US Hedge Funds Get Bailed Out If Greeks Pass Bailout Referendum
Foreign banks want to bleed the patient when a policy of debt cutting and tax reform would revive the Greek economy, say UMKC's Bill Black and Michael Hudson -June 30, 2015
Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of The Bubble and Beyond and Finance Capitalism and its Discontents. His most recent book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.
William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.
Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.
Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.
US Hedge Funds Get Bailed Out If Greeks Pass Bailout Referendum (1/2)
JESSICA DESVARIEUX, PRODUCER, TRNN: Welcome to The Real News Network. I'm Jessica Desvarieux in Baltimore.
If you're in Greece this week, good luck trying to go to the bank. Greek banks are closed all week after news broke that the country will be holding a referendum vote on whether to accept the bailout measures offered by international creditors. But if the Greek population decides to vote yes for the bailout deal, does this mean that they will be handing creditor banks a bailout?
Now joining us to give us their take on the issue are our two guests. Joining us from Quito, Ecuador, is Bill Black. Bill is an associate professor of economics and law at the University of Missouri Kansas City. He's a white collar criminologist and a former financial regulator, and author of the book The Best Way To Rob A Bank is to Own One. And also joining us from Germany is Michael Hudson. Michael is distinguished research professor of economics at the University of Missouri, Kansas City. His latest book is Killing the Host: How Financial Parasites and Debt Bondage Destroyed the Global Economy.
Thank you both for joining us.
MICHAEL HUDSON, PROF. OF ECONOMICS, UMKC: Good to be here.
WILLIAM K. BLACK, PROF. OF ECONOMICS, UMKC: Thank you.
DESVARIEUX: So Bill, I'm going to start off with you. Can you just explain to our viewers who's actually getting bailed out in this deal. Are creditor banks the ones benefiting at the end of the day?
BLACK: Well, the same people are getting bailed out that have been getting bailed out from the beginning of the Greek crisis, and that is foreign banks. So this money just moves in sort of an elaborate circle from the Troika, which is the European Commission, the European Central Bank, and the IMF, through the Greek government, through the Greek banks, and then they pay the foreign creditors. And they pay them just enough that they don't have to recognize a loss for accounting purposes.
As Michael will explain, of late the big investors tend to be American hedge funds, as opposed to what used to be primarily French banks.
DESVARIEUX: Okay. Michael, I want to ask you about the role of French banks in all of this. Can you just speak to this, give us a sense of how they even got entangled in Greek debt.
HUDSON: Well, today's problem with the debts really stem back from 2010 and 2011 when Greece obviously couldn't pay. When Greece joined the Eurozone, it falsified its debt figures. The head of its central bank worked with Goldman Sachs to make it complicated derivatives to hide it all, and that was Lucas Papademos.
Well, in 2010 right after the PASOK party came to power in Greece, they revealed the fact that their figures had been fudged all along, and that the debt was so large that Greece couldn't pay. So the International Monetary Fund, which hadn't been making loan--almost had no customers in the world, had its European staff calculate. And the staff unanimously said, Greece can't pay these debts. These are fraudulent debts that are all, that are way beyond the ability to pay. They've got to be written down. And the board of directors agreed.
But Dominique Strauss-Kahn, who was the head of the IMF when he wasn't going to the sex parties, wanted to run for president of France. And he talked to Sarkozy, and Sarkozy said, wait a minute, French banks are the largest holders of Greek debt. If Greece doesn't pay and writes them down, the French banks will go under. And German banks are the second. But then at the G8 meetings in 2011, President Obama went over along with Tim Geithner and said, our big campaign contributors are on Wall Street, and they've made huge bets that Greece can pay. If Greece doesn't pay, then all these gamblers and derivative players are going to lose their bets. You've got to sacrifice Greece and you've got to drive it into poverty, and lend the Greek government the money to pay the bond holders so that our Wall Street banks won't lose money.
So the European Central Bank told the IMF if you want to be a player, you've got to ignore what the stats said, and they did. And the European Central Bank and the IMF paid over 100 billion Euros to the bond holders. So Greece, instead of owing private bond holders, owed the IMF and the European Central Bank.
