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Sunday, January 24, 2016

What Should Greece Do? Leave the eurozone and return to the drachma

Interesting take on Greek debt by Hudson. He says there is no legal mechanism for eliminating government debt. He also says that the Greeks did not receive the bail out dosh - French and German banks did - like with the Irish bailout. He also says that under US Law making loans which the lender knows cannot be repaid is fraud. Quote: HUDSON: The United States and Europe have a long body of law going back hundreds of years to deal with private sector bankruptcy. Individuals have bankruptcy laws to free themselves from debt. Corporations go broke all the time, they go to court, and debts are written down. But government debts are something different. There is a deliberate anarchy that’s been imposed, especially since World War II, to prevent a discussion of governments writing down debt. The idea is that if the world’s bondholders – and basically, we’re talking about the 1 percent – if the 1 percent can stop any court form writing down this, then there’s anarchy if a government says it can’t pay. It’s obvious that a lot of governments can’t pay, above all Greece. Normally, governments have been able to renegotiate debts with bondholders. There’s a market in government bonds. By 2010-12 the marketplace had priced down Greek government bonds to about 30 cents on the dollar. That means that the markets believed that maybe Greece could pay a third of its bonded debt, not more. But central banks today have something else in mind besides writing down debts. It’s not really economic, and it’s not really financial. It’s political. If you look at how the European Union has been organized, it doesn’t have any common governing organization. There’s no real parliament able to set European-wide tax rules, regulatory rules or anything else. There’s only one European organization that can set policy, and that’s the European Central Bank. And the European Central Bank, like central banks everywhere, are run by the commercial banks. And in Europe they’re run by the ultra-right wing. So we’re talking about a right-wing extremist policy, and they believe essentially in privatization giveaways. So what’s at issue isn’t really whether or not Greece can pay the debts or not. Everybody knows that it can’t. Yesterday U.S. Treasury Secretary Lew came out and said that Greece needs a writedown, it can’t pay the debt. A week ago the International Monetary Fund said that it will not make any more loans with the European Central Bank to Greece, because it can’t pay. Everybody realizes it can’t pay. But the European Central Bank has taken what is very nearly a fascist position. It also knows that Greece can’t earn the money to pay that debt. What it can do is sell off its islands, it can sell the Parthenon. It can sell its land. It can sell its gas rights in the Aegean. It can sell its radio stations and television stations. It can sell its roads to people the EU approves. For comparison, imagine that all of a sudden there was a financial crisis in America, and Governor Chris Christie of New Jersey or Mayor Rahm of Chicagowere put in charge of selling off the public domain. They’d sell to their cronies. They’d sell to their insiders. That’s basically what the European Central Bank has told Greece to do. Two years ago, the right-wing parties that ran Greece agreed to privatize their gas rights. Half of the privatization that was scheduled was supposed to be the gas pipeline. The largest bidder was Gazprom of Russia. But the ECB said no. Operating on behalf of NATO and the New Cold War, they told Greece to sell to their appointees at a lower price. Greece said, wait a minute. You’re telling us to sell off the public domain, to privatize to people who are going to charge more to use the roads, charge more for public health, charge for the islands, and drain us. You want us to sell to the crooks that the Greek people have just thrown out? They knew Greek politicians have accused the ECB of backing the most anti-democratic individuals. Quite frankly, they’re gangsters. From the beginning, Syriza’s Varoufakis and Tsipras saw that the European Central Bank was operating with its own agenda. Even the IMF said that the ECB had to write down the debt that Greece owed it. But instead, the European Central Bank said, “We’re in control. We insist that you do exactly what the previous parties were going to do” – the parties that were voted out of power in January. “You must sell off your land and privatize, and basically wipe out a big chunk of your pensions. You need 30 percent of your population to emigrate within two years. You have to create a permanent austerity crisis. If you don’t do this and agree to it, we’re going to wreck your banks and cause chaos.” ..... PERIES: So Michael, earlier you were calling the debt that Greece has an odious debt. Describe what that is, and explain the mechanism that you have derived that could possibly deal with the debt crisis. HUDSON: The term odious debt is a legal term. It was invented earlier in the century, almost 100 years ago, for debts that are basically wrong, or ones that are taken on by a non-democratic government in the name of the people, but paid to themselves and their backers. Then they try to shift this debt onto a country’s taxpayers. Under international law such debts don’t have to be paid. That’s what happened in Greece. The loans made to Greece by the International Monetary Fund and European Central Bank were not really made to Greece. Greece was only a vehicle for them to pay bondholders, who made a killing. Many bondholders had bought Greek bonds for 30 cents on the dollar, and ended up getting paid 100 cents on the dollar. This made tens of billions of dollars for speculators and insiders. Then the European Central Bank said, “Just like we made Ireland’s government and Irish taxpayers pay for the crooked debts by the Irish banks to bondholders, we’re going to make you, the Greek taxpayers pay.” One of the principles of odious debt is similar to what’s called fraudulent conveyance in the United States. Under U.S. law if somebody makes a loan to another person, or a company (especially) but knows that the company can’t pay, it’s a fraudulent loan. Suppose that you see somebody who owns a home – a widow who has inherited a house, but doesn’t have much money. Suppose the home is worth, say, a few hundred thousand dollars. Suppose you lend her maybe $1000 to help her buy groceries. And then all of a sudden you say, well, it’s collateralized by the house. And then, before she gets her next welfare check to pay it back, you demand payment. She can’t pay. So then you try to grab the house. That’s considered a fraudulent debt, because the lender had no idea how the creditor could repay in the normal course of business. During the 1980s, a lot of corporations in America were taken over by high-interest junk bonds. People would borrow a lot of money, take over the company, and empty out the pension funds. They’d sell off the parts and break them up. And the companies tried to protect themselves by suing under the law of fraudulent conveyance. This is much what has been done to Greece. The European Central Bank says, “We will lend you more money. We know that you can’t pay, and we’re not even going to discuss whether you pay or not. We’re going to lend you money, and if you don’t do as we say, we’re going to smash all your banks. We’re going to stop the bank internet payment. We’re going to stop supplying you with currency, and we’re going to drive you bankrupt if you don’t agree to sell off your public domain.” That’s what we’ve just discussed in the previous segment. This is illegal under the odious debt law. So finally the Greek ruling party, Syriza, is preparing a legal case to go to the European court of justice and claim that this is an odious debt. We’re not going to go to the IMF, because that’s a kangaroo court. The IMF people are tunnel-visioned doctrinaire people who are trained simply to calculate how much a country has to pay. If it can’t pay, they come in and smash and grab. .... The European Central Bank and the IMF are not run by economists, but by lawyers. Christine Lagarde, the head of the IMF, was an anti-labor lawyer. She worked for firms to smash up labor. That’s the job of the IMF. It’s not there to help countries to balance their payments deficit. It’s job is to strip away their pensions, cut their wages, and make them more “competitive” under the pretense that any country can pay its debt if it only will reduce its wages and living standards by enough. That’s an odious concept. That’s the right-wing concept, and it’s effect is downright evil. That’s what finally the Greeks are coming out and saying. The way the financial system is structured now is anti-human, against human rights, against national sovereignty. It’s pretty much what in the vernacular is called evil.

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