Friday, September 15, 2006

Greece could be a trigger for some serious change

Honestly, if I were Greece – I would default on all external debt. It’s going to happen sooner or later – paying ever increasing interest rates on your debt is unsustainable. Interest payments will continue to consume more and more of their budget (sound familiar?) – with no end in sight.

Why go through all of the pain and economic suffering for months/years to pay back external bankers when default is inevitable? Allow the bankers to grind your economy to a halt or kick them out now? It sounds like Greek politicians are beginning to understand this (below). Better to make the changes now and get control of your country back from the international bankers.

Karl is right on the money here (no pun intended) – default on the external bankers – exit the Euro – and issue their own non-debt backed currency.

The obvious question is what will they do? When will they do it?

What will we do when this happens to us?

I believe the world needs to take a step back and consider what God has to say. When it comes to charging excessive interest – He is clear. What is the world doing? The opposite of what He says. What is happening? The world’s economy is being brought to its knees by a monetary system that charges excessive interest – leading to massive debt loads for individuals, corporations and governments. This should surprise no one.

God’s commands are not suggestions.

“He who increases his wealth by exorbitant interest amasses it for another, who will be kind to the poor.” (Proverbs 28:8)

“Do not charge your brother interest, whether on money or food or anything else that may earn interest.” (Deuteronomy 23:19)

" 'If one of your countrymen becomes poor and is unable to support himself among you, help him as you would an alien or a temporary resident, so he can continue to live among you. Do not take interest of any kind from him, but fear your God, so that your countryman may continue to live among you. You must not lend him money at interest or sell him food at a profit.” (Leviticus 25:35-37)

“In you men accept bribes to shed blood; you take usury and excessive interest and make unjust gain from your neighbors by extortion. And you have forgotten me, declares the Sovereign LORD. 'I will surely strike my hands together at the unjust gain you have made and at the blood you have shed in your midst’. (Ezekiel 22:12-13)

“He lends at usury and takes excessive interest. Will such a man live? He will not! Because he has done all these detestable things, he will surely be put to death and his blood will be on his own head.” (Ezekiel 18:13)

“who lends his money without usury and does not accept a bribe against the innocent. He who does these things will never be shaken.” (Psalm 15:5)

“So I continued, "What you are doing is not right. Shouldn't you walk in the fear of our God to avoid the reproach of our Gentile enemies? I and my brothers and my men are also lending the people money and grain. But let the exacting of usury stop! Give back to them immediately their fields, vineyards, olive groves and houses, and also the usury you are charging them—the hundredth part of the money, grain, new wine and oil." "We will give it back," they said. "And we will not demand anything more from them. We will do as you say." Then I summoned the priests and made the nobles and officials take an oath to do what they had promised. I also shook out the folds of my robe and said, "In this way may God shake out of his house and possessions every man who does not keep this promise. So may such a man be shaken out and emptied!" At this the whole assembly said, "Amen," and praised the LORD. And the people did as they had promised. “ (Nehemiah 5:9-13)

jg - April 14, 2010
We Swirl The Bowl With Greece

Karl Denninger

April 14, 2010

Many cheered the "Greece Bailout" deal Sunday night.

As I have repeatedly reported, however, there is in fact no deal. At least not yet.

The problem is that there really isn't a good reason for Greece to consent to any deal, whether they get one or not. Specifically, their economy is contracting yet borrowing costs are rising. This is the toxic death-spiral that inevitably follows profligate spending and debt-hiding operations when the market loses confidence.

(As an aside, are you paying attention Washington? If you think this can't happen here you're sadly mistaken.)

All sovereigns think they have the unlimited ability to countenance and commit fraud. Witness the hearings on WaMu, three panels worth that I had on background all day long yesterday.

Virtually every second word was "fraud" in those hearings. Fraudulent mortgages, fraudulent underwriting, fraudulent securities sales.

Fraud fraud fraud fraud fraud.

An incredulous Senator Levin along with others pounded the witlesses (sic), and they proved worthy of the name "witless". Key among the points raised was that as early as 2004 and 2005 the bank knew that bogus loans were being produced "en-masse." Yet despite more than three years of internal memos and actual knowledge, the FBI never was brought in - and still hasn't been.

Nor should they have had to be "brought in" - the FBI wrote a report itself in 2004 warning of an "epidemic" of mortgage fraud.

Yet nobody in the production system for those fraudulent loans - in the case of two offices that WaMu ran more than half of all production was fraudulent - have been indicted.

Nor have any of the corporate executives involved, even though some of them admitted, under oath, they were aware of the bogus loans - and that bogus loans were being sold to investors.

