Friday, February 24, 2012
Warning: This is a very long post but a very important one to read...
** To break up a potentially long read, we have injected photos of butterflies, both because they are lovely to look at and they symbolize 're-birth' which is the grande theme of this post. We talk of Greece trying to prevent default... if it was a caterpillar, it would be like trying to prevent chrysalis.
So we begin..
There are two ways a corporation or nation defaults..
1) The corporation or nation openly declares bankruptcy
2) The corporation or nation does everything humanly possible to avoid it but powerful forces behind the scenes ensures it happens to their benefit
Greece should have taken option #1, for revenge sake
Instead in spite of public pronouncements and agreements to the contrary, they are being forced into option #2, and to be honest, we are unsure if the Greek leadership, much less the people even know or understand this...
We at A&G have done much research and have written extensively on this topic, not because our focus is usually Greek concerns or possess any ethnic or emotional ties to the country. We cover it because we see the default at minimum as the first 'Victory' in the war against banking and finance; the first Real and Genuine pain the financial elites will feel since September, 2008.
And when it comes, it will be long overdue.
As we said previously, we've done much study and there are two questions we couldn't fully understand in this geopolitical chess game- 1) Why was an agreement made in Brussels on Sunday night when many of the involved parties truly want Greece to default and be gone from the euro?, and 2) What role is the US playing, especially financially in this kabuki, especially since everyone knows the US bails out the world?
After reading an array of sources, we feel we finally have a much better understanding of the complex theater being enacted before our eyes and can piece together a timeline as to what has happened recently and what is going to occur over the next four weeks (Greece must pay its next installment of debts by March 20th- that is not a flexible date)
On Monday, January 16th, Presidential staff and Fed advisers convened with a dozen or more top Wall Street bankers. Its purpose was to brief a select group on the White House and Geithner approved operation to amputate the eurozone’s obviously gangrenous Greek leg.
Just 24 hours later, a remarkable undercover bailout slush fund was set up for the use of the ECB under Mario Draghi. On that day, the financial website Wealth Wire posted a piece suggesting the Fed was ‘up to something mysterious', and Jonathon Trugman of the New York Post’s financial desk wrote this: ‘Essentially, we just bailed out Europe’s banking system with the full faith and credit of the United States’.
Subsequently, a former Fed official told the Wall Street Journal that the Reserve was indeed bailing out Europe by operating in the shadows – aka a loan masquerading as a currency swap.
Former Vice President of the Federal Reserve bank of Dallas, Gerald O’Driscoll told the Journal:
“The Fed is using what is termed a “temporary U.S. dollar liquidity swap arrangement” with the European Central Bank (ECB). Simply put, the Fed trades or “swaps” dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.
The two central banks [ECB and US] are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.”
Well, swap or loan, it all went into the eurobank prop-up operation. During the period following that transfer, the ECB lent $483bn in various amounts to just over 500 banks in the eurozone.
So let's stop here and refresh what's happened so far- US taxpayer $$ has been used once again to bailout Europe's banks and financial institutions. If you ever wonder how the US has so much pull and sway in the UN and in economic, military and geopolitical affairs, perhaps this type of 'deal' answers it.
That swap i.e. 'loan' deal was outlined to the key Wall St players on January 16th. In a nutshell, it was “We bale out the eurobanks for Mario, and in return they [the EU States] build a firewall around Greece”. It was the start of what became known as ‘amputate and cauterise’. Goldman Sachs played a pivotal role in the session.
The US view is this: Greece must default outside the euro, and become a leper. Secretary Geithner thinks the Europeans don’t have the money to make the banks ultra-safe…and that means an immediate contagion blowback to the US, with disastrous consequences. (It also means Obama's re-election chances are severely hindered if the US experiences anything close to another 'Lehman')
So we, the US, must covertly help the ECB render the eurobanks safe – and in return, they need to step up to the plate by leveraging whatever firepower they need to ensure the whole mess stops at Greece.
The key players at this meeting were Timothy Geithner, Goldman Sachs' Lloyd Blankfein, a tight group of White House Obamites, Ben Bernanke (at “a safe distance”), Mario Draghi, and IMF boss Christine Lagarde. The President as well as Secretary of State, Hillary Clinton were fully aware of the meeting but neither attended.
As a consequence, from this point onwards Christine Lagarde began to play serious hardball about the need for a massive firewall investment by EU member States. Concurrently, Secretary Clinton applied every ounce of available pressure to the Sino-Japanese credit line as a potential further source of bricks in the wall.
Clinton’s State Department seems to have had some degree of success. Less so Lagarde: she has come up hard against Berlin’s refusal to expose Germany further.
The view in the Fed and Washington is that the Europeans are welching on the deal which is peculiar since really they never had Berlin on board in the first place. Germany does not want to expose themselves to even greater debt, and recently their legislative body enacted legislation prohibiting it. At the recent G-20 meeting, Lagarde has threatened to pull funding for the Greek bailout unless the IMF gets their way and a 750bil euro firewall is created.
So that's were things stand today, February 24th. Everyone wants a Greek default except for the 'chess piece' in the game that should have wanted it all along, and thus now is reduced its significance to that of scapegoat 'pawn' -- Greece.
And in case you think we didn't provide enough evidence to explain why Greece will be defaulting soon (even if it doesn't want to), here's a few more reasons:
* The credit rating agency S&P today joined Fitch and Credit Suisse in seeing the Greek Bailout as akin to 'default'. From appearances, it seems all will call default one second after the bond swap officially takes place. Whether that triggers CDS (credit default swaps) remains to be seen...
* The Greek consitutional change demanded by the Troika (to hierachise debt before other expenditure) will not be possible by the Greek bailout closure date. And they knew that all along.
* European creditor countries are demanding 38 specific changes in Greek tax, spending and wage policies by the end of this month and have laid out extra reforms that amount to micromanaging the country’s government for two years, according to the Financial Times. There is no way the Greeks will stand for that either. The program is being set up to fail, as many of these conditions will be impossible to achieve
* In an interview with the Wall Street Journal, Mario Draghi’s support for the deal remains understated bordering on tepid: he suggested that the sceptical market response to Tuesday’s rescue deal suggested many doubted Athens would follow through on a promised austerity cure. “It’s hard to say if the crisis is over,” he warned.
* Commerzbank AG Chief Executive Martin Blessing yesterday said of the Brussels deal, “The participation in the haircut is as voluntary as a confession during the Spanish Inquisition”.
In summary: If Greece does not default by March 20th, it will be an outright shock to A&G since so many major players in the secret contagion 'game' are working very hard behind the scenes to make sure it does happens. The goal is to cut off the financial bleeding at Greece before spreading to bigger and more important nations that require too much funding to bail, and because many believe they will be insulated by any financial blowback, thus the potential for a financial tsunami turning into a ripple.
We believe they are wrong on both accounts.