BRIC+1 : ANOTHER BRICK ON THE NWO WALL?

H ομάδα ζητά τη δημιουργία ενός νέου διεθνούς συναλλαγματικού συστήματος με φανερό απώτερο στόχο την απεξάρτηση από το δολλάριο.

Οι αναδυόμενες μεγάλες δυνάμεις που απαρτίζουν την ομάδα BRICS — η Βραζιλία, η Ρωσία, η Ινδία, η Κίνα και πρόσφατα η Νότια Αφρική — ζήτησαν αυτή την εβδομάδα μια ριζική μεταρρύθμιση των Ηνωμένων Εθνών, περιλαμβανομένου του Συμβουλίου Ασφαλείας, ώστε να αποκτήσουν ισχυρότερη φωνή οι αναπτυσσόμενες χώρες. «Η Κίνα και η Ρωσία επαναλαμβάνουν τη σημασία που αποδίδουν στο καθεστώς της Ινδίας, της Βραζιλίας και της Νότιας Αφρικής στις διεθνείς υποθέσεις και κατανοούν και στηρίζουν την επιδίωξή τους να διαδραματίσουν μεγαλύτερο ρόλο στα Ηνωμένα Έθνη», αναφέρεται σε ανακοίνωση που εκδόθηκε μετά το τέλος της συνόδου κορυφής των BRICS στο νησί Χαϊνάν της Κίνας.

Όπως τόνισε η πρόεδρος της Βραζιλίας Ντίλμα Ρουσέφ, «δεν είναι δυνατόν να παραμένει ο κόσμος προσκολλημένος στις συμφωνίες που υπεγράφησαν μετά τον πόλεμο».

Η στήριξη του Πεκίνου και της Μόσχας στις επιδιώξεις των τριών άλλων χωρών έχει μεγάλη σημασία, καθώς αντανακλά την προσπάθεια αλλαγής της παγκόσμιας γεωπολιτικής ισορροπίας. Τόσο η Βραζιλία όσο και η Ινδία θέλουν μια μόνιμη έδρα στο Συμβούλιο Ασφαλείας. Η Μόσχα συμφωνεί. Το Πεκίνο, που οι σχέσεις του με το Νέο Δελχί δεν είναι πάντα αρμονικές, δεν το έχει κάνει ακόμη.
Στις BRICS ζει το 40% του παγκόσμιου πληθυσμού και το συνολικό ΑΕΠ τους ξεπέρασε πέρυσι το 18%  του παγκοσμίου.

Οι πιέσεις για να αλλάξει η δομή του ΟΗΕ αυξάνονται. Η Γερμανία και η Ιαπωνία επιδιώκουν κι αυτές μια μόνιμη έδρα στο Συμβούλιο Ασφαλείας, ενώ οι αφρικανικές χώρες θεωρούν ότι θα έπρεπε να έχουν τουλάχιστον δύο έδρες. Μεγαλύτερη εκπροσώπηση θέλουν επίσης οι κυβερνήσεις του αραβικού κόσμου και της Λατινικής Αμερικής.

Το κοινό ανακοινωθέν των BRICS ζητεί επίσης τον τερματισμό της διεθνούς ένοπλης επέμβασης στη Λιβύη. «Η χρήση ισχύος πρέπει να αποφεύγεται», τονίζεται. Η Νότια Αφρική ήταν η μόνη χώρα αυτής της ομάδας που υπερψήφισε το ψήφισμα του Συμβουλίου Ασφαλείας για την επιβολή ζώνης απαγόρευσης των πτήσεων πάνω από τη Λιβύη. Ωστόσο, όπως διευκρίνισε η ίδια πηγή αυτής της πληροφορίας, η οποία ζήτησε να μην κατονομαστεί, στη συνάντηση των ηγετών της BRICS επικριτική απέναντι στη δυτική Συμμαχία εμφανίστηκε και η Νότιος Αφρική. Το Πεκίνο και η Μόσχα, που θα μπορούσαν να ασκήσουν βέτο, προτίμησαν να απόσχουν. Το ίδιο έπραξαν η Ινδία και η Βραζιλία.

Όπως επισημαίνουν οι Φαϊνάνσιαλ Τάιμς, η κυριαρχία της Κίνας στην BRICS είναι εμφανής. Εκπρόσωπος της χώρας αυτής δήλωσε μετά τη σύνοδο στο Χαϊνάν ότι «ο 21ος αιώνας πρέπει να είναι ένας αιώνας ειρήνης, αρμονίας, συνεργασίας και επιστημονικής ανάπτυξης». Μόνο που οι λέξεις «αρμονία» και «επιστημονική ανάπτυξη» είναι τα βασικά πολιτικά συνθήματα που χρησιμοποιεί το Κομμουνιστικό Κόμμα της Κίνας. Η ανακοίνωση αυτή δίνει έτσι την εντύπωση στους Κινέζους ότι η χώρα τους αρχίζει να εξαπλώνει την επιρροή της στο εξωτερικό.

Από όλα τα ανωτέρω, αυτό που θα ήθελα εδώ να εξάρω είναι, πως ενώ τα κράτη μέλη αυτής της νέας  παγκόσμιας δύναμης έχουν πολλές διαφορές μεταξύ τους, έχουν εντούτοις ένα κοινό στόχο: Την απεξάρτηση από το Δολλάριο.

Τι σημαίνει πρακτικά αυτό;

Σημαίνει, ότι η νέα αυτή υπερδύναμη επιδιώκει να αναλάβει αν όχι ρόλο παγκόσμιας κυριαρχίας, σίγουρα πάντως τον ρόλο του δεύτερου πόλου, περιορίζοντας έτσι την παντοδυναμία της Δύσης όπου ηγέτιδα δύναμη είναι οι ΗΠΑ.

Αυτό που προσωπικά περιμένω σύντομα να δώ είναι, ποια κατάληξη θα έχει το διπλό παιχνίδι της Γερμανίας (με τους δορυφόρους της: Τουρκία και Ιράν) και πότε θα μεταπηδήσει στον τελικό της στόχο . Όταν όμως το κάνει αυτό, τότε θα μιλάμε πλέον για την …τελική ευθεία.

αναδημοσίευση κειμένου απο εδω, περισσότερα εδω κι εδω κι εδω

DOLLAR vs YUAN : THE RETURN OF THE DRAGON

China Takes Giant Step Towards Making Yuan the World’s Reserve Currency

….but all of the foregoing is just background for what happened today.

Specifically, as Tyler Durden reports:

Today’s biggest piece of news received a mere two paragraph blurb onReuters, and was thoroughly ignored by the broader media. An announcement appeared shortly after midnight on the website of the People’s Bank of China.

***

Reuters provides a simple translation and summary of the announcement:

“China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency’s international role. In a statement on its website www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily.” To all those who claim that China is perfectly happy with the status quo, in which it is willing to peg the Renmibni to the Dollar in perpetuity, this may come as a rather unpleasant surprise, as it indicates that suddenly China is far more vocal about its intention to convert its currency to reserve status, and in the process make the dollar even more insignificant.

International Business Times provides further insight:

This is all part of China’s plan for the internationalization of its currency, which may, in the decades to come, threaten the global ‘market share’ of other currencies like the US dollar.

Previously, China also announced that bilateral trades with Russia and Malaysia will begin to be conducted with the yuan and the ruble and ringgit, respectively.

Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan.

Aside from the efforts of the Chinese government, fundamentals also point to the increasing international popularity of the Chinese currency.

China is already the leading trade partner with Australia and Japan. It’s also the leading or a large trade partner with many of its smaller neighbors. The purpose of having foreign currencies is to conduct foreign trade and investment, so the yuan is expected to become a more attractive currency for China’s trade partners, espeically as the government continues to relax restrictions.

