Reading the Greek Deal Correctly ( What Dodd-Frank Didn’t Fix: The Worst Conflicts on Wall Street)

One of the most cogent discussions of what really happened in the Greek deal appears below. The commenters are among the best I've seen yet.

And don't miss the news on the "real" conflicted insiders in our financial demise in the second essay.

Margaret Thatcher called the creation of the EURO a huge mistake and one that would lead to the reunification of German power that she was against. Today, no one remembers why that seemed to be a bad idea in Thatcher's time. And maybe it isn't, but if Greece isn't allowed to refute $300 billion of its debt, that would be a good solution to the brick-wall problem (according to Citibank reported on the Max Keiser Report), then the shi-ite will definitely hit the fan.

Reading the Greek Deal Correctly

February 24, 2015

Social Europe

by James K. Galbraith

On Friday as news of the Brussels deal came through, Germany claimed victory and it is no surprise that most of the working press bought the claim. They have high authorities to quote and to rely on. Thus from London "The Independent" reported:

several analysts agreed that the results of the talks amounted to a humiliating defeat for Greece.

No details followed, the analysts were unnamed, and their affiliations went unstated – although further down two were quoted and both work for banks. Many similar examples could be given, from both sides of the Atlantic.

"The New Yorker" is another matter. It is an independent magazine, with a high reputation, written for a detached audience. And John Cassidy is an analytical reporter. Readers are inclined to take him seriously and when he gets something wrong, it matters. Cassidy’s analysis appeared under the headline, “How Greece Got Outmaneuvered” and his lead paragraph contains this sentence:

Greece’s new left-wing Syriza government had been telling everyone for weeks that it wouldn’t agree to extend the bailout, and that it wanted a new loan agreement that freed its hands, which marks the deal as a capitulation by Syriza and a victory for Germany and the rest of the E.U. establishment.

In fact, there was never any chance for a loan agreement that would have wholly freed Greece’s hands. Loan agreements come with conditions. The only choices were an agreement with conditions, or no agreement and no conditions. The choice had to be made by February 28, beyond which date ECB support for the Greek banks would end. No agreement would have meant capital controls, or else bank failures, debt default, and early exit from the Euro. SYRIZA was not elected to take Greece out of Europe. Hence, in order to meet electoral commitments, the relationship between Athens and Europe had to be “extended” in some way acceptable to both.

But extend what, exactly? There were two phrases at play, and neither was the vague “extend the bailout.” The phrase “extend the current programme” appeared in troika documents, implying acceptance of the existing terms and conditions. To the Greeks this was unacceptable, but the technically-more-correct “extend the loan agreement” was less problematic. The final document extends the “Master Financial Assistance Facility Agreement” which was better still. The MFFA is “underpinned by a set of commitments” but these are – technically – distinct. In short, the MFFA is extended but the commitments are to be reviewed.

Also there was the lovely word “arrangement” – which the Greek team spotted in a draft communiqué offered by Eurogroup President Jeroen Dijsselbloem on Monday afternoon and proceeded to deploy with abandon. The Friday document is a masterpiece in this respect:

The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions. This extension would also bridge the time for discussions on a possible follow-up arrangement between the Eurogroup, the institutions and Greece. The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday February 23. The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.

If you think you can find an unwavering commitment to the exact terms and conditions of the “current programme” in that language, good luck to you. It isn’t there. So, no, the troika can’t come to Athens and complain about the rehiring of cleaning ladies.

To understand the issues actually at stake between Greece and Europe, you have to dig a little into the infamous “Memorandum of Understanding” signed by the previous Greek governments. A first point:  not everything in that paper is unreasonable. Much merely reflects EU laws and regulations. Provisions relating to tax administration, tax evasion, corruption, and modernization of public administration are, broadly, good policy and supported by SYRIZA. So it was not difficult for the new Greek government to state adherence to “seventy percent” of the memorandum.

The remaining “thirty percent” fell mainly into three areas:  fiscal targets, fire-sale privatizations and labor-law changes. The fiscal target of a 4.5 percent “primary surplus” was a dog as everyone would admit in private. The new government does not oppose privatizations per se; it opposes those that set up price-gouging private monopolies and it opposes fire sales that fail to bring in much money. Labor law reform is a more basic disagreement – but the position of the Greek government is in line with ILO standards, and that of the “programme” was not. These matters will now be discussed. The fiscal target is now history, and the Greeks agreed to refrain from “unilateral” measures only for the four-month period during which they will be seeking agreement.

