12-18-2011, 10:22 AM
EURO CRISIS :
BRITAINS’s FINANCIAL ARSONIST RETURNS TO THE SCENE OF THE CRIME
Finian Cunningham
http://www.globalresearch.ca/index.php?context=va&aid=28204
The incendiary finance capitalism unleashed by Britain 25 years ago is at the heart of Europe’s raging debt woes
You either have to admire British Prime Minister David Cameron’s brass neck, or wince at his arrogant stupidity. The smart money is probably on the latter option.
For here you had the British leader heading to the European Union summit convened last week to “salvage” the EU from its the terminal debt crisis – a crisis that is threatening the survival of the Euro single currency, the political future of the European Union and may even be sounding the death knell for the faltering capitalist world economy.
Yet, given the stakes involved, all Cameron wanted to do was exploit the crisis in order to claw further concessions for the City of London’s stock exchange. Such self-serving opportunism was rebuffed by his German and French counterparts, whereupon Cameron stomped his feet and declared that Britain would exercise its veto over EU plans for tighter fiscal controls on member states. The British veto may now hamper the EU’s ability to assuage the financial markets, which are daily extracting pounds of flesh with exorbitant rates of borrowing on government bonds.
Not that the leaders of the other 26 EU states are acting as noble knights in shining armour, vying to protect their populaces from further economic suffering. The revised EU treaty they have in mind will only deepen that suffering by expanding austerity and cutbacks for the majority of people across Europe. The fiscal and economic policies of member states will henceforth be dictated by the European Central Bank and the International Monetary Fund. That is, national sovereignty supposedly serving the people, according to their votes, is to be replaced by the rule of unelected bankers and technocrats. In a very real way, the debt crisis of Europe is serving to usher in a dictatorship of finance capitalism. As Paul Craig Roberts noted recently on Global Research with regard to the EU – “the banks have taken over” [1].
Ironically, it is German Chancellor Angela Merkel and her French collaborator, Prime Minister Nicolas Sarkozy, who are foremost in marching mainland Europe into the arms of this dictatorship.
However, Cameron’s one-man crusade at the EU summit was no act of Churchillian defiance to defend the rights of the people in the face of financial fascism. Britain under this present Conservative leader has been bludgeoned with one of the most draconian austerity budgets inflicted anywhere across Europe, wielded without mercy against workers and aimed deliberately at placating first and foremost the finance markets. Indeed, Cameron’s government is one of the main advocates of deeper social spending cuts for the rest of Europe.
So the notion that the British leader was in some way making a fight-them-on-the-beaches kind-of stand towards other European leaders/quislings of finance capital is risible.
And what is even more risible is that the sole objective of Cameron and his foreign secretary William Hague was to secure concessions for the City of London. Many people in Europe have good reason to believe that it is the City of London and its brand of finance capitalism that has created and provoked the debt crisis in the first place.
It was Cameron’s much-admired predecessor Margaret Thatcher who oversaw the systematic deregulation of the London Stock Exchange, starting in 1986 with what became known as the “Big Bang” – the wholesale removal of controls on financial transactions. From then on, the British economy went from one based on manufacture and production to one hallmarked by financial speculation. London became the money capital of the world, outflanking New York. The financialisation of other economies would follow the British slash-and-burn economic path, as the new culture of predatory financiers and investors used speculative profiteering to gut manufacturing bases.
The deregulation of financial markets was a showpiece policy of subsequent British governments, whether Conservative or Labour. It spawned a plethora of “financial innovations” such as hostile takeovers, downsizing, short selling and derivative trading, whereby money and debt were recycled and multiplied fictitiously – with inevitable catastrophic consequences. This of course is the ineluctable, historic dynamic of late capitalism. The system tends to mount up massive poverty and thereby becomes incapable of producing goods and services because the conventional profit system becomes exhausted. That is why late capitalism has more and more turned into a form of debt-ridden financial arson in order to recklessly eke out the last reserves of profit.
In previous centuries, it was England that innovated industrial capitalism. At the end of the 20th Century it was the British (and their Anglo-American culprits) who have the dubious honour of unleashing finance capitalism on the rest of the world. The new brand of capitalism can be traced directly to the collapse of banks and institutions, such as Barings, Lehman Brothers and Long-Term Capital Management, and to the collapse of pension funds and property assets dragging millions of people into debt. And now this particular British innovation of incendiary capitalism can be traced to the collapse of entire countries.