The reason for this dramatic move may be found in what Stephen Roach [former chief economist for Morgan Stanley, and now director of Morgan Stanley Asia] wrote a few days ago in Project Syndicate:

In early March, China’s National People’s Congress will approve its 12th Five-Year Plan. This Plan is likely to go down in history as one of China’s boldest strategic initiatives.

In essence, it will change the character of China’s economic model – moving from the export- and investment-led structure of the past 30 years toward a pattern of growth that is driven increasingly by Chinese consumers. This shift will have profound implications for China, the rest of Asia, and the broader global economy.

Like the Fifth Five-Year Plan, which set the stage for the “reforms and opening up” of the late 1970’s, and the Ninth Five-Year Plan, which triggered the marketization of state-owned enterprises in the mid-1990’s, the upcoming Plan will force China to rethink the core value propositions of its economy. Premier Wen Jiabao laid the groundwork four years ago, when he first articulated the paradox of the “Four ‘Uns’” – an economy whose strength on the surface masked a structure that was increasingly “unstable, unbalanced, uncoordinated, and ultimately unsustainable.”

The Great Recession of 2008-2009 suggests that China can no longer afford to treat the Four Uns as theoretical conjecture. The post-crisis era is likely to be characterized by lasting aftershocks in the developed world – undermining the external demand upon which China has long relied. That leaves China’s government with little choice other than to turn to internal demand and tackle the Four Uns head on.

The 12th Five-Year Plan will do precisely that, focusing on major pro-consumption initiatives. China will begin to wean itself from the manufacturing model that has underpinned export- and investment-led growth. While the manufacturing approach served China well for 30 years, its dependence on capital-intensive, labor-saving productivity enhancement makes it incapable of absorbing the country’s massive labor surplus.

Instead, under the new Plan, China will adopt a more labor-intensive services model. It will, one hopes, provide a detailed blueprint for the development of large-scale transactions-intensive industries such as wholesale and retail trade, domestic transport and supply-chain logistics, health care, and leisure and hospitality.

Obviously, a reserve currency would be not only extremely useful, but quite critical in achieving the goal of China’s conversion to an inwardly focused, middle-class reliant society. And even that would not guarantee a smooth transition. However, should China really be on a path to a step function in its evolution, the shocks to the system will be massive. Roach puts this diplomatically as follows:

But there is a catch: in shifting to a more consumption-led dynamic, China will reduce its surplus saving and have less left over to fund the ongoing saving deficits of countries like the US. The possibility of such an asymmetrical global rebalancing – with China taking the lead and the developed world dragging its feet – could be the key unintended consequence of China’s 12th Five-Year Plan.

A less diplomatic version implies that the relationship between China and the US would suffer a seismic shift in which the game theoretical model of Mutual Assured Destruction, and symbiotic monetary and fiscal policies, would no longer exist, allowing China to pursue its fate completely independent of any economic shocks that the increasingly distressed United States may be going through.

And confirming that the PBoC announcement is far more serious than the amount of airtime allotted to it by the mainstream [U.S.] media, is the just released article in Spiegel “China Attacked the Dollar” (google translated):

The Chinese central bank surprised with a spectacular announcement:The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes America’s claim to represent the key currency – with serious consequences for the U.S..

The announcement was inconspicuous , but it has the potential, to permanently change the balance of power on the world currency market: China strengthens the international role of the yuan. All exporters and importers will, this year, be allowed to settle their business with their foreign partners in Yuan, the central bank said on Wednesday in Beijing.

This will respond to the growing importance of the yuan as a global reserve currency. “The market demand for cross-border use of the yuan rises,” said the central bank. The PBoC had previously tested this plan by allowing 67 000 enterprises in 20 provinces to run their business abroad in yuan. The trade volume amounted to the equivalent of €56 billion.

Now the amount of yuan to be extended, it should be handled much more business in Chinese currency - and less in the U.S. Chinese companies trade at present often in dollars, they are thus dependent on the decisions of the U.S. Federal Reserve to pay on it in a rising oil price and will have pay higher transaction fees than necessary. That should change now.

Currently, the People’s Republic can hardly take yuan out of the country and even that is monitored within the boundary of all legitimate capital flows. Chinese exporters have to change a large part of their euro, yen or dollars at a fixed rate revenue in yuan. Foreign companies wishing to do business in China must do so in Yuan, they can exchange their money in the People’s Republic. Tourists are allowed a maximum of 20,000 yuan and exporting. Yuan an international market can not occur – and not on supply and demand-based exchange rate.

Needless to say, should the yuan be seen increasingly as a reserve currency, all of this, and virtually everything else is about to change.

The only question is whether or not the Yuan will cement its status at the top of the currency pyramid by allowing the backing of the currency with individual or a basket of commodities. If that were to happen, it would be the last nail in the coffin of the already terminally ill dollar.

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See this for background on the possibility of a currency pegged to a basket of commodities

reposted and the full article from here


επίσης / see also SDR : previous  posts / παλαιότερες δημοσιεύσεις   και εδω κι εδω

SDR (SPECIAL DRAWING RIGHTS) vs US DOLLAR : ΟΛΟΙ ΕΝΑΝΤΙΟΝ ΟΛΩΝ

ΠΑΓΚΟΣΜΙΟ ΧΡΕΟΣ : ΑΝΑΔΙΑΡΘΡΩΣΗ, ΜΙΖΑΝΠΛΙ, Η ΚΟΥΡΕΜΑ ΣΤΡΑΤΙΩΤΙΚO;;;

SDR : περισσότερα εδω, more here

ΣΤΑ 1350 ΔΟΛΛΑΡΙΑ Ο ΧΡΥΣΟΣ

ΣΤΑ 1350 ΔΟΛΛΑΡΙΑ Ο ΧΡΥΣΟΣ  ΣΥΝΕΧΙΖΕΙ ΝΑ ΤΡΑΒΑΕΙ ΤΗΝ ΑΝΗΦΟΡΑ…
…εν μέσω του παγκόσμιου πολέμου χαρτονομισμάτων που μαίνεται.

2000-2010. Μέσα σε 10 χρόνια, το χαρτονόμισμα -fiat- δολλάριο έχασε 7 φορές την αξία του σε σχέση με τον χρυσό.
700% δηλαδή, και απλά μια υπενθύμιση σε όσους θεωρούσαν οτι η εποχή και τα “λογιστικά κέρδη” με τις πάσης φύσης φούσκες και με τα τυπογραφεία χαρτονομισμάτων της FED και της ΕΚΤ στο φούλ, θα κατάφερναν να απομειώσουν τις πραγματικές και διαχρονικές αξίες.

Παλαιότερες σχετικές δημοσιεύσεις εδω , εδω, εδω και search στα λήμματα gold, gold bullion, χρυσός, δολλάριο, ΤτΕ (Τράπεζα της Ελλάδος).

(Επίσης, πέρα απο τα σχετικά δημοσιεύματα στο προτεινόμενο ανωτέρω λινκ για την ΤτΕ, και λόγω της “έκρηξης” Σημίτη-ΠΑΣΟΚ” για ενδεχόμενη “εξεταστική” της περιόδου 2000-2004, αξίζει μια δεύτερη ανάγνωση η δημοσίευση The CDS Planet όπου δίνονται  απαντήσεις για τα μαγειρέματα της κας Αντιγόνης Λουδιάδη της Goldman Sachs με την κυβέρνηση Σημίτη, εποχή που με αυτές τις ταρζανιές ξεκίνησε το μεγάλο δράμα της ελεγχόμενης και μοιραίας πτώχευσης, καθώς και του asset stripping της Ελλάδας που βρίσκεται σε εξέλιξη…)

Ακολουθεί αναδημοσίευση για τις πρόσφατες κινήσεις της Κεντρικής τράπεζας της Ιαπωνίας και τον κολασμένο χορό του φρεσκοτυπωμένου χαρτονομίσματος απο το λίνκ
Global Competitive Debasement; Currency Wars Begin; Message of Gold

The Bank of Japan is leading the way to new measures of stimulus insanity with a plan to buy a wide variety of assets including real estate investment trusts (REITs) and asset backed commercial paper (ABCP).

