion at a time when the eurozone did not have a financial firewall, not to help Greece.
Mr. Varoufakis [the newly-appointed Greek finance minister] said the result was to head off a Greek default to private creditors that would have led to a large haircut for foreign banks if events had been allowed to run their normal course, reducing Greece’s debt burden to manageable levels. Instead, the EU authorities took a series of steps to avert this cathartic moment, ultimately foisting €245bn of loan packages onto the Greek taxpayer and pushing public debt to 182pc of GDP.
The Toxic Central Banking System
Pepe Escobar concludes:
Beware of Masters of the Universe dispensing smiles. Draghi and the . . . ECB goons may dispense all the smiles in the world, but what they are graphically demonstrating once again is how toxic central banking is now enshrined as a mortal enemy of democracy.
National central banks are no longer tools of governments for the benefit of the people. Governments have become tools of a global central banking system serving the interests of giant international financial institutions. These “too big to fail” behemoths must be saved at the expense of local banks, their depositors, and local economies generally.
How to escape the tentacles of this toxic squid-like banking hierarchy?
For countries with a bit more room to maneuver than Greece has, one option is to withdraw public and private deposits and put them in publicly-owned banks. The megabanks are deemed too big to fail only because the people’s money is tied up in them. They could be allowed to fail if public funds were not at risk.
The German SBFIC (Savings Banks Foundation for International Cooperation) has proposed a pilot project on the Sparkassen model for Greece. Other provocative options have also been proposed, to be the subject of another article.
Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her nearly-300 blog articles are at EllenBrown.com. Listen to “It’s Our Money with Ellen Brown” on PRN here.