The spectacle of bankrupt David Cameron swaggering over to Europe to ask equally bankrupt European governments for more deregulatory concessions for the City of London is about as stupefying as an arsonist returning to the scene of the crime – and asking for more gasoline.
THE EUROPEAN CENTRAL BANK FIDDLES WHILE ROME BURNS
Ellen Brown
http://www.webofdebt.com/articles/ecb.php
“To some people, the European Central Bank seems like a fire department that is letting the house burn down to teach the children not to play with matches.”
So wrote Jack Ewing in the New York Times last week. He went on:
“The E.C.B. has a fire hose — its ability to print money. But the bank is refusing to train it on the euro zone’s debt crisis. “The flames climbed higher Friday after the Italian Treasury had to pay an interest rate of 6.5 percent on a new issue of six-month bills . . . the highest interest rate Italy has had to pay to sell such debt since August 1997 . . . .
“But there is no sign the E.C.B. plans a major response, like buying large quantities of the country’s bonds to bring down its borrowing costs.”
Why not? According to the November 28th Wall Street Journal, “The ECB has long worried that buying government bonds in big enough amounts to bring down countries' borrowing costs would make it easier for national politicians to delay the budget austerity and economic overhauls that are needed.”
As with the manufactured debt ceiling crisis in the United States , the E.C.B. is withholding relief in order to extort austerity measures from member governments—and the threat seems to be working. The same authors write:
“Euro-zone leaders are negotiating a potentially groundbreaking fiscal pact . . . [that] would make budget discipline legally binding and enforceable by European authorities. . . . European officials hope a new agreement, which would aim to shrink the excessive public debt that helped spark the crisis, would persuade the European Central Bank to undertake more drastic action to reverse the recent selloff in euro-zone debt markets.”
The Eurozone appears to be in the process of being “structurally readjusted” – the same process imposed earlier by the IMF on Third World countries. Structural demands routinely include harsh austerity measures, government cutbacks, privatization, and the disempowerment of national central banks, so that there is no national entity capable of creating and controlling the money supply on behalf of the people. The latter result has officially been achieved in the Eurozone, which is now dependent on the E.C.B. as the sole lender of last resort and printer of new euros.
The E.C.B. Serves Banks, Not Governments
The legal justification for the E.C.B.’s inaction in the sovereign debt crisis is Article 123 of the Lisbon Treaty, signed by EU members in 2007. As Jens Eidmann, President of the Bundesbank and a member of the E.C.B. Governing Council, stated in a November 14 interview:
“The eurosystem is a lender of last resort for solvent but illiquid banks. It must not be a lender of last resort for sovereigns because this would violate Article 123 of the EU treaty.”
The language of Article 123 is rather obscure, but basically it says that the European central bank is the lender of last resort for banks, not for governments. It provides:
“1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
“2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.”
Banks can borrow from the E.C.B. at 1.25%, the minimum rate available for banks. Member governments, on the other hand, must put themselves at the mercy of the markets, which can squeeze them for “whatever the market will bear”—in Italy ’s case, 6.5%.
The Real Reason Eurozone Countries Are Drowning in Debt
Why should banks be able to borrow at 1.25% from the E.C.B.’s unlimited fountain of euros, while the tap is closed for governments? The conventional argument is that for governments to borrow money created by their own central banks would be “inflationary.” But private banks create the money they lend just as government-owned central banks do. Private banks issue money in the form of “bank credit” on their books, and they often do this before they have the liquidity to back the loans. Then they borrow from wherever they can get funds most cheaply. When banks borrow from the E.C.B. as lender of last resort, the E.C.B. “prints money” just as it would if it were lending to governments directly.
The burgeoning debts of the Eurozone countries are being blamed on their large welfare states, but these social systems were set up before the 1970s, when European governments had very little national debt. Their national debts shot up, not because they spent on social services, but because they switched bankers. Before the 1970s, European governments borrowed from their own central banks. The money was effectively interest-free, since they owned the banks and got the profits back as dividends. After the European Monetary Union was established, member countries had to borrow from private banks at interest—often substantial interest.