Cassidy acknowledges some of this, but then minimizes it, with the comment that the deal “seems to rule out any large-scale embrace of Keynesian stimulus policies.” In what document does any such promise exist? There is no money in Greece; the government is bankrupt. Large-scale Keynesian policies were never on the table as they would necessarily imply exit – an expansionary policy in a new currency, with all the usual dangers. Inside the Euro, investment funds have to come from better tax collection, or from the outside, including private investors and the European Investment Bank. Cassidy’s comment seems to have been pulled from the air.

Another distant fantasy is the notion that the SYRIZA team was “giddy” with political success, which had come “practically out of nowhere.” Actually SYRIZA knew for months that if it could force an election last December, it would win. And I was there on Sunday night, February 8, when Prime Minister Alexis Tsipras opened Parliament with his version of the State of the Union. Tsipras doesn’t do giddy. And Yanis Varoufakis’s first words to me on arrival at the finance ministry just before we went over to hear him were these:  “Welcome to the poisoned chalice.”

Turning to the diplomatic exchanges, Cassidy concludes that Tsipras and Varoufakis “overplayed their hand.” An observer on the scene would have noticed that the Greek government remained united; initial efforts to marginalize Varoufakis were made and rebuffed. Then as talks proceeded, European Commission leaders Jean-Claude Juncker and Pierre Moscovici went off-reservation to be helpful, offering a constructive draft on Monday. Other governments softened their line. At the end-game, remarkably, it was the German government that split – in public – with Vice Chancellor Sigmar Gabriel calling the Greek letter a basis for negotiation after Finance Minister Wolfgang Schäuble said it wasn’t. And that set up Chancellor Angela Merkel to make a mood-changing call to Alexis Tsipras.

Possibly the maneuver was choreographed. But still, it was Schäuble who took a step back in the end. It seems that none of these facts caught Cassidy’s attention.

Finally, in the run-up to these talks did the Greek side fail to realize that they had no leverage, giving – as Cassidy writes – all the advantages to Schäuble once “he realized that Varoufakis couldn’t play the Grexit card”?   In truth the Greeks never had any intention of playing any cards, nor of bluffing, as Varoufakis wrote in "The New York Times" and as I had written two days after the election, in Social Europe:

What leverage does Greece have? Obviously, not much; the heavy weapons are on the other side. But there is something. Prime Minister Tsipras and his team can present the case of reason without threats of any kind. Then the right and moral gesture on the other side would be to … grant fiscal space and to guarantee Greek financial stability while talks are underway. If that happens, then proper negotiations can proceed.

That appears to be what happened. And it happened for the reason given in my essay:  in the end, Chancellor Merkel preferred not to be the leader responsible for the fragmentation of Europe.

Alexis Tsipras stated it correctly. Greece won a battle – perhaps a skirmish – and the war continues. But the political sea-change that SYRIZA’s victory has sparked goes on. From a psychological standpoint, Greece has already changed; there is a spirit and dignity in Athens that was not there six months ago. Soon enough, new fronts will open in Spain, then perhaps Ireland, and later Portugal, all of which have elections coming. It is not likely that the government in Greece will collapse, or yield, in the talks ahead, and over time the scope of maneuver gained in this first skirmish will become more clear. In a year the political landscape of Europe may be quite different from what it appears to be today.

(Economist James K. Galbraith is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is the author of The Predator State:  How Conservatives Abandoned the Free Market and Why Liberals Should Too.)

Comments:

PETERNAMASTE
1d

Once again the elephant in the room is not mentioned, that being the international banking cartel run by the Rothschild family and their ruling elite ilk. Power concedes nothing without a demand, but the ruling elite will throw some crumbs now and then if necessary. The ultimate solution is for We the People in every country must unite and rise up to overcome the EMPIRE that is destroying our nations and planet!

A_P
1d
PETERNAMASTE

The REAL elephant in the room is that which is never named in US/NATO/EU-captive media... BRICS.

Syriza, and more importantly, its potential alternative backers (Russia, China, BRICS Bank) are not quite ready to invoke the Grexit option. Recall what happened when Russia last extended a more favourable deal than the EU/IMF... in Ukraine.

The New Silk Road runs most conveniently through Greece, but like Ukraine as pipeline corridor, a stable, EU/SCO straddling country is preferable to one inflamed by civil war and social duress.