Please consider Factbox: BOJ to set up fund to buy JGBs, corporate debt

The Bank of Japan on Tuesday decided to set up, as a temporary measure, a 5 trillion yen ($59.9 billion) pool of funds to buy assets ranging from government bonds to corporate bonds.

Following are key points about the new measure:

– The programme will consist of a fund totaling 5 trillion yen to buy assets anew as well as the existing 30-trillion-yen fixed-rate fund-supply tool that will hold designated assets as collateral.

– The programme is a temporary measure aimed at encouraging declines in long-term interest rates and risk premiums.

– The fund is designed to cover Japanese government bonds, treasury bills, commercial paper (CP), asset-backed commercial paper (ABCP), corporate bonds, exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITs).

– The BOJ will not apply its self-imposed ceiling on its outright JGB buying to the JGBs to be purchased with the new fund.

– The BOJ will aim to bring the balance of assets purchased using the new fund to 5 trillion yen in one year, with about 3.5 trillion yen assigned for JGBs and treasury bills and about one trillion yen for CP, ABCP and corporate bonds.

What About Paintings and Shellfish?

Why not paintings, equities, and shellfish? Given enough time, perhaps it comes to that.

Meanwhile, I am pleased to report that the global recovery has gained so much traction that numerous countries feel obliged to join the US/Japan sponsored stimulus party.

Global Competitive Debasement

Bloomberg reports BOJ May Have Acted First in Renewed Round of Action

The unexpected decision by the Japanese central bank yesterday to drop its interest rate to “virtually zero” and expand its balance sheet follows the U.S. Federal Reserve’s move toward more unconventional easing. Bank of England officials will consider further stimulus tomorrow, while the central banks of Australia, Canada and New Zealand are among those now holding fire on further interest-rate increases.

The renewed push for easier monetary policy comes as the International Monetary Fund warns growth in advanced economies is falling short of its forecasts ahead of its annual meetings in Washington this week. The dilemma for policy makers is that their actions may do little to revive growth and end up roiling currency markets.

Bank of Japan Governor Masaaki Shirakawa may not be alone for long in taking action and Daiwa Institute of Research argues he’s now engaged in a “vicious spiral” of monetary easing with the Fed as both compete to bolster their economies.

“The irony is that the Fed is creating all this liquidity with the hope that it will revive the U.S. economy. It is doing nothing for the U.S. economy and causing chaos for the rest of the world,” Joseph Stiglitz, a Nobel Prize-winning professor at New York’s Columbia University, said today in New York.

The ECB will be forced to postpone tighter policy as European exports fade and investors continue to fret about peripheral euro-area economies such as Portugal and Ireland, said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Inc. in London.

“The ECB’s exit strategy is fully on, but the business cycle will turn against them,” said Peruzzo. “The communication will then be adjusted to consider downside risks greater than what they have anticipated.”

The ECB last week stepped up its government bond purchases as the cost of insuring against default on Portuguese government debt surged to a record and Irish bond spreads soared to euro- era highs.

Another risk is that the use of unconventional monetary policy is viewed as an effort to weaken currencies to boost exports, rising competitive devaluations and protectionist responses, said Eric Chaney, chief economist at AXA Group in Paris. Japan, Switzerland and Brazil are among the countries that have already intervened in markets to restrain their exchange rates.

“This is close to a currency war,” said Chaney, a former official at the French France Ministry. “It’s not through exchange-rate manipulation, but through monetary policies.”

Currency Wars

This is not “close to a currency war” this IS a currency war.

While I have had numerous differences of opinion with Joseph Stiglitz, he is absolutely correct when he says “The irony is that the Fed is creating all this liquidity with the hope that it will revive the U.S. economy. It is doing nothing for the U.S. economy and causing chaos for the rest of the world.”

Moreover what Stiglitz says about Bernanke and the Fed, applies equally to the Bank of England, the Bank of Japan, and the central banks of Canada and Australia as well.

Message of Gold

The competitive currency debasement can be seen in the price of gold and silver.

None of these central bank measures are doing a damn thing for the real economy (in the US or anywhere else), but it sure has ignited a fire in gold and silver.

Ο ΑΣΥΝΗΘΙΣΤΑ ΑΒΕΒΑΙΟΣ ΜΠΕΝ ΜΠΕΡΝΑΝΚΕ

http://www.reuters.com/resources_v2/flash/video_embed.swf?videoId=123104219
Wall Street tumbles on Fed chief’s comments about the ”unusually uncertain” economy.
Bobbi Rebell reports.

Επίσης η πλήρης συζήτηση για την πορεία της Αμερικανικής οικονομίας (2 ωρες και 35 λεπτά) εδω

Federal Reserve Board Chairman Ben Bernanke delivered his semi-annual report on monetary policy this week before the Senate Banking Committee on Wednesday followed by the House Financial Services Committee on Thursday. Bernanke told the committee that the U.S. economy is “unusually uncertain,” but was unlikely to go through another recession in the near future. He also said he expects unemployment levels to remain high at least through 2012.

 

Η ΜΗΤΕΡΑ ΥΠΕΡΦΟΥΣΚΑ

reposted αναδημοσίευση απο Jesse’s Café Américain μπλόγκ σε μόνιμη RSS σύνδεση βλ. ΣΥΝΔΕΣΜΟΥΣ-ΛΙΝΚΣ

“Economics: a social process in which one group of economists argues that all the other groups of economists are incompenent buffoons. They are often successful in this endeavor, thereby persuading large groups of ordinary people to adopt public policies that are afterwards considered to be outrageous acts of folly. This clears the way for a different group of economists to do the same thing all over again, based on a fresh set of improbable assumptions.”

US Dollar: The Mother of All Bubbles

A bubble is a significant increase in valuation supported by a set of artificial, inexplicable, and otherwise unsustainable conditions. The ‘increase in valuation’ can be nominal as in a price that goes ‘higher’ without a corresponding increase in value, or a decline in the value underlying the asset while the price remains nominally the same. (note 1)

True bubbles almost always involve some element of secrecy, a cover up, and some dispensation from common knowledge and experience. There are almost always dissenters, voices of warning, that are ignored and even ostracized. “It’s different this time…” without there being an identifiable difference, only the self referential rationale.
Stocks are not a bubble because they are going higher and the market is infallible. Housing cannot be a bubble because the housing market is so geographically diverse. You get the point. Not all things that increase in price are a bubble, but this does not mean that bubbles cannot be identified. They can, but when they serve some greater end, the voice of dissent are overwhelmed. Almost all bubbles involve control frauds and the corruption of the media, the analysts, and the regulators, to some degree, through benefits and intimidation.
When the artificial conditions are removed the valuation of the bubble ‘reverts to the mean, ‘ a more normal valuation based on the fundamentals, unadjusted and undistorted supply and demand. An asset bubble often involves a fraudulent design taking advantage of and even perpetuating a corresponding foolishness. In other words, the fraud is father to the folly.
The duration of a bubble does not make it valid or ‘the new normal.’ Like most chronic conditions it just means that the adjustment will be all the more difficult.
The US dollar as the world’s reserve currency, and the unusual period of US prosperity, is a non-historical artifact of the post World War II era that will not continue indefinitely. When the reversion to the mean occurs, it is likely that the dollar will have to be reissued as ‘the new dollar’ similarly to the rouble in the post-Soviet adjustment.
This is my fundamental currency thesis that I have been following since 1997, and it appears to be valid so far. I do not see the resolution in hyperinflation per se, but I do think the new dollar will have a value of about 10% of the current dollar. In other words, they will knock a zero off the current dollar on surrender for new dollars. For example, if you have $100,000 in savings, and it will afterwards be worth 10,000 in new dollars.
Eliminating 90% of its foreign debt obligations will certainly help to repair the US Balance Sheet. It is possible that this is accomplished in inflation, rather than a more formal evaluation, and over a long period of time, say twenty years or so.
If this seems impossible to you, then you are not aware perhaps that the same thing was accomplished from 1933 to 2000, or 67 years, and should avoid looking at the last chart. The Fed was merely squandering the nation’s wealth, without the advantages of modern financial engineering and deregulation. The next leg down will probably be about three times more efficient, under the leadership of Zimbabwe Ben.