And the result? Interest totals for Eurozone countries are not readily accessible; but for France , at least, the total sum paid in interest since the 1970s appears to be as great as the French federal debt itself. That means that if the French government had been borrowing from its central bank all along, it could have been debt-free today.
The figures are nearly as bad for Canada, and they may actually be worse for the United States . The Federal Reserve’s website lists the sums paid in interest on the U.S. federal debt for the last 24 years. During that period, taxpayers paid a total of $8.2 trillion in interest. That’s more than half the total $15 trillion debt, in just 24 years. The U.S. federal debt has not been paid off since 1835, so taxpayers could well have paid more than $15 trillion by now in interest. That means our entire federal debt could have been avoided if we had been borrowing from our own government-owned central bank all along, effectively interest-free. And that is probably true for other countries as well.
To avoid an overwhelming national debt and the forced austerity measures destined to follow, the Eurozone’s citizens need to get the fire hose of money creation out of the hands of private banks and back into the hands of the people. But how?
Governments Cannot Borrow from the E.C.B., but Government-owned Banks Can
Interestingly, Paragraph 2 of Article 123 of the Lisbon Treaty carves out an exception to the rule that governments cannot borrow from the E.C.B. It says that government-owned banks can borrow on the same terms as privately-owned banks. Many Eurozone countries have publicly-owned banks; and as nationalization of insolvent banks looms, they could soon find themselves with many more.
One solution might be for the publicly-owned banks of Eurozone governments to exercise their right to borrow from the E.C.B. at 1.25%, then use that liquidity to buy up the country's debt, or as much of it as does not sell at auction. (The Federal Reserve does this routinely in open market operations in the U.S. ) The government’s securities would be stabilized, keeping speculators at bay; and the government would get the interest spread, since it would own the banks and would get the profits back as dividends.
Taking a Stand in the Class War
In a November 25th article titled “Goldman Sachs Has Taken Over,” Paul Craig Roberts writes:
“The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century.”
He observes that Mario Draghi, the new president of the European Central Bank, was Vice Chairman and Managing Director of Goldman Sachs International, a member of Goldman Sachs’ Management Committee, a member of the governing council of the European Central Bank, a member of the board of directors of the Bank for International Settlements, and Chairman of the Financial Stability Board. Italy ’s new prime minister Mario Monti, who was appointed rather than elected, was a member of Goldman Sachs’ Board of International Advisers, European Chairman of the Trilateral Commission (“a US organization that advances American hegemony over the world”), and a member of the Bilderberg group. And Lucas Papademos, an unelected banker who was installed as prime minister of Greece , was Vice President of the European Central Bank and a member of America ’s Trilateral Commission.
Roberts points to the suspicious fact that the German government was unable to sell 35% of its 10-year bonds at its last auction; yet Germany ’s economy is in far better shape than that of Italy , which managed to sell all its bonds. Why? Roberts suspects an orchestrated scheme to pressure Germany to back off from its demands to make the banks pay a share of their bailout.
Europe is in the process of being “structurally readjusted” by a private banking cartel. If its people are to resist this silent conquest, they need to rise up and, using the ballot box and public banks, throw out the new banking hegemony before it is too late.
WORLDWIDE RECESSION AND THE CREDIT RATING AGENCIES :
WHAT IS THEIR IMPACT ON THE GLOBAL ECONOMY ?
Devon DB
www.globalresearch.ca/index.php?context=va&aid=27397
From the European Central Bank headquarters to the halls of the Senate floor in the United States, debt, deficits, and austerity measures are all on the minds of leaders all over the world due to the ongoing world-wide recession. Many facets of the economic crisis have been examined, however, the role of credit rating agencies has been largely ignored, with their being little to no in-depth analysis of the role of rating agencies in relation to the global economic downturn nor their influence on the global economy at large. It seems that while rating agencies can be used to rate the creditworthiness of a nation, they now have undue influence on countries and are able to hold them hostage, thus an examination needs to take place of how they wield such influence on the world at large.
