Predator Banksters

Predator Banksters

There has been outsized brouhaha about Goldman's and other bankster bonuses--made possible by Fed and bailout (taxpayer) money. There has also been some attention paid to the kind of "investments" that have bloated Goldman and JP Morgan profits: huge bets using the Fed's free money.

Now, it turns out that those same kinds of bets are behind a lot of the continuing instability in international financial markets. Greece is an especially egregious example.

It is likely that the Greek government has been feckless, and its public employee unions have been unreasonable. It is also true that Greece is in the exact same position as California, New York, and many other American states: it can't create its own money, so it can't do what the US Federal government can do: issue money to cover shortfalls (and more). Its currency, the Euro, is controlled by the limited government in Brussels, itself steered economically by its two largest players: Germany and France. Both major countries are understandably reluctant to follow even easier money policy than they already have: in Germany's case, its Mark meltdown in the 1920's and '30's makes it doubly wary.

However, there is something else going on, and it has to do with the banks, or rather the banksters. An article from the New York Times, 2/25/10 pinpoints the problem: Credit Default Swaps (CDS).

"As banks and others rush into these swaps, the cost of insuring Greece’s debt rises. Alarmed by that bearish signal, bond investors then shun Greek bonds, making it harder for the country to borrow. That, in turn, adds to the anxiety — and the whole thing starts over again."

That is, CDS's raise interest rates that Greece (and Portugal, Spain, Ireland, etc.) will have to pay to fund their obligations. That will make their budget-balancing task harder, and the misery of the ordinary man/woman in the street that much greater: governments will have to lay off millions in order to pay off their debts, and will have to curtail the public services that have raised their nations' standards of living.

But Wall Street doesn't mind. Why? Because, its traders can make outsized profits on the backs of Greek (and other nations') misery.

Wall Street did the same thing to Lehman and to AIG, and its traders are probably sharpening their knives for Portugal, Spain and so on.

This is only one more reason why financial regulation is imperative: banks will only return to the civilized world, and abandon their rapacity, when deposits and Fed/FDIC guarantees are stripped from their speculative arms, when the wall between depository and speculative institutions set up by Glass-Steagall is re-established and when CDS's (and other "exotic" financial instruments) are regulated.

If the banksters succeed in defeating reform, they will eventually succeed in bringing down the whole financial system, something they almost succeeded in doing in 2007-8.

And then?