Chart from the latest ScotiaCapital FX Presentation

“Facts do not cease to exist because they are ignored.”
Aldous Huxley

Wouldn’t it be convenient for the oligarchs if their think tanks could somehow concoct a story, some plausible sounding theory, to persuade a portion of the world’s population to hold dollars, expecting them to GAIN in value, even in the face of significant defaults and credit failures and a deteriorating return in GDP growth per marginal dollar debt? Or even better, getting them to remain fully invested in a series of artificially contrived dollar denominated financial assets that could be selectively ‘pulled down’ while keeping the overall scheme intact and running. Bernays would be proud.
But the trick is to convince the non-sleepwalking portion of the public to ignore the signs of a failing economy and an approaching currency collapse. This is the sort of black is white brainwashing exercise that occupied quite a few of the whiz kids for the latter part of the twentieth century.
It might take a lot of work, and some high level financial engineering, raw determination to play the long game, public relations professionals engaging invoking slogans and prejudices, and a suite of new financial instruments that would have to be protected even when it was suspected they were fraudulent, but it would be a useful tool for the Übermenschen to have in their toolbox. Nothing works better than to convince a free people to willingly enslave themselves.
Advice for far too many economic forecasters and precious metals analysts.

You know who you are.

Stay thirsty, my friends.

Note 1: The latter case is the most difficult phenomenon to understand, but is behind much of the financial crisis which we are experiencing today. Inflation can occur even if money supply is flat and declining, because it is the level of demand for the money that could be dropping even while supply is constant. A example of this would be Europe in the aftermath of the Black Death, in which case the ‘wealth’ remained constant but the number of people demanding it were reduced dramatically and precipitously. If the value, the productivity of a country is all that stands behind a fiat currency, if that productive capability is in decline, to be replaced by ‘service,’ then in fact an inflation can occur even while the nominal money supply is flat or decreasing. One has to consider what is ‘backing’ the money from an external perspective.
It might be easier to understand if you imagine that a country is on a gold standard, with a constant money supply, but covertly gives away all of its gold. That country will experience a significant inflation which will come upon it seemingly overnight once the confidence, the backing, in the currency is dissipated.
This argues strongly against the monetarists who are pure relativists. Their relativism lead inevitably to central planning and a command economy, ideally a one world government. The need for great and greater control is necessary of the continuation of their fraud. This is why Wall Street banks always seem to be entranced with fascism, or more properly, statism, and why the robber barons chose to build slums rather than vibrant cities. And why the Chinese government fears to stimulate domestic prosperity under market discipline. Its a matter of control. Their end is not an increase in general prosperity, but rather the maintenance and increase of the power of the few over the many, relatively speaking as a close ended system. Your weakness increases my strength.

I will leave the discussion of value for another time, but let it suffice to say that it involves the determination of efficient markets. An efficient market is one that is free of fraud, all information being available to all participants at the same time, with full transparency. Any limitation or even worse, monopolization of information detracts from market efficiency. Transactions are relatively frictionless, and there are strict limits on the use of size and leverage to distort the determination of value. Obviously there are no perfectly efficient markets in this world, but it is useful to have a measure to understand how imperfect that are, and whether a rule or a change makes them better or worse.

1000+ ΤΑ SPREAD ΔΙΕΤΙΑΣ ΚΑΙ ΣΤΑ 1200$+ Ο ΧΡΥΣΟΣ

Two Year Greek Bond Spread Goes Ballistic

Σε δορυφορική τροχιά εκτοξεύτηκαν τα σπρέντ των διετών ελληνικών κρατικών ομολόγων (>1000), και ο χρυσός, καταφύγιο στον χαρτοπόλεμο του διεθνούς καζίνο φρεσκοτυπωμένων τρισεκατομμυρίων χαρτονομισμάτων, μετά από επίπονες μοχλεύσεις μηνών για να διατηρηθεί στα 1100$, ξέφυγε και απο το όριο των 1200 δολλαρίων ανα ουγκιά…

Τιμές 30 τελευταίων ημερών

Τιμές 5 τελευταίων ετών

“Βάστα Ρόμελ”, φώναζαν οι μαυραγορίτες στην κατοχή του 3ου Ράιχ, “Βάστα Μέρκελ” θα είναι ένα απο τα συνθήματα καθώς η ευρωζώνη του 4ου Ράιχ – σαν τα χωριά που όμορφα καίγονται – καταρρέει συστημικά…

παλαιότερες δημοσιεύσεις εδω και εδω

ΣΤΡΑΟΥΣ ΚΑΑΝ Ο ΝΕΟΣ ΥΠΟΥΡΓΟΣ ΟΙΚΟΝΟΜΙΑΣ ΤΗΣ ΕΛΛΑΔΑΣ – ΜΕΡΟΣ 2

“Η Ελληνική κυβέρνηση είναι στο κρεβάτι με τις τράπεζες της Wall Street”, “σχεδιασμένη ολοκληρωτική επίθεση των κερδοσκόπων και των hedge funds της Wall Street στην Ελλάδα”, “τα επιτόκια αντι να κατέβουν μετα την συμφωνία περί “δήθεν” ευρωπαικής στήριξης θα συνεχίσουν να ανεβαίνουν και να ανεβαίνουν μέχρι να δηλώσουμε πτώχευση”, “ο τουρισμός και τα στρατηγικά λιμάνια είναι οι -πρώτοι- στόχοι των αρπακτικών”, ” η έκδοση Ελληνικών ομολόγων τον Μάιο σε δολλάρια θα συντομεύσει την καταστροφή της Ελλάδας και εξυπηρετεί τα συμφέροντα των τραπεζιτών της Wall Street και της Γερμανίας“, “παράνομες πληρωμές σε παράνομα δάνεια με καταστροφή του Ελληνικού λαού”, “το ΔΝΤ και ο Στράους Κάν είναι ήδη στην Ελλάδα αφού ηδη ελέγχουν το ένα τρίτο της αναχρηματοδότησης“….
Από τον Μαξ Κάιζερ στο Athens International Radio….