Sovereign Credit Ratings
Credit rating agencies came into being due to the creation of railroad industry. In the 19th century “the growing investing class [wanted] to have more information about the many new securities – especially railroad bonds – that were being issued and traded” [1] and thus credit rating agencies filled that need. In the middle of the 19th century, railroads began to raise capital via the market for private corporate bonds as banks and direct investors were unable to raise the capital needed to construct railroads. This growth in the sale of the different private bonds led to a need for there to be “better, cheaper and more readily available information about these debtors and debt securities,” thus Henry Varnum Poor responded by writing and publishing the Manual of the Railroads of the United States in 1868, containing the financial information of all major railroads companies and providing “an independent source of information on the business conditions of these corporate borrowers.” [2]
With John Moody issuing the first credit ratings in the US in 1909, the credit rating agency had come into its own. Usually the entire process of “shaping investor perceptions of corporate borrowers” was dealt with by banks as they would be putting their reputations on the line by lending to corporations. Thus, if a venture succeeded, the bank’s reputation would go up and if the venture proved a flop, the bank’s reputation would be damaged, making it harder for them to attract new clients. Essentially the creditworthiness of a corporation was certified to the public via the reputation of the bank they had borrowed the money from. Due to this, “the bank as creditor would become more involved in the business of the corporation and become an insider,” [3] yet bond investors would not have access to the same information that the banks did. Thus, rating agencies aided in a leveling of the playing field and improved the efficiency of capital markets.
However, in time rating agencies went from rating the bonds of railroads to rating the bonds of sovereign states. In the 1970s global bond markets were reviving, but the demand for bond ratings was slow to occur as most foreign governments didn’t feel the need to have their credit rated since most already had good credit and for those that didn’t, credit could be attained by other means. However, this changed in the ‘80s and ‘90s when countries with bad credit “found market conditions sufficiently favorable to issue debt in international credit markets.” [4] These governments frequently tapped into the American bond market which required credit ratings, thus, “the growth in demand for rating services [coincided] with a trend toward assignment of lower quality sovereign credit ratings.” [5] While this may have been good for investors as they would be able to now see if a nation was a financial risk, this ability to rate the credit of countries would give them the power to decide a countries economic fate.
Ratings and Economic Policies
Credit ratings, while they can be a potentially positive part of the financial industry, can also have a negative effect on the economic policy of countries. This is especially true for developing nations.
For countries that take out loans, “a rating downgrade has negative effects on their access to credit and the cost of their borrowing.” [6] This could potentially force a government to have to borrow money at a higher interest rate and thus scale down its plans for economic development. The problem that this poses for developing nations is that the only way to increase their credit score is to follow the “orthodox policies [that focus] on the reduction of inflation and government budget deficits” [7] which is favored by such organizations as the IMF and the World Bank. The alternative, which would be to avoid a rating downgrade in the first place, is even worse as it could lead “borrowing countries [to] adopt policies that address the short-term concerns of portfolio investors, even when they are in conflict with long-term development needs.” [8]
This entire state of affairs is rather unfair to the Developing World as they are forced to take on large amounts of debt as they try to industrialize and modernize. This is largely caused due to the fact that they are victims of neocolonialism and that the major means of production are owned mainly by foreigners who don’t contribute much in terms of improving the long-term economic prospects of a country and getting them from under the weight of neocolonialism.
While rating agencies can have an effect on individual countries, they can also effect the global economic system at large as can be seen by their actions in the current global financial crisis.
Global Recession
As we all now know, the major reason for the near global economic collapse was due to a subprime mortgage lending bubble that occurred between the late ‘90s and 2007. The deep financial risk occurred due to the fact that financial corporations sold mortgages to families who could not pay them and used them to create collateralized debt obligations. This “encouraged subprime lending and led to the development of other financing structures, such as “structured investment vehicles” (SIVs), whereby a financial institution might sponsor the creation of an entity that bought tranches of the CDOs and financed its purchase by issuing short-term “asset-backed” commercial paper.” (ABCP) [9] Credit rating agencies came into play due to the fact that favorable ratings that the agencies gave allowed for high ABCP ratings. It is quite crucial to note that the ratings agencies gave were extremely important as they “had the force of law with respect to regulated financial institutions’ abilities and incentives (via capital requirements) to invest in bonds” and due to their friendly relationship with corporate and government bond ratings, many rating agencies were able to influence “many bond purchasers— both regulated and non-regulated—[to] trust the agencies’ rati...
