Privatizing Money

[Alan Grayson]

Yesterday, the European Central Bank (ECB) announced that it will hand out $645,000,000,000 in three-year loans to European banks. Which the ECB printed out of thin air, like Monopoly money! The interest rate will be one percent per year.[br /]
The ECB will not be lending this money to the Government of Greece, even though that government is running a budget deficit of just under 10% of GDP – and the Greek GDP dropped by 5% this year.  The Government of Greece is now paying 37% per year on its ten-year bonds, when it can borrow anything at all.[br /]
The ECB will not be lending this money to the people of Spain, even though official unemployment in Spain is now at 23%.  Spain’s Economy Minister said recently that “Spain faces its deepest recession in half a century.”  Tough luck; their Christmas tree has nothing under it.[br /]
And when the European banks get this $645 billion, to whom will the banks be lending?  Anybody, or nobody.  No strings attached.  They can borrow from the ECB at 1%, lend it back to the German Government at 2%, lock in that profit, and take the next three years off.[br /]
I just have one question.[br /]
Why?[br /]
The world continues to face the greatest economic crisis since the Great Depression.  Unemployment throughout Europe is over ten percent.  Entire national governments are on the verge of going broke.  Why would anyone think that THE THING THAT WE HAVE TO DO RIGHT NOW is to hand out $645 billion in more funny money to the banks?  In Europe or anywhere else?[br /]
The ECB is a public institution.  How can it possibly justify yet another bailout for selfish private interests, while the public is sent straight to hell?[br /]
If a Martian were to land in Paris today, and just read the headlines of the newspapers today, he could reach only one conclusion.  That there has been a coup in Europe, the banks are now in charge, and they’re grabbing everything that they can get their hands on.[br /]
Mark my words:  at some point, people are just not going to take it anymore.[br /]
Courage,[br /]
Alan Grayson[br /]

[banned from Kos]

1. Recced. I take this as an endorsement of Bernanke - he did exactly what you suggested.

Bernanke/Fed bought $1.623 trillion of US Treasuries and $908 billion of federal agency bonds. All of the Fed QE was used on the US Government.

(source below)

http://en.wikipedia.org/wiki/Federal_Reserve_System

[enough]

2. Privatizing money. An amazing concept. Have to think about it for a while, but it seems

to ring true.

[prepperdad]

3. Euro QE

This is crazy, it's like every government is printing money like crazy. How is the world going to deal with so much money inflation? I'm probably going to be paying $20 for a loaf of bread in a few years.


[url]http://www.survivingeconomiccollapse.net/[/url]

[abelenkpe]

5. How could merchants charge that

When there is no wage inflation?

[Zalatix]

7. Make friends with local farmers.

Piss off with the merchants, it's the farmers who will rule.

[abelenkpe]

4. K&R please read nt

[Zalatix]

6. 10% European unemployment cites please?

Or, should I say, is that U3 or U6 unemployment that you're referring to?

[WillyT]

8. See That... Anybody That Can Figure Out DU-3, Should Be Immediatley Sent To Congress...

Again... and Again, and Again...



I'm in earnest here... and thank you Congressman Grayson!!!

[freshwest]

9. Thanks for the insight, Alan Grayson. We need to change our thinking on all of it.

[Odin2005]

10. And the Establishment so-called "liberals" justify this as "economic stimulus".

This is printing money and giving it to the banks, this is a fucking travesty of everything that is just.

[banned from Kos]

11. LOANING it to banks. Its really a simple concept.

Give = no repay
Loan = repay + 1% interest

[grantcart]

12. It would seem that you are cherry picking statistics.

1) You make it seem that banks are being bailed out of their debts to Greece.

In fact the banks have agreed to write off 50% of their Greek bond obligations.

http://www.telegraph.co.uk/finance/financialcrisis/8857242/Bank-participation-in-Greek-haircut-will-be-very-high.html

2) Greek debt is equal to 160% of GDP

3) Avoidance by the rich of taxes in Greece is the highest of Europe and central to the debacle, are you advocating that taxes from middle class Germans be used to help Greek billionaires avoid paying their taxes?

http://www.telegraph.co.uk/finance/comment/tracycorrigan/7370544/Its-a-taxing-problem-for-the-wealthy-Greeks.html

At last, the government is taking on the ludicrous excesses in the public sector and the flagrant abuse by many who are self-employed. It has been accused of "soaking the rich" but it would be more accurate to say that it is soaking the honest. Most truly wealthy Greeks are bone dry. Those who will suffer are the honest doctors and entrepreneurs who now face a marginal tax rate of 45pc. There don't seem to be that many of them. Prior to recent changes, the top marginal tax rate of 40pc kicked in at €75,000 in income; according to Mr Massourakis, this was paid by only 40,000 Greek households, out of a population of 11m.