So Putin and Xi will move slowly and carefully here. In 4 months the EU will be that much more desperate over Ukraine/sanctions and the US will have ISIS/Saudi-oil-price turkeys coming home to roost. Syriza is the mouse preparing to roar... with a dragon and a bear rampant behind it.

Siouxrose11
1d

A captured media is a media that pushes narratives amenable to the goals and game plans of the 1%.

Often, these elites sandwich people into impossible circumstances and then criticize their "choices."

A few examples come to mind:

1. Inner cities gutted of industry and good jobs lead to unemployment, despair, and black market style local economies. Public schools are part of this depressed "infrastructure," but then the Privateers rush in and claim that these schools have failed... (and along with them, blame teachers) rather than the wider truth:  that inner cities are this nation's (under Mars' rules) collateral damage (and/or sacrifice) zones.
2. Young poor women find it harder and harder to obtain birth control and in what to them are emergency cases, abortions. Instead of making sure that Family Planning is part of public health and appropriate resources made available, women searching for reproductive sovereignty are being blamed for their moral laxity and/or life "choices."
3. The Shock Doctrine's religious corollary - promoted as an End Times view of the future - leads many people into doing little to ensure against Global Warming's catastrophic shocks in coming years. Conditioned to think that destruction is God's will, faithful followers flock to congregations that give them hope for an After Life in a manner that befits earlier church melded with state eras where Indulgences (guaranteed spots in heaven) were sold to the deep pocketed faithful.

Lies are to mass communication what bio-tech fraudulent substances are to agriculture. Both are being disseminated in such mad rushes as to taint the currencies of nutrition along with "food for thought."

Those who control the narrative, control MUCH in the way of human behavior, belief, expectation and realm of the considered possible.




WalterJSmith
16h

That is an excellent complement to the article, thank you, Siouxrose.

Cassidy is an economist. Often better than most, yet, as almost every economist, devoid of any comprehension of authrity. Who is not devoid of any understanding of authority? The US political and economic bosses violate their nominal authority routinely, and their official authority as if it were expected of them. Cassidy is not an independent economist. He answers, as does the New Yorker staff, to Conde Nast, another viciously war-against-nature vulture capital enterprise. Like Halliburton. So Cassidy said all the right things for his bosses. Sounds as if he has given up on maintaining any respect as an economics reporter.

Norcal
22h

I have read JK Galbraith and I am aware of James Galbraith’s general thoughts on economics and politics, so I’m inclined to believe the title of this piece. I recall being shocked by the seeming coordination of the Russian negativity during the Winter Olympics, with David Remnick often leading the way.

I unsubscribed from the "New Yorker" some time ago because I thought the “quality” had diminished.

Something truly Big Time is going on in international economics and politics, and I wish I knew what it was. BRICS is surely part of it.

Siouxrose11
20h

PETERNAMASTE

Let's see:

Uprising in Tunisia. Check.
Uprising in Hong Kong. Check.
Uprising (Indignados) in Spain. Check.
Uprising in Iceland. Check.
Uprising in Greece. Check.
Uprising in Egypt. Check.
Uprising in U.K. (street demonstrations) Check.
Uprising in U.S. (Occupy Wall St., Ferguson, the big climate event in NYC). Check.
Uprising in Chile (students). Check.
Uprising in Canada (Idle no more). Check.

This IS happening... and it is spreading like a contagious fire that the mercenary militaries obedient thus far to elites (who write their paychecks) are working to put out, fire by fire.

ccerr
19h

Siouxrose11

Add:  War in multiple African nations. War all over the Middle East. War in Ukraine. War on China, Myanamar border. The common point is our MIC is in the middle of all of them overtly and covertly. Our biggest export is arms. And mayhem.

WalterJSmith
16h

Siouxrose11

That is an excellent complement to the article, thank you, Siouxrose.

Cassidy is an economist. Often better than most, yet, as almost every economist, devoid of any comprehension of authrity. Who is not devoid of any understanding of authority? The US political and economic bosses violate their nominal authority routinely, and their official authority as if it were expected of them. Cassidy is not an independent economist. He answers, as does the New Yorker staff, to Conde Nast, another viciously war-against-nature vulture capital enterprise. Like Halliburton. So Cassidy said all the right things for his bosses. Sounds as if he has given up on maintaining any respect as an economics reporter.