BRITAINS’s FINANCIAL ARSONIST RETURNS TO THE SCENE OF THE CRIME
Finian Cunningham
http://www.globalresearch.ca/index.php?context=va&aid=28204
The incendiary finance capitalism unleashed by Britain 25 years ago is at the heart of Europe’s raging debt woes
You either have to admire British Prime Minister David Cameron’s brass neck, or wince at his arrogant stupidity. The smart money is probably on the latter option.
For here you had the British leader heading to the European Union summit convened last week to “salvage” the EU from its the terminal debt crisis – a crisis that is threatening the survival of the Euro single currency, the political future of the European Union and may even be sounding the death knell for the faltering capitalist world economy.
Yet, given the stakes involved, all Cameron wanted to do was exploit the crisis in order to claw further concessions for the City of London’s stock exchange. Such self-serving opportunism was rebuffed by his German and French counterparts, whereupon Cameron stomped his feet and declared that Britain would exercise its veto over EU plans for tighter fiscal controls on member states. The British veto may now hamper the EU’s ability to assuage the financial markets, which are daily extracting pounds of flesh with exorbitant rates of borrowing on government bonds.
Not that the leaders of the other 26 EU states are acting as noble knights in shining armour, vying to protect their populaces from further economic suffering. The revised EU treaty they have in mind will only deepen that suffering by expanding austerity and cutbacks for the majority of people across Europe. The fiscal and economic policies of member states will henceforth be dictated by the European Central Bank and the International Monetary Fund. That is, national sovereignty supposedly serving the people, according to their votes, is to be replaced by the rule of unelected bankers and technocrats. In a very real way, the debt crisis of Europe is serving to usher in a dictatorship of finance capitalism. As Paul Craig Roberts noted recently on Global Research with regard to the EU – “the banks have taken over” [1].
Ironically, it is German Chancellor Angela Merkel and her French collaborator, Prime Minister Nicolas Sarkozy, who are foremost in marching mainland Europe into the arms of this dictatorship.
However, Cameron’s one-man crusade at the EU summit was no act of Churchillian defiance to defend the rights of the people in the face of financial fascism. Britain under this present Conservative leader has been bludgeoned with one of the most draconian austerity budgets inflicted anywhere across Europe, wielded without mercy against workers and aimed deliberately at placating first and foremost the finance markets. Indeed, Cameron’s government is one of the main advocates of deeper social spending cuts for the rest of Europe.
So the notion that the British leader was in some way making a fight-them-on-the-beaches kind-of stand towards other European leaders/quislings of finance capital is risible.
And what is even more risible is that the sole objective of Cameron and his foreign secretary William Hague was to secure concessions for the City of London. Many people in Europe have good reason to believe that it is the City of London and its brand of finance capitalism that has created and provoked the debt crisis in the first place.
It was Cameron’s much-admired predecessor Margaret Thatcher who oversaw the systematic deregulation of the London Stock Exchange, starting in 1986 with what became known as the “Big Bang” – the wholesale removal of controls on financial transactions. From then on, the British economy went from one based on manufacture and production to one hallmarked by financial speculation. London became the money capital of the world, outflanking New York. The financialisation of other economies would follow the British slash-and-burn economic path, as the new culture of predatory financiers and investors used speculative profiteering to gut manufacturing bases.
The deregulation of financial markets was a showpiece policy of subsequent British governments, whether Conservative or Labour. It spawned a plethora of “financial innovations” such as hostile takeovers, downsizing, short selling and derivative trading, whereby money and debt were recycled and multiplied fictitiously – with inevitable catastrophic consequences. This of course is the ineluctable, historic dynamic of late capitalism. The system tends to mount up massive poverty and thereby becomes incapable of producing goods and services because the conventional profit system becomes exhausted. That is why late capitalism has more and more turned into a form of debt-ridden financial arson in order to recklessly eke out the last reserves of profit.
In previous centuries, it was England that innovated industrial capitalism. At the end of the 20th Century it was the British (and their Anglo-American culprits) who have the dubious honour of unleashing finance capitalism on the rest of the world. The new brand of capitalism can be traced directly to the collapse of banks and institutions, such as Barings, Lehman Brothers and Long-Term Capital Management, and to the collapse of pension funds and property assets dragging millions of people into debt. And now this particular British innovation of incendiary capitalism can be traced to the collapse of entire countries.
