"Gold Is Good"
Gold is on the rise. The fear of an
entire country "failing" scares folks out
of all currencies. There is good reason to be
afraid of a chain reaction of
"sovereign" countries' debt problems.
The could destroy whole countries,
as only a wars or civil wars, used to be able to.
GLD - ETF for Gold
The European Debt
problems will almost certainly worsen because
of the ballooning use of unregulated credit default
swaps, the absence
of any local currencies and the presence of so many
angry, demonstrating citizens
who do not find 10.3% unemployment acceptable.
Except for France, the heads
of the Economic Union and all the countries that make
it up are afraid of the big banks.
They simply endorse the International Monetary Fund's
call for retrenchment and
balanced budgets. They avoid the real problems.
They should demand a universal
criminalization of trading in credit default swaps.
But they understand the US
would not enforce it.
The heads of each of
the EEC countries seem quite intimidated by the big banks.
Except for occasional bouts of rhetoric against
Goldman Sachs, they refuse to
address the core issues. Amazingly, a
year and a half after the Crash of 2008,
there is still nothing to stop sinister
short-selling speculators from driving
Greece and Spain into national bankruptcy, just
so they can make a bundle.
Tourists should be flocking to see beautiful Greece, but since prices
are fixed in
Euros, the current financial crisis offers no extra incentive
for travelers to
The Dangers of CDS (Credit Default
In effect they allow you to buy
fire insurance on your
neighbors house. This creates an incentive for you to
burn down his house. Worse, where bankers used to only
be able to deny credit, now they can destroy credit
and solvency, too.
How would do
speculators do this? They bet on Credit Default Swaps. Example.
for a mere $282,200 a big bank could have
bought insurance on $10 million in Greek
government debt. In February, the same
CDS cost $40,000. Now its price is $754,280
for a year's "insurance."
Besides Goldman and JP Morgan, the biggest buyers of these
are Credit Suisse, UBS, Societe Generale and
Deutche Bank. Specualtors trade these
Credit Default swaps instead of a specifric
Greek or Spanish currency, as in the past....
Here is the essence of a
lonely US article about the dangers of the Credit Default Swaps.
"As Greece's financial condition
worsened...a little-known company backed by Goldman,
Morgan Chase and about a dozen other banks ...created an index that enabled market
players to bet on whether Greece and other
European nations would go bust...Last September,
the company, the Markit Group of London,
introduced the iTraxx SovX Western Europe index,
which is based on such swaps and let traders
gamble on Greece shortly before the crisis.
have assumed an outsize role in Europes debt crisis, as traders focus
on their daily gyrations...A result, some
traders say, is a vicious circle. As banks and others
rush into these swaps, the cost of insuring
Greeces 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...
"(T)he French finance
minister, Christine Lagarde, last week singled out credit-default swaps.
Ms. Lagarde said a few players dominated this
arena, which she said needed tighter regulation.
Trading in Markits sovereign credit
derivative index soared this year, helping to drive up the
cost of insuring Greek debt, and, in turn, what
Athens must pay to borrow money...
the tail wagging the dog, said Markus Krygier, senior portfolio manager at
Amundi Asset Management in London, which has
$40 billion in global fixed-income assets.
There is a knock-on effect, as underlying
positions begin to seem riskier, triggering risk models
and forcing portfolio managers to sell Greek
bonds. If that sounds familiar, it should. Critics
of these instruments contend swaps contributed
to the fall of Lehman
The Lack of A Greek or Spanish
Makes Matters Much Worse.
There is a big and
important change now. Previously, speculators who were bearish
on the financial safety of a country would sell
short the currency of the weak
country. As these countries' currencies
declined, their economies were boosted by
expanded tourism and exports. Foreign
companies would be attracted by the lower costs of
labor and land in the country. In this way,
there used to be a natural cushion against
utter financial disaster.
But Greece and Spain
now no longer have their own currency. The EURO ended
this and set the stage was set, as never before
- except in war - for a total country
financial collapse. Of course, the the
heads of the Economic Union and the Greek
Premier call "absurd" any talk of
national (sovereign) bankruptcy or the breakup
of the European Economic Union. But
others like myself and the prescient economist
from NYU, Nouriel Roubini, disagree..
Jan 27, 2010 - Roubini: Greece
Bankrupt, Spain Next
Apr 27, 2010 - Roubini:
Saving Greece Won't Work, Debt Crisis to Spread
The problem, as I
see it, is that the situation now can be turned into a tragic death spiral
for an entire nation of millions and millions
of people because of the utterly selfish actions
of unregulated big-bank speculators, now, using
in many cases, free US Fed money.
What are the
dynamics? Now when international corporations see a country in
financial decline and under attack by
credit default swap predators, they back away
because there is no natural protection
against bankruptcy. Bailouts come at a
high price. Greece's official
unemployment rate is now 10.3% In
above 22%. IMF or central
banker imposed austerity means even fewer jobs and
less of a social safety net. High levels
of civil unrest are now a certainty whenever
the Greek government is appears to be
kowtowing to these bank demands that the
Greek government balance its budget
immediately and cut back its social programs.
The Greek Communist party is making a
The media in the
US blame the Greeks and Spaniards for living beyond their
means. But are the poor and unemployed
people there expected to starve while
waiting for private sector jobs to
appear, just so bankers can get still richer?
Banker imposed austerity will crush the
poor in these countries.
Greek rescue package is a seriously flawed financial plan.