Briansz
10h

The new Greek government and the Greek population would do well to read about how Ecuador and their president Raphael Corréa challenged their illegitimate depts that foreign banks and investors have burdened their country and population with.

Max Keiser fills us in even more on what this deal portends:

http://rt.com/shows/keiser-report/235387-episode-724-max-keiser/

← JPMorgan, Still On 2-Year Probation, Under Scrutiny in Gold Fixing Probe

What Dodd-Frank Didn’t Fix:  The Worst Conflicts on Wall Street

By Pam Martens and Russ Martens: February 25, 2015

Mary Jo White, Testifying at Her Confirmation Hearing for SEC Chair on March 12, 2013; Her Husband, John W. White, Partner at Cravath, Swaine & Moore, Sits to Her Left

Two major stories have broken this week showing how little has actually changed under the much heralded financial reform legislation known as Dodd-Frank. That legislation was enacted in 2010 with the promise of ending the unchecked corruption, conflicts of interest and casino capitalism that crashed the U.S. financial system in 2008, leading to the largest taxpayer bailout in the nation’s history.

Yesterday, in a front page article, the "New York Times" used data to back up the withering conflicts of interests of SEC Chair Mary Jo White – the same conflicts that Wall Street On Parade reported two years ago. (See related articles below.)

The "Times" reported that because Mary Jo White had worked for a major Wall Street powerhouse law firm immediately preceding her term at the SEC, representing major Wall Street firms like JPMorgan Chase, she had recused herself at least 48 times on cases involving either her former law firm or clients she directly represented.

Then comes the less than credible part of the "Times" story. The reporters write:  “But in a surprising twist, Ms. White will have to keep sitting out cases that involve her husband’s firm, Cravath, Swaine & Moore. So far, she has had to recuse herself from at least 10 investigations into clients of Cravath, interviews and records show, including some that came before Ms. White joined the agency and at least four that involved Mr. White himself.”

“Surprising twist”? This is what Wall Street On Parade reported in 2013:

“The conflicts of White, a law partner at one of Wall Street’s favorite go-to firms, Debevoise & Plimpton, and those of her husband, John White, also a partner at a Wall Street law firm, are legion. Between White and her husband, they represent every too-big-to-fail firm on Wall Street. (Under ethics laws for members of the Executive branch, the conflicts of interest of White’s spouse become her conflicts of interest. And he will remain in his job.)…

“Even if Mary Jo White is retiring from representing Wall Street clients, what happens when she sits down for dinner with her husband, John White, who continues to represent Wall Street clients. Does she say: ‘Oh by the way, honey, I’m sorry I had to prosecute your best client today; the one that provides a big part of your billable hours.’ How does John White explain to his colleagues at his law firm that his wife is prosecuting their biggest revenue clients. Why would Mary Jo White, who earns a huge salary at her law firm, want to be put in that position in order to head the SEC?”

This morning, "Bloomberg News" is running a headline that reads: “Lure of Wall Street Cash Said to Skew Credit Ratings.” Again, the less than credible part of this headline is “Said to.” The Financial Crisis Inquiry Commission intensely investigated the role of the credit rating agencies in the 2008 financial collapse and reported as follows:

“We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction. The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their down-grades through 2007 and 2008 wreaked havoc across markets and firms.

“In our report, you will read about the breakdowns at Moody’s, examined by the Commission as a case study. From 2000 to 2007, Moody’s rated nearly 45,000 mortgage-related securities as triple-A. This compares with six private-sector companies in the United States that carried this coveted rating in early 2010.

In 2006 alone, Moody’s put its triple-A stamp of approval on 30 mortgage-related securities every working day. The results were disastrous: 83% of the mortgage securities rated triple-A that year ultimately were downgraded. You will also read about the forces at work behind the breakdowns at Moody’s, including the flawed computer models, the pressure from financial firms that paid for the ratings, the relentless drive for market share, the lack of resources to do the job despite record profits, and the absence of meaningful public oversight. And you will see that without the active participation of the rating agencies, the market for mortgage-related securities could not have been what it became.”

It becomes clearer everyday that the only thing that is going to bring material reform to Wall Street is, tragically, another crash in the U.S. financial system and devastating economic losses to the hardworking families who believe that Congress actually reformed the system in 2010 with Dodd-Frank.

The Whites Go to the SEC:  Why Wall Street Still Owns Washington 
The Extremely Strange History of SEC Nominee, Mary Jo White

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