Now the European Central Bank wants to get paid, but the debts can't be paid. So the central bank says, okay Greece. Sell us your islands. Sell us your ports. Sell us your lands. Sell us your raw materials. This is foreclosure time. And if you can't pay, we want everything in the public domain. And you also have to impose austerity. You have--only 20 percent of your population has emigrated. You only have a 60 percent unemployment rate for youth. You've got to increase the unemployment rate to 80 percent, double the emigration, in order for us to make the loans to your government that will turn right around and pay us. [Crosstalk].
DESVARIEUX: But Michael, there really could be real consequences. You mentioned obviously financial markets. There's some real consequences for them. But what about everyday people? I'm thinking of those folks who might have their money in banks, in the banking system. And if this bank is insolvent, what would happen to them?
HUDSON: There need not have been any consequences for the people at all of Greece not paying the IMF and not paying the European Central Bank, because this money was all paper money created to begin with. It's just a book loss.
But the Europeans said something else, that although we don't need the money, we will bankrupt you and we will cause a bank crisis if you don't comply with what we want. So it's either austerity or we will smash and grab, take your pick.
DESVARIEUX: Bill, I'm going to ask you the same question. What do you do if you're a person who's going to be facing that referendum vote? Do you vote no for this bill, or do you say yes and hope for the best?
BLACK: Well, I would definitely vote against the bankers. What is--the other thing is, Michael is correct, but on top of that the Troika said it's not enough that 60 percent of your pensioners are in poverty. We want to push it so 70 or 80 percent of your pensioners are below the poverty level as well. And privatization, this is what made, depending on the poll, Carlos Slim the richest or the second-richest person in the world. They're sold on sweetheart terms to cronies, and this is crony capitalism, basically. People are familiar with Indonesia under Suharto. It's very similar.
What do you do is, as Michael said, the normal thing that has been done in the past is to write down the debts when they can't be paid. That is done all the time routinely in the commercial world, and it was done with Latin America back in the debt crisis in the '70s and '80s, with what became known as the Brady Plan. So you can't keep a country, or at least there's no economically rational basis for doing so, and of course it's completely inhumane, to keep a country in a condition where it constantly will be in ever greater debt. And that's precisely what the Troika wants to do.
And as Michael has said, German politicians have openly demanded that Greece begin selling islands. In other words, selling the nation. Just a complete destruction of sovereignty.
DESVARIEUX: All right. Bill Black and Michael Hudson, we're going to pause the conversation here. In part two we'll talk more about specifics related to alternatives to this deal. So thank you both for joining us.
BLACK: Thank you.
HUDSON: Good to be here.
DESVARIEUX: And thank you for joining us on The Real News Network.
JESSICA DESVARIEUX, PRODUCER, TRNN: Welcome back to The Real News. I'm Jessica Desvarieux in Baltimore.
I'm joined now by Bill Black, as well as Michael Hudson. Bill Black is in Quito, Ecuador, and Michael joins us from Germany. Thank you both for being here.
HUDSON: Good to be here.
DESVARIEUX: All right. Let's pick up where we left off. We were talking about alternatives to the deal that's being presented to the Greek people in this referendum vote. Michael, lay out some specifics. What are some alternatives that would be in the interest of everyday Greek people?
HUDSON: Well, what Bill was describing in the first half is really finance as war. What they want is the same thing that warfare wants. They want the land, and they want a tribute in the form of interest. Basically, the Eurozone went to Greece and said, look, we're going to--just in case Spain's Podemos party or other countries want to not pay their debts, we're going to use you as an example and we're going to wreck you.
And it's begun to backfire this week, because what they show is that remaining in the Eurozone itself is pretty hopeless, financially. And the leaders of the Syriza party have said, look, we're not only fighting for Greece, we're fighting for all of Europe. And what we want to do is save Europe from austerity. And we want to save Europe by having a real central bank whose role is to create money, to spend money into the economy. We want a central bank that doesn't give money to banks. We want a central bank that pays for government spending and rebuilding the Greek economy. And we need to be out of the Eurozone in order to do that.
DESVARIEUX: Wouldn't they also have to reform their tax system, or enforcement, at least, of that tax system?
