Wall Street and the Greek Financial Crisis
Interview with Bill Black and Michael Hudson
Jessica Desvarieux: 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 whitecollar 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.
Jessica Desvarieux: 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?
Bill Black: The same people 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.
Jessica 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.
Michael Hudson: 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 complicated derivatives to hide it all, and that was Lucas Papademos.
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 loans–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 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 largest. 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 bondholders 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 bondholders. So Greece, instead of owing private bondholders, 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. 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.
Jessica Desvarieux: But Michael, there 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?
Michael Hudson: There need not have been any consequences for the people of Greece for 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.
Jessica 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?
Bill Black: Well, I would definitely vote against the bankers. 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 that 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, Mexico’s 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. People are familiar with Indonesia under Suharto. It’s very similar.
What you do is, as Michael said, the normal thing that has been done in the past: 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—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.
Jessica Desvarieux: 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?
Michael Hudson: 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—as in case Spain’s Podemos party or other countries who 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 put 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.
Jessica Desvarieux: Wouldn’t they also have to reform their tax system, or enforcement, at least, of that tax system?
Michael 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 the 1948 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 have real estate owners suddenly owning their property free and clear. So we need a tax system that 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, which Bill mentioned before. We’re going to collect the economic rent fully through 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.
Jessica 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 to set up shop. What do you make of that argument?
Bill Black: First, all their money has 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 recently about Bulgaria that says, Bulgarians have no sympathy for the Greeks. But 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 are locked into this position and they can never admit the truth.
Jessica Desvarieux: 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?
Michael Hudson: 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 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 exploitation, by writing off the bad debts, by reforming the tax system.
A few years ago the IMF’s Christine Lagarde provided a list to Greece of Greek tax evaders that had 50 billion Euros in Switzerland. This 50 billion Euros 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 system that the IMF and the European Central Banks have turned it into.
Jessica Desvarieux is a producer at the Real News Network, where this interview aired.
—Counterpunch, July 1, 2015