4 Jul 2011

Who's being bailed-out in Greece?

Even according to the voice-of-the-establishment, The Economist, the current credit rollover is simply "a bank bail-out by another name". You see, a 'rollover' does not mean that the creditors (mainly private banks) forgo their pound of flesh - au contraire - they would just be lending it back at a higher interest rate... All while liquidating as much of Greece's national assets as possible in the name of austeriy and economic 'restructuring'.

Greece WILL default... But by then, the financial vultures would have stripped the country to the bone - and immovable Greek assets, like land and major utilities, would be monopolised by powerful friends.

The 'rollover' according to the Economist... "Take a deep breath; here’s how it would work. As Greek bonds mature over the next three years, the country would repay holders. Banks would pocket 30% of the cash and “voluntarily” buy new, 30-year Greek debt with the rest. Greece in turn would pass on about 20% of the original bonds’ value (or 30% of the amount being rolled over) to a special-purpose vehicle (SPV) that would buy AAA-rated bonds maturing in 30 years. If Greece defaults, these bonds would be used as collateral to repay banks the principal they loaned. "

Nothing but monetary sleigh-of-hand really... But what's the bottomline for Greece and its citizens?

Again, in the words of The Economist: "For Greece, the bargain is far less compelling. The 30-year plan does nothing to reduce Greece’s debt burden and could complicate any eventual restructuring. Since Greece would pay interest on all of its borrowings, but could use only part of them, its cash interest rate over 30 years would be about 10-11%. Some rescue."

(Keep in mind that at 10-11% compunded interest, Greece may have paid back in interest the same amount as the princpal in less than 7 years! So even if Greece defaults, the banks essentially lose nothing.)

One must also remember that banks were part of the problem! According to a Feb 2010 article, The New York Times says, "Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere."

But how did they "mask", you ask? The answer is two words: Credit Rating.

Banks are not alone responsible for the rot in the system... The Credit Rating cartel, consisting of Standard & Poor's, Fitch, and Moody's, take money from the big banks to rate their own instruments. So although they have the power to wreck nations, they are almost completely at the mercy of big financial institution. As long as no-one rocks the boat, everyone's safe.

But the status quo for ordinary people are boom-bust cycles that tend to always move wealth one way - UPWARD!

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