Europe's inverted socialism

And most Northern Europeans also seem to believe that the bailouts have gone to lazy Southern Europeans. In fact, their purpose has been to shore up the fragile Northern European financial systems. German banks are among the weakest in Europe; some of them (especially the state-owned landesbanks) are effectively bankrupt. If they were forced to mark down their Southern European debt, they might well collapse in a heap, and the European financial system could grind to a halt. Just as in the United States, the real impact of the European bailout has been to shore up the continent’s banks – not to help the continent’s debtors. The recent downgrading of two of France’s most important banks, due to their holdings of Greek debt, reminds us of how exposed Northern Europe’s financial systems remain. And rumors of a recent IMF report that European banks are over $270 billion short of the capital they need to confront their current problems served to drive the point home.

- Jeffry Frieden, "Europe's Lehman moment"

Europe's financial problems have escalated to the point where a world-wide contagion has become again possible.  Economists and international leaders are sounding alarms that have rarely been spoken in unison, since the inception of the 2008 financial crisis.  Christine Lagarde, the managing director of the International Monetary Fund, said "We have entered into a dangerous phase of the crisis." Her words come at a point where the Greek debt crisis appears to be reaching its climax.  Moody's Investors Service downgraded two of France's top banks, Societe Generale and Credit Agricole, stating that it had concerns about the two banks funding and liquidity profiles, due to their exposure to Greek debt.  A recent analysis indicates that 43 large European banks hold debt in the PIIGS equivalent to 65% of the book value of those institutions. Gretchen Morgenson of the NY Times explains the current situation:

Some of these [European] banks are growing desperate for dollars. Fearing the worst, investors are pulling back, refusing to roll over the banks’ commercial paper, those short-term i.o.u.’s that are the lifeblood of commerce. Others are refusing to renew certificates of deposit. European banks need this money, in dollars, to extend loans to American companies and to pay their own debts.  

As a result several central banks have mounted a coordinated effort to inject US dollars into the financial system to stimulate market confidence.  The Guardian newspaper elaborates:

The Bank of England joined the US Federal Reserve, the European Central Bank, the Swiss National Bank and the Bank of Japan on Thursday to announce that they would flood money markets with dollars over the coming months.

Gus Faucher, director of macroeconomics at Moody's Analytics, states "The big question is: is this enough in the short term to get us to a longer term solution? There is a potential for a really huge financial crisis in Europe. Things are bad now, but they could get a lot worse."

Many observers are looking at the current European situation and seeing similarities between Lehman Brothers demise and the 2008 crisis.

Adding to the peril is that these banks are funded primarily by short-term investors, like buyers of commercial paper, rather than by depositors, as is more often the case with American banks. This was the same problem faced by Bear Stearns and Lehman Brothers, which collapsed after short-term lenders fled in panic.

Economist Barry Eichengreen says that, "The euro’s survival and, indeed, that of the European Union hang in the balance."  He says long term proposals on restructuring Europe's sovereign debts are not of immediate concern, rather the continent needs to act decisively in stabilizing its banks.  The European Financial Stabilty Facility (EFSF) and even the IMF should be used to re-capitalize Europe's weak banks.  The second move should be to give Greece sufficient room to maneuver by asking its creditors to relax its fiscal targets.  Third, governments need to end this futile dalliance with austerity and proceed with stimulus projects that would create real growth.  He states, "Without growth, tax revenues will remain stagnant, and the capacity to service debts will continue to erode. Social stability, similarly, depends on it."

Economist Paul Krugman at the beginning of this week had some serious words for European governments.  He states, "We’re not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer"  Likewise, he is telling Europe to use the ECB to continue buying up Spanish and Italian debt to contain the risk of default. The moral argument for inaction or worst punishing Europe's peripheral nations and the Mediterranean nations of Spain and Italy, will drive the continent -if not the world- into another economic abyss.

The reality is Greece's debt problems have been growing and not diminishing over the past two years.  The country is not in any position today or in any foreseeable future to repay the totality of its debt.  Under the current regime imposed on the country, Simon Johnson a former IMF chief economist concludes that "The tax revenue needed to service [the Greek] debt would burden businesses and households for decades – enterprising and productive people will move their fortunes and their futures elsewhere in the euro area or to the United States." Throwing billions of dollars at the nation, only to prop up banks in the northern economies of Europe and hoping that the situation will be resolved at a later date, has now been shown to be an unfeasible and irresponsible position.  Europe needs to first stabilize its banking sector immediately and then proceed in an orderly default of Greece's debt. An unorderly default will plunge the entire Eurozone into chaos.  Spain and Italy will face unprecedented pressure, whereas the remaining nations of Portugal, Ireland, and Greece may well face economic collapse.

Matt Taibbi explains the Financial sector's hold on Democrats

I personally think the reason Rick Sanchez got cut from CNN was that he rubbed some of the MSM top honchos the wrong way during his time at the anchor desk.  Populism is fine for the plutocrats when it works to their advantage, as in the case of the ignorant and deranged Tea Party advocates.  However, when discussions of the collusion between those at the top of the economic pyramid (i.e. the banks) and government officials begin, which leads to the magnification of the nexus of institutional corruption, the grand-poobahs get antsy. 