The spectacle of bankrupt David Cameron swaggering over to Europe to ask equally bankrupt European governments for more deregulatory concessions for the City of London is about as stupefying as an arsonist returning to the scene of the crime – and asking for more gasoline.
THE EUROPEAN CENTRAL BANK FIDDLES WHILE ROME BURNS
Ellen Brown
http://www.webofdebt.com/articles/ecb.php
“To some people, the European Central Bank seems like a fire department that is letting the house burn down to teach the children not to play with matches.”
So wrote Jack Ewing in the New York Times last week. He went on:
“The E.C.B. has a fire hose — its ability to print money. But the bank is refusing to train it on the euro zone’s debt crisis. “The flames climbed higher Friday after the Italian Treasury had to pay an interest rate of 6.5 percent on a new issue of six-month bills . . . the highest interest rate Italy has had to pay to sell such debt since August 1997 . . . .
“But there is no sign the E.C.B. plans a major response, like buying large quantities of the country’s bonds to bring down its borrowing costs.”
Why not? According to the November 28th Wall Street Journal, “The ECB has long worried that buying government bonds in big enough amounts to bring down countries' borrowing costs would make it easier for national politicians to delay the budget austerity and economic overhauls that are needed.”
As with the manufactured debt ceiling crisis in the United States , the E.C.B. is withholding relief in order to extort austerity measures from member governments—and the threat seems to be working. The same authors write:
“Euro-zone leaders are negotiating a potentially groundbreaking fiscal pact . . . [that] would make budget discipline legally binding and enforceable by European authorities. . . . European officials hope a new agreement, which would aim to shrink the excessive public debt that helped spark the crisis, would persuade the European Central Bank to undertake more drastic action to reverse the recent selloff in euro-zone debt markets.”
The Eurozone appears to be in the process of being “structurally readjusted” – the same process imposed earlier by the IMF on Third World countries. Structural demands routinely include harsh austerity measures, government cutbacks, privatization, and the disempowerment of national central banks, so that there is no national entity capable of creating and controlling the money supply on behalf of the people. The latter result has officially been achieved in the Eurozone, which is now dependent on the E.C.B. as the sole lender of last resort and printer of new euros.
The E.C.B. Serves Banks, Not Governments
The legal justification for the E.C.B.’s inaction in the sovereign debt crisis is Article 123 of the Lisbon Treaty, signed by EU members in 2007. As Jens Eidmann, President of the Bundesbank and a member of the E.C.B. Governing Council, stated in a November 14 interview:
“The eurosystem is a lender of last resort for solvent but illiquid banks. It must not be a lender of last resort for sovereigns because this would violate Article 123 of the EU treaty.”
The language of Article 123 is rather obscure, but basically it says that the European central bank is the lender of last resort for banks, not for governments. It provides:
“1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
“2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.”
Banks can borrow from the E.C.B. at 1.25%, the minimum rate available for banks. Member governments, on the other hand, must put themselves at the mercy of the markets, which can squeeze them for “whatever the market will bear”—in Italy ’s case, 6.5%.
The Real Reason Eurozone Countries Are Drowning in Debt
Why should banks be able to borrow at 1.25% from the E.C.B.’s unlimited fountain of euros, while the tap is closed for governments? The conventional argument is that for governments to borrow money created by their own central banks would be “inflationary.” But private banks create the money they lend just as government-owned central banks do. Private banks issue money in the form of “bank credit” on their books, and they often do this before they have the liquidity to back the loans. Then they borrow from wherever they can get funds most cheaply. When banks borrow from the E.C.B. as lender of last resort, the E.C.B. “prints money” just as it would if it were lending to governments directly.
The burgeoning debts of the Eurozone countries are being blamed on their large welfare states, but these social systems were set up before the 1970s, when European governments had very little national debt. Their national debts shot up, not because they spent on social services, but because they switched bankers. Before the 1970s, European governments borrowed from their own central banks. The money was effectively interest-free, since they owned the banks and got the profits back as dividends. After the European Monetary Union was established, member countries had to borrow from private banks at interest—often substantial interest.