First, it is conditioned
upon the successful
implantation of a structural adjustment program that contains harsh austerity measures
which will hurt
workers, pensioners and the poor and dismantle an already scant welfare system. Greece
already ranks among the
most unequal societies in the world, with 20 percent of the population living
below the poverty
level, and its social services resemble those of an undeveloped rather than those
of a developed country.
the austerity measures of wage cuts, pension reductions and sharp tax hikes will
depress spending and
lead to severe job losses for an economy that is already facing double
rates. It is estimated that unemployment will increase by an additional 6
because of the EU/IMF
imposed austerity measures and the GDP is expected, according to
estimates, to shrink by 4 percent this year and by another 3% in 2011.
"The contraction of the economy will add further to
Greeces debt problem. In two years from
the debt to GDP ratio will stand at 150 percent....In sum, Greece is being asked to
amazingly harsh structural adjustment program which will only make the economy worse off
immense human suffering but will still end up with an unmanageable sovereign debt crisis."
Chronis Polychroniou - http://www.energybulletin.net/node/52830
May 17, 2010)
and their supporters will always fight this. And that reinforces the
death spiral. Civil unrest is
thereby guaranteed. Greece already had one civil
war, after World War II. It does
not need another. But strife and agitation
are inevitable in this economic climate.
This further discourages foreign investment
and causes the flight of private capital.
It would be very tragic if a military dictatorship
resulted. This is such a beautiful
Greek Prime Minister -
Were it not for these
credit default swaps and the absence of an independent Greek
or Spanish currency, a financial collapse might
now be avoided and a bottom might otherwise
be reached. But Wall Street's Standard
and Poor's cares not a wit about these dynamics.
It gets into the act, the self-reinforcing
free-fall, when it issues as it did today, an all too
obvious and belated, but very public warnings
that the Greek budget deficit has reached
unsafe levels. Who asks the key question?
Exactly, how is such a country to survive
when investors not only pull away but now work
aggressively against the country's efforts
to solve its problems?
Because credit default swaps have ballooned so much and yet are so
completely unregulated, we have to depend
solely on big banking firms to tell us what their
role was in bringing about the Financial Crash
of 2008. This is dangerously absurd.
There is too much risk for the countries
involved and too little risk for banks using
huge leverage and being reimbursed
lavishly for using it to the fullest. Absurd?
Of course, but Wall Street banks won't
dare to admit just how pivotal and decisive
their bearish role was in destroying
millions of jobs and retirement dreams.
To my way of thinking, just
allowing credit default swaps to be traded seems
to constitute costly and criminal fraud.
AIG sold them with impunity in quantities it
knew full well it could not possibly
redeem or honor if there was, indeed, a housing
market collapse. That is criminal fraud!
It knew it could not meet the terms of its
contract when it sold the swaps.
And it very dangerous. Speculators bought AIG's
swaps then, just like they are buying
them now, on Greek and Spanish debt, making
the declines in these countries'
economies much worse. In America, the taxpayer
bailed out AIG and the big banks.
If a series of countries fail because of how powerful
these bear raiders are and how weak
investor confidence is, who will make good these
credit default swaps. No one.
So, they are a fraud and should not be sold, even
apart from their cruel consequences.
Bear raids were made illegal in FDR's time. Not in Obama's time. FDR
Deal" to Americans. Truman fought banks, too, and
Deal". Obama shows every day he is a puppet of
Wall Street. He
gives Americans a "Raw Deal".
His financial reform proposals leaves out all that "
is important. There is no breakup
of banks too big to fail. There is no separation
of normal business and individual banking
from hedge fund trading and speculation.
There is no penalty for rigging markets.
Excessive computerized trading is not
deterred or heavily taxes. Windfall
trading profits are safe. No special tax on this
asocial and dangerous activity by
brokerages. No criminal penalty at the top
of brokerages for fraud, insider trading,
front-running or manipulation of
the markets. Obama proposes that
the Federal Reserve regulate "credit default swaps".
What a joke?! This is the same
agency that created, exaggerated and then refused to
regulate the housing bubble. The
Fed loves big banks. It is made up of bankers.
It happily encourages the manipulation of
markets by big banks by giving them
"free money" for "toxic
The NY Times opined:
are responsible for much of the interconnectedness between banks and other
institutions that made
the financial collapse accelerate in the way that it did, costing taxpayers
hundreds of billions in
bailouts. Yet credit default swaps have been largely
efforts. This is not surprising. Given how much money is
generated by the
trading these instruments, these entities are showering
money on Washington to
protect their profits.
The Office of the Comptroller of the
Currency reported that revenue
generated by United
States banks in their credit derivatives trading totaled $1.2 billion in the
third quarter of 2009. Congressional reform plans for credit default
swaps are full of loopholes,
another derivatives-fueled financial crisis awaits us"
bear raids and credit default swaps are neither regulated nor outlawed in
Europe or America. Not
surprisingly, an organized international banker run on Greek debt
is under way. It could
very well be successful. It it is, there will be a chain reaction
of short selling of the debts of Spain,
Portugal, Italy, Ireland...and eventually the US!
This is intolerable.
But none of our politicians talk about it. And the media is
silent. What happens when the US stock
market bubble ends and the very same
bankers who are now hugely profiting from the
current artificial bull market turn their
bearish guns loose on the US Stock Market?
If history shows anything, it is how few people,
especially those who enjoy political power
learn anything from it.