The rule of law rests above all other considerations, by and large, when it comes to the legitimacy of any government and the stability of any society.

Greece is discovering quite rapidly that their endemic scam-based financial system and government, which had fraudulently mis-stated deficits and other government liabilities, is now being held to account by the market - their one-year treasury bill went out at 4.85%, or 430 basis points over what Germany borrows at.

To put this in perspective that's nearly nine times the interest rate that Germany pays.

No, that's not sustainable folks. All that has happened here is that Greece has built up tremendous rollover risk - perhaps fatal rollover risk, that will come back to haunt them.

The opposition political party in Greece said today:

Opposition politicians in Athens have begun to question whether it is in the country's interests to accept harsh wage deflation in order to pay foreign creditors. "This is usury: we need restructuring of debts," said the Righti-wing LAOS party.

Such views are gaining support in parts of the ruling PASOK party, raising the risk that it will splinter as further austerity is imposed.

Greece should tell the EU and ECB to bugger off. Stick the banks over there with their losses; default all their externally-held debt. Declare their externally-held Treasuries worthless by fiat and leave the Euro. Arrest and prosecute everyone involved in government book-cooking, including the banksters that conspired with them. Without external borrowing a crushing austerity would be imposed as government spending would be forced to immediately contract to that which could be taxed, but the benefits, once the pain was endured, would belong to the Greeks, not the bankers from France and Germany.

Issue a non-debt-backed currency and tell the bankers to stuff it, relegating them to pursuit of profit in the private markets, not on the back of the government and citizens via taxation.

Radical? Maybe.

But this much I do know - we currently live in a world where outright and abject fraud is perfectly ok provided it is committed by a banker. The display in the Senate Committee for Investigations was literally jaw-dropping - if you didn't get to watch it live, do so on CSPAN replay from the above link.

Never in my life have I heard lawmakers recite a litany of felonies as long as this one. Remember that mortgage fraud violates a whole host of statutes, including wire fraud, bank fraud, money laundering and where there is a pattern of conduct, racketeering.

If we do not see our government bring out the handcuffs, and soon, I predict we will follow the lead of Greece. Not today, and probably not tomorrow, but inevitably we shall, because the first requirement for trust - that laws will be enforced and fraud will not be tolerated - have been utterly cast aside, so long as you're banker.

The stability of both our society and markets will not survive in this state for long.
Is Greece Beginning To Consider A "Strategic" Default?

Submitted by Tyler Durden on 04/13/2010 22:11 -0500

And why not - after all it's all the rage among those waiting in line for iPads so they can be first to buy "The Steve Jobs Guide for Deadbeat Dummies Trying To Learn To Read Good." Now that Obama has given his blessing to an entire generation of Americans to tear up contracts (very appropriate coming from a contract law professor), the follow up to moral hazard is resulting in not just individuals and companies, but entire nations simply opting out of paying their dues. Evans-Pritchard reports that after today's ludicrous rates on 3 and 6 month Bills the tide may be turning in Greece, with both parties in the country finally realizing its creditors will do everything in their power to bleed it dry, at "usurious" rates. With economic growth negative for a decade and debt interests quite certainly positive, the marginal difference will destroy not only economic output, but sink Greece ever more in debt, as existing creditors fund capital shortfalls at maturity (or default) by ever increasing interest rates. Greece has the option to stop funneling domestic capital to Germany later (inevitable) or sooner (if it finally makes the right decision).

From the Telegraph:

There are still questions that need to be answered on the EU deal," said Julian Callow from Barclays Capital. "Greece has a Herculean task ahead. The economy is contracting yet fiscal tightening has hardly begun. We expect growth of minus 4.3pc this year, and minus 1.9pc in 2011 which will be difficult for debt dynamics."

Opposition politicians in Athens have begun to question whether it is in the country's interests to accept harsh wage deflation in order to pay foreign creditors. "This is usury: we need restructuring of debts," said the Righti-wing LAOS party.

Such views are gaining support in parts of the ruling PASOK party, raising the risk that it will splinter as further austerity is imposed. Diplomats see a direct parallel with Oskar Lafontaine's Linke movement drawn from the Left-wing of Germany's Social Democrats.

Not only will a delay in defaulting do nothing for the economy except bleed it to death slowly, but ever more frequent risk flare episodes culminating in bank runs will intensify the deposit outflows and impair the banking system beyond repair (for depositors to keep their money in Greek banks, they need to be compensated for the risks: double digit rates sound about right), thus dooming any hope for an economic recovery. Evans-Pritchard's conclusion: a dead-end Greece may be on the road to the same societal splintering that post-Weimar Germany experienced, and culminated in some very tragic consequences.

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