HUDSON: Yes. I mean, they're talking about what--a lot of debts are going to be canceled. Not only to the European banks, but we're talking about a domestic debt holiday very much like Germany's economic miracle, in 1948 the Allied monetary reform, where they canceled all the internal German debts except for the debts that employers used for wages. We're talking about a huge debt write off. But you don't want to make real estate owners suddenly owning their property free and clear. So we need a tax system that not only is going to stop the tax evasion by the oligarchs who have used the banks to avoid it.
We're going to take away the tax deductibility of interest payments, so that they can't pretend to expense all their profits and interest, and we're also going to have a rent tax. For what we've privatized already, we're going to tax the economic rent to recover for the country what these owners didn't create, like the phone systems that Carlos Slim made in Mexico that Bill mentioned before. We're going to collect the economic rent fully in a tax system. So financial reform is going to go hand-in-hand with tax reform, and that's what terrifies the Europeans. Because they say, wait a minute, all of the money that you call profits is actually rent extraction. It's all exploitation. You can't stop exploitation, that's what our financial system is all about.
DESVARIEUX: But Bill, I could imagine people who are in the elite are going to say, hold on a minute. You want to raise taxes, you want to create new taxes. I'm going to leave. I'm going to another country and setting up shop. What do you make of that argument?
BLACK: Well first, all their money already left. They've been evading taxes for years, so them leaving will have next to no effect.
But yes, I mean, forget them. What the Troika has done throughout huge expanses of Europe, roughly nations with half the population of Europe, their leading export these days is their college graduates. As soon as you get your degree, you leave. And that isn't just the southern periphery, the so-called Mediterranean. That's also the Baltic states as well.
There's an incredibly insipid article in the New York Times at the time that we are taping this interview about Bulgaria that says, Bulgarians have no sympathy for the Greeks. Well, and then it turns out this is a hard-right government that has welcomed austerity and produced the usual problems. And of course, their government would fail within 24 hours, as would the Spanish government, if they ever admitted that Austerity was economically illiterate. The equivalent of bleeding a patient to make them better.
So all of these nations and the Troika is locked into this position that they can never admit the truth.
DESVARIEUX: All right. Michael, I know you're going to be headed to Brussels, you're giving a speech to the Euro parliament on Thursday on the Greek situation and the IMF. Can you just quickly lay out for us, what are you going to be advocating for?
HUDSON: Well first of all, for treating the debt claims of the IMF and the European Central Bank as odious debts. This means they shouldn't have been put in place to begin with, and the debts, the money that was lent to Greece, except it went right through Greece to pay the French banks and the German banks, and to enable the American Wall Street banks to make a killing.
The Wall Street banks made whole reputations of buying bonds at 30 cents on the dollar and suddenly they went up to 100 cents on the dollar. The market basically said Greece couldn't pay in 2010. The market priced its bonds very low. Right now Greece bonds are yielding 33 percent. So the market says Greece can't pay.
And so when Europe is saying, we want to impose a market economy, everything the European Central Bank and IMF is doing is against the market. They're not recognizing what any real market analyst realizes, that the debts can't be paid. We want to create a real market economy by getting rid of the [wrong] [incompr.], by getting rid of the exploitation, by writing off the bad debts, by reforming the tax system.
And in--a few years ago Christine Lagarde provided a list to Greece of Greek tax evaders that had 50 billion Euros in Switzerland. This 50 billion Euros is enough to pay--was enough to pay all of Greece's debts. And the technocratic leader that the financial interests installed, Lucas Papademos, the very man who falsified all of the Greek payments and debt statements in 2001, didn't do anything at all with the list. He refused to move against the oligarchs.
So what you have is, is really a combination of treason and criminal behavior. Now that there is a crisis in Greece this enables Syriza to get the support of the people to throw the bad guys in jail. I'd like to say to throw the lawbreakers in jail, but they don't have any laws against that kind of crime taking place. So they have to draw up a whole new set of laws to make Greece a fair economy instead of the unfair economy that the IMF and the European Central Banks have turned it into.
DESVARIEUX: And it's now being reported by the Associated Press that Greece's credit rating has been pretty much cut in half, and it's now a junk, junk credit rating.
I just want to thank you both, gentlemen, for joining us, and we're going to continue to cover this story here on The Real News. You guys always have such interesting perspectives to bring to this program. Thank you both for being with us.
BLACK: Thank you.
DESVARIEUX: And thank you for joining us on The Real News Network.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.
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