Even after all of the measures at reform Greek shipping companies are exempt from income taxes:

Yet there a lot of rich Greeks. And here's a thing: Greek shipping companies do not pay corporation tax. Lobbying efforts have secured favourable treatment, whoever is in power, even though Greek ships are no longer crewed by Greeks (it's a pretty horrible job). These days, crews are recruited from the Philippines for ships built in Taiwan. There may be a head office in Athens.

4) When you write, "Which the ECB printed out of thin air, like Monopoly money!" it seems to me that you are raising a question of monetary policy separate from the rest of your main argument. Are you advocating that money not be 'printed out of thin air' (something Ron Paul would say) and that currency be tied to a gold standard?

5) I don't know who owns those banks and whether or not the shareholders include pensions from union workers or not but I don't think that anyone, would conclude that the bankers are in charge when they are forced to write off 50% of the loan in Greece which establishes a precedent for likely similar action in Spain, Portugal, Italy and Ireland.

6) The difference between the German public sector pensions (where most of the money is coming from) and Greek public sector pensions are rather significant:

Years to earn a full pension: Greece 45 and Germany 35.
Proportion of salary: Greece 80% and Germany 46%.
Maximum ceiling of payments: Germany E 2100 and Greece E 2538, also Germany has 12 payments a year and Greece 14.

Some general conclusions;

Is their fiscal pain that will hurt the honest Greek middle class?

Yes but Greek billionaires and dishonest self employed in Greece will still be tax free.

Is their also pain inflicted on Greek bond holders?

Yes they lose 50% of the value of their loans.

Is it a bailout?

Depends on your definition. Are the banks getting a gift? No they are getting loans that are required to increase liquidity.


Not all bank interventions are the same. I am willing to be persuaded that this falls into the evil category but your omission of the 50% reduction in the value of the bonds paints a one sided picture. You also ignore the fact that the problem is fundamentally tied to the Greek rich cheating on their income tax. You omit to point out that Greek pensions are far more generous than their German counterparts. Finally your polemical asides on monetary policy seem to mirror right wing attacks on levels of currency and are not related to the main subject.

I don't find the argument here meet the normally persuasive, fact driven, on point, logical type of argument that is more typical of your other public statements that inspire us, but if the problem is with my understanding of it I welcome your clarification, sir.

[banned from Kos]

13. Great post (again).

Mr. Grayson fails to see the practical side of monetary policy.

A direct loan to the PIGS would just delay the fiscal changes they need to make. It would also be perceived as inflationary since the probability of a future write-down would be high.

Also a direct loan to the PIGS would be opposed by the people of Germany and France and any other stable country.

[grantcart]

14. No I don't think that he fails to see that, I think that was the main point of his post.

And your strangely worded reply also has no bearing on what I said whatsoever.

My point is that if your going to use statistics and facts then it undermines your agrument and makes it easier for people that you disagree with to mischarachterize your conclusions if in coming to those conclusions you have used polemical devices that can be called into question.

Given your reply I suspect that the observation above may still be beyond you so let me be even more explicit.

Nothing in my reply has ANYTHING TO DO WITH the general conclusions he makes.

All bank interventions are NOT the same. Australia's attempt to nationalize banks cannot be compared to our rescuing of Goldman Sachs, for example.

If you accept that all bank interventions are NOT the same and this one is IN PARTICULAR EVIL. Then omitting key facts that would seem to be against your argument not only doesn't help your argument it makes it appear that you yourself don't believe that you have a strong argument because you don't address the key counter facts.

I have absolutely zero opinion on whether or not this was a good or bad move. I do know that if your going to write a piece stating that the banks got off scott free when the bond holders were forced to reduce the equity of their positions by 50% then its not going to carry much weight with people who are familiar with this most basic fact.

If it is a bad deal then it should be dissected carefully and thoroughly. Finally I think that when Americans take to lecturing other countries on their economic policies a less condescending and more fact driven argument will have greater effect.

Again no problem with the general substance and geneal conclusion that banks get preferrential treatment but in this case the most preferrentially treated are Greek Shipping Billionaires who still don't have to pay one penny in taxes. Bashing the rest of Europe that has instilled better taxation policies that support a more effective socialist public policy seems odd and counterproductive.

[banned from Kos]

17. No - I deliberately changed the subject after accepting your point.

There is also a political rationale for the ECB action.

It concerns the North/South political views. Neither you or Grayson had mentioned it.

[grantcart]

18. My bad

Merry Christmas.

[Aerows]

15. We are getting closer and closer to that point for certain.

If the trillions in derivatives that are still floating around out there implode, you can bet the banks will be begging for a bailout. You can also pretty much assume that if they get one, there will be bloodshed in the streets. A lot of people are fed up with the lack of accountability in both Washington and Wall Street, and aren't going to tolerate another bailout while screaming "austerity for everyone but us!"

[cthulu2016]

16. The policy is working, to a degree

No optimal, but it is hard to say there is no benefit to the people whatsoever.

There is the question "Is this ideal?" and then the question, "Is this net positive?"

http://krugman.blogs.nytimes.com/2011/12/22/the-subtle-ecb/