Σχετικό άρθρο 29/11/2009
ΣΤΡΑΟΥΣ ΚΑΑΝ Ο ΝΕΟΣ ΥΠΟΥΡΓΟΣ ΟΙΚΟΝΟΜΙΑΣ ΤΗΣ ΕΛΛΑΔΑΣ – ΜΕΡΟΣ 1 εδω

ORDO AB CHAO 3

Series of 6 parts, Part 1 here
Συνέχεια (2/6) απο Μέρος 1 εδω


Part II: The Rise of the Economic Elite — Economic Elite Vs. The People

By David DeGraw The Public Record

-I: Causalities of Economic Terrorism, Surveying the Damage
——-II: The Rise of the Economic Elite
——-III: Exposing Our Enemy: Meet the Economic Elite
——-IV: The Financial Coup d’Etat
——-V: Overcoming the Divide and Conquer Strategy
——-VI: How to Fight Back and Win: Common Ground Issues That Must Be Won

II: The Rise of the Economic Elite

“The war against working people should be understood to be a real war…. Specifically in the U.S., which happens to have a highly class-conscious business class…. And they have long seen themselves as fighting a bitter class war, except they don’t want anybody else to know about it.” — Noam Chomsky
As a record number of US citizens are struggling to get by, many of the largest corporations are experiencing record-breaking profits, and CEOs are receiving record-breaking bonuses. How could this be happening; how did we get to this point?
The Economic Elite have escalated their attack on US workers over the past few years; however, this attack began to build intensity in the 1970s. In 1970, CEOs made $25 for every $1 the average worker made. Due to technological advancements, production and profit levels exploded from 1970 – 2000. With the lion’s share of increased profits going to the CEOs, this pay ratio dramatically rose to $90 for CEOs to $1 for the average worker.
As ridiculous as that seems, an in-depth study in 2004 on the explosion of CEO pay revealed that, including stock options and other benefits, CEO pay is more accurately $500 to $1.
Paul Buchheit, from DePaul University, revealed, “From 1980 to 2006 the richest 1 percent of America tripled their after-tax percentage of our nation’s total income, while the bottom 90 percent have seen their share drop over 20 percent.” Robert Freeman added, “Between 2002 and 2006, it was even worse: an astounding three quarters of all the economy’s growth was captured by the top 1 percent.”
Due to this, the United States already had the highest inequality of wealth in the industrialized world prior to the financial crisis. Since the crisis, which has hit the average worker much harder than CEOs, the gap between the top one percent and the remaining 99 perecnt of the US population has grown to a record high. The economic top one percent of the population now owns over 70 percent of all financial assets, an all-time record.
As mentioned before, just look at the first full year of the crisis when workers lost an average of 25 percent off their 401k. During the same time period, the wealth of the 400 richest Americans increased by $30 billion, bringing their total combined wealth to $1.57 trillion, which is more than the combined net worth of 50 percent of the US population. Just to make this point clear, 400 people have more wealth than 155 million people combined.Meanwhile, 2009 was a record-breaking year for Wall Street bonuses, as firms issued $150 billion to their executives. One-hundred percent of these bonuses are a direct result of our tax dollars, so if we used this money to create jobs, instead of giving it to a handful of top executives, we could have paid an annual salary of $30,000 to 5 million people.

So while US workers are now working more hours and have become dramatically more productive and profitable, our pay is actually declining and all the dramatic increases in wealth are going straight into the pockets of the Economic Elite.If our income had kept pace with compensation distribution rates established in the early 1970s, we would all be making at least three times as much as we are currently making. How different would your life be if you were making $120,000 a year, instead of $40,000?So it should come as no surprise to see that we now have the highest inequality of wealth in the industrialized world and the highest inequality of wealth in our nation’s history.
The backbone of America, a hard-working middle class that has made our country a world leader, has been devastated.
Now that we have a better understanding of how our income has been suppressed over the past forty years, let’s take a look at how the economy has been designed to take the limited money we receive and put it into the hands of the Economic Elite as well.
Costs of Living

Outside of the workplace, in almost all our costs of living the system is now blatantly rigged against us. Let’s take a look at it, starting with our tax system.
In total, the average US citizen is forced to give up approximately 30 percent of our income in taxes. This tax system is now strategically designed to flow straight into the hands of the Economic Elite. A huge percentage of our tax dollars ultimately ends up in their pockets. The past decade proves that — whether it’s the Republicans or the Democrats running the government — our tax money is not going into our community; it is going into the pockets of the billionaires who have bought off both parties – it is obscene.For an example of how this system flows to the Economic Elite, just look at the Wall Street “bailout.” The real size of the bailout is estimated to be $14 trillion – and could end up costing trillions more than that. By now you are probably also sick of hearing about the bailout, but stop and think about this for a moment… Do you comprehend how much $14 trillion is?What could be accomplished with this money is almost beyond common comprehension.
And this is just the tip of the iceberg that has hit us. On top of the trillions given to the Wall Street elite, we already have a record $12.3 trillion in national debt – and we now have to pay $500 billion in interest to the Economic Elite on this debt every year, yet another way they are milking us dry. When you add in unfunded liabilities owed, like social security payments, we actually owe a stunning $74 trillion. That adds up to a debt of $242,000 for every man, woman and child in America.Trillions more, 25 percent of taxpayer dollars allocated to military spending goes unaccounted for every year, not to mention the billions spent on overcharging and outright fraud. During the War on Terror, the Economic Elite have used our tax money to build a private army that has more soldiers deployed than the US military – a congressional study revealed that 69 percent of the “US” fighting forces deployed throughout the world in our name are in fact private mercenaries, 80 percent of them are foreign nationals. Private contractors regularly get paid three to five times more than our soldiers, and have been repeatedly caught overcharging and committing fraud on a massive scale. A congressional investigation revealed this and strongly recommended that we seize wasting tax dollars on these private military contractors. However, under Obama, there has actually been a drastic increase in total tax dollars spent on them.
In 2009, just over $1 trillion tax dollars were spent on the military. It’s safe to say that at least $350 billion of that was needlessly wasted.
When you research our tax system you see an unprecedented level of waste and fraud rampant throughout most expenditures. Our tax system is a national disaster of epic proportions. It is literally an organized criminal operation that continues to rob us in broad daylight, with zero accountability.Politicians and mainstream “news” outlets will not tell you this, but most every serious economist knows that due to so much theft and debt created in the tax system, the only way to fix things, other than stopping the theft and seizing the trillions that have been stolen, will be for the government to cut important social funding and drastically raise our taxes. Other than the record national debt, many states are running record deficits and “barreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services.” Our nation’s biggest state economies, like California and New York, are the ones in most trouble.
To merely say that things will not be improving economically is to be a delusional optimist. The truth that you will not hear: we have been hit by an economic deathblow and the United States lays in ruins.
It’s not just this criminal tax system; the theft is now built into all our costs of living.Trillions more in our spending on food and fuel have been stolen due to fraudulent stock transactions and overcharging. Just ten years ago, in 2000, American families paid 7 percent of our income on food and fuel. We now pay 20 percent. This drastic increase is primarily driven by fraudulent market manipulation that drives up stock prices. Congress uncovered this in 2006, as part of the Enron investigation. They found that companies manipulated the oil market to create major spikes in stock values, but then Congress didn’t do anything about it. Nothing to see here, just move on.
As mentioned before, we have the most expensive health care system in the world and we are forced to pay twice as much as other countries, and the overall care we get in return ranks 37th in the world. On average, US citizens are now paying a record high 8 percent of their income on medical care.One of the reasons why foreclosure rates are so high is because the percentage of income Americans pay on their housing has risen to 34 percent.
So for these basic necessities – taxes, food, fuel, shelter and medical bills – we have already lost 92 percent of our limited income. Then factor in ever-increasing interest rates on credit cards, student loans, rising prices for cable, internet, phone, bank fees, etc., etc., etc…. We are being robbed and gouged in all costs of living, in every aspect of our life. No wonder bankruptcies are skyrocketing and the number of people suffering from psychological depression has reached an epidemic level.
The American worker is screwed over every step of the way, and it all starts with the explosion in the cost of a college education. This is one of the Economic Elite’s most devastating weapons. To have any chance of succeeding in this economy, it is commonly believed that you must attend the best college possible. With the rising costs involved, today’s students are graduating with record levels of debt from student loans. At the same time, the unemployment rate among recent college graduates has risen higher than the national average, and those who do find work are making significantly less than they expected to make. This combination of extreme debt and reduced pay has crippled an entire generation right from the start and has put them in a vicious cycle of spiraling debt that they will struggle with for the rest of their lives. The most recent college graduates are now known as a “lost generation.”
The American dream has turned into a nightmare. The economic system is a sophisticated prison cell; the indentured servant is now an indebted wage slave; whips and chains have evolved into debts.

