The Goldman Saching of Europe

Posted on December 7, 2011 by Professor Benfield There have been 0 comments

(Article by Mike Carey in "The DRUM Opinion" 7 Decembeer 2011)

I don't want to sound alarmist

... but it looks like Goldman Sachs has taken over Europe.  The continent has succumbed to the dictates of global finance, there was no choice. The bankers are holding us all to ransom and have done since the beginning of the GFC in 2008.

The German government's reaction its disastrous bond auction a week or so ago, gives a big clue to the real multibillion dollar game being played out in boardrooms from New York to Frankfurt. The most powerful and resilient economy in Europe couldn't get a bid for 35% of its 10 year bonds on offer. Observers say it was a warning from bankers, on both sides of the Atlantic, do as we say or else!

Germany, through its Finance Minister Wolfgang Schaeuble, had been at the forefront demanding that banks share any sovereign bailout losses that eventuate from the European Stability Mechanism, to be up and running next year. The failed German bond auction was the bank's curt reply and Schaeuble backed down.

Right from the start of the European crisis,

the banks have been pulling the strings. Remember when the former Greek Prime Minister, George Papandreou announced a plebiscite, to get popular buy-in for his austerity plan and the markets went bananas and he was excoriated. The markets and the banks, not the Greek people, passed judgement and he had to go.

Across the Ionian Sea, former Prime Minister, Silvio Berlusconi hadn't done enough to satisfy the self-serving screen jockeys and they turned their weapons, their bond traders, lap dog ratings agencies and share market speculators on Italy. Berlusconi was rumoured to be resigning and the bourse rallied. No, he wasn't going and it fell away again with a promise that it would rocket when he finally and inevitably bowed to massive financial pressure to resign. As night follows day, he was replaced by a euphemism, a technocrat. Nowhere was there much talk about voter's wishes or rights.

All this might have been ameliorated

... if not avoided had the Obama Administration brought the bankers to heel three years ago by jailing a dozen or so, now it's too late! But of course that was never going to happen when the President's own economic team was drawn from or had strong links with Goldman Sachs. With Summers, Rubin, Geithner and Emanuel it was Wall St. on the Potomac.

That's probably why, in 2008, Goldman Sachs was too big to prosecute. It received more subsidies and bailout funds than any other investment bank. How did Goldman Sachs thank the American people for their largesse? By using billions in taxpayer money to enrich itself and reward its top executives who received, it's reported, mind boggling wage increases and bonuses of $18 billion in 2009, $16 billion in 2010 and $10 billion in 2011.

At the same time,

... Goldman Sachs offloaded billions in worthless securities helping destroy the global economy. The firm misled investors about the true nature of this worthless junk and hid the fact that it was betting against these same securities. In just one such deal Goldman Sachs is reported to have raked in $2 billion.

Scroll back to 2002. Goldman Sachs covertly bought 2.3 billion Euros in Greek debt, converted it into yen and dollars, and then immediately sold it back to Greece at a supposed loss. Goldman Sachs had struck a secret deal with the then, free-market  government to conceal its massive budget deficit. Goldman's confected loss was Greece's imaginary gain just to meet Europe's requirement that its deficit never surpass 3 % of GDP. Now, it's reported that Goldman made a $250 million fee on the deal and a motza on credit default swap insurance sold to Greek bond holders against the country going bust.

Apparently this only became known to Prime Minister, George Papandreou and his Socialist government when they came into office and investors demanded monster interest rates to lend more money to roll over this debt.

So who is going to save Europe, and by extension us?

The new president of the European Central Bank (ECB), Mario Draghi knows the turf well. He was after all, the London based Vice Chairman and Managing Director of Goldman Sachs International and a member of Goldman Sachs' Management Committee. Fronting the European Parliament's finance committee, he was quick to point out that between 2002 and 2005 his role did not involve selling financial instruments but was largely advisory.

Mario Draghi has also held board level positions or higher at the World Bank, the Bank of Italy, the Bank for International Settlements, the International Bank for Reconstruction and Development and the Asian Development Bank.

He has emphasized many times that it's not the ECB's role to act as lender of last resort to countries but Draghi is perfectly happy to promise banks unlimited liquidity. While everybody was urging him to buy government bonds to steady the ship he stressed the ECB's bond buying would be limited and temporary. Indeed anything else would be illegal under European law. According to the November 28th Wall Street Journal, "The ECB has long worried that buying government bonds in big enough amounts to bring down countries' borrowing costs would make it easier for national politicians to delay the budget austerity and economic overhauls that are needed."

So take your medicine, suckers!

Mario Monti, Italy's new prime minister was appointed by the markets, not elected by the people. And guess what? Before that he was a member of Goldman Sachs Board of International Advisers and a member of the European Commission, one of the EU's governing organizations. Monti is European Chairman of the Trilateral Commission, a US organization that advances American interests and a founding member of the Spinelli group created to foster EU integration.

In Greece,

... an unelected banker was installed as a newly minted Prime Minister there too.

From 1994 to 2002, Lucas Papademos was Governor of the Bank of Greece at the time Goldman Sachs was helping camouflage the country's deficit. If he didn't know what was going on, he should have. From 2002-2010, he was Vice President of the European Central Bank and is also a member of America's Trilateral Commission.

And while the PM was not employed by Goldman Sachs, the Chairman of Greece's Public Debt Management Agency, Petros Christodoulos, was a trader in the bank's London operation.

Everybody agrees

... that the simplest remedy for Europe's woes would be for the ECB to buy enough Spanish and Italian debt to keep interest rates at a reasonable level. ECB President Draghi refuses to move until, observers say, the crisis is so bad he can impose the sort of package that would gladden the heart of any true neo-liberal. Public assets privatized, unions subjugated, social safety nets rent and sovereignty surrendered to unelected technocrats. On Thursday, Mario Draghi presaged this attack on Europe's social democracy by calling for a "new fiscal compact" and now President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany have dutifully moved to re-shape the treaty governing the continent's economic governance.

I saw this belt tightening austerity in the eighties as the IMF dictated to Brazil what it should cut to repay its debt to a consortium of US and European banks and the World Bank. It took years of pain for the powerhouse of Latin America to recover from this economic castration. Last week I heard a financial commentator describe the current situation as the market picking off the weakest prey as each of the PIIGS countries come under sustained attack. The predatory nature of the beast may see austerity plans introduced, European banks bailed out but still we are likely to end with the Second Great Depression, we had to have. Had to have? There is no other way now to cleanse the system, to throw the money lenders out of the temple.

Mike Carey is a Walkley Award-winning journalist and producer who was executive producer of SBS Dateline for eight years. He has worked for the ABC, SBS and Al Jazeera living in South-East Asia and Brazil.


Mike Carey

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