And the result? Interest totals for Eurozone countries are not readily accessible; but for France , at least, the total sum paid in interest since the 1970s appears to be as great as the French federal debt itself. That means that if the French government had been borrowing from its central bank all along, it could have been debt-free today.
The figures are nearly as bad for Canada, and they may actually be worse for the United States . The Federal Reserve’s website lists the sums paid in interest on the U.S. federal debt for the last 24 years. During that period, taxpayers paid a total of $8.2 trillion in interest. That’s more than half the total $15 trillion debt, in just 24 years. The U.S. federal debt has not been paid off since 1835, so taxpayers could well have paid more than $15 trillion by now in interest. That means our entire federal debt could have been avoided if we had been borrowing from our own government-owned central bank all along, effectively interest-free. And that is probably true for other countries as well.
To avoid an overwhelming national debt and the forced austerity measures destined to follow, the Eurozone’s citizens need to get the fire hose of money creation out of the hands of private banks and back into the hands of the people. But how?
Governments Cannot Borrow from the E.C.B., but Government-owned Banks Can
Interestingly, Paragraph 2 of Article 123 of the Lisbon Treaty carves out an exception to the rule that governments cannot borrow from the E.C.B. It says that government-owned banks can borrow on the same terms as privately-owned banks. Many Eurozone countries have publicly-owned banks; and as nationalization of insolvent banks looms, they could soon find themselves with many more.
One solution might be for the publicly-owned banks of Eurozone governments to exercise their right to borrow from the E.C.B. at 1.25%, then use that liquidity to buy up the country's debt, or as much of it as does not sell at auction. (The Federal Reserve does this routinely in open market operations in the U.S. ) The government’s securities would be stabilized, keeping speculators at bay; and the government would get the interest spread, since it would own the banks and would get the profits back as dividends.
Taking a Stand in the Class War
In a November 25th article titled “Goldman Sachs Has Taken Over,” Paul Craig Roberts writes:
“The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century.”
He observes that Mario Draghi, the new president of the European Central Bank, was Vice Chairman and Managing Director of Goldman Sachs International, a member of Goldman Sachs’ Management Committee, a member of the governing council of the European Central Bank, a member of the board of directors of the Bank for International Settlements, and Chairman of the Financial Stability Board. Italy ’s new prime minister Mario Monti, who was appointed rather than elected, was a member of Goldman Sachs’ Board of International Advisers, European Chairman of the Trilateral Commission (“a US organization that advances American hegemony over the world”), and a member of the Bilderberg group. And Lucas Papademos, an unelected banker who was installed as prime minister of Greece , was Vice President of the European Central Bank and a member of America ’s Trilateral Commission.
Roberts points to the suspicious fact that the German government was unable to sell 35% of its 10-year bonds at its last auction; yet Germany ’s economy is in far better shape than that of Italy , which managed to sell all its bonds. Why? Roberts suspects an orchestrated scheme to pressure Germany to back off from its demands to make the banks pay a share of their bailout.
Europe is in the process of being “structurally readjusted” by a private banking cartel. If its people are to resist this silent conquest, they need to rise up and, using the ballot box and public banks, throw out the new banking hegemony before it is too late.
WORLDWIDE RECESSION AND THE CREDIT RATING AGENCIES :
WHAT IS THEIR IMPACT ON THE GLOBAL ECONOMY ?
Devon DB
www.globalresearch.ca/index.php?context=va&aid=27397
From the European Central Bank headquarters to the halls of the Senate floor in the United States, debt, deficits, and austerity measures are all on the minds of leaders all over the world due to the ongoing world-wide recession. Many facets of the economic crisis have been examined, however, the role of credit rating agencies has been largely ignored, with their being little to no in-depth analysis of the role of rating agencies in relation to the global economic downturn nor their influence on the global economy at large. It seems that while rating agencies can be used to rate the creditworthiness of a nation, they now have undue influence on countries and are able to hold them hostage, thus an examination needs to take place of how they wield such influence on the world at large.