“There are two ways to conquer and enslave a nation. One is by sword. The other is by debt.”
– John Adams

Concealing National Wealth
“Liberty in the concrete signifies release from the impact of particular oppressive forces; emancipation from something once taken as a normal part of human life but now experienced as bondage…. Today, it signifies liberation from material insecurity and from the coercions and repressions that prevent multitudes from participation in the vast cultural resources that are at hand.” — John Dewey

When you take the time to research and analyze the wealth that has gone to the economic top one percent, you begin to realize just how much we have been robbed. Trillions upon trillions of dollars that could make the lives of all hard-working Americans much easier have been strategically funneled into the coffers of the Economic Elite. The denial of wealth is the key to the Economic Elite’s power. An entire generation of massive wealth creation has been strategically withheld from 99 percent of the US population.
The US public doesn’t have any understanding of how much wealth has been generated and concentrated into the hands of the Economic Elite over the past 40 years; there is no historical frame of reference. This withholding of wealth is truly the greatest crime against humanity in the history of civilization.What could be done with all the money that has been hoarded by the Economic Elite is extraordinary!
Let’s consider what we could do with the money that has been stolen from us. On top of what should be our average six-figure yearly income, we could have:
* Free health care for every American,
* A free 4 bedroom home for every American family,
* 5 percent tax rate for 99 percent of Americans,
* Drastically improved public education and free college for all,
* Significantly improved public transportation and infrastructure,
The list goes on…
This is not some far-fetched fantasy. These are all things that Franklin D. Roosevelt talked about doing in the 1940s, long before the explosion of wealth creation in our technologically advanced global economy. The money for all this is already there, stashed into the claws of the Economic Elite. The denial of wealth to the masses is the key to the Economic Elite’s power. Outside of outdated and obsolete economic models and theories — and incredibly short-sighted greed — there is no reason why all this money should be kept in the hands of a few, at the immense suffering and expense of the many.
If Americans could just understand how much wealth is being withheld from us, we would have a massive uprising and the Economic Elite would be swept away, into the history books alongside the evil despots of the past.

“For if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupefied by poverty would become literate and would learn to think for themselves; and when once they had done this, they would sooner or later realize that the privileged minority had no function, and they would sweep it away. In the long run, a hierarchical society was only possible on a basis of poverty and ignorance.” — George Orwell

Now that we have a better understanding of how the Economic Elite dominate our lives, let’s take a look at exactly who they are….

This report was originally published on Amped Status.

Part III: “Exposing Our Enemy: Meet the Economic Elite” will be posted on Friday. To be notified via email, subscribe to the Amped Status newsletter here.
David DeGraw is the founder and editor of AmpedStatus.com and director of MediaChannel.org. You can reach him at David@AmpedStatus.com.

THE CDS PLANET

Διαβάσαμε εδω & εδω

PART A

A banker’s perspective of the Greece derivatives debt dodge

By Edward Harrison of Credit Writedowns.

Last week, Yves wrote her perspective on the Goldman-Greece cross currency swaps. Here’s a slightly different take. Comments are appreciated.
By now, you know about the much-discussed swaps that Greece used to conceal it’s debt load. While the amount of debt concealed is low relative to the total, the mere fact that Greece attempted to conceal its true fiscal position is damning in light of revelations in October that the government’s fiscal hole for 2009 is three times the original April estimate.
The problem is, in a word, credibility. Greece now has none – and this is why its bond yields have skyrocketed.
But what about the investment bankers like Goldman Sachs who helped Greece in its machinations – aren’t they to be vilified as well. What do we do about them? I was thinking about that after an interview I did this morning on Canada’s Business News Network (see clip here).
Last week, we got some pretty pointed views on this subject. Felix Salmon says “Goldman is a scapegoat.” Yves Smith takes a more negative view of Goldman’s culpability. So I decided to take a different tack and share some thoughts with you on how investment bankers think – and how it may have led to this. I am using this term ‘Investment Banker’ generically to refer to financial staff at broker-dealers whether they work in a sales & trading or an advisory role. This distinguishes the I-Banker from a commercial banker where incentives are somewhat different.
The first thing you have to realize about investment bankers is that it’s all about the money. Now I’m not talking about a greed is good mentality here. I’m referring to money as validation for achievement, success and self-worth.
Corporate hierarchies
In a normal corporate environment, there is a strict hierarchy in which those at the top earn more than those at the bottom. In order to rise to the top (and earn the salary and huge bonus – I might add), one needs to be considered successful. And that means putting in years of effort for which one receives performance reviews.
If you do well on these reviews, you might even receive accolades, awards and so on – the point being you are a rising star with talent. So you get promoted. “The way you’re going, you might even rise to CEO one day!” That’s the kind of praise you might hear. So the whole hierarchical apparatus is designed to align high achievement with other external signs of success: good evaluations, promotions, more money, more responsibility, more underlings, larger budgets, awards, and accolades and so on. All you need to do is look at an org chart and you get a pretty good sense of who’s supposed to be the stars. And by the way, this is how it works in commercial banking as well.
Investment banking hierarchies
But, that’s not how it works in investment banking at all. When one deal or a series of trades can mean billions in profit, even a relatively junior person can have influence on the bottom line far beyond what her title suggests. This is certainly true in the advisory business, but it is even more true in trading – especially proprietary trading, a major reason that proprietary trading is inherently risky and would be restricted under the Volcker Rule. By the way, this is also a major reason that investment banks that are public companies and not partnerships are risky companies with notoriously poor managers.
A slovenly 32-year old junior trader with terrible social skills, zero management ability and no one reporting to him can make millions of dollars a year. He’s the guy you read about in the newspaper making three times the CEO’s salary. He’s the guy that all the other firms are trying to poach. And he’s the guy that used to be referred to admiringly as a “big swinging dick.” You don’t see that at Acme Incorporated. That’s what I mean when I say it’s all about the money. You learn very quickly in investment banking that status is not all about the titles, it’s more about the money.
Read any account from investment banking like Predator’s Ball or Liar’s Poker you will quickly notice that even the higher level guys are driven to earn a lot of money, not only for the money itself but for what that money says about their status and value relative to their peers.
Advisory business
So, with that in mind, let’s think about the advisory business, Goldman Sachs and the infamous cross-currency swaps. The advisory business is more hierarchical than the sales & trading side of things. But, you can still make a shed load of cash by doing the right deals and being on the right team. Most people in the advisory business work in product or industry groups like Technology or Industrials or Structured Products. In those groups you have some professionals who are product experts while others are relationship managers.
Now, as an individual, your ostensible goal is to serve your clients by giving them the best advice on financial products and transactions to fit their short- and long-term goals. The payoff comes in the form a fee for capital raised, a merger completed or a financial transaction completed. The reality is you as an individual make more money – and hence have higher status – the more transactions you do, the more complex and bigger the deals you do.
So, as an individual there are two major conflicts you might have with your client.

• If your client wants to do a deal that you don’t think is advisable or ethical; or if you uncover damaging information about your client that makes you believe the terms of a deal need to be altered.
• If you can arrange a deal that you believe is not in your client’s best interests but which earns your company more money.