Consider the above video with Sanchez and Rolling Stone magazine contributor and author Matt Taibbi, where the discussion veers into understanding the basis of the 2009 financial sector bailout pursued by the Obama administration. In it, Sanchez makes the connection that Washington DC is effectively corporate controlled territory. He notes that Goldman Sachs and other bankers wield inordinate levels of power over the legislative and executive branches and control the system through campaign contributions to both parties and the installation of their people into key government portfolios. There was no requirement for Obama to bring people like Larry Summers, who had been an architect of the deregulatory fiasco of the 1990's that lead to this current economic malaise, into the fold.  There was no requirement to appoint Tim Geithner as Secretary of the Treasury or to re-appoint Ben Bernanke, other than it appeased the poobahs on Wall Street.

For all the talk of change, the Obama administration made sure that corporate America knew that the new sheriff in town was going to be the same as the old one.  They let it be known that "Greed was still good," and regardless of how the economy reacted, all the merry sociopaths, looking down at us little people from the glass towers in the Financial District, would still get all their bonuses that would allow them to feed their insatiable want for coke, hookers, and good times.

All this nonsensical talk that Obama is somehow a socialist is the musings of truly stupid people.  The facts are plain to see that this administration is not terribly different than any of its Republican or Democratic predecessors.  The facts are also clear that it is the greedheads at the top of the financial food chain who have been the winners for the past 30 years.  When the next economic calamity arises in the near future, we'll see who gets saved again and who the ignorant masses will blame for it.

Corporate Socialism: Agribusiness Subsidies

Despite the loud and perennial denunciations of creeping socialism by right-wing protesters, for decades American agribusinesses have been receiving prodigious and what some would call obscene levels of subsidisation through legislative machinations. This is a bi-partisan effort, pursued by both Democrats and Republicans and executed across all regions of the nation, and meant to insure excess revenue for already large and very profitable corporations. In fact, agribusiness, after the military-industrial complex and most recently the bailed out banking industry, is the nation's largest recipient of corporate welfare. The implications are not trivial for they entail not just the gross misuse of public money, but result in excessive taxes levied on individual citizens, unfair competition for small farmers, and the nation's food supply and production being placed under the control of multi-national companies seeking less regulation, cheap labor, and ever larger annual profits.

These bills are sold to the public under labels like the "Farm Security Act" and the "Agriculture Conservation and Rural Enhancement Act" and are subject to heavy lobbing efforts. Despite the claim that these bills are meant to improve the status of rural family farmers, the reality is much different. According to the conservative Heritage Foundation,

two-thirds of all farm subsidies go to the top 10 percent of subsidy recipients while the bottom 80 percent of recipients receive less than one-sixth of farm subsidies. A full 60 percent of America's farmers do not qualify for any assistance. In 2000 alone, more than 57,500 farms received subsidies totaling over $100,000, and subsidies of at least 154 farms topped $1 million. Among these beneficiaries are fifteen Fortune 500 companies, including Westvaco, Chevron, and John Hancock Mutual Life Insurance, which receive as much as 58 times as much as the median annual subsidy of $935.

In what is described as a "plantation effect," family farms across the country are being bought out by corporations, which are converted into tenant farms. According to available statistics, 75% of the nation's rice farms are tenant farms and the ownership of other monoculture based farms is trending in the same direction.

The US is not alone in its trade protectionist and 'free trade' charade. The video above by Nobel Prize winning economist Joesph Stiglitz, provides a sliver of the hypocrisy conducted by all the major economic powers relating to farm subsidies. The EU as an example, provides "13 billion euros, about a quarter of the £47.5 billion spent under the EU's Common Agriculture Policy (CAP)... to big business and industry, not farmers." The Economist magazine evaluates the overall situation in the industrial world as of 2008:

The OECD estimates that its member countries spent $265 billion on farm subsidies in 2008. This was slightly more than a fifth of their farmers’ total earnings. Last year’s increase in food prices ensured that such payments were at their lowest level since records began in the mid-1980s. But handouts still made up more than three-fifths of farmers’ gross incomes in Norway and South Korea between 2006 and 2008. In contrast, they were less than 1% of farm incomes in New Zealand and under 10% in both Australia and America. But the size of America’s farm sector meant that it spent $23.3 billion on subsidies last year. The European Union was by far the biggest subsidiser, forking out $150.4 billion.

Agricultural practices conducted by corporate plantations and food conglomerates as portrayed in the recent documentary Food Inc., "are endangering health, allowing appalling cruelty to livestock and putting the food supply in a dangerously vulnerable position." For example, the number one subsidised crop in America is corn. In particular,

Corn syrup... is an ingredient in high-calorie, low-nutrition junk foods that have created the obesity epidemic. Corn is stuffed into animals that were not evolved to eat it, promoting the evolution of E. coli bacteria and requiring antibiotics that are passed on to unwitting consumers. Given that one fast-food hamburger may involve meat from literally thousands of cattle, the effects are inescapable.

Under the guise of providing supplemental income to family farmers, the US government has allowed corporatized feudalism to become the 'norm' in the agricultural industry and permitted the domestic population to become subservient to the rapacity of these multi-nationals, without a single bullet or invasion occurring. As always, beneficial socialism for the wealthy and fuck-you-very-much capitalism and for the rest of us.