Sovereign Credit Ratings
Credit rating agencies came into being due to the creation of railroad industry. In the 19th century “the growing investing class [wanted] to have more information about the many new securities – especially railroad bonds – that were being issued and traded” [1] and thus credit rating agencies filled that need. In the middle of the 19th century, railroads began to raise capital via the market for private corporate bonds as banks and direct investors were unable to raise the capital needed to construct railroads. This growth in the sale of the different private bonds led to a need for there to be “better, cheaper and more readily available information about these debtors and debt securities,” thus Henry Varnum Poor responded by writing and publishing the Manual of the Railroads of the United States in 1868, containing the financial information of all major railroads companies and providing “an independent source of information on the business conditions of these corporate borrowers.” [2]
With John Moody issuing the first credit ratings in the US in 1909, the credit rating agency had come into its own. Usually the entire process of “shaping investor perceptions of corporate borrowers” was dealt with by banks as they would be putting their reputations on the line by lending to corporations. Thus, if a venture succeeded, the bank’s reputation would go up and if the venture proved a flop, the bank’s reputation would be damaged, making it harder for them to attract new clients. Essentially the creditworthiness of a corporation was certified to the public via the reputation of the bank they had borrowed the money from. Due to this, “the bank as creditor would become more involved in the business of the corporation and become an insider,” [3] yet bond investors would not have access to the same information that the banks did. Thus, rating agencies aided in a leveling of the playing field and improved the efficiency of capital markets.
However, in time rating agencies went from rating the bonds of railroads to rating the bonds of sovereign states. In the 1970s global bond markets were reviving, but the demand for bond ratings was slow to occur as most foreign governments didn’t feel the need to have their credit rated since most already had good credit and for those that didn’t, credit could be attained by other means. However, this changed in the ‘80s and ‘90s when countries with bad credit “found market conditions sufficiently favorable to issue debt in international credit markets.” [4] These governments frequently tapped into the American bond market which required credit ratings, thus, “the growth in demand for rating services [coincided] with a trend toward assignment of lower quality sovereign credit ratings.” [5] While this may have been good for investors as they would be able to now see if a nation was a financial risk, this ability to rate the credit of countries would give them the power to decide a countries economic fate.
Ratings and Economic Policies
Credit ratings, while they can be a potentially positive part of the financial industry, can also have a negative effect on the economic policy of countries. This is especially true for developing nations.
For countries that take out loans, “a rating downgrade has negative effects on their access to credit and the cost of their borrowing.” [6] This could potentially force a government to have to borrow money at a higher interest rate and thus scale down its plans for economic development. The problem that this poses for developing nations is that the only way to increase their credit score is to follow the “orthodox policies [that focus] on the reduction of inflation and government budget deficits” [7] which is favored by such organizations as the IMF and the World Bank. The alternative, which would be to avoid a rating downgrade in the first place, is even worse as it could lead “borrowing countries [to] adopt policies that address the short-term concerns of portfolio investors, even when they are in conflict with long-term development needs.” [8]
This entire state of affairs is rather unfair to the Developing World as they are forced to take on large amounts of debt as they try to industrialize and modernize. This is largely caused due to the fact that they are victims of neocolonialism and that the major means of production are owned mainly by foreigners who don’t contribute much in terms of improving the long-term economic prospects of a country and getting them from under the weight of neocolonialism.
While rating agencies can have an effect on individual countries, they can also effect the global economic system at large as can be seen by their actions in the current global financial crisis.
Global Recession
As we all now know, the major reason for the near global economic collapse was due to a subprime mortgage lending bubble that occurred between the late ‘90s and 2007. The deep financial risk occurred due to the fact that financial corporations sold mortgages to families who could not pay them and used them to create collateralized debt obligations. This “encouraged subprime lending and led to the development of other financing structures, such as “structured investment vehicles” (SIVs), whereby a financial institution might sponsor the creation of an entity that bought tranches of the CDOs and financed its purchase by issuing short-term “asset-backed” commercial paper.” (ABCP) [9] Credit rating agencies came into play due to the fact that favorable ratings that the agencies gave allowed for high ABCP ratings. It is quite crucial to note that the ratings agencies gave were extremely important as they “had the force of law with respect to regulated financial institutions’ abilities and incentives (via capital requirements) to invest in bonds” and due to their friendly relationship with corporate and government bond ratings, many rating agencies were able to influence “many bond purchasers— both regulated and non-regulated—[to] trust the agencies’ rati...