Greece wanted these deals

In the case of the cross currency swaps, all available evidence says that the Greeks were actively looking for ways to reduce their apparent fiscal debt levels and deficit numbers without having to reduce spending or raise taxes. It’s called having your cake and eating it too.
So, I imagine Goldman and other banks each had conversations with the Greek government about the government’s financial advisory needs. The Greeks probably said they wanted to have their cake and eat it too and asked if the investment bankers could help them. Now Goldman had a very good relationship manager in the form of Antigone Loudiadis, who had done valuable service for Greece before and had good contacts with the client (exactly what you want in a relationship manager). According to the Wall Street Journal:

Guided by Ms. Loudiadis in the 1990s, Goldman set up a series of currency “swap” trades for Greece, enabling the country to use favorable exchange rates to record some of its debts. By 2001, when those rates had become unattractive, Ms. Loudiadis helped Greece structure a different trade that enabled the government to continue using advantageous rates for accounting purposes.

So, there’s the basis of what occurred. All of this is well within the norm.
An alternate view of the deals
But, here’s the problem. There’s another way to look at these deals. Here is the definitive take from a 2003 article in Risk magazine, pointed out by Felix Salmon. I have bolded parts I want to stress:

Ever since the deficit and debt rules for eurozone member states were drawn up in the early 1990s, there have been persistent rumours and allegations that governments have used derivatives to get around them. For some time, economists have argued that the combination of strict external targets with considerable local autonomy in sovereign debt management almost inevitably leads high-deficit countries towards derivatives.
It is now widely known that since 1996, Italy’s Treasury has regularly used swaps transactions to optically reduce its publicly reported debt and deficit ratios. Such trades remain controversial, and were the subject of fierce debate in late 2001, when Italian academic Gustavo Piga published a paper accusing eurozone countries of ‘window dressing’ their public accounts using derivatives (Risk January 2002, page 17).
Now, Italy has been joined by the Hellenic Republic of Greece, as evidence emerges of a remarkable deal between the public debt division of Greece’s finance ministry and the investment bank Goldman Sachs. The deal is not only likely to reopen an old debate on public accounting for derivatives, but also sheds light on the way banks charge clients for taking credit and market risk exposure.

So, Italy played this game as far back as 1996. And, that’s the crux of the matter. As a banker, you never re-invent the wheel. If a deal works and makes lots of money, you shop that deal around to everyone you can until it doesn’t. If you don’t, your competitors will. I reckon bankers at Goldman were very excited that Greece wanted to do these deals – and I wouldn’t be surprised if other bankers did the deals or other countries still.
The deal structure
Risk does an excellent job of outlining the structure of the actual swaps.

The transactions agreed between the Greek public debt division and Goldman Sachs involved cross-currency swaps linked to Greece’s outstanding yen and dollar debt. Cross-currency swaps were among the earliest over-the-counter derivatives contracts to be traded, and have a perfectly routine purpose in debt management, namely to transform the currency of an obligation.
For example, an issuer with foreign fixed-rate debt might choose to lock in a favourable exchange rate move. To do this, it could swap a stream of fixed domestic currency payments for a stream of foreign currency ones, referenced to the notional of the debt using the prevailing spot foreign exchange rate, with an exchange of the two notionals at maturity. Because they are transacted at spot exchange rates, cross-currency swaps of this type have zero present value at inception, although the net value (and credit exposure of either counterparty) may subsequently fluctuate.[emphasis added]

Here’s the thing though. As an individual you will always come to a point where a client is you begging you to do something that is legal, makes lots of money for your company, but that you feel is unethical. There had to be a moment in this transaction here.

However, according to sources, the cross-currency swaps transacted by Goldman for Greece’s public debt division were ‘off-market’ – the spot exchange rate was not used for re-denominating the notional of the foreign currency debt. Instead, a weaker level of euro versus dollar or yen was used in the contracts, resulting in a mismatch between the domestic and foreign currency swap notionals. The effect of this was to create an upfront payment by Goldman to Greece at inception, and an increased stream of interest payments to Greece during the lifetime of the swap. Goldman would recoup these non-standard cashflows at maturity, receiving a large ‘balloon’ cash payment from Greece. [emphasis added]

You get that? Goldman had been doing swaps with Greece in anticipation of Euro entry. These transactions allowed them to take U.S. Dollar and Yen-denominated debt and transfer them into Euros at exchange rates which made the level of Yen/Dollar debt look lower until the swap transaction came due and Greece was forced to make a balloon payment to Goldman.
The morality of all this
What other purpose can these transactions serve other than to mask the true indebtedness of Greece? Did anyone actually break the law? If these are legal transactions, does Goldman Sachs have any responsibility inform the EU of the deals? Should Goldman’s bankers have refused Greece’s wishes, knowing that some other banker would collect the fees? Why does this matter now other than in regards to Greece’s credibility in future sovereign debt deals?
These are all good questions. But, the Wall Street Journal article gets to the heart of things and why the deals happened.

Even though the transaction occurred nearly a decade ago, it has come under scrutiny by European Union officials as they examine how Greece fell into such dire economic straits.

Ms. Loudiadis became a Goldman partner in 2000. A cerebral Oxford University graduate, she was eventually named co-head of the company’s investment-banking group in Europe, making as much as $12 million in annual compensation, according to someone familiar with the matter. She lives an exclusive neighborhood in West London known for its white stucco homes.

From a banker’s perspective, that’s what this is all about – money, and the status that goes with it….

PART B (This headline is from July 1, 2003…)
…with the help of Goldman Sachs, Greece has been using giant swaps deals to ensure its national debt ratios meet EU targets. But these deals are likely to prove controversial. By Nicholas DunbarGustavo Piga warned against it but the Greek chick, Antigone Loudiadis, highly respected of course, did it anyway…

