We’ve got to make sure that banks are recapitalized in Europe so that investors have confidence. And we’ve got to make sure that there is a growth strategy to go alongside the need for fiscal discipline, as well as a monetary policy that is promoting the capacity of countries like a Spain or an Italy to put in place very tough targets and some very tough policies …. We’ve got to put in place firewalls that ensure that countries outside of Greece that are doing the right thing aren’t harmed just because markets are skittish and nervous. — Barack Obama, at the G-8 meetings.
If there ever was any remaining doubt about Barack Obama’s supine posture toward the financial and banking industries, this should dispel it once and for all.
This is gobbledygook on so many levels it’s hard to know where to begin. First of all, banks have already been “recapitalized” in Europe to the tune of 1 trillion (with a “t”) Euros just three months ago and they simply rat-holed the money, just as with the TARP bailout here in the US. Has any of that “quieted” the markets? Stimulated business and consumer lending? Unleashed the mighty power of the “job creators”? Of course not.
And what’s this nonsense about a “growth strategy alongside fiscal discipline”—all the while maintaining “tough targets and very tough policies”? How in the hell is that supposed to work? If the answer is to get back to “growth” (it’s not the answer, it’s just another way to kick the can down the road, but that’s another much larger and much more holistic and ecological discussion) then that means more spending, since that’s how our economic edifice works; you just don’t get increased spending running alongside “fiscal discipline” and “tough targets” (code for austerity). Fiscal discipline is less spending, by definition.
Firewalls. What the hell is that? In this context (Greece, predominantly, and Spain and Italy etc peripherally) it means a pile of public money to backstop the assets of power and privilege; it means shoring up institutions that are already quite possibly insolvent anyway because they’re “too big to fail” without cratering the whole economy. Banks. Finance Houses. Insurance Companies. It means doing those things with public money, and continuing the transfer of wealth from public to private hands.
No mention of holding any of the Banking sector to account for their compulsive gambling habits. No mention of reinstating regulations which prevented most of the worst excesses quite successfully for decades. No mention of requiring financial institutions to mark their assets to current market values in a fully transparent way, so that it’s possible to know just what the situation actually is. No mention of regulating the size of any of these institutions so that if (when, more like) they screw up and become insolvent they can just be allowed to fail without crashing everyone’s life. (We have no idea of the actual condition of most of these institutions, since they are not required to value their assets at current market rates, nor are they required to divulge exactly how they are valuing them, even to their own shareholders. Thus any real picture of actual liquidity is quite opaque.)
Obama has been taking heat from the right for being economically illiterate, and it’s looking more and more as if that’s truly the case, though not remotely for the reasons which engender the criticism. It’s hard to imagine what he, or any other President, could do to coddle the usual suspects any more than he is already doing. That he should be demonized, with no small amount of success, as a rabid socialist is almost beyond belief.
In any case, it’s clear that the ballooning problems in Europe are not being resolved by forcing ordinary people to just suck it up, and now the IMF and other organizations are warning, finally, of consequences that have been obvious for a long time to anyone with an IQ exceeding their shoe size. The onerous policies championed by the northern EZ nations, principally Germany, have now failed miserably, and to top it off the political players responsible are increasingly getting hammered in the election process. What this portends is not yet clear, though the preparations to throw Greece under the bus are proceeding apace.
What happens when the situation in Spain and Portugal, which are now about where Greece was a year or so ago, deteriorates further is anyone’s guess. Not to mention Italy and quite possibly France waiting in the wings.
This is not just another blip on the “boom/bust” cycle radar—this is structural, it’s deep, and it’s global. It’s going to be a rough ride.
I suppose we could take bets on whether we’ll make it through the election before things get really interesting. It’s hard to imagine how Greece can just bump along as is until November, and judging by the sustained capital flight from Greek banks over recent months, almost nobody expects it to. Greece will almost certainly default, that much is increasingly clear, as we are now seeing a blizzard of articles in the press downplaying how serious that outcome is likely to be, and how it will all be “manageable”.
Given how much work has gone into ringfencing Greece in the last year, it probably will be, though since the true state of affairs in the financial sectors is unknown, and unknowable, through lack of transparency, the effects will not be revealed until they actually happen. Beyond that, it’s all brand new territory for which there really are no accurate maps at all.