With the help of Goldman Sachs, Greece has been using giant swaps deals to ensure its national debt ratios meet EU targets. But these deals are likely to prove controversial. By Nicholas DunbarGustavo Piga warned against it but the Greek chick, Antigone Loudiadis, highly respected of course, did it anyway…With the help of Goldman Sachs, Greece has been using giant swaps deals to ensure its national debt ratios meet EU targets. But these deals are likely to prove controversial. By Nicholas DunbarEver since the deficit and debt rules for eurozone member states were drawn up in the early 1990s, there have been persistent rumours and allegations that governments have used derivatives to get around them. For some time, economists have argued that the combination of strict external targets with considerable local autonomy in sovereign debt management almost inevitably leads high-deficit countries towards derivatives.It is now widely known that since 1996, Italy’s Treasury has regularly used swaps transactions to optically reduce its publicly reported debt and deficit ratios. Such trades remain controversial, and were the subject of fierce debate in late 2001, when Italian academic Gustavo Piga published a paper accusing eurozone countries of ‘window dressing’ their public accounts using derivatives (Risk January 2002, page 17). Now, Italy has been joined by the Hellenic Republic of Greece, as evidence emerges of a remarkable deal between the public debt division of Greece’s finance ministry and the investment bank Goldman Sachs. The deal is not only likely to reopen an old debate on public accounting for derivatives, but also sheds light on the way banks charge clients for taking credit and market risk exposure.Intended to rein in fiscal profligacy among aspiring eurozone entrants, the Stability and Growth Pact (SGP) – established in 1996 – sets two important targets for member states: a debt/GDP ratio of less than 60% and a deficit/GDP ratio of less than 3%. Of the two, the second is considered more important. Countries that show persistent breaches of the 3% target are liable to pay heavy fines to Brussels of up to 0.5% of GDP under the so-called Excessive Deficit Programme (EDP). Performing the key regulatory role of determining whether the targets have been met is the European Statistical Office (Eurostat). Greece, which joined the single currency in early 2001, resembles mid-1990s Italy in certain respects. Until recently it was a country of high deficits and high inflation, and for this reason did not bother joining the first wave of eurozone countries in 1998. In the run-up to joining the eurozone, Greek inflation and budget deficits fell sharply, and GDP grew as the incumbent socialist government pursued a policy of UK-style public-sector reform. However, like Italy, Greece’s debt/GDP ratio has remained high, at over 100%, and as a result its interest costs are the highest in the eurozone. In November 2001, the Greek finance ministry’s public debt division made a public statement about its debt management strategy. It acknowledged that its debt was a ‘critical macroeconomic parameter’, and pledged to reduce debt servicing costs by means that included ‘the extensive use of derivatives’. Apparently, this was not enough for Brussels. In February 2002, the European Commission pointed out future deficit forecasts by Greece relied ‘primarily’ on achieving reductions in interest costs. It called for Greece to reduce its ‘very high’ debt ratio, and to provide ‘more detailed information on financial operations’. Although Greece’s public debt division points out that it uses 18 derivatives counterparties, there is no doubt that the division, which is headed by Christopher Sardelis, has a particularly close relationship with Goldman Sachs. Indeed, the account has been handled personally at Goldman Sachs by Antigone Loudiadis, the London-based European head of sales for the firm’s fixed-income, currencies and commodities unit. Highly respected by other dealers, Loudiadis has enjoyed a successful career at Goldman, joining the firm’s partnership committee and attaining her present position in 2000. According to sources, by early 2002, Loudiadis and her team put together a deal aimed at alleviating Greece’s problem of debt ratios and high interest costs.The transactions agreed between the Greek public debt division and Goldman Sachs involved cross-currency swaps linked to Greece’s outstanding yen and dollar debt. Cross-currency swaps were among the earliest over-the-counter derivatives contracts to be traded, and have a perfectly routine purpose in debt management, namely to transform the currency of an obligation. For example, an issuer with foreign fixed-rate debt might choose to lock in a favourable exchange rate move. To do this, it could swap a stream of fixed domestic currency payments for a stream of foreign currency ones, referenced to the notional of the debt using the prevailing spot foreign exchange rate, with an exchange of the two notionals at maturity. Because they are transacted at spot exchange rates, cross-currency swaps of this type have zero present value at inception, although the net value (and credit exposure of either counterparty) may subsequently fluctuate. However, according to sources, the cross-currency swaps transacted by Goldman for Greece’s public debt division were ‘off-market’ – the spot exchange rate was not used for re-denominating the notional of the foreign currency debt. Instead, a weaker level of euro versus dollar or yen was used in the contracts, resulting in a mismatch between the domestic and foreign currency swap notionals. The effect of this was to create an upfront payment by Goldman to Greece at inception, and an increased stream of interest payments to Greece during the lifetime of the swap. Goldman would recoup these non-standard cashflows at maturity, receiving a large ‘balloon’ cash payment from Greece. Since neither Goldman nor Greece will comment on the deal, much of the details remain vague. It is not clear which exchange rates were used in the actual contracts. Under the terms of a similar ‘off-market’ deal transacted by Italy in 1997, the exchange rates prevailing at the time of the underlying bond issue were used, which would have made sense in the case of Greece since the deal happened after a period of euro strengthening against the yen and dollar. Although the overall deal is believed to have consisted of three or four individual transactions or tranches, according to sources, the total cross-currency swap notional was approximately $10 billion, with tenors ranging from 15 to 20 years. While the size of upfront payment to Greece’s public debt division is not clear, it seems the total credit risk incurred by Goldman Sachs was roughly $1 billion. Effectively, Goldman Sachs was extending a long-dated illiquid loan to its client. Goldman Sachs is known for its conservative approach to credit risk, and chose to hedge its exposure to Greece by immediately placing the risk with a well-known investor in sovereign credit: Frankfurt-based Deutsche Pfandbriefe Bank (Depfa). According to sources, Depfa entered into a credit default swap with Goldman Sachs, selling $1 billion of protection on Greece for up to 20 years. Depfa declined to comment. Total charge Details have also emerged of the way Greece’s public debt division was charged for the transaction. According to market sources, the total charge was approximately $200 million. This charge can be broken down into several components. First, Greece was charged for the credit risk in the transaction. Long-dated Greek government bonds were trading at a spread of 30 basis points in 2002. A billion-dollar investment in such bonds, purchased in asset swap form and held for 20 years, would yield about $60 million. According to Risk’s sources, Depfa demanded a substantial premium for taking on what was in effect an illiquid, privately placed loan. Second, Greece paid a principal risk charge to Goldman Sachs for its market risk exposure. Although standard euro/dollar and euro/yen cross-currency swaps are highly liquid instruments that trade at tight bid-offer spreads in the interbank market, such large, off-market transactions cannot be hedged in this market without significantly moving the price against the dealer. Goldman Sachs may have hedged some of the risk using futures, forwards and interest rate swaps, while retaining substantial cross-currency and interest rate basis risks in its portfolio. Of course, the ultimate profit and loss experienced by Goldman Sachs on the transactions remains unknown. Equally murky is the exact effect of Goldman Sachs’ transactions on Greece’s publicly reported national accounts. Since the deficit was a comfortable 1.2% of GDP in 2002, it is more likely that the cashflows were either used to help lower the debt/GDP ratio from 107% in 2001, to 104.9% in 2002 (by funding buybacks) or to lower interest payments from 7.4% in 2001 to 6.4% in 2002. But why did the large negative market value of the swaps not appear on the liability side of Greece’s balance sheet? The answer can be found in ESA95, a 243-page manual on government deficit and debt accounting, published by the European Commission and Eurostat in 2002. As revealed by Piga, the drafting of ESA95’s section on derivatives was the subject of fierce arguments between the government statisticians and debt managers of certain eurozone countries. The statisticians wanted derivatives-related cashflows to be treated as financial transactions, with no effect on deficit or interest costs, and with the derivatives’ current market value stated as an asset or liability. The debt managers opposed this, insisting on having the freedom to use derivatives to adjust deficit ratios. The published version of ESA95 reflects the victory of the debt managers in this argument with a series of last-minute amendments.In particular, ESA95 states in a page-long ‘clarification’ that ‘streams of interest payments under swaps agreements will continue… having an impact on general government net borrowing/net lending’. In other words, upfront swap payments – which Eurostat classifies as interest – can reduce debt, without the corresponding negative market value of the swap increasing it. According to ESA95, the clarification only covers ‘currency swaps based on existing liabilities’. There is no doubt that Goldman Sachs’ deal with Greece was a completely legitimate transaction under Eurostat rules. Moreover, both Goldman Sachs and Greece’s public debt division are following a path well trodden by other European sovereigns and derivatives dealers. However, like many accounting-driven derivatives transactions, such deals are bound to create discomfort among those who like accounts to reflect economic reality. For example, the Greece-Goldman deal may be of interest to credit rating agency Standard & Poor’s, which upgraded Greece’s long-term debt from A to A+ in June 2003. Among other derivatives dealers, the deal is bound to create envy at Goldman Sachs’ skill in solving the risk management needs of such an important client. As long as the current Eurostat rules do not change, the use of derivatives in deficit and debt management by eurozone sovereigns is likely to flourish. The planned expansion of the eurozone to include 15 east European countries may lead to especially rich pickings for dealers able to seize such opportunities.http://www.risk.net/risk-magazine/feature/1498135/revealed-goldman-sachs-mega-deal-greece
Sources
Revealed: Goldman Sachs’ mega-deal for Greece – Risk magazine
Also see Tim Iacono’s piece “Playing up to the edge of the line.”
More on this topic

Greece: Trojan Horse or Triple Crown Winner? (Oxbury Publishing, 2/17/10)

As Greece’s Woes Demonstrate, the Fuse Has Been Lit on the Global Debt Bomb (Money Morning, 2/4/10)

Unfolding Sovereign Debt Story (Short-Term